Marketing Midterm PDF

marketing midterm Marketing: the activity, set of institutions, and processes for creating, communicating, delivering, anc exchanging offerings that have value for customers, clients, partners, and society at large EVOLUTION OF MODERN MARKETING 1. Production-Orientation Era (20th century)...

marketing midterm Marketing: the activity, set of institutions, and processes for creating, communicating, delivering, anc exchanging offerings that have value for customers, clients, partners, and society at large EVOLUTION OF MODERN MARKETING 1. Production-Orientation Era (20th century) a. Most firms were not concerned with satisfying the needs of individual consumers and believed that a good product would sell itself 2. Sales-Oriented Era (1920-1950) a. Firms had excess production capacity and used personal selling and advertising to generate customers 3. Market-Oriented Era (post WWII) a. Firms began to focus on what consumers wanted and needed before designing, making, or selling a product 4. Value-Based Marketing Era (now) a. Manufactures and retailers recognized they needed to give their customers greater value than their competitors did Marketing entails an exchange relationship between a company and its customers - Customer seeks benefits, company seeks profits - Customer expects to pay to gain benefits, company offers benefits to gain profits MARKETING MANAGEMENT FRAMEWORK AND CONSIDERATIONS 1. The “5 Cs”: Situation Analysis a. Customer i. Both current and potential customers ii. What are their preferences, buying trends, etc? Should they be targeted? How? b. Company i. The firm’s capabilities, resources, etc ii. What are their strengths? weaknesses? c. Context i. Macro-environmental forces facing the firm 1. Anything politically or legally going on that might affect the company? 2. What is the state of the economy and its impact? 3. What societal trends may affect the company? 4. What technological innovations might affect the firm? d. Collaborators i. The companies/people the firm works with 1. Are the relationships strong? Can they be improved/leveraged?  e. Competitors i. How do they compare in terms of resources, capabilities, customer preferences, reaction patterns, etc f. 5Cs need to be constantly monitored due to all the things subject to change (customer preference, competitors change offerings, government passes new) 2. The “4 Ps”: Marketing Tactics to Execute a. Product i. What should constitute the product mix? What features/benefits should it comprise? b. Price i. How much should you charge given costs, competitive pricing, and customer demand? c. Place i. How will the customer access the product? Will it go directly to customers or use channel partners? d. Promotion i. What communications mix will you use to communicate with your targets? What will the message be? 3. STP: Strategic Marketing Planning a. Segmentation: grouping customers with similar needs b. Targeting: pursuing segments who make the most sense for the company c. Positioning: communicating product’s benefits clearly to the consumer i. Developed through the 4 Ps 5Cs, STP, and 4Ps are interdependent - Changing contextual factors impact distribution channels - Shifting demands of collaborators impacts pricing structure STRATEGIC PLANNING FOR COMPETITIVE ADVANTAGE Sustainable competitive advantage: an advantage over competition that is not easily copied and can be maintained over a long period of time. Macro Strategies for Developing Customer Value/Planning for Competitive Advantage 1. Customer Excellence a. Retaining loyal customers (ex: loyalty reward programs, providing outstanding customer service) 2. Operational Excellence a. Efficient operations are achieved by developing excellent supply chain management as well as strong relationships with suppliers  3. Locational Excellence a. Especially important for retailers and service providers b. Competitive advantage based on location is not easily duplicated 4. Product Excellence a. Product has high perceived value and effective branding and positioning Multiple Sources of Advantage: a single strategy is not enough to build sustainable competitive advantage SWOT Analysis: assessment of an organization’s “S”trengths, “W”eaknesses, “O”pportunies, and “T”hreats. - SWOT: competitive advantages/core competencies, that give the company an advantage - SWOT: limitation a company faces in developing/implementing a marketing strategy - SWOT: favorable conditions in the environment that could produce rewards if acted upon - SWOT: barriers that could prevent the company from reaching its objectives Marketing Goals and Increasing Profitability: - Profit = Sales Revenue - Costs - Costs = Variable Costs + Fixed Costs - Profit = (Sales Volume x Price) - [Variable Costs (Unit Cost x Sales Volume) + Fixed Costs] Variable Cost = cost that varies with changes in levels of output (cost of material, delivery) Fixed Cost = does not change as output is increased/decreased (rent, employee salary, utilities) Increasing Profitability To increase profitability companies can 1. Increase sales volume a. Up sell current customers to more expensive offerings b. Get customers to buy more frequently c. Steal customers from competitors d. Create new products e. Pursue another segment f. Reduce brand switching by enhancing brand g. Raise customer satisfaction h. Add value through a loyalty program i. Raise switching costs so leaving brand is unnatractive 2. Change prices a. Lower Prices  i. May bring volume in short term but can damage brand image/equity ii. Lower price necessitates higher volume iii. Striving to be a low price provider often initiates price wars and worse future margins b. Raise Prices i. Yields greater margins ii. Cues high quality iii. May need to shift to a more upscale target 3. Decrease costs a. Decreasing Variable Costs i. Find less expensive suppliers ii. Outsource parts of the business to partners who are more efficient iii. Become a niche provider to keep units down and price higher for special customers b. Decreasing Fixed Costs i. Spend less on R&D ii. Spend less on advertising iii. “Milk the brand” = don’t spend on continued development or maintenance Marketing Strategies 1. Ansoff’s Growth Matrix: Current Products New Products Current Markets Market Penetration Product Development New Markets Market Development Diversify Market Penetration: - The strategy of increasing market share/sales of a current product or service in an existing market - Ex: convincing current Pepsi buyers to drink Pepsi for breakfast - Price discounts, promotional campaigns, expanding distribution channels Market Development: - Ex: selling chalk not only to schools, but also to kids Product Development: - Introduction of entirely new products to already loyal customers - Ex: new iphone every year Diversification:  - Business strategy where a company expands its product/service offerings or enters new markets to reduce risk and achieve business growth - “Related Diversification”: Apple introducing Vision Pro - “Unrelated Diversification: Apple introducing Apple Hotel or Apple Beer 2. BCG Matrix How to manage STARS: - Optimize, hold - Considered the future cash cows How to manage CASH COWS: - Milk, don’t pay much market attention/budget How to manage QUESTION MARKS: - Decide whether to invest in them and turn them into starts or divest if not promising How to manage DOGS: - Minimize or divest When stars and cash cows are sufficiently profitable, companies can carry question marks and dogs 3. Porter’s Strategies: companies can dominate its market in 1 of 3 ways a. Cost Leadership i. Produce more efficiently than competition ii. Ex: costco, Dollar general, walmart b. Differentiation i. Distinguish one’s product as unique ii. Ex: BMW, Build-a-Bear c. Focused i. Do one thing very well ii. Ex: Jeep, Lego 4. Treacy and Wiersema’s Strategies  a. Operational Excellence: deliver products smoothly, reliably (IKEA, FedEx) b. Product Leadership: excellent quality, innovation (Apple. Johnson & Johnson) c. Customer Intimacy: knowledge of customer needs (Amazon, Home Depot) CUSTOMER BEHAVIOR Consumer Decision Making Process 1. Need Recognition a. Need state arises when one’s desired state of affairs differs from one’s actual state of affairs b. Good marketing activates needs that will motivate consumers to buy a product/service c. Types of needs: i. Functional Needs: pertain to the performance of a product or service ii. Psychological Needs: pertain to the personal gratification consumers associate with a product and/or service iii. Successful marketing requires determining the correct balance of functional and psychological needs that best appeal to the company’s target markets 2. Information Search & Alternative Evaluation a. Internal Search: based on considerable prior experience with the products in question (personal experience, prior knowledge, prior exposure to ads) i. Evoked Set: set of brands (2-5) that come to mind when a category is mentioned ii. Consideration Set: set of brands the consumer will consider for purchase iii. If internal search does not turn up enough information to yield a decision -> information search b. Information Search: i. External Search: 1. Visiting retail/online stores 2. Seeking input from others 3. When consumers are in an active information-gathering mode they also may be receptive to detailed, informative advertisements delivered through both traditional and digital/social media 4. Reviewing professional product evals c. Alternative Evaluation: i. Structured by the consumer’s consideration set and evaluative criteria (product attribute and performance characteristics) 1. Product Attributes: inherent features of a product that distinguish it on the market (physical: size,color functional: design, durability brand-related: name, reputation, warranty sensory: taste, texture economic: price, value  a. Helps consumers differentiate between products and influence purchasing 2. Performance Characteristics: how well a product performs its intended function (efficiency, reliability, usability, quality, adaptability) a. Directly impacts user satisfaction and long-term loyalty 3. Purchase a. Consumers make a final choice from the consideration set and decide what to purchase 4. Post purchase use and evaluation a. Customer satisfaction derives from a favorable post-purchase experience b. Customer’s level of satisfaction leads to i. Repeat purchases ii. negative/positive word of mouth iii. Product returns c. Cognitive dissonance: anxiety or regret that lingers after a difficult decision, i. Increases when 1. Purchase price is high 2. Many close alternatives 3. Item is intangible 4. Purchase is important 5. Item purchased lasts a long time ii. Marketers should reassure buyers with detailed information about its brands iii. Post-purchase reinforcement programs: 1. Direct mail 2. Emails 3. Any personalized contact with customer Types of Consumer Purchases: 1. Convenience Products a. Relatively inexpensive, frequently purchased b. Buyers exert minimal purchasing effort c. Low Involvement 2. Shopping Products a. Items for which buyers will spend a considerable effort in planning and making purchases b. Appliances, bicycles, furniture c. Medium Involvement 3. Specialty Products a. Items with unique characteristics that buyers are willing to expend considerable effort to obtain b. Fine jewelry, limited-edition collector’s items  c. High Involvement 4. Unsought Products a. Product purchased to solve a sudden problem, products of which customers are unaware, and products that people do not necessarily think about buying b. Emergency medical services, automobile repairs, life insurance Low vs High Involvement Purchases Involvement: relevance and important of a purchase is affected by: - Interests and avocations - Risk of high price or long term commitment - High symbolic meaning to purchase - Deep emotion attached to purchase Business Purchases and Involvement: 1. Straight Rebuy - Low involvement, purchase what was purchased last time 2. Modified Rebuy - Medium involvement 3. New Buy - High Involvement Low involvement purchases - Have more price sensitivity - Use price discounts - Don’t generate word of mouth - Usually distributed intensively - Marketers should focus on how to capture consumer’s attention High Involvement Purchases: - Less price sensitivity - Use brand communities and events - May generate word of mouth - Usually distributed selectively - Marketers should focus on providing consumers with information 4 Modes of Consumer Decision Making: High Involvement Low Involvement Low Experience Extended problem solving - Limited problem solving - deliberate, careful common products, less internal/external search systematic, limited search, consumer memory  High Experience Brand loyalty - conscious Habit/Variety Seeking - either commitment to find the same buy the same brand or switch at brand random Paradox of Choice: Why Less is More - Barry Schwartz: while choice is generally associated with freedom and autonomy, too much choice leads to stress, anxiety, and dissatisfaction - Decision Paralysis - Fear of Regret - Opportunity Cost (with every choice, we forgo other options- this creates a sense of missed opportunity) - Higher Expectations of the product you do choose - Self-Blame (when options are limited, people are satisfied. If people are dissatisfied when there were several options available, people tend to blame themselves STP = SEGMENTATION, TARGETING, AND POSITION SEGMENTATION In marketing, segmentation is the process of dividing a broad consumer or business market into smaller groups, or "segments," based on shared characteristics such as demographics, behaviors, needs, or psychographics. A single product, price, or promotion is unlikely to satisfy all consumer’s needs. The goal of segmentation is to identify and understand distinct groups within the target market so that marketing efforts can be tailored to meet the specific needs and preferences of each segment. This allows for more efficient use of resources, improved customer satisfaction, and increased likelihood of engagement or conversion. Effective segmentation enables brands to deliver personalized messaging and product offerings, ultimately building stronger connections with different groups within the market. - The marketer’s goal is to create the marketing mix that meets the segment’s needs Types of Segmentation: 1. Mass/Undifferentiated Marketing a. All customers treated the same, appeals to broadest spectrum of people b. Efficient due to economies of sale c. Usually more efficient but less effective in meeting customer needs 2. One-to-one Marketing a. Each customer serves a segment, “markets the size of one” b. Product is tailored for each person’s desires  c. Usually more effective in meeting customer’s needs, but hard to achieve efficiently and may involve quality issues 3. Segmentation a. Falls in between mass and one to one b. As segment size increases, segments become more heterogeneous c. As segment size decreases, segments become less profitable d. Marketers need the “optimal” segment size i. Niche = targeting small market that the company serves well Segmentation can be based on factors like: 1. Demographics – age (want and abilities change with age), gender (have different attitudes and behaviors, income (popular), generation, race (multicultural marketing), education level, etc. - Marketers need to factor norms, language nuances, buying habits, and business practices of multicultural markers into the initial formulation of their marketing strategy 2. Geographic location – country, city, climate, etc. - Geofencing: virtual line drawn around a defined geographic space. As people with a geolocation mobile app enter the defined area, they can be targeted with ads/offers - Geotargeting: similar to geofencing but the geographic parameters are more general, like “50 miles from zip code” 3. Behavioral traits – buying habits, brand loyalty, product usage. - Usage Frequency: how often a consumer uses a particular product - Customers can be categorized as “heavy users, moderate users, light users” - Heavy users respond well to loyalty programs and bulk purchase discounts - Light users can be targeted with incentives to increase usage or an opportunity to try out the product - Occasion: the specific situation that triggers a consumer’s need for a product/service - Ex: chocolate company increasing marketing efforts around Valentine’s day - Benefits Needed: the specific advantages/benefits that consumers seek when purchasing (cost saving, convenience, safety, prestige, health benefits) - Health food brand will emphasize the benefits of well being and vitality - Budget airline will highlight the cost savings - Brand Loyalty: how committed the consumer is to a particular brand over others in the same category - Consumsers categorized as loyal, switching, or non loyal customers - Understanding brand loyalty helps marketers with customer retention and relationship-building strategies - Rewarding loyal customrs with exclusive offers/access - Targeting switchers with promotions  - Costs 6 times more to acquire a new customer than retain a loyal one 4. Psychographics – lifestyle, values, interests, personality traits. - “Motives” are important here, ex: luxury car brands appeal to customers with “status-related motives” - “Men’s display of luxury goods serve as a”sexual signaling system” while some women use pricer possessions to signal to other women that their romantic partner is especially devoted to them” - Lifestyle: “green” consumers TARGETING Targeting: selecting one or more market segments to pursue. (most markets are NOT comprised of customers with similar tastes) Target Market: group of people/organizations for which an organization designs, implements, and maintains a marketing mix to meet the needs of that group - Marketers should target customers that match their abilities to deliver Bottom Up: Profitability - Data informed approach - How profitable will this segment be? Function of its current market size, anticipated growth, current and anticipated levels of competition, customer behavior and expectations Top Down: Strategic fit - Top-down vision of corporate approach - Does this market segment fit who we are? Understand firm’s resources, strengths, weaknesses, brand personalities Market Segment is attractive Market Segment is unattractive Corporate Strengths Go for it! Hmmm… Less Capable Hmmm… Avoid Hmms = dilemma scenarios - Ex: the video gamer market segment is attractive, but you have no strength in this market. Can strength be developed? How much will it cost? - Ex: your strength is in thumb drives, but the market is attractive. Is there any segment that sees value in thumb drives? Can the product be redesigned to give value? How much will that cost? POSITIONING Positioning: who brand/company is in the marketplace vis a vis the competition in the eyes of the customer (both physical and perceptual elements). The act of designing a company’s offering and image to occult a distinctive place in the minds of the target market - Value Proposition: a cogent reason why the target market should buy a product or service Identifying Points of Different (PODs) and Points of Parity (POP) - PODs: attributes/benefits that consumers strongly associate with a brand and believe they could not find to the same extent with a competitive brand. Three criteria: 1. Desirable to Consumer: personally relevant, compelling reason why the brand can deliver the desired benefit 2. Deliverable by Company: company must have internal resources and commitment to feasibly and profitably create and maintain the brand association in the minds of consumers 3. Differentiating from Competitors: consumers must see the brand association as distinctive and superior to relevant competitors - POPs: attributes/benefits associations that are not necessarily unique to the brand. Three forms: 1. Category POP: attributes the consumer views as essential to a credible offering within a certain product/service category 2. Correlational POP: potentially negative associations that arise from the existence of positive associations for the brand (if its inexpensive you can assume its low quality) 3. Competitive POP: associations designed to overcome a perceived weaknesses of the brand in light if competitors point-of-difference Positioning via Perceptual Maps Perceptual Maps show graphical depictions of how the brands and their competitors are perceived in the minds of customers - Brands close together are seen as similar, farther apart are viewed as different Products: Goods and Services search/experience/credence qualities Perishability Variability (good vs bad) Core vs value added New Products and Innovation Forecasting - $SP = MP x PI x Pr Product Life Cycle - Introduction - growth - maturity - decline BRANDS Brand: portfolio of qualities associated with a name, immediately invokes certain images, have value beyond the benefits of the product - A brand is a “name, term, sign, symbol, or design, or combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors Marketers DO NOT control all associations (personal memories with the brand) Why brand? - Customer Benefits: - Identify company ownership - Allow for predictable quality - Make it easier for customers to make decisions, less perceived risk - Serve as status symbols - Company Benefits: - Induce loyalty - increasing repeat purchasing - Allow premium prices - Allow a single firm to pursue multiple market segments Branding Strategies: 1. Umbrella Approach: Attaching the same brand name to multiple products a. Subsequent product introductions are easier for the customer to understand and accept b. Higher initial awareness levels c. Builds stronger brand associations d. Stronger financial outcomes i. Nike, Canon, GE 2. House of Brands Approach: introducing a new brand name for every product line a. Any problems with one brand should not influence others b. Brand image does not need to be consistent, which allows for targeting multiple segments c. Requires more advertising expense 3. Store Brands: private label brands a. Good for price sensitive markets b. Can be more of a “me-too” product offering c. Can be premium private label (ex: Walmart’s “Sam’s Choice”) d. Retailer can offer decent quality for lower prices due to reduced advertising costs e. Almost 20% of consumers are increasingly buying more private-label products because of affordability How can national brands compete with store brands? - Manufacturers are launching second labels to compete with store brands (GE Basic, GE Appliances) - Manufacturers are making products for retailers (Duracell’s Kirkland batteries, Kirkland Jelly Belly, Huggie’s Kirkland diapers)