Understanding Marketing Management PDF

BM2207 UNDERSTANDING MARKETING MANAGEMENT The Value of Marketing (Kotler, Keller, Ang, Leong, & Tan, 2018) In an Internet-fueled environment where consumers, competition...

BM2207 UNDERSTANDING MARKETING MANAGEMENT The Value of Marketing (Kotler, Keller, Ang, Leong, & Tan, 2018) In an Internet-fueled environment where consumers, competition, technology, and economic forces change rapidly, and consequences quickly multiply, marketers must choose features, prices, and markets and decide how much to spend on advertising, sales, and online and mobile marketing. The New Consumer Capabilities A substantial increase in buying power. Buyers today are only a click away from comparing competitor prices and product attributes. They can get answers on the Internet in a matter of seconds. They do not need to drive to stores, park, wait in line, and hold discussions with salespeople. Consumers have more access to alternatives A greater variety of available goods and services. Today, a person can order almost anything online. Furthermore, buyers can order these goods from anywhere globally, which helps people living in countries with very limited local offerings achieve great savings. It also means buyers in countries with high processes can reduce costs by ordering in countries with lower prices. A great amount of information about practically anything. People can read almost any newspaper in any language from anywhere in the world. They can access online encyclopedias, dictionaries, medical information, movie ratings, consumer reports, and countless other information sources. Greater ease in interacting and placing and receiving orders. Today’s buyers can place orders from home, office, or mobile phones 24 hours a day, seven (7) days a week, and the orders will be delivered to their home or office quickly. An ability to compare notes on products and services. Today’s customers can enter a chat room centered on some area of common interest and exchange information and opinions. Definitions of Marketing (Kotler, Keller, Ang, Leong, & Tan, 2018) Over the years, marketing a product or service evolved in various ways and strategies. Along with it, the definition and meaning of marketing change according to the views of different marketing experts based on their personal or professional experiences. Dr. Philip Kotler, an American marketing author, is referred to as “The Father of Marketing.” He defined marketing as “a social and managerial process whereby individuals and groups obtain what they have and wish through creating and exchanging products and value with others.” It may be interpreted as the meeting of the minds between the vendor and the buyer to satisfy human needs and desires, with profit on the part of the marketer and, therefore, the customer's satisfaction with the desired merchandise or service. In another interpretation by the American Marketing Association (AMA), “marketing is an organizational function for creating, communicating, and delivering value to customers and managing customer relationships in ways which benefit the organization and its stakeholders.” The definition is an art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. From the academic point of view, Merriam-Webster defined marketing as, “the process or technique of promoting, selling, and distributing a product or service from producer to consumer.” A societal process that marketers must communicate the sustainable value of the merchandise or service to its target market. It's a critical business process for attracting customers to satisfy their needs and desires. 01 Handout 1 *Property of STI  [email protected] Page 1 of 12  BM2207 Marketing is “the process of satisfying customer needs profitably.” It involves understanding and meeting human and social needs, developing products to respond to this, providing and promoting customer value, and keeping them engaged. Example: When Google recognized that people needed to access information on the Internet more effectively and efficiently, it created a powerful search engine that organized and prioritized queries. When IKEA noticed that people wanted good furnishings at substantially lower prices, it created knockdown furniture. These two (2) firms demonstrated marketing savvy and turned personal or social needs into profitable business opportunities. The Importance of Marketing (Kotler, Keller, Ang, Leong, & Tan, 2018) In an era of the digital revolution that causes significant changes in the business environment, Firms must continuously refine and reform their boardroom understanding of the importance of marketing practices to increase their chances of sustainability and success. Marketers must clearly understand the key roles of Marketing. 1. Marketing builds demands for products and services. Marketing’s broader importance extends to society as a whole. It has helped introduce and win acceptance for new products that have eased or enriched people’s lives. It can inspire enhancements in existing products as marketers innovate to improve their position in the marketplace. 2. Marketing puts the customer at the center of the organization. In other words, to think as a ‘customer’. Peter Drucker, the management guru, confirms the importance of marketing and this customer focus: “The purpose of business is to create a customer. The business enterprise has two (2) basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.” So, much business success can be attributed to companies embracing marketing and understanding and winning customers through marketing. 3. Marketing helps business decisions. Marketing managers must decide what, when, how, and who to produce products or services for; how much to spend on advertising, sales, the Internet, or mobile marketing. They must make those decisions in an Internet-fueled environment where consumers, competition, technology, and economic forces change rapidly. The consequences of the marketer’s words and actions can quickly multiply. The Scope of Marketing (Kotler, Keller, Ang, Leong, & Tan, 2018) To become a successful marketer, you need to understand what is being marketed, who is the market, and how everything goes in the market. What is Marketed? Marketers must be skilled at stimulating customer demand level, timing, and composition to meet the firm’s objectives. Demand is the willingness and ability of buyers to purchase different quantities of a product or service, at different prices, during a specific period to meet their basic human requirements (needs) and wants. Marketers market 10 main categories: 1. Goods: Items that satisfy human wants and provide utility. Examples: Canned goods, frozen food products, cars, refrigerators, televisions, machines, and other mainstays of a modern economy. 2. Services: An act of assistance or work done for a client or customer. 01 Handout 1 *Property of STI  [email protected] Page 2 of 12  BM2207 Examples: work of airlines, hotels, car rental firms, barbers and beauticians, maintenance and repair people, and accountants, bankers, lawyers, engineers, doctors, software programmers, and management consultants. Many market offerings mix goods and services, such as a fast-food meal. 3. Events: The experiential marketing of a brand, service, or product through memorable experiences or promotional events. Examples: trade shows, artistic performances, and company anniversaries. Global sporting events such as the Olympics and the World Cup are promoted aggressively to companies and fans. Local events include craft fairs, bookstore readings, and farmer’s markets. 4. Experiences: Intentional activities which engage customers and create a real-life experience that will be remembered. Examples: Disneyland represents experiential marketing when customers visit a fairy kingdom or a pirate ship. There is also a market for customized experiences, such as spending a week on eco-tourism in remote natural habitats in Asia or learning about wildlife at the Singapore Night Safari. 5. People: To portray an ideal image to reach their target audience and ensure their relevance on what they are known or famous for. Examples: Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals often get help from marketers. Some people have done a masterful job marketing themselves—think of Korean idols Blackpink and BTS. 6. Places: To attract customers to visit a specific location to promote the business, make it stand out from rivals, attract customers, and generate brand awareness. Examples: “Malaysia—Truly Asia,” “Amazing Thailand,” “Hong Kong: Live It. Love It!” “Your Singapore,” Macau’s “A Heritage of Two Cultures,” and Taiwan’s “The Heart of Asia”, and “It’s More Fun in The Philippines.” 7. Properties: Properties are intangible ownership rights to either real property (real estate) or financial property (stocks and bonds). They are bought and sold, and these exchanges require marketing. Examples: Real estate agents work for property owners or sellers, buying and selling residential or commercial real estate. Investment companies and banks market securities to both institutional and individual investors. 8. Organizations: Companies spend money on corporate identity ads to build a strong, favorable, and unique image in the minds of their target public. Examples: Universities manage their school identity better and image via admission brochures and Twitter feeds. 9. Information: These are facts provided or learned about a situation, person, event, etc. Examples: Information is essentially what books, schools, and universities produce, market, and distribute at a price to parents, students, and communities. Firms make business decisions using information supplied by organizations like Thomson Reuters. 10. Ideas: A concept, principle, or mental suggestion is a possible course of action. Examples: Products and services are platforms for delivering some idea or benefit. Social marketers are busy promoting such ideas as “Say No to Drugs”, 01 Handout 1 *Property of STI  [email protected] Page 3 of 12  BM2207 “Exercise Daily”, and “Eat Healthy Food.” In Asia, governments often engage in social marketing. In Thailand, there is a campaign against driving when sleepy. Who Markets? A marketer is someone who seeks a response — attention, purchase, vote, donation — from another party, called the “prospect.” Marketers are skilled at stimulating demand for their products. They also seek to influence the level, timing, and composition of demand to meet the organization’s objectives. Eight (8) states of demand are possible: 1. Negative demand — Consumers dislike the product and may even pay to avoid it. 2. Nonexistent demand — Consumers may be unaware of or uninterested in the product. 3. Latent demand — Consumers may share a strong need that cannot be satisfied by an existing product. 4. Declining demand — Consumers begin to buy the product less frequently or not at all. 5. Irregular demand — Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis. 6. Full demand — Consumers are adequately buying all products put into the marketplace. 7. Overfull demand — More consumers would like to buy the product than can be satisfied. 8. Unwholesome demand — Consumers may be attracted to products that have undesirable social consequences. In each case, marketers must identify the demand state’s underlying cause(s) and determine a plan of action to shift demand to a more desired state. The Market Traditionally, a “market” was defined as an area or physical store where commercial activities or economic transactions are conducted. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (such as the housing or grain market). Five (5) basic markets and their connecting flows are shown in Figure 1 below. Manufacturers go to resource markets (raw material markets, labor markets, money markets), buy resources and turn them into goods and services, and sell finished products to intermediaries, who sell them to consumers. Consumers sell their labor and receive money with which they pay for goods and services. The government collects tax revenues to buy goods from a resource, manufacturer, and intermediary markets and uses these goods and services to provide public services. Each nation’s economy, and the global economy, consist of interacting sets of markets linked through exchange processes. 01 Handout 1 *Property of STI  [email protected] Page 4 of 12  BM2207 Figure 1. Structure of Flows in a Modern Exchange Economy Source: Marketing Management, 2018, p. 36 Marketers view sellers as the industry and use the term market to describe customer groups. They talk about need markets (the slimming-seeking market), product markets (the shoe market), demographic markets (the “millennium” youth market), geographic markets (the Chinese market), voter markets, labor markets, and donor markets. Figure 2. A Simple Marketing System Source: Marketing Management, 2018, p. 36 Figure 2 above shows how sellers and buyers are connected by four (4) flows. Sellers send goods and services and communications such as ads and direct mail to the market; in return, they receive money and information such as customer attitudes and sales data. The inner loop shows an exchange of money for goods and services. The outer loop shows an exchange of information. The For (4) Key Customer Markets Consumer It refers to the market where people purchase products or services for markets consumption that are not meant for further sale. This market is dominated by the products which consumers use in their daily life. Companies selling mass consumer goods and services such as juices, cosmetics, athletic shoes, and air travel establish a strong brand image by developing a superior product or service, ensuring its availability, and backing it with engaging communications and reliable performance. 01 Handout 1 *Property of STI  [email protected] Page 5 of 12  BM2207 Business It refers to the specific group or industry a company focuses on when trying to sell markets products and services. These audiences are often dictated by the kind of materials an organization deals with and the competition these businesses experience. Companies selling business goods and services often face well-informed professional buyers skilled at evaluating competitive offerings. Advertising and websites can play a role, but the sales force, the price, and the seller’s reputation may play a greater one. Global It refers to a market that spans national boundaries to encompass the entire world or markets nearly the entire world. It is the total of all the market activity that takes place worldwide. Companies in the global marketplace navigate cultural, language, legal, and political differences while deciding which countries to enter, how to enter each (as an exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer), how to adapt product and service features to each country, how to set prices, and how to communicate in different cultures. Nonprofit and It consists of nonprofit organizations like churches, universities, charitable Governmental organizations, or government agencies that buy goods and services for effective markets administration. Unlike business buyers, these organizations do not seek profits. Companies selling to nonprofit organizations with limited purchasing power, such as churches, universities, charitable organizations, and government agencies, must price carefully. Government purchasing requires bids; buyers often focus on practical solutions and favor the lowest bid, other things equal. Marketplaces, Marketspaces, and Metamarkets The marketplace is a physical location, as when you shop in a store to choose and pick any product. The marketspace is a digital version of a store, as when you shop on the Internet, that allows you the convenience to browse the product catalog even in the comfort of your home. The metamarkets is a combination of an intangible market such as the Internet, promoting closely related tangible or intangible products is known as a Meta market. Mohan Sawhney proposed the concept of a metamarket to describe a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries. The automobile metamarket consists of automobile manufacturers, new and used car dealers, financing companies, insurance companies, mechanics, spare parts dealers, service shops, auto magazines, classified auto ads in newspapers, and auto sites on the Internet. In purchasing a car, a buyer will get involved in many parts of this metamarket. This has created an opportunity for metamediaries to assist buyers in moving seamlessly through these groups. However, they are disconnected in physical space. Metamediaries can also serve other metamarkets, such as the homeownership market, the parenting and baby care market, and the wedding market. Core Marketing Concepts (Kotler, Keller, Ang, Leong, & Tan, 2018) Needs, Wants, Demands Needs are the basic human requirements such as air, food, water, clothing, and shelter. Humans also have strong needs for recreation, education, and entertainment. 01 Handout 1 *Property of STI  [email protected] Page 6 of 12  BM2207 These needs become wants when directed to specific objects that might satisfy the need. A Filipino consumer needs food but may prefer Jollibee fast-food meal. A person in South Korea needs food but may want spicy ramen. Our wants are shaped by society. Demands are wants for specific products backed by an ability to pay. All people need water to survive, but some may want clean, safe, and good-tasting water. Some would even want a vapor- distilled one like Smartwater. These distinctions shed light on the criticism that “marketers get people to buy things they do not want.” Marketers do not create needs: needs pre-exist marketers. Marketers might promote the idea that a Mercedes Benz satisfies a person’s need for social status. They do not, however, create the need for social status. Some customers have needs that they are not fully conscious of or cannot completely express or describe. Some customers might use words that require interpretation when they ask for a “powerful” fan or a “peaceful” hotel? The marketer must probe further by distinguishing among the five (5) types of needs: The five (5) types of needs: 1. Stated needs. (The customer wants an inexpensive car.) 2. Real needs (The customer wants a car whose operating cost, not initial price, is low.) 3. Unstated needs (The customer expects good service from the dealer.) 4. Delight needs (The customer would like the dealer to include an onboard GPS system.) 5. Secret needs (The customer wants friends to see him or her as a savvy consumer.) Responding only to the stated need may shortchange the customer. When they were first introduced, consumers did not know much about tablet computers, but Apple worked hard to shape consumer perceptions of them. To gain an edge, companies must help customers learn what they want. Target Markets, Positioning, and Segmentation Not everyone likes the same cereal, restaurant, school, or movie. Marketers, therefore, identify distinct segments of buyers by identifying demographic, psychographic, and behavioral differences between them. They then decide which segment(s) present the greatest opportunities. The firm develops a market offering for each target market that it positions in target buyers’ minds as delivering some key benefit(s). Volvo develops its cars for the buyer to whom safety is a major concern, positioning them as the safest a customer can buy. Porsche targets buyers who seek pleasure and excitement in driving and want to make a statement about their wheels. Offerings and brands Companies address customer needs by creating a value proposition, a set of benefits that satisfy those needs. The intangible value proposition is made physical by an offering that combines products, services, information, and experiences. A brand is an offering from a known source. A brand name such as Apple carries many kinds of associations in people’s minds that make up its image: creative, innovative, easy-to-use, fun, cool, iPod, iPhone, and iPad, to name just a few. All companies strive to build a brand image with as many strong, favorable, and unique brand associations as possible. The Four (4) Ps The four (4) Ps of marketing or the Marketing Mix have always been product, price, place, and promotion. However, due to the complexity and richness of marketing, the four (4) Ps were updated to reflect holistic marketing: 1. People reflect, in part, on internal marketing and the fact that employees are critical to marketing success. Marketing will only be as good as the people inside the organization. It also reflects that 01 Handout 1 *Property of STI  [email protected] Page 7 of 12  BM2207 marketers must view consumers as people to understand their lives more broadly, not just as shoppers who consume products and services. 2. Processes reflect all the creativity, discipline, and structure brought to marketing management. Marketers must avoid ad hoc planning and decision making and ensure that state-of-the-art marketing ideas and concepts play an appropriate role in all they do, including creating mutually beneficial long-term relationships and imaginatively generating insights and breakthrough products, services, and marketing activities. 3. Programs reflect all the firm’s consumer-directed activities. It encompasses the old/original four (4) Ps and a range of other marketing activities that might not fit neatly into the old view of marketing. Whether they are online or offline, traditional or nontraditional, these activities must be integrated. Their whole is greater than the sum of their parts, and they accomplish multiple objectives for the firm. 4. Performance. We define performance as holistic marketing to capture the range of possible outcome measures with financial and nonfinancial implications (profitability and brand and customer equity) and impacts beyond the company (social responsibility, legal, ethical, and the environment). Marketing channels The marketer uses three (3) kinds of marketing channels to reach a target market. Communication channels deliver and receive messages from target buyers, including newspapers, magazines, radio, television, mail, telephone, smartphone, billboards, posters, fliers, CDs, audiotapes, and the Internet. Beyond these, firms communicate through the look of their retail stores, websites, and other media, adding dialogue channels such as e-mail, blogs, text messages, and URLs to familiar monologue channels such as ads. Distribution channels help display, sell, or deliver the physical product or service(s) to the buyer or user. These channels may be direct via the Internet, mail, mobile phone, or telephone or indirect with distributors, wholesalers, retailers, and agents as intermediaries. The marketer also uses service channels to transact with potential buyers, including warehouses, transportation companies, banks, and insurance companies. Marketers face a design challenge in choosing the best mix of communication, distribution, and service channels for their offerings. Paid, owned, and earned media The rise of digital media gives marketers a host of new ways to interact with consumers and customers. We can group communication options into three (3) categories. Paid media include TV, magazine, display ads, paid search, and sponsorships, allowing marketers to show their ad or brand for a fee. Owned media are communication channels marketers own, like a company or brand brochure, Website, blog, Facebook page, or Twitter account. Earned media are streams in which consumers, the press, or other outsiders voluntarily communicate something about the brand via word of mouth, buzz, or viral marketing methods. Earned media has allowed some companies, such as Chipotle, to reduce paid media expenditures. Impressions and Engagement Marketers now think of three (3) “screens” or means to reach consumers: TV, Internet, and mobile. Surprisingly, the rise of digital options did not initially depress the amount of TV viewing, in part because, as one Nielsen study found, three (3) of five (5) consumers use two (2) screens at once. 01 Handout 1 *Property of STI  [email protected] Page 8 of 12  BM2207 Impressions, which occur when consumers view a communication, are a useful metric for tracking the scope or breadth of a communication’s reach that can also be compared across all communication types. The downside is that impressions do not provide any insight into the results of viewing the communication. Engagement is the extent of a customer’s attention and active involvement with a communication. It reflects a much more active response than a mere impression and is more likely to create value for the firm. Some online measures of engagement are Facebook “likes,” Twitter tweets, comments on a blog or Web site, and video or other content sharing. Engagement can extend to personal experiences that augment or transform a firm’s products and services. Value and Satisfaction The buyer chooses the offerings they perceive to deliver the most value, the sum of the tangible and intangible benefits and costs. Value, a central marketing concept, is primarily a combination of quality, service, and price (QSP), called the customer value triad. Value perceptions increase with quality and service but decrease with the price. We can think of marketing as identifying, creating, communicating, delivering, and monitoring customer value. Satisfaction reflects a person’s judgment of a product’s perceived performance to expectations. If performance falls short of expectations, the customer is disappointed. If it matches expectations, the customer is satisfied. If it exceeds them, the customer is delighted. Supply Chain The supply chain is a channel stretching from raw materials to components to finished products carried to final buyers. For example, the supply chain for coffee may start with Ethiopian farmers who plant, tend, and pick the coffee beans and sell their harvest. If sold through a Fair Trade cooperative, the coffee is washed, dried, and packaged for shipment by an Alternative Trading Organization (ATO) that pays a minimum of $1.26 a pound. The ATO transports the coffee to the developed world, selling it directly or via retail channels. Each company in the chain captures only a certain percentage of the total value generated by the supply chain’s value delivery system. When a company acquires competitors or expands upstream or downstream, it aims to capture a higher percentage of supply chain value. Problems with a supply chain can be damaging or even fatal for a business. When Johnson & Johnson ran into manufacturing problems with its consumer products unit (which makes Paracetamol and other products), it hired away from Bayer AG, a top executive known for her skill at fixing consumer and supply chain problems. Competition Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. An automobile manufacturer can buy steel from U.S. Steel in the United States, from a foreign firm in Japan or Korea, or a mini-mill at cost savings, or it can buy aluminum parts from Alcoa to reduce the car’s weight or engineered plastics from Saudi Basic Industries Corporation (SABIC) instead of steel. U.S. Steel is more likely to be hurt by substitute products than other integrated steel companies and would define its competition too narrowly if it did not recognize this. Marketing Environment The marketing environment consists of the task environment and the broad environment. The task environment includes the actors engaged in producing, distributing, and promoting the offering. These are the company, suppliers, distributors, dealers, and target customers. The supplier group includes material suppliers and service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies, transportation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers. 01 Handout 1 *Property of STI  [email protected] Page 9 of 12  BM2207 The broad environment consists of six (6) components: demographic environment economic environment social-cultural environment natural environment technological environment political-legal environment Marketers must pay close attention to the trends and developments and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity. Consider Pinterest, a visual bookmarking tool that let users collect and share images on digital scrapbooks or pinboards. Pinterest is one of the fastest-growing social media sites ever with more than 175 million monthly users, especially popular with women who account for 81% of their consumers who uses it for planning weddings, saving recipes, and designing kitchen upgrades. The New Marketing Realities (Kotler, Keller, Ang, Leong, & Tan, 2018) The marketplace is dramatically different from 10 years ago, with new marketing behaviors, opportunities, and challenges emerging. The session will focus on three (3) transformative forces: technology, globalization, and social responsibility. Technology The pace of change and the scale of technological achievement can be staggering. The number of mobile phones in India recently exceeded 500 million, Facebook’s monthly users passed one (1) billion, and more than half of African urban residents could access the Internet monthly. With the rapid rise of e-commerce, the mobile Internet, and Web penetration in emerging markets, the Boston Consulting Group believes brand marketers must enhance their “digital balance sheets.” Massive information and data about almost everything is now available to consumers and marketers. Technology research specialists Gartner predicts that by 2017, Chief Marketing Officers (CMOs) will spend more time on information technology (IT) than Chief Information Officers (CIOs). Aetna’s CMO and CIO have collaborated successfully for years, launching new products and services, including iTriage, a popular health app for the iPhone. With iTriage, users can research ailments, find nearby physicians, and learn about prescribed medicines. The old credo “information is power” gives way to the new idea that “sharing information is power.” Software giant SAP’s online community numbers more than two (2) million customers, partners, and others. Once a year, 100 are chosen to contribute ideas to product development. At the other end of the size spectrum, by running Facebook ads offering a free cut, shampoo, and hot towel treatment to new customers in exchange for name, phone number, e-mail address, and preferred social network, The Gent’s Place barbershop in Frisco, TX, has picked up 5,000 clients. Its average marketing cost for each was $10.13, which it quickly recoups from repeat purchases. Even traditional marketing activities are profoundly affected by technology. Drugmaker Roche decided to issue iPads to its entire sales team to improve sales force effectiveness. Though the company had a sophisticated customer relationship management (CRM) software system before, it still depended on sales reps to accurately input data in a timely fashion, which unfortunately did not always happen. With iPads, however, sales teams can do real-time data entry, improving the quality of the data entered while freeing up time for other tasks. 01 Handout 1 *Property of STI  [email protected] Page 10 of 12  BM2207 Globalization The world has become a smaller place. New transportation, shipping, and communication technologies have made it easier for us to know the rest of the world, travel, and buy and sell anywhere. By 2025, annual consumption in emerging markets will total $30 trillion and contribute more than 70 percent of global GDP growth. A staggering 56 percent of global financial services consumption is forecast to come from emerging markets by 2050, up from 18 percent in 2010. Demographic trends favor developing markets such as India, Pakistan, and Egypt, with a population whose median age is below 25. In terms of the growth of the middle class, defined as earning more than $3,000 per year, the Philippines, China, and Peru are the three (3) fastest-growing countries. Globalization has made countries increasingly multicultural. U.S. minorities have much economic clout, and their buying power is growing faster than the general population. According to the University of Georgia’s Terry College of Business minority buying report, the combined buying power of U.S. racial minorities (African Americans, Asians, and Native Americans) is projected to rise from $1.6 trillion in 2010 to $2.1 trillion in 2015, Accounting for 15 percent of the nation’s total. The buying power of U.S. Hispanics will rise from $1 trillion in 2010 to $1.5 trillion in 2015, nearly 11 percent of the nation’s total. One survey found that 87 percent of companies planned to increase or maintain multicultural media budgets. Globalization changes innovation and product development as companies take ideas and lessons from one country and apply them to another. After years of little success with its premium ultrasound scanners in the Chinese market, GE successfully developed a portable, ultra-low-cost version that addressed the country’s unique market needs. Later, it successfully sold the product throughout the developed world for use in ambulances and operating rooms where existing models were too big. Social Responsibility Poverty, pollution, water shortages, climate change, wars, and wealth concentration demand our attention. The private sector is taking some responsibility for improving living conditions, and firms worldwide have elevated the role of corporate social responsibility. Because marketing’s effects extend to society, marketers must consider their activities' ethical, environmental, legal, and social context. The organization’s task is thus to determine the needs, wants, and interests of target markets and satisfy them more effectively and efficiently than competitors while preserving or enhancing consumers’ and society’s long-term well-being. Marketing Plan Outline I. Objectives of the Marketing Aspect Identifies and outlines key financial and marketing objectives; Must be SMART (Specific, Measurable, Attainable, Reliable, and Time-bound) II. Industry Analysis This contains background data on sales, total market, key players, channels, and forces in the macro- environment. Use of SWOT analysis Strategy-making must be well-matched to both: a firm’s resource strengths and weaknesses and a firm’s best market opportunities and external threats to its well-being. 01 Handout 1 *Property of STI  [email protected] Page 11 of 12  BM2207 III. Environmental Analysis Political Factors: a set of government regulations that provide guidelines for business operations. Managers take into consideration national politics and international politics that can also affect your business environment. Economic Factors: include all the important data of both market and economy Social Factors: may pertain to family size, income level, buying behavior, disposable income level, attitude towards saving, and investment Technological Factors: may pertain to how rapidly technology changes, budget allocated tor research and development, basic and communication infrastructure, automation process, and/or incentives. Legal Factors: Legal factors affect businesses if they failed to comply with all current and impending regulations and legislation. Companies must identify and analyze legal issues for all those countries they are operating. Regulatory bodies are responsible for regulating the business environment in a country. Organizations must comply with these regulations. Otherwise, these regulations will affect businesses negatively. IV. Market Analysis Identifies target segments, needs, and market offerings; Includes product positioning. V. The Marketing Program It must contain actual marketing programs derived from the marketing strategy. It must answer the following questions: What will be done? When will it be done? Who will do it? How much is the cost? References American Marketing Association (2017) Definitions of Marketing. https://www.ama.org/the-definition-of- marketing-what-is-marketing Hanson, G. (2022) What is Global market? https://www.smartcapitalmind.com/what-is-a-global-market.htm Kotler, P., Keller, K. L., Ang, P. S., Leong, S. M., & Tan, C. T. (2018). Marketing Management: Asian Perspective 7th Edition. Pearson Education Limited. Kotler, P., Keller, K. L., Brady M., Goodman, M., Hansen T. (2019). Marketing Management 4th European Edition. Peason Education Limited. MBA Skool Team (2021) Consumer Market. https://www.mbaskool.com/business-concepts/marketing-and- strategy-terms/12993-consumer-markets.html Merriam-Webster. (2022). Marketing. https://www.merriam-webster.com/dictionary/marketing Sidharta (2006) New Consumer Capabilities. https://www.citeman.com/1242-new-consumer- capabilities.html 01 Handout 1 *Property of STI  [email protected] Page 12 of 12  BM2207 BUILDING CUSTOMER SATISFACTION AND VALUE Bases for Segmenting Customer Markets (Kotler, Keller, M., M., & T., 2019) Segmentation, targeting, and positioning are also known as the “STP” of marketing. Firms cannot connect with all customers in large, broad, or diverse markets. They need to identify the market segments they can serve effectively. This decision requires a keen understanding of consumer behavior and careful thinking about what makes each segment unique and different. Identifying and uniquely satisfying the right market segments are often the key to marketing success. Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer's task is to identify market segments' appropriate number and nature and decide which one(s) to target. We use two (2) broad groups of variables to segment consumer markets: Some researchers define segments by looking at descriptive characteristics (geographic, demographic, psychographic) and asking whether these segments exhibit different needs or product responses. For example, they might examine the differing attitudes of "professionals," “blue collars,” and other groups toward, say, “safety” as a product benefit. Other researchers define segments by looking at behavioral segmentation (consumer responses to benefits, usage occasions, or brands) and then seeing whether different characteristics are associated with each consumer response segment. For example, do people who want “quality” rather than “low price” in automobiles differ in geographic, demographic, and/or psychographic makeup? Descriptive Characteristics A. Geographic Segmentation Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or a few areas or all but pay attention to local variations. In that way, it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, and even individual stores. In a growing trend called “grassroots marketing,” marketers concentrate on making such activities as personally relevant to individual customers as possible. Examples: Much of Nike’s initial success came from engaging target consumers through grassroots marketing efforts such as sponsorship of local school teams, expert-conducted clinics, and providing shoes, clothing, and equipment to young athletes. Citibank provides different banking services in its branches, depending on neighborhood demographics. Retail firms such as Starbucks, Costco, and Trader Joe’s have all found great success emphasizing local marketing initiatives. Some approaches combine geographic data with demographic data to yield even more detailed descriptions of consumers and neighborhoods. Nielsen Claritas has developed a geoclustering approach called PRIZM (Potential Rating Index by Zip Markets) that classifies more than half a million residential neighborhoods into 14 distinct groups and 66 distinct lifestyle segments called PRIZM Clusters. 02 Handout 1 *Property of STI  [email protected] Page 1 of 7  BM2207 The groupings take into consideration 39 factors in five (5) broad categories: education and affluence family life cycle urbanization race and ethnicity mobility PRIZM has been used to answer questions such as: Which neighborhoods or zip codes contain our most valuable customers? How deeply have we already penetrated these segments? Which distribution channels and promotional media work best in reaching our target clusters in each area?. Marketing to microsegments has become possible even for small organizations as database costs decline, software becomes easier, and data integration increases. Going online to reach customers directly can open many local opportunities. Those who favor localized marketing see national advertising as wasteful because it is too “arm’s length” and fails to address local needs. Those against local marketing argue that it drives manufacturing and marketing costs by reducing economies of scale and magnifying logistical problems. A brand’s overall image might be diluted if the product and message are too different in different localities. B. Demographic Segmentation Demographic variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class are popular with marketers because they are often associated with consumer needs and wants. Another is that they are easy to measure. Even when we describe the target market in non-demographic terms (say, by personality type), we may need the link back to demographic characteristics to estimate the size of the market and the media we should use to reach it efficiently. 1. Age and Life-Cycle Stage The consumer wants, and abilities change with age and can be even more refined. Indirect age effects also operate for some products. Examples: Toothpaste brands such as Crest and Colgate offer three (3) main lines of products to target kids, adults, and older consumers. Pampers divides its market into prenatal, new baby (0–5 months), baby (6–12 months), toddler (13– 23 months), and preschooler (24 months+). McDonald’s segments by age and targets advertisements to different segments: the Ronald McDonald advertisements are directed at children; advertisements for a quick breakfast before work are aimed at adults. Nevertheless, age and life cycle can be tricky variables. The target market for some products may be psychologically young – for example, the Mini Cooper appeals to enthusiasts in several age groups. 2. Life Stage People’s life stage defines a person’s major concern, which presents opportunities to marketers who helps people cope with the accompanying decisions. 02 Handout 1 *Property of STI  [email protected] Page 2 of 7  BM2207 Examples: Someone is going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit, buying a new home, and so on. The growing proportion of retirees has created new market segments and requirements in existing markets, such as senior travel services. The trend toward single-adult households - the unmarried, divorced, widowed, or single-parent families - has prompted businesses to create foodstuffs that are marketed in small portions. The trend toward more working women has stimulated the market sectors for time-saving items such as microwave ovens, internet shopping, easy-to-prepare foods, and fast-food restaurants. The wedding industry attracts marketers who are keen to market to wedding guests as well as seeking to help newlyweds set up home 3. Gender Men and women have differences in how they perceive the market works. Gender-specific segmentation allows businesses to create products and services in areas where there may be more of a male or female specific demand. However, gender differences are shrinking in some other areas as men and women expand their roles. Based on research, women have traditionally tended to be more communal-minded and men are more self- expressive and goal-directed; women are use more comprehensive methods to reach decisions, whereas, men decide which aspects of a product matter most and eliminate products lacking those attributes. Examples: A Yahoo survey found that more than half of men identified themselves as the primary grocery shoppers in their households. A shopping research study found that men often need to be invited to touch a product, whereas women are likely to pick it up without prompting. Men usually like to read product information; women may relate to a product more personally. Marketers can now reach women more easily via media like Lifetime, Oxygen, and WE television networks and scores of women’s magazines and Websites; men are more easily found on ESPN and news channels and through magazines such as Maxim and Men’s Health. Procter & Gamble now designs ads with men in mind, such as Tide laundry detergents, Glade air fresheners, and Swiffer sweepers. 4. Income Income segmentation is a long-standing practice in automobiles, clothing, cosmetics, financial services, and travel. However, income does not always predict the best customers for a given product. Blue-collar workers were among the first purchasers of color television sets; buying a television was cheaper than going to movies and restaurants. Many marketers deliberately go after lower-income groups, sometimes discovering fewer competitive pressures or greater consumer loyalty. Examples: Procter & Gamble launched two (2) discount-priced brand extensions in 2005—Bounty Basic and Charmin Basic— which have met with some success. When Whirlpool launched a pricey Duet washer line, sales doubled their forecasts in a weak economy, due primarily to middle-class shoppers who traded up. Increasingly, companies find their markets are hourglass-shaped as middle-market consumers migrate toward discount and premium products. Companies that miss out on this new market risk steadily decline their market share. 5. Generation 02 Handout 1 *Property of STI  [email protected] Page 3 of 7  BM2207 Each generation is profoundly influenced by the times it grows up—the music, movies, politics, and defining events of that period. Members share major cultural, political, and economic experiences and often have similar outlooks and values. Marketers may choose to advertise to a group by using the icons and images prominent in their experiences. They can also try to develop products and services that uniquely meet a generational target's interests or needs. Here are some general observations about the four (4) main generation cohorts of consumers, from youngest to oldest. A. True Gen (Gen Z) From their earliest youth, they have been exposed to the Internet, social networks, and mobile systems. A hypercognitive generation is comfortable collecting and cross-referencing many information sources and integrating virtual and offline experiences. They believe profoundly in the efficacy of dialogue to solve conflicts and improve the world. They make decisions and relate to institutions in a highly analytical and pragmatic way. B. Millennials (or Gen Y) These are people born between 1979 and 1996. Also known as the Echo Boomers, “digital native” Millennials have been wired almost from birth — playing computer games, navigating the Internet, downloading music, and connecting with friends via texting and social media. They are much more likely to own multiple devices and multitask online, moving across mobile, social, and PC platforms. They are more likely to broadcast their thoughts and experiences online and contribute user-generated content. They tend to trust friends more than corporate sources of information. They may have a sense of entitlement and abundance from growing up during the economic boom and being pampered by their boomer parents. Millennials are also often highly socially conscious, concerned about environmental issues, and receptive to cause marketing efforts. Overt branding practices and hard sell often turn them off. Gen X They were born between 1964 and 1978. They bore an unflattering image of disaffection, short attention spans, and weak work ethic. They were certainly raised in more challenging times when working parents relied on daycare or left kids on their own after school, and corporate downsizing led to the threat of layoffs and economic uncertainty. They are more accepting of social and racial diversity. They were also the first generation to find surpassing their parents’ standard of living a serious challenge. As consumers, they are wary of hype and pitches that seem inauthentic or patronizing. Baby Boomers They are consumers born between 1946 and 1963. They represent a wealthy target, possessing trillion in annual spending power and controlling three-quarters of the country’s wealth. They search for products that can help them achieve youth. Baby Boomers are willing to change brands, spend on technology, use social networking sites, and purchase online. They love to buy things, but they hate being sold to. 02 Handout 1 *Property of STI  [email protected] Page 4 of 7  BM2207 Boomers are also less likely to associate retirement with “the beginning of the end” and see it as a new chapter in their lives with new activities, interests, careers, and even relationships. Silent Generation. Those born between 1925 and 1945. Older consumers do not mind seeing other older consumers in ads targeting them, as long as they appear to lead vibrant lives. Many older consumers happily spend time with their grandkids and often provide for their basic needs and at least occasional gifts. These customers are demanding but more willing to pay full price than their younger counterparts. C. Psychographic Segmentation Psychographics is the science of using psychology and demographics to understand consumers better. In psychographic segmentation, buyers are divided into groups based on psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. Behavioral Considerations In behavioral segmentation, marketers divide buyers into groups based on their knowledge of, attitude toward, use, or response to a product. Many marketers believe behavior variables are the best starting point for building market segments. A. Occasions: Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions when they develop a need, purchase a product, or use a product. For example, air travel is triggered by business, vacation, or family occasions. Occasion segmentation can help expand product usage. B. User Status: Every product has its non-users, ex-users, potential users, first-time users, and regular users. The key to attracting potential users, even non-users, is understanding why they are not using. Do they have deeply held attitudes, beliefs, or behaviors or just lack knowledge of the product or brand benefits? For example, Blood Banks cannot rely only on regular donors to supply blood; they must recruit new first- time donors and contact ex-donors, each with a different marketing strategy. C. Usage Rate: We can segment markets into light, medium, and heavy product users. Heavy users are often a small slice but account for a high percentage of total consumption. Marketers would rather attract one heavy user than several light users. However, the potential problem is that heavy users are often either extremely loyal to one brand or never loyal to any brand and always looking for the lowest price. They also may have less room to expand their purchase and consumption. Light users may be more responsive to new marketing appeals. D. Buyer-Readiness Stage: Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. For example, suppose a health agency wants to encourage women to have an annual Pap test to detect cervical cancer. In the beginning, most women may be unaware of the Pap test. The marketing effort should go into awareness-building advertising using a simple message. Later, the advertising should dramatize the benefits of the Pap test and the risks of not getting it. A special offer of a free health examination might motivate women to sign up for the test. E. Loyalty Status: A market can also be segmented by consumer loyalty. Consumers can be loyal to brands, stores, and companies. Buyers can be divided into groups according to their degree of loyalty. Some consumers are completely loyal—they buy one brand all the time and cannot wait to tell others about it. At 02 Handout 1 *Property of STI  [email protected] Page 5 of 7  BM2207 one end are the quietly satisfied Apple users, who own one or several Apple devices and use them for browsing, texting, email, and social networking. However, at the other extreme are the Apple zealots—the so-called MacHeads or Macolytes—who cannot wait to tell anyone within earshot of their latest Apple gadget. Such loyal Apple devotees are at the forefront of Apple’s massive iPhone, iPad, and iTunes empire. Market Targeting Once the firm has identified its market segment opportunities, it must decide how many to target. Marketers are increasingly combining several variables to identify smaller, better-defined target groups. Thus, a bank may not only identify a group of wealthy retired adults but also distinguish several segments depending on current income, assets, savings, and risk preferences within that group. This has led some market researchers to advocate a needs-based market segmentation approach. Roger Best proposed the seven-step approach shown below. Step 1: Group customers into segments based on similar needs and Needs-based Segmentation benefits sought by customers in solving a particular consumption problem. Step 2: For each needs-based segment, determine which demographics, Segmentation Identification lifestyles, and usage behaviors make the segment distinct and identifiable (actionable). Step 3: Using predetermined segment attractiveness criteria (such as Segment Attractiveness market growth, competitive intensity, and market access), determine the overall attractiveness of each segment. Step 4: Determine segment profitability. Segment Profitability Step5: Create a “value proposition” and product-price positioning strategy Segment Positioning based on that segment’s unique customer needs and characteristics for each segment. Step 6: Create “segment storyboard” to test the attractiveness of each Segment “Acid Test” segment’s positioning strategy. Step 7: Expand segment positioning strategy to include all aspects of the Marketing-Mix Strategy marketing mix: product, price, promotion, and place. Effective Segmentation Criteria Market segments must rate favorably on five (5) key criteria to be useful: Measurable. The size, purchasing power, and characteristics of the segments can be measured. Substantial. The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for people under four feet tall. Accessible. The segments can be effectively reached and served. Differentiable. The segments are conceptually distinguishable and respond differently to marketing mix elements and programs. If married and single women respond similarly to a sale on perfume, they do not constitute separate segments. Actionable. Effective programs can be formulated to attract and serve the segments. 02 Handout 1 *Property of STI  [email protected] Page 6 of 7  BM2207 Michael Porter has identified five (5) forces that determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers. The threats these forces pose are as follows: 1. Threat of intense segment rivalry — A segment is unattractive if it already contains numerous, strong, or aggressive competitors. It is even more unattractive if it is stable or declining if plant capacity must be added in large increments, fixed costs or exit barriers are high, or competitors have high stakes in staying in the segment. These conditions will lead to frequent price wars, advertising battles, and new product introductions, making competition expensive. Example: The mobile phone market has seen fierce competition due to segment rivalry. 2. Threat of new entrants — The most attractive segment is when entry barriers are high and exit barriers are low. Few new firms can enter the industry, and poorly performing firms can easily exit. When both entry and exit barriers are high, the profit potential is high, but firms face more risk because poorer-performing firms stay in and fight it out. When both entry and exit barriers are low, firms easily enter and leave the industry, and returns are stable but low. The worst case occurs when entry barriers are low and exit barriers are high: Here, firms enter during good times but find it hard to leave during bad times. The result is chronic overcapacity and depressed earnings for all. Example: The airline industry has low entry and high exit barriers, leaving all carriers struggling during economic downturns. 3. Threat of substitute products—A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and profits. If technology advances or competition increases in these substitute industries, prices and profits will likely fall. Example: Air travel has severely challenged Cebu Pacific Air and Philippine Airlines’ profitability. 4. Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or growing bargaining power. Buyers’ bargaining power grows when they become more concentrated or organized when the product represents a significant fraction of their costs, when the product is undifferentiated, when buyers’ switching costs are low, or when they can integrate upstream. To protect themselves, sellers might select buyers with the least power to negotiate or switch suppliers. A better defense is developing superior offers that strong buyers cannot refuse. Example: Online Travel Agencies like Booking, Traveloka, Agoda, and Airbnb offer competing prices to travelers. As a customer, you are bound to pick the offer that gets you a cheaper hotel price, better amenities, and quality service. 5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers can raise prices or reduce the quantity supplied. Suppliers tend to be powerful when they are concentrated or organized, when they can integrate downstream, when there are few substitutes, when the supplied product is an important input, and when the costs of switching suppliers are high. The best defenses are to build win-win relationships with suppliers or use multiple supply sources. Example: McDonald’s has exclusive contracts with Heinz and Coca-Cola as their official ketchup and beverage suppliers. These two (2) suppliers have more bargaining power because if they stop supplying products to McDonalds, the restaurant may lose money or be forced to change its strategy since these two (2) brands also attract brand-loyal customers. References Kotler, P., Keller, K. L, Ang S.W., Tan C.T., Leong S.W. (2018). Marketing Management 7th Edition: An Asian Perspective. Pearson Education Limited. Kotler, P., Keller, K.L., Brady M., Goodman, M., Hansen T. (2019). Marketing Management 4th European Edition. Peason Education Limited. 02 Handout 1 *Property of STI  [email protected] Page 7 of 7  BM2207 ANALYZING MARKETING OPPORTUNITIES What is Organizational Buying? Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose alternative brands and suppliers. Business Market The business market consists of all the organizations that acquire goods and services to produce other products or services sold, rented, or supplied to others. Any firm that supplies components for products is in the business- to-business marketplace. The major industries making up the business market are: aerospace computer construction finance agriculture construction transportation insurance forestry defense communication distribution fisheries energy public utilities service chemical mining banking Business marketers face many challenges as consumer marketers, especially understanding their customers and their value. The well-respected Institute for the Study of Business Markets (ISBM) notes that the three (3) biggest hurdles for Business-to-Business marketing are: (1) building stronger interfaces between marketing and sales; (2) building stronger innovation-marketing interfaces; and (3) extracting and leveraging more granular customer and market knowledge. Four (4) additional imperatives cited by ISBM are: (1) demonstrating marketing’s contribution to business performance (2) engaging more deeply with customers and their clients (3) finding the right mix of centralized versus decentralized marketing activities (4) finding and grooming marketing talent and competencies Business-to-Business (B2B) vs. Business-to_Consumers (B2C) Business marketers contrast sharply with consumer markets in the following ways: B2B B2C Multi-step purchasing Single-step purchasing 1. Professional Purchasing decision decision More people are involved in 2. Buying Influences Based on emotional decision buying decision 3. Closing deals Multiple sales calls Personal decision 4. Derived Demand Sells products or services to Sells products or services to companies individuals 5. Price Elasticity Inelastic Demand Inelastic Demand 6. Fluctuating Demand More Volatile Less Volatile 7. Target Market Few Market, Large Volume Large market, Few Volume Figure 1. Comparison Table of B2B vs. B2C Source: Marketing Management (4th European Edition.), 2019. p. 238 03 Handout 1 *Property of STI  [email protected] Page 1 of 4  BM2207 Business marketers contrast sharply with consumer markets in some ways. Professional purchasing. Business goods are often purchased by trained purchasing agents, who must follow their organizations’ purchasing policies, constraints, and requirements. For example, many business buying instruments— requests for quotations, proposals, and purchase contracts—are not typically found in consumer buying. Multiple buying influences. More people typically influence business buying decisions. Buying committees that include technical experts and senior management are common in purchasing major goods. Business marketers must send well-trained sales representatives and teams to deal with these equally well-trained buyers. Multiple sales calls. A study by McGraw-Hill found that it took four (4) to four-and-a-half (4 ½) calls to close an average industrial sale. It may take many attempts to fund a large project and the sales cycle— between quoting a job and delivering the product—can even take years. Derived demand. The demand for business goods is ultimately derived from the demand for consumer goods. For this reason, the business marketer must closely monitor the buying patterns of end-users. Business buyers must also pay close attention to economic factors like production, investment, consumer spending, and the interest rate. Business marketers can do little to stimulate total demand. They can only fight harder to increase or maintain their share of it. Inelastic demand. The total demand for many business goods and services is inelastic, not much affected by price changes. Shoe manufacturers will not buy much more leather if the price falls, nor less if the price rises unless they find satisfactory substitutes. Demand is especially inelastic in the short run because producers cannot make quick changes in production methods. Demand is also inelastic for business goods, such as shoelaces, representing a small percentage of the item’s total cost. Fluctuating demand. The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A given percentage increase in consumer demand can lead to a much larger increase in the demand for plant and equipment. Demand for plant and equipment is more volatile because it reflects the normal year-to-year replacement demand and the need to satisfy increased or decreased consumer demand. Target market. Business buyers has a few target market to sell their products with but these target market normally purchase items in large volumes, which means large sales. Buying Situations The business buyer faces many decisions in making a purchase. How many depends on the complexity of the problem being solved, the newness of the buying requirement, the number of people involved, and the time required. Three (3) buying situations are the straight rebuy, modified rebuy, and new task. Straight rebuy. In a straight rebuy, the purchasing department routinely reorder items like office supplies and bulk chemicals and chooses from suppliers on an approved list, also known as “In-suppliers”. These suppliers make an effort to maintain product and service quality and often propose automatic reordering systems to save time. Other companies not yet included in the approved list, also called out-suppliers, attempt to offer something new or exploit dissatisfaction with the purchasing department’s current supplier. They aim to get a small order and then enlarge their purchase share over time. Modified rebuy. The buyer wants to change product specifications, prices, delivery requirements, or other terms in a modified rebuy. Modified rebuy usually requires additional participants of suppliers. The in- suppliers become nervous and want to protect the account. The out-suppliers see an opportunity to propose a better offer to gain some business and secure future orders. 03 Handout 1 *Property of STI  [email protected] Page 2 of 4  BM2207 New buy. A new buy purchaser buys a product or service for the first time (an office building, a new security system). The greater the cost or risk, the larger the number of participants, and the greater their information gathering—the longer the time to decide. The Buying Center Purchasing agents are influential in straight-rebuy and modified-rebuy situations, whereas other employees are more influential in new buy situations. The Buying Center The decision-making unit of a buying organization is the buying center. It consists of “all those individuals and groups who participate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions.” The buying center includes all organization members who play any of the seven (7) roles in the purchase decision process. 1. Initiators Users or others in the organization who request that something be purchased. 2. Users Those who will use the product or service. The users often initiate the buying proposal and help define the product requirements. 3. Influencers People who influence the buying decision, often by helping define specifications and providing information for evaluating alternatives. Technical people are particularly important influencers. 4. Deciders People who decide on product requirements or suppliers. 5. Approvers People who authorize the proposed actions of deciders or buyers. 6. Buyers People with formal authority select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play a major role in selecting vendors and negotiating. In more complex purchases, buyers might include high-level managers. 7. Gatekeepers People who have the power to prevent sellers or information from reaching members of the buying center. For example, purchasing agents, receptionists, and telephone operators may prevent salespersons from contacting users or deciders. Several people can occupy a given role, such as a user or influencer, and one person may play multiple roles. A purchasing manager, for example, is often a buyer, influencer, and gatekeeper simultaneously. The purchasing manager heads a team responsible for procuring goods and services, seeking the best available quality for the lowest price, evaluating suppliers, negotiating contracts, and reviewing product quality. A buying center typically has five (5) or six (6) members and sometimes dozens. Some may be outside the organization, such as government officials, consultants, technical advisors, and other marketing channel members. Buying Center Influences Buying centers usually include participants with differing interests, authority, status, susceptibility to persuasion, and sometimes very different decision criteria. Examples: Engineers may want to maximize the product's performance Production people may want the ease of use and reliability of supply Financial staff focus on the economics of the purchase Purchasing may be concerned with operating and replacement costs Union officials may emphasize safety issues 03 Handout 1 *Property of STI  [email protected] Page 3 of 4  BM2207 Buyers also have personal motivations, perceptions, and preferences influenced by their age, income, education, job position, personality, attitudes toward risk, and culture. Some are “keep-it-simple” buyers, or “own expert,” “want-the-best,” or “want-everything-done” buyers. Some younger, highly educated buyers are technically proficient and conduct rigorous analyses of competitive proposals before choosing a supplier. Other buyers are “toughies” from the old school who pit competing sellers against one another. Individuals, not organizations, make purchasing decisions. Individuals are motivated by their own needs and perceptions to maximize the organizational rewards they earn (pay, advancement, recognition, and feelings of achievement). But organizational buyers tend to be more sophisticated and involve a range of complex technical dimensions when making a purchasing decision on behalf of their company. In other words, business people are not buying products. They buy solutions to two (2) problems: the organization’s economic and strategic problem and their personal need for achievement and reward. In this sense, industrial buying decisions are rational and emotional—they serve the organization’s and the individual’s needs. For example, research conducted by one industrial component manufacturer found that although top executives at small-and-medium-sized companies stated that they were comfortable with buying from other manufacturing companies, these top executives also appeared to harbor subconscious insecurities about buying the manufacturer’s product. Constant technological changes in the B2B system had left some top executives concerned about internal effects within the company. Recognizing this unease, the Business Marketers retooled their selling approach and periodically reviewed their assumptions about buying center participants. _______________________________________________________________________________________ References Kotler, P., Keller, K. L, Ang S.W., Tan C.T., Leong S.W. (2018). Marketing Management 7th Edition: An Asian Perspective. Pearson Education Limited. Kotler, P., Keller, K.L., Brady M., Goodman, M., Hansen T. (2019). Marketing Management 4th European Edition. Peason Education Limited. 03 Handout 1 *Property of STI  [email protected] Page 4 of 4  BM2207 ANALYZING CONSUMER MARKETS AND BUYER BEHAVIOR What Influences Consumer Behavior? Consumer behavior studies how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants. Three (3) Influential Factors of Consumer Buying Behavior: A. Cultural Factors Culture, subculture, and social class significantly influence consumer buying behavior. Culture is the fundamental determinant of a person’s wants and behavior. Marketers must closely attend to cultural values in every country to understand how to best market their existing products and find opportunities for new products. Each culture consists of smaller subcultures that provide more specific identification and socialization for their members. Subcultures include nationalities, religions, racial groups, and geographic regions. When subcultures grow large and affluent, companies often design specialized marketing programs to serve them. Almost all human cultures exhibit social stratification (groupings), most frequently in the form of social classes. These divisions in society are typically identical, long-lasting, hierarchically arranged, and have individuals with comparable values, interests, and behaviors. One classic depiction of social classes in the world is the EGP (Erikson–Goldthorpe–Portocarero) class schema, also known as the eleven (11) descending levels: Upper Class: 1. Service class I (higher-grade professionals, administrators, and officials; managers in large industrial establishments; large proprietors) 2. Service class II (comprising lower-grade professionals, administrators, and officials; higher-grade technicians; managers in small industrial establishments; supervisors of non-manual employees) Middle Class: 3. Routine manual employees (factory workers who operate welding or metal-press machines, forklift operators or home appliance repairers, office secretaries, bookkeepers, filing clerks or bank tellers) 4. Routine non-manual employees (home-health aides, public relations, financial analysis or computer programming) 5. Self-employed with employees (Non-agriculture) 6. Self-employed with no employees (Non-agriculture) 7. Self-employed farmers Lower Class: 8. Manual supervisors 9. Skilled workers 10. Unskilled workers 11. Farm laborer Characteristics of Social Classes: Those within a social class tend to be more alike in dress, speech patterns, and recreational preferences than persons from two different social classes. Persons are perceived as occupying inferior or superior positions according to social class. A cluster of variables – occupation, income, wealth, education, and value orientation – indicates social class rather than any single variable. Individuals can move up or down the social class ladder during their lifetimes – how easily and how far depends on how rigid the social stratification is and the level of equality in society. 04 Handout 1 *Property of STI  [email protected] Page 1 of 10  BM2207 Social classes show distinct product and brand preferences in many areas, including clothing, home furnishings, leisure activities, automobiles, and media preferences. B. Social Factors In addition to cultural factors, social factors such as reference groups, family, and social roles and statuses affect our buying behavior. 1. Reference groups: A person’s reference groups are all the groups that have a direct (face-to-face) or indirect influence on their attitudes or behavior. Groups having direct influence are called membership groups. Some of these are primary groups with whom the person interacts continuously and informally, such as family, friends, neighbors, and coworkers. 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. Reference groups influence members in at least three (3) ways. They expose an individual to new behaviors and lifestyles. They influence attitudes and self-concept. They create pressures for conformity that may affect product and brand choices. Marketers must determine how to reach and influence the group’s opinion leaders where reference group influence is strong. An opinion leader is a person who offers informal advice or information about which of several brands is best or how a particular product may be used. Opinion leaders are often highly confident, socially active, and frequent users of the category. Marketers try to reach them by identifying their demographic and psychographic characteristics, identifying the media they read, and directing messages to them. 2. Cliques: Communication researchers propose a social-structure view of interpersonal communication. They see society as consisting of cliques, small groups whose members interact frequently. Clique members are similar, and their closeness facilitates effective communication and insulates the clique from new ideas. The challenge is to create more openness, so cliques exchange information with others in society. This openness is helped by people who function as liaisons and connect two (2) or more cliques without belonging to either, and by bridges, people who belong to one clique and are linked to another. 3. Family: The family is society's most important consumer buying organization, and family members constitute the most influential primary reference group. Two (2) families are in the buyer’s life – the parents and siblings. A person acquires an orientation toward religion, politics, and economics and a sense of personal ambition, self-worth, and love from parents. Even if the buyer no longer interacts with their parents, parental influence on behavior can be significant. 4. Roles and Status: A role consists of the activities a person is expected to perform. Each role, in turn, connotes a status. People choose products that reflect and communicate their role and actual or desired societal status. Marketers must be aware of the status-symbol potential of products and brands. C. Personal Factors 1. Age and stage in the life cycle: Our taste in food, clothes, furniture, and recreation is often related to our age. Consumption is also shaped by the family life cycle and the number, age, and gender of people in the household at any time. In addition, psychological life-cycle stages may matter. Adults experience certain passages or transformations as they go through life. Their behavior during these intervals, such as becoming a parent, is not necessarily fixed but changes with the times. 04 Handout 1 *Property of STI  [email protected] Page 2 of 10  BM2207 Marketers should also consider critical life events or transitions — marriage, childbirth, illness, relocation, divorce, first job, career change, retirement, death of a spouse — as giving rise to new needs. These should alert service providers—banks, lawyers, marriage, employment, and bereavement counselors—to ways they can help. 2. Occupation and economic circumstances: Occupation also influences consumption patterns. Marketers try to identify the occupational groups with an above-average interest in their products and services and even tailor products for certain occupational groups. For example, computer software companies design different products for brand managers, engineers, lawyers, and physicians. 3. Personality and self-concept: Brand personality is the specific mix of human traits we can attribute to a particular brand. Consumers often choose and use brands with a personality consistent with their self-concept (how we view ourselves). However, the match may be based on the consumer’s ideal self-concept (how we would like to view ourselves) or others’ self-concept (how we think others see us). These effects may also be more pronounced for publicly consumed products than privately consumed goods. On the other hand, consumers who are high “self-monitors”—that is, sensitive to the way others see them—are more likely to choose brands whose personalities fit the consumption situation. 4. Lifestyle and values: People from the same subculture, social class, and occupation may adopt different lifestyles. A lifestyle is a person’s life pattern expressed in activities, interests, and opinions. It portrays the “whole person” as s/he interacts with their environment. Marketers search for relationships between their products and lifestyle groups. A computer manufacturer may discover that most computer buyers prefer to buy a computer brand that fits their lifestyle. Key Psychological Processes A. Motivation We all have many needs at any given time. Some needs are biogenic; they arise from physiological states of tension such as hunger, thirst, or discomfort. Other needs are psychogenic; they arise from psychological states of tension, such as the need for recognition, esteem, or belonging. A need becomes a motive when aroused to a sufficient intensity to drive us to act. Motivation has both directions—we select one goal over another—and intensity— we pursue the goal with more or less vigor. 1. Freud’s Theory Sigmund Freud assumed that the psychological forces shaping people’s behavior is largely unconscious and cannot fully understand their motivations. Someone who examines specific brands will react to their stated capabilities and other, less conscious cues such as shape, size, weight, material, color, and brand name. A laddering technique lets us trace a person’s motivations from the stated instrumental ones to the more terminal ones. Then the marketer can decide at what level to develop the message and appeal. 2. Maslow’s Theory Abraham Maslow sought to explain why particular needs drive people at specific times. He answers that human needs are arranged in a hierarchy from most to least pressing—from physiological to safety, social, esteem, and self-actualization. People will try to satisfy their most important needs first and then move to the next. Example: A starving man (need 1) will not take an interest in the latest happenings in the art world (need 5), nor in the way he is viewed by others (need 3 or 4), nor even in whether he is breathing clean air (need 2), but when he has enough food and water, the next most important need will become salient. 04 Handout 1 *Property of STI  [email protected] Page 3 of 10  BM2207 Figure 1. Maslow’s hierarchy of needs Source: Marketing Management 4th European Edition, 2019, p. 206 3. Herzberg’s Theory Frederick Herzberg developed a two-factor theory that distinguishes dissatisfiers (factors that cause dissatisfaction) from satisfiers (factors that cause satisfaction). The absence of dissatisfiers is not enough to motivate a purchase; satisfiers must be present. For example, a computer that does not come with a warranty is dissatisfier. Yet, the presence of a product warranty does not act as a satisfier or motivator of a purchase because it is not a source of intrinsic satisfaction. Ease of use is satisfier. B. Perception A motivated person is ready to act based on how influenced they are by their perception of the situation. In marketing, perceptions are more important than reality because they affect consumers’ actual behavior. Perception is how we select, organize, and interpret i