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Marketing and Consumer Behavior

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1 Marketing and Consumer Behavior
12 Marketing and Consumer Behavior Better Business 3rd Edition Solomon (Contributing Editor) · Poatsy · Martin chapter © 2014 Pearson Education, Inc.

2 What is Marketing? According to the American Marketing Association…
Marketing – the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large © 2014 Pearson Education, Inc.

3 © 2014 Pearson Education, Inc.
Marketing: A better definition Process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to facilitate exchanges that satisfy customer needs and organization objectives Product Pricing Promotion Place Ideas Services Goods 2 Important Functions Facilitate Exchanges (Encourage Purchase) Satisfy Customer Needs © 2014 Pearson Education, Inc.

4 Marketing Fundamentals
Learning Objective 1: How has marketing evolved over time? The American Marketing Association defines marketing as “an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.” Marketing departments serve a variety of functions. First and foremost, marketers are responsible for keeping an eye on what people need and want, then communicating these desires to the rest of the organization. Marketing departments help establish desirable pricing strategies and promote the organization by persuading customers that their products are the best. A product is any tangible good, service, or idea available for purchase in a market, as well as any intangible benefits derived from its consumption, such as the brand. Marketing departments are also responsible for distributing products to customers at a place and time most suitable to the customer. But perhaps the most important aspect of marketing is to successfully establish meaningful relationships with customers to instill loyalty and ensure repeat business. Marketing is one of the most visible functions of any organization; however, the public only sees the tip of the iceberg. © 2014 Pearson Education, Inc.

5 The Evolution of Marketing
In its broadest sense, marketing can be thought of as identifying and meeting human needs and wants. However, the degree to which marketers have identified and met people’s needs and wants has changed over time. The nature of marketing has evolved over five general eras: The production concept era. The sales concept era. The marketing concept era. The social marketing era. The customer relationship era. Although each concept experienced a peak in popularity during a specific time period, some companies still use marketing concepts from an earlier era. Today’s most successful marketing campaigns are a sophisticated combination of the best of each of these times. © 2014 Pearson Education, Inc.

6 Production Era & Sales Concept Era
Industrial Revolution until 1920s Limited supplies and strong demand A good-quality product sold itself Mid 1920s to early 1950s Production greater than demand Greater competition for customers Heavy public advertising From the Industrial Revolution until the 1920s, most companies focused solely on production. This was the Production Era. The prevailing mindset was that a good-quality product would simply sell itself. This approach worked for many organizations during this era because of a strong demand and a limited supply of products. Whenever demand outstrips supply, it creates a “seller’s market.” This may have motivated Henry Ford to remark in relation to his Model T cars that customers could have any color they wanted, as long as it was black. At the time, black was the only color available. From the mid-1920s through the early 1950s, technological advances meant that production increased more sharply than demand for goods and services. This was the Sales Concept Era. The competition for customers became more intense, and businesses began to undertake aggressive sales tactics to sell or “push” their products. The use of heavy public advertising in all available forms of media became prevalent. During this era, marketing generally took place after the product was developed and produced. Heavy emphasis was placed on selling existing products. Even today, many people associate marketing with selling or advertising; however, it has become much more than that. © 2014 Pearson Education, Inc.

7 © 2014 Pearson Education, Inc.
Marketing Concept Era: The Marketing Concept is a business philosophy that a firm should continually try to offer products that satisfy customers needs while also making a business profit By the 1950s, production continued to expand more quickly than the growth in demand for goods and services, creating a “buyer’s market.” Soldiers returning from World War II were getting married, starting families, and were willing to spend their money on goods and services. Companies needed to start by determining what customers wanted and then producing products, as opposed to producing products and then trying to convince customers to buy them. The marketing concept changed the focus from finding the right customer for a product to producing the right product for a customer and doing it better than the competition. More specifically, the marketing concept focuses on: Identifying customer needs before the product is designed and produced. Aligning all functions of the entire organization to meeting or exceeding these customer needs through superior products and customer service. Realizing a profit (not just sales) by satisfying customers over the long term. This requires anticipating customer needs and wants, and then quickly adapting to meet them before the competitor does. © 2014 Pearson Education, Inc.

8 © 2014 Pearson Education, Inc.
The Societal Marketing Era: Social Marketing is incorporating the marketing concept with social responsibility Began in late 1960s and early 1970s Marketing Concept + Social Responsibility Challenged companies to work for the benefit of consumers and society while making a profit Societal marketing, an offshoot of the marketing concept and corporate social responsibility, began in the late sixties and early seventies. This concept asked companies to consider the well-being of consumers and society while still pursuing profits. The Body Shop is a good example. A skin and cosmetics company, the Body Shop uses small-scale farmers, craftsmen, and cooperatives to make their products in an attempt to do what is best for society. © 2014 Pearson Education, Inc.

9 © 2014 Pearson Education, Inc.
The Customer Relationship Management (CRM) Era: CRM is the process of establishing mutually-beneficial long-term relationships with individual customers to foster loyalty and repeat business Good CRM incorporates technologies and information that allows businesses to develop marketing strategies to sustain long-term customer relationships In 2004, the American Marketing Association revised the definition of marketing to reflect a new focus on value for customers and to recognize the importance of managing customer relationships. Certainly, an organization-wide consumer orientation is of paramount concern to all businesses today. However, this intense focus on customer satisfaction was not always the case. Since the late 1990s, organizations have tried to build on their marketing concept successes by intensifying the entire organization’s focus on customer satisfaction over time. The result has been the creation of customer relationship management (or CRM), the process of establishing long-term relationships with individual customers to foster loyalty and repeat business. It combines computer information technology with customer service and marketing communications to retain customers in order to stimulate future sales of similar or supplementary products. The idea is to learn as much as possible about customers and create a meaningful one-on-one interaction with each of them. The sales force gathers information about specific customers to create a customer database. CRM enables the company to offer products tailored to these specific customers’ needs and desires. © 2014 Pearson Education, Inc.

10 Nontraditional Marketing
The objective of traditional marketing is to generate a profit. Many not-for-profit organizations also have an interest in marketing. Rather than a product or service, these organizations look to market an event, cause, place, or person. Countries, states, and cities also run marketing campaigns to attract tourists and businesses to their locations. Churches and other civic organizations market their missions to attract new membership. Museums and zoos also undertake “place marketing” by emphasizing the value of visiting their locations. © 2014 Pearson Education, Inc.

11 © 2014 Pearson Education, Inc.
Benefits of Marketing: Marketing Provides Value…the product benefits are greater than or equal to its price Society Investors & employees Sellers Consumers Utility…ability of product to satisfy customer need or want Value…product benefits are greater than or equal to its price Learning Objective 2: What are the benefits and criticisms of marketing? Society at large benefits from successful marketing because scarce resources are more efficiently allocated or channeled into the production of those goods and services most desired by society. When resources are utilized more efficiently, society is able to consume more products, increasing the average standard of living. Investors, as stakeholders, receive profits to reward them for devoting their financial resources to organizations that are successful. Employees benefit from successful marketing because their jobs and livelihoods are more secure. Sellers, as stakeholders, benefit from successful marketing because their profits enable the organization to prosper and continue to provide value to customers. Consumers benefit from marketing. Marketers don’t really create needs. Instead, they respond to them. Indeed, many businesses have become extremely profitable by finding a need and satisfying it. If a company is unable to convert customer need into a desire for their product, then that company will not succeed. There are four kinds of utility that marketing provides to customers: When a company produces a product form that pleases the customer from raw materials it creates form utility. When the store sells a product it transfers ownership from the store to the customer, creating ownership utility. The buyer derives satisfaction from owning the item. When the business makes a product available when it is needed it creates time utility. When a product you want to buy is stocked at your local store, the store creates place utility. How do customers measure value? The value of a product equals the ratio of the product’s benefits to its costs. With a high-value product, its benefits far exceed its costs. A low-value product has few benefits in relation to its costs. Organizations that offer the highest-valued products win the most customers and thrive. © 2014 Pearson Education, Inc.

12 The ability of a product to satisfy needs and wants.
Marketing Provides Utility: Utility is the ability of a product to satisfy consumer needs Form Utility Utility created by converting production inputs into finished products (ex. BMW car, Apple iPhone) Time Utility Utility created by making a product available when customers wish to purchase it (ex. fast food after midnight, Christmas trees after Thanksgiving) The ability of a product to satisfy needs and wants. Possession / Ownership Utility Utility created by transferring title (or ownership) of a product to a buyer (ex. credit card acceptance at stores, finance depts at car dealerships) Place Utility Utility created by making a product available at a location where customers wish to purchase it (ex. popcorn at movie theatre, a pair of jeans at department store) © 2014 Pearson Education, Inc.

13 Criticisms of Marketing
Misuse of personal information Hidden fees Consequences of purchase Over time, certain social shortcomings have emerged from marketing techniques. Here are a few examples of the costs to society of questionable marketing: Misuse of personal information—Companies conduct marketing surveys to find out the marital status, annual income, age, sex, race, and other characteristics of their primary customers. Many of us feel violated when this personal information is not adequately protected or is resold without our permission, especially in the age of identity theft. Hidden fees—Many of us feel taken advantage of when we must pay “hidden” fees and charges not included in the advertised price. Products that require additional parts or shipping and service fees often make costumers upset Consequences of purchase—Unscrupulous marketing may take advantage of less sophisticated members of society. This is especially important when purchasing expensive or sophisticated goods and services, such as a car or a mortgage on a home. Similar concerns emerge when marketing is directed at children. The many criticisms of marketing should not be taken lightly. These concerns may help explain the strong support for consumer protection laws and other regulations governing business behavior. © 2014 Pearson Education, Inc.

14 Markets and Their Classifications
A group of individuals or organizations, or both, that need products in a given category and that have the ability, willingness, and authority to purchase such products 2 Main Types of Markets 1) Consumer markets Purchasers and/or household members who intend to consume or benefit from the purchased products and who do not buy products to make a profit 2) Business-to-business (industrial) markets Producer, reseller, governmental, and institutional customers that purchase specific kinds of products for use in making other products for resale or for day-to-day operations © 2014 Pearson Education, Inc.

15 Differences Between B2B & Consumer Markets
The difference between consumer and business-to-business, or B2B, markets hinges on who’s doing the buying. If a good or service is purchased in a B2B market, it is purchased by a business for further processing or for resale or to facilitate general business activity. The B2B market is significantly larger compared to consumer markets because virtually all consumer products go through a number of distributors or wholesalers before reaching the final consumer at a retail outlet. Each time an unfinished product is bought and sold through the many stages of a product’s development, a separate B2B market exists. There are several key differences between consumer and B2B markets. The more important characteristics of B2B markets include: A few buyers that purchase in large quantities. Business-to-business markets typically involve a few buyers that purchase very large quantities. Highly trained buyers. Most business purchasing agents are highly skilled at their jobs. They often weigh the benefits and the costs in a more systematic fashion and are less influenced by emotional factors than buyers in consumer markets. Group purchasing decision. A team of individuals within purchasing departments usually collaborates in making a purchasing decision in B2B markets. Close customer relationship. Because there are only a few sophisticated buyers who purchase large quantities, marketers find it necessary to establish a much closer relationship with customers compared to the relationship with buyers in consumer markets. Geographically concentrated buyers. Most buyers in B2B markets are concentrated in a few of the most industrialized states where most large businesses are located. Direct purchasing. Often buyers in B2B markets purchase directly from sellers, as opposed to consumer markets, where products typically go through many wholesalers before the product arrives to the end user. © 2014 Pearson Education, Inc.

16 © 2014 Pearson Education, Inc.
Marketing Strategy: A formal plan that will enable an organization to make the best use of its resources and advantages to meet its objectives Consists of 2 Basic Steps: Identify your Target Market – the specific group of potential customers on which a firm directs its marketing efforts Create your Marketing Mix – the combination of controllable elements of a marketing plan designed to serve a target market, including product, price, distribution and promotion Learning Objective 3: What are the elements of a marketing strategy and the components of the marketing mix? A marketing strategy consists of two major elements: the organization must determine its target market and then develop a marketing mix to meet the needs of that market. The target market is a specific group of potential customers on which a firm focuses its marketing efforts. The marketing mix is the combination of four factors, called the “4 Ps” of marketing, designed to serve the target market. The idea is to provide the product that customers need and want at an appropriate price and to promote its sale and place or distribute the good or service in a convenient location for the customer to purchase. The 4 Ps of the marketing mix need to be blended in the most appropriate manner to best meet the needs of the target market. Finding the best blend of the 4Ps is constrained by environmental factors outside the firm’s control. © 2014 Pearson Education, Inc.

17 © 2014 Pearson Education, Inc.
The 5 Cs of Marketing Are there other ways to perform a situational analysis? Another useful tool for conducting a situational analysis is by analyzing the 5 Cs of marketing. This type of situational analysis looks at a company, its collaborators, its customers, its competitors, and the climate. It can be used separately, or in conjunction with analyzing the strengths, weaknesses, opportunities, and threats of its market environment. © 2014 Pearson Education, Inc. 12-17

18 Finding A Target Market
Target market selection and evaluation Target market A group of individuals, organizations, or both for which a firm develops and maintains a marketing mix suitable for the specific needs and preferences of that group Market segment A group of individuals or organizations within a market that share one or more common characteristics Market segmentation The process of dividing a market into segments and directing a marketing mix at a particular segment or segments rather than at the total market © 2014 Pearson Education, Inc.

19 A Well Chosen Target Market
Size: There must be enough people in your target group to support a business Profitability: The people must be willing and able spend more than the cost of producing and marketing the product Accessibility: Your target must be reachable through channels that your business can afford Limited Competition: Look for markets with limited competition; a crowded market is tough to crack © 2014 Pearson Education, Inc.

20 Common Bases for Segmentation
Once an organization has evaluated its internal strengths and weaknesses, as well as the external opportunities and threats of the market environment, it is ready to select its target market. Some firms focus so much on one specific market that they undertake niche marketing, or marketing a product to a very narrowly defined set of potential customers. Finding a target market begins with market segmentation, the process of separating the broader market into smaller markets that consist of similar groups of customers. A market segment is a subgroup of potential customers who share similar characteristics and therefore have similar product needs and preferences. Marketers choose those market segments that offer the greatest profit potential, and these become the target markets. Geographic segmentation is market segmentation according to geographic characteristics. For example, food preferences, air conditioning, and heating needs differ by regional climate differences. Demographic segmentation is market segmentation according to age, race, religion, gender, ethnic background, and other variables. For example, automobile companies are keenly aware of how important it is to position models to appeal to different age groups, income levels, and genders. Psychographic segmentation is market segmentation based on lifestyles, personality traits, motives, and values. Harley-Davidson offers a wide variety of motorcycles, and each model attempts to cater to a particular lifestyle. Behavioral segmentation is market segmentation based on certain consumer behavior characteristics, such as the benefits sought by the consumer, the extent to which the product is consumed, and price sensitivity. For example, a company that produces herbal supplements is appealing to the specific benefits sought by their consumers. © 2014 Pearson Education, Inc.

21 The Marketing Mix: The 4 Ps
Product differentiation Brand Product Cover costs Competitively priced Price Inform and persuade customers to buy Build positive customer relationships Promotion Distribution channel Distributors and wholesalers Place Product Decisions about product’s design, purpose, brand name, packaging, and warranties Price Decisions based on price setting (what to charge for product) including rebates, and discounts Promotion Decisions that sellers use to persuade and communicate to people to buy their products / services Product differentiation is the creation of a real or perceived difference in a product designed to attract customers. Product differentiation can take the form of functionality, styling, quality, safety, packaging, warranty, accessories, or brand name image. A brand is a name, term, symbol, or design that distinguishes a company and its products from all others. There’s a lot to consider when deciding on the price for a product. Of course, the price will have to be sufficient to cover costs if you wish to make a profit. However, the product must be competitively priced in order to appeal to customers. Promotion consists of all the methods to inform and persuade targeted customers to buy a product and to build positive customer relationships. Communicating the benefits of your good or service to customers includes advertising, sales promotions, personal selling, public relations, direct marketing, and publicity. The place (or distribution) component of the marketing mix refers to all the methods involved in getting the product into the hands of customers. Many goods, like grocery store items, go through a distribution channel, which is a series of firms or individuals that participate in the flow of a product from manufacturer to consumer. The middlemen in a distribution channel are sometimes called distributors or wholesalers. Place (Distribution) Decisions based on moving products from producers to consumers (marketing channels) © 2012 Pearson Education, Inc.

22 © 2014 Pearson Education, Inc.
The 4 Cs There are other ways to characterize the marketing mix. The 4 Cs looks from the perspective of the consumer. Product strategy is replaced by consumer. This represents the trend towards creating customer specific product solutions. Pricing is replaced by cost to satisfy. This recognizes that price is only part of the cost of ownership. For example, customers will value pleasant service or the travel time to make a purchase. Place is replaced by convenience to buy. With many sales happening online, convenience is a major factor in purchase decisions. Finally, promotion is replaced by communication. With mobile devices and social networking, there are many more ways to communicate with customers. © 2014 Pearson Education, Inc.

23 © 2014 Pearson Education, Inc.
The Marketing Process Learning Objective 4: How do firms implement a marketing strategy by applying the marketing process? The marketing process is as follows: Identify a Market Need. Finding an unmet need and determining a product or service that would meet this need is the first step in the marketing process. Conduct Market Research and Develop a Marketing Plan. The next step is to conduct research on the profitability of a potential business. Will there be sufficient demand? Identify Target Customers. The third step is to select a target market. Without this focus, a company will waste effort and money promoting a service to individuals not interested in its product. What does this ideal customer do, think, want, and use? Implement the 4 Marketing Mix (the 4 Ps and the 4 Cs). Once the company selects a target market, the fourth step is to implement the marketing mix, or the 4 Ps of marketing—product, price, promotion, and place. Nurture Good Customer Relationships. The final step in the marketing process is to manage customer relationships. As we noted earlier, the goal of customer relationship management is to establish long-term trusting relationships with individual customers to foster loyalty and repeat business. Above all, it’s critical to personalize and maintain good customer relationships. Marketing is an ongoing process of tweaking a business to satisfy customers in order to ensure quality, value, and repeat business. © 2014 Pearson Education, Inc.

24 The Marketing Environment
Markets must conduct environmental scanning to analyze the external environment External environment includes competition and market share analysis Key external factors must be considered: Economic Social/Cultural Technological Political/Legal Competitive Global Learning Objective 5: How does the marketing environment influence a firm’s ability to manipulate its marketing mix? The 4 Ps in the marketing mix are variables under the direct control of an organization. However, the marketing environment includes environmental influences outside the firm’s control that constrain the organization’s ability to manipulate its marketing mix. One of the key responsibilities of managers in any organization is to undertake environmental scanning, the process of surveying the market environment to assess external threats and opportunities. A successful business detects changes in the market environment and adjusts its marketing mix quickly and appropriately, in as much as the overall market environment will allow them to do so. The degree of competition impacts the firm’s production, pricing, promotion, and distribution strategies. The economic environment can affect customers’ willingness and ability to spend their money on a firm’s product. Marketers must keep abreast of changes in inflation, interest rates, unemployment, economic growth rates and global economic trends. Advances in communications and transportation technologies may be one of the most influential factors affecting modern business. Think of the impact the Internet has made. Successful marketing requires use of the latest technologies to reach and satisfy target customers wherever they may be. Demographic shifts—such as age, gender, ethnicity, and marital status—and changing values can signal opportunities for businesses. For example, we can expect the demand for medical care and nursing homes to increase as the average age of the population increases. We’ve also observed greater demand for convenience foods and restaurant services over the years as lifestyles have changed. Businesses try to wield political influence through contributions to political parties, individual candidates, and political action committees because government laws and regulations significantly impact business interests. Regulatory agencies such as the Environmental Protection Agency and the Federal Trade Commission enforce laws and regulations constraining marketing efforts. © 2014 Pearson Education, Inc.

25 Consumer Behavior: Decisions! Decisions! Decisions!
The ways individuals or organizations search for, evaluate, purchase, use, and dispose of goods and services Knowledge of consumer behavior helps marketers: select the most profitable target markets implement the marketing mix Understanding customers is critical Learning Objective 7: How do the buying decisions and marketing processes in the business-to-business market compare to those in the consumer market? The term consumer behavior refers to the ways individuals or organizations search for, evaluate, purchase, use, and dispose of goods and services. Notice that consumer behavior involves the study of individual consumers or business organizations as buyers in the market. Most of us intuitively think of a market as being a consumer market. Consumer markets are the markets we, as consumers, are most familiar with. In a consumer market, individuals purchase goods and services for personal consumption. But there are also business-to-business markets. In business-to-business markets, businesses purchase goods and services from other businesses. Knowledge of consumer behavior helps marketers select the most profitable target markets and guides the implementation, evaluation, and control of the marketing mix for selected targeted markets. For example, consumers are becoming increasingly concerned about gas mileage. Automobile companies that realize this can create more gas-efficient cars or drop the prices on less-efficient models to compensate for poor gas mileage. Why do people buy one product but not another? How do they use the products they buy? © 2014 Pearson Education, Inc.

26 Understanding Today’s Customers
Today’s Customers are: Sophisticated Demanding Price Sensitive Why is Customer Satisfaction Important? Getting new customers costs more than keeping them. Long-term customers boost profits. Satisfied customers tell their friends. Customers pay more for good service. Unhappy customers spread the word. © 2014 Pearson Education, Inc.

27 Marketing Research & Planning: So What Do They REALLY Think?
Marketing research involves gathering, interpreting, and applying information to uncover opportunities and challenges Identify external opportunities Monitor and predict customer behavior Evaluate and improve marketing mix Learning Objective 6: What is the marketing research process and what are the elements of a good marketing plan? Market research is the process of gathering and analyzing market information for making marketing decisions. It consists of five steps: Define the Need, Problem, or Objective. Marketing managers and researchers need to work together to clearly define the objective of the research. They should determine the exact nature of the business need, problem, or opportunity; the information desired; and why that information will be helpful to the manager. Collect Relevant Data. Determining which types of data will be collected and how the information will be collected is the next step. Two general types of data exist: primary and secondary. Analyze Data. Analysis of data uses statistical techniques. Honest analysis is necessary. Interpret Results. Careful analysis will lead to conclusions about marketing strategies that have more favorable benefits in relation to their costs. Act on Conclusions. The whole purpose of marketing research is to point managers toward better marketing decisions. Marketing research should therefore be ongoing. Changing market conditions require businesses to continually adapt and constantly search for better ways to provide value to customers. Why to find information? 1) Secondary Data – Information that already exists, has already been collected 2) Primary Data – Information collected specific to the problem © 2014 Pearson Education, Inc.

28 Primary & Secondary Sources of Data
Primary data is raw data collected by the researcher. The data are frequently collected through observation, questionnaires, surveys, focus groups, interviews, customer feedback, samples, and controlled experiments. A focus group is typically a group of eight to ten potential customers who are asked for feedback on a good or service, advertisement, idea, or packaging. They’re often used in test-marketing an idea or new product. Secondary data is data that has already been collected and processed. An example of secondary data is census data. This information is usually much cheaper to obtain. © 2014 Pearson Education, Inc.

29 The Consumer Decision-Making Process
Need recognition Information search Evaluation of alternatives Purchase or no purchase decision Postpurchase evaluation Not all consumers go through each step in the process, and the steps do not need to be completed in the same order. The process can be interrupted at any time with a “no purchase” decision. © 2014 Pearson Education, Inc.

30 What Influences Consumer Decision Making?
There are many influences on consumer decision making: Sociocultural influences on buying decisions include the buyer’s culture, subculture, social class, family, and peers. Personal influences on a buyer’s consumption choices are often shaped by their age, economic situation, lifestyle, and personality. Psychological influences include differences in the buyer’s motivation, perception, attitudes, and learning. One of the key goals of marketing is to shape the perception of a product in the minds of consumers. Attitudes toward a product put customers in a frame of mind that either predisposes them to view the product favorably or not. Situational influences include the physical surroundings, social surroundings, and the type of product purchased. Complex, expensive, and infrequently purchased products like a new home will likely elicit a greater degree of information searching and thoughtful evaluation of alternatives. Marketing mix influences include the product, price, promotion, and distribution aspects of purchases. Some of these influences, like personal influences, are outside the control of marketers, while other influences, like psychological influences, can be impacted by businesses. © 2014 Pearson Education, Inc.

31 © 2014 Pearson Education, Inc.

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