Characteristics and Attitudes of Middle and Lower Classes

• Middle classes– Plan and save for the future

– Analyze alternatives

– Understand how the world works

– Feel they have opportunities

– Willing to take risks

– Confident about decision making

– Want long-run quality or value

• Lower classes– Live for the present– "Feel" what is "best"– Have simplistic ideas about

how things work– Feel controlled by the

world– "Play it safe"– Want help with decision

making– Want short-run satisfaction

Grid of Evaluative Criteria for Three Car Brands

Common Features

BrandGas

MileageEase ofService

ComfortableInterior Styling

Nissan -- + + --

Saab + -- + +

Toyota + + + --

Relation of Problem-Solving Process, Adoption Process, and

Learning (given a problem)

• Problem-solving steps– Becoming aware of or interested in the problem– Gathering information about possible solutions– Evaluating alternative solutions, perhaps trying some out– Deciding on the appropriate solution– Evaluating the decision

• Adoption process steps– Awareness and interest– Interest and evaluation– Evaluation, maybe trial– Decision– Confirmation

• Learning steps– Drive– Cues– Response– Reinforcement

Organizational Buying Focuses on Value

• Vendor analysis is likely to be more formal• Focus on economic criteria, including

– Quality (including ISO 9000 certification)– Total costs to purchase and use– Reliability– Value in use

• Including consideration of what related costs are reduced by using the product instead of some alternative

– …and the like

Buying Center

• Business purchases often involve multiple influence

• "Buying center"—all people who participate in or influence a particular purchase

• Buying center varies from purchase to purchase

• Does not appear on the "organizational chart"

• Structure may be formal or informal

A Retailer’s “Statement of Policy Concerning Gifts”

To: Our Manufacturers and Suppliers

Re: Statement of Policy Concerning GiftsThe holiday season is a happy time when custom suggests we share gifts and

remembrances with friends and associates. The joy and goodwill of the holiday spirit brings us all a little closer together, and for that we are thankful.

However, a (store name) associate who accepts a gift or gratuity from a supplier or vendor during any season violates (store name) policies and procedures. Please save us both embarrassment by not sending any (store) associate gifts this holiday season. Regardless of the intent, the gift cannot be accepted and will have to be returned.

If you feel the spirit of the season compels you to do something, we suggest that you make a charitable donation to your favorite charity in the name of your friend.

Thank you for your understanding and compliance.

Best wishes for a happy holiday season and a prosperous New Year.

(signed) President

Three Kinds of Organizational Buying Processes

• New-task buying– a firm has a new need and the buyer wants a great deal

of information

• Modified rebuy– the in-between process where some review of the

buying situation is done—though not as much as in new-task buying

• Straight rebuy– a routine repurchase that may have been made many

times before

Major Sources of Information Used by Organizational Buyers

Marketing Sources Nonmarketing Sources

Personal SourcesSalespeopleOthers from supplierfirmsTrade shows

Buying center membersOutside businessassociatesConsultants and outsideexperts

Impersonal Sources

Advertising in tradepublicationsSales literatureSales catalogsWeb page

Rating servicesTrade associationsProduct directoriesInternet news pointcasts

Some Basic Practices in Organizational Buying

• Inspection buying• Sampling buying• Description buying

– Use of Internet “bots” to search for products and vendors is making specification buying more competitive

• Negotiated contract buying– Negotiation may not be in person but instead

involve fast exchanges of faxes or e-mail

North American Industry Classification System Codes

• NAICS—new system of number codes that groups firms in similar lines of business

• Most government data is now being organized by NAICS codes• Replacing the older Standard Industrial Classification (SIC)

codes– SIC codes are still prominent in most published government

reports because of lag times in publication

• Much detail is available– Two digit codes are the most general– Additional digits add more details (i.e., six digit codes are the

most detailed)

Producers of Services

• Geographically spread out

• Growing in number

• Buying may be informal

• Government data is incomplete

Government Market

• Government units– Federal government

– State governments– Local governments

– Foreign countries

• Bid buying and negotiated contracts• Sources of information

– Commerce Business Daily

– A variety of Internet web-sites– Small Business Administration

– Government purchasing departments

Marketing Information System (MIS)

• Organized for a continuous flow of information– Gathering information

– Accessing information

– Analyzing information

• Development of intranets is speeding the adoption– Multimedia information, not just numerical data

– Search engines make information easier to find

• Design of the MIS requires data processing expertise and marketing expertise• Use of MIS is focused on making better marketing decisions

– Strategy planning

– Details of implementation

– Timely control procedures

Decision Support System (DSS)

• A computer program—an interface—between the manager and the MIS

• Makes it easy to get needed information– Search engines are a powerful tool for finding what’s

needed– Easy access to databases in a data warehouse

• Makes it easy to analyze the information• May involve marketing models—to show the relationships

among different marketing variables• Is used as the manager is making decisions

Examples of Uses of a Decision Support System

• Selecting target markets (chapter 3)

• Competitive evaluation, such as changes in market share (chapters 4, 17)

• Customer analysis (chapters 5, 6, 7)

• Sales analysis (chapter 19)

• Cost analysis (chapters 19, 20, 21)

• Analysis of responses to elements of marketing mix (chapter 21)

• Forecasting (chapter 21)

Marketing Research

• Procedures to gather and analyze information for marketing decision making

• Focus is on new information not already available in the MIS or other secondary data sources

• May be handled inside the firm or by outside specialists– Cooperation is needed between technical

specialists and manager/decision makers

Primary and Secondary Data

• PRIMARY DATA: Information specifically collected to solve a current problem. Examples:– surveys

– experiments

– observational studies

• SECONDARY DATA: Information that has previously been collected or published. Some examples:– information from the Internet or a firm’s intranet

– data from Bureau of the Census

– computer databases

– internal reports

– industry trade associations

Focus Group Interviews

• A popular type of qualitative research

• Involves a small group (usually 6 to 10 people) in a discussion—usually for about 1 hour

• A group leader ("interviewer") unobtrusively guides the discussion

• Designed to get in-depth, open-ended responses, not intended to be "representative" of larger market

• Group interaction stimulates thinking and reactions

• Analysis of results is subjective

• May involve videotaping and or “on-line sessions” and other technologies

Cross-Tabulation Breakdown of Responses to a Phone Company

Consumer SurveyQuestions: Have you moved in the last year?

Answers No Yes Total

Yes 10.2% 23.4% 15.5%No 89.8% 76.6% 84.5%

Total 100.0% 100.0% 100.0%

Do you haveTouch-tonedialing atyour home?

Product Line Decisions

• Individual Product– a particular product within a product line

– a "stock keeping unit" (sku)

• Product Line– set of individual products that are closely related

– "depth" and "breadth"

– breadth implies number of product lines

– depth concerns choice within product lines

• Product Assortment– the set of all product lines and individual products that a firm

sells

Product Classes

• Two broad classes– consumer products– business products

• Classes help in planning marketing mix needed

• Based on how the customer views the product– how consumers think about and shop for products– how business/organizational buyers think about

products and how they'll be used

Consumer Product Classes and Marketing Mix Planning

ConsumerProduct Class

Marketing Mix Considerations Consumer Behavior

Convenience productsStaples Maximum exposure with widespread, low-cost

distribution; mass selling by producer; usually lowprice; branding is important

Routinized (habitual), low effort, frequentpurchases; low involvement.

Impulse Widespread distribution with display at point ofpurchase

Unplanned purchases bought quickly.

Emergency Need widespread distribution near probable pointof need; price sensitivity low.

Purchase made with time pressure when a need isgreat.

Shopping productsHomogeneous Need distribution near similar products; promotion

(including personal selling) to highlight productadvantages; less price sensitivity

Customers see little difference among alternatives,seek lowest price.

Hetergeneous Need distribution near similar products; promotion(including personal selling) to highlight productadvantages; less price sensitivity

Extensive problem solving; consumer may needhelp in making a decision.

Specialty products Price sensitivity is likely to be low; limiteddistribution may be acceptable, but should betreated as a convenience or shopping product (inwhichever category product would typically beincluded) to reach persons not yet sold on itsspecialty product status.

Willing to expend effort to get specific product,even if not necessary; strong preferences make it animportant purchase.

Unsought productsNew unsought Must be available in places where similar (or

related) products are sought; needs attention-getting promotion

Need for product not strongly felt; unaware ofbenefits or not yet gone through adoption process.

Regularly unsought Requires very aggressive promotion; usuallypersonal selling

Aware of product but not interested; attitude towardproduct may even be negative.

Special Considerations with Business Products

• Derived demand

– Demand for goods and services is derived from the demand for what firms produce and sell

• Demand elasticity faced by whole industry

• Tax treatment

– Capital item

– Expense item

Business Product Classes and Marketing Mix Planning

Business ProductClasses

Marketing Mix Considerations Buying Behavior

Installations Usually requires skillful personal selling byproducer, including technical contacts, and/orunderstanding of applications; leasing andspecialization support services may be required

Multiple buying influence (including topmanagement) and new-task buying are common;infrequent purchase, long decision period, andboom-or-bust demand are typical

Accessory equipment Need fairly widespread distribution andnumerous contacts by experienced andsometimes technically trained personnel; pricecompetition is often intense, but quality isimportant

Purchasing and operating personnel typically makedecisions; shorter decision period than forinstallations

Raw materials Grading is important, and transportation andstoring can be crucial because of seasonalproduction and/or perishable products; marketstend to be very competitive.

Long-term contract may be required to ensuresupply.

Component parts andmaterials

Product quality and delivery reliability areusually extremely important; negotiation andtechnical setting typical on less-standardizeditems; replacement after market may requiredifferent strategies

Multiple buying influence is common; competitivebids used to encourage competitive pricing

Maintenance, repair,and operating (MRO)supplies

Typically require widespread distribution orfast delivery (repair items); arrangements withappropriate middlemen may be crucial

Often handled as straight rebuys, except importantoperating supplies may be treated much moreseriously and involve multiple buying influence

Professional services Services customized to buyer’s need; personalselling very important; inelastic demand oftensupports high prices

Customer may compare outside service with whatinternal people could provide; needs may be veryspecialized.

Conditions Favorable to Branding

• Product easy to identify by brand• Consistent quality can be maintained• Widespread availability is possible• Strong demand enables price to be high

enough to support branding• Economies of scale are possible• Favorable shelf locations can be obtained

Levels of Brand Familiarity

• Brand Rejection

• Brand Nonrecognition

• Brand Recognition

• Brand Preference

• Brand Insistence

Characteristics of a Good Brand Name

• Short and simple• Easy to spell and read• Easy to recognize and remember• Easy to pronounce• Can be pronounced in only one way• Can be pronounced in all languages (for international markets)• Suggestive of product benefits• Adaptable to packaging/labeling needs• No undesirable imagery• Always timely (does not get out-of-date)• Adaptable to any advertising medium• Legally available for use (not in use by another firm)

Branding Decisions

• What kind of brand to use?

– Individual Brand

– Family Brand

– Licensed Brand

– No brand at all (generic products)

• Who does the branding?

– Manufacturer Brand

– Dealer Brand

Packaging

• Opportunity to promote the product– at the point of purchase– links product to earlier promotion– at the point of consumption

• Opportunity to protect the product– reduces costs of shipping and storing– reduces theft, spoiling, etc.

• Improve the basic product– easier to use, more convenient– appeals to new target markets

Per Capita Consumption of Paper and Board (Packaging)

700 670

491

347

8822

98

U.S. Japan W. Europe

E. Europe

China World

Poundsper person

Consumers in the U.S. like the convenience of disposable packaging

and small serving sizes, but somecritics argue that it is wasteful and bad

for the environment.

Warranties

• Warranty: what the seller promises about its product• Regulated by the Magnuson-Moss Act (1975)

– producers must provide clearly written warranty if a warranty is offered

– warranty does not have to be "strong"

• Federal Trade Commission provides guidelines– must be clear and definite

– may not be "unfair" or "deceptive"

– must be available for inspection before the purchase

How Quickly a New Product Moves

through the Product Life Cycle

• Comparative advantage—is the new product really better?

• The new product is easy for consumers to use• Product advantages are easy to communicate• Product is easy to try on a limited basis• Product is compatible with customers' values

and experiences

Fashion Cycles Follow Three Stages

• Distinctiveness stage– Some consumers seek—and are willing to pay for—products

different from those that satisfy the majority

• Emulation stage– When many consumers want to buy what is satisfying the

original users or fashion leaders

• Economic Emulation stage– Many consumers want the currently popular fashion, but at a

lower price

Patterns of Fashion, Fad, and Style Cycles for Fashion Products

Styles may come back over time as fashions and fads

Fashion cycles may last forsome time as they spread

beyond the innovators

Fad cycles may be very short

Sal

es le

vel

Sal

es le

vel

New Products

• New products are critical to survival– markets change– competition changes– product life cycles march on

• What is a new product?

• Firm's perspective– a product that is new in any way

• FTC's perspective– a product must be entirely new, or changed in a functionally

significant way– can only be called new for six months

New-Product Development• New-product thinking should be an on-going effort• Top-level support is vital• Someone should be “in charge” of the effort• Firm should constantly generate new ideas, then narrow

down to the best opportunities with clearly specified screening criteria

• Need a well organized new-product development process• Involvement of cross-functional teams helps in the

screening process and avoids problems and surprises later

Types of New Product OpportunitiesImmediate

SatisfactionHigh Low

HighDesirableproducts

SalutaryproductsLong-run

consumerwelfare Low

Pleasingproducts

Deficientproducts

Place Decisions in the Marketing Mix

• Making products available in the right quantities and locations—when customers want them

• Channels of distribution (Chapters 11-13)– Focus on institutions involved in getting product to the

customer

• Physical Distribution (Chapter 12)– Focus on the physical flow of the product

– Facilities needed for storing and transporting

– Customer service levels to satisfy customers

Factors Related to the Use of Direct Distribution

• Direct (producer to customer) distribution is more common when:– the customer is a business or organization (rather than a final consumer)

– an aggressive personal selling effort is required and/or when customers need special technical service

– the product is primarily a service rather than a physical good

– when working with middlemen would make it difficult to maintain control of the marketing mix

– the producer can perform marketing functions more efficiently (economically) by itself

• Internet web sites are making direct distribution easier and more common

Channel Specialists Adjust Discrepancies

• DISCREPANCIES OF QUANTITY– Difference between the quantity of products it is economical to

produce and the quantity customers want

• DISCREPANCIES OF ASSORTMENT– Difference between the lines a producer makes and the assortment

customers want

• REGROUPING ACTIVITIES REDUCE DISCREPANCIES– Accumulating– Bulk-breaking– Sorting– Assorting

Channel Captain

• A manager who helps direct the activities of the whole channel

• Tries to develop cooperation and avoid or resolve conflicts

• May be either a producer or middleman– Big retail chains increasingly taking this role

• Guides the whole channel to compete better with other channels– Effective allocation of functions– A common product-market commitment

Vertical Marketing Systems

• Whole channel focuses on the same target market at the end of the channel

• Corporate channel systems– corporate ownership all along the channel– often involves vertical integration

• Administered channel systems– informal agreements among channel members

• Contractual channel systems– legal contracts among channel members

Level of Market Exposure

• Intensive– selling through all responsible and suitable wholesalers

and retailers who will stock and/or sell the product

• Selective– selling through only those middlemen who will give

the product special attention

• Exclusive– selling through only one middleman in a particular

geographic region

Selective Distribution

• Sell only through middlemen who give the product special attention

• Avoids dealing with middlemen who:– have poor credit standing

– make too many returns

– require too much service

– place only small orders

– can't or won't do a satisfactory job

• Becoming more popular– less expensive than intensive distribution

– better cooperation among channel members

Reverse Channels of Distribution

• Reverse channels are channels used to retrieve products that customers no longer want

• Examples of situations:– recall of unsafe products – return of products from incorrectly filled order– return of products under warranty– return of products customer orders in error– return of products to be recycled (bottles, etc.)

Logistics and Physical Distribution Customer Service

• The transporting, storing, and handling of goods to match target customers' needs with a firm's marketing mix

• Both within individual firms and along a channel of distribution (or supply chain)

• Customers think of physical distribution in terms of the customer service level– how rapidly and dependably a firm can deliver what customers want

• There are trade-offs among physical distribution costs, customer service levels, and sales

Physical Distribution Concept

• All transporting, storing, and product-handling activities of a business and a whole channel system should be coordinated as one system to:– minimize the costs of distribution– for a given customer service level

• Simply focusing on individual costs may increase total costs—since a total system is involved

• Requires that the manager decide what aspects of service are most important to customers– Examples: order delivery time– availability of products– order status information

Examples of Factors that Affect PD Service Level

• Advance information on product availability

• Time to enter and process orders

• Backorder procedures

• Where inventory is stored

• Accuracy in filling orders

• Damage in shipping, storing, and handling

• Order status information

• Advance information on delays

• Time needed to deliver an order

• Reliability in meeting delivery date

• Complying with customer's instructions

• Defect-free deliveries • Procedures for handling returns and needed adjustments

Using Technology to Coordinate PD Activities Among Firms

• Just-in-time delivery (reliably getting products there just before the customer needs them) requires close coordination and information flows– reduces handling costs– reduces storing costs– shifts greater responsibility to the supplier– a small problem can cause big ripple effects!

• Electronic data interchange (EDI) puts information in a standardized format easily shared between different computer systems

• Coordination may expand beyond buyers and sellers to involve a whole network of firms– a chain of supply is a complete set of firms and facilities and logistics

activities that are involved in procuring materials, transforming them into intermediate and finished products, and distributing them to customers

Transporting

• Marketing function of moving goods

• Helps facilitate economies of scale in producing goods– Produce in large quantities where it is inexpensive to produce, and

then ship products to customers

• Shipping costs increase delivered cost

• Five major modes of transportation– Rail– Truck– Water– Pipelines– Airways

Transporting Costs as a Percent of Selling Price for Different

Products• Products

– Sand and gravel (55%)– Bituminous coal (42%)– Cabbage (38%)– Iron Ore (20%)– Manufactured food (8%)– Chemicals and plastics (6%)– Factory machinery (4%)– Electronic equipment (3%)– Pharmaceuticals (1%)

Benefits and Limitations of Different Transport Modes

Transportation Features

TransportMode Cost

DeliverySpeed

Number ofLocations

Served

Ability tohandle a

variety ofgoods

Frequencyof

scheduledshipments

Depend-ability inmeeting

schedules

Rail Medium Average Extensive High Low Medium

Water Very low Very slow Limited Very high Very low Medium

Truck High FastVery

extensiveHigh High High

Air Very high Very fast Extensive Limited High High

Pipeline Low SlowVery

LimitedVery

LimitedMedium High