Chapter 3 Economic Benefits of Marketing

Learning Objectives Students will be able to 1. Define the 4 types of economic utility 2. Explain how marketers use utility to increase customer satisfaction

The Value of Marketing  Marketing bridges the gap between you and the maker or seller of an item.  Products are more useful because you can purchase them when you want.  Marketing makes buying easy for consumers.  Marketing helps to create new and improved products.  Marketing helps lower prices.

Marketing Matters Customers rarely analyze why they decide to buy products or services. They unconsciously make buying decisions based on the satisfaction they expect to receive from them. Businesses therefore try to increase consumers’ satisfaction by making improvements to products and services.

Satisfaction means Utility People select products and services based on which products and services will give them the most satisfaction for their money. Watch and Cell Phone!

Marketing Matters Economists have developed a concept called economic utility and identified various types of utility to explain why consumers get more or less satisfaction from different products. For businesses economic utility is important to help them develop better products.

Economic Utility  Products that provide great satisfaction have a high economic utility.  Products that provide little satisfaction have a low economic utility.  Businesses use economic utility to increase the chances that consumers will buy their products or services.

Economic Utilities The 4 primary ways businesses can increase the economic utility of a product or service are: 1. Changes in Form 2. Changes in Time 3. Changes in Place 4. Changes in Possession

Form Utility  Changing raw materials or putting parts together to make them more useful.  Making or producing things.  Tree in original state (beauty, prevents soil erosion, produces oxygen)  Tree cut down – usefulness increases. (Lumber to make pencils, paper, furniture, and buildings.)  The raw material (wood) becomes part of finished items that have more value to us than the raw material itself.  Assembling parts into a product.  Parts by themselves are useless, together they add form utility.

Time Utility  Making the product or service available when the customer wants it. Whatever time of the year or time of day.  A bank, doctor or dentist office that stays open in the evening.  IHOP serves breakfast all day.

Place Utility  Making a product or service available where the consumer wants them.  Check-cashing outlets and businesses that provide mailing, photocopying, and printing services are successful if they are located where consumers and businesses that need those services reside. A convenient location for products and services is an important utility for people with busy lives.

Place Utility  How do you know where customers want a product or service?  Study consumer shopping habits.  Most convenient location for consumers to shop. Walgreens on every corner!

Possession Utility  Affordability of the product or service.  Businesses can’t afford to cut the price.  Credit – allows people to purchase things for which they do not have enough cash at the time.  Pay gradually with monthly payments.

Possession Utility Examples: 1. Automobile dealerships lease new cars and trucks. Leasing = rent 2. Tuxedo rental (Prom) 3. DVD rental 4. Vacation House rental Finding creative ways to finance, rent, or lease products has become an important business activity today.

IPAD  Computer will act as a sort of missing link between the smartphone and laptop.  Touchscreen keyboard.  10-inch screen, runs existing apps from the Apple apps store and is available in 16-gigabyte, 32-gigabyte and 64-gigabyte versions.  Half-inch thick and weighs about 1½ pounds.  Lightning fast  1 GHz processor  $499 for the 16-gigabyte version, $599 for the 32-gig version and $699 for the 64 gigabyte  3G mobile access will cost an extra $130 on each  AT&T – No contracts  New York Times – Major League Baseball

Marketing Matters Challenge  Identify a product in this classroom and think about a change that you could make to that product that you believe would increase the satisfaction it provides to its users.

Marketing Functions and Economic Utilities Form Time Possession Place Market Planning Product & Service Management DistributionPricingPromotionSelling Marketing- Information Management FinancingRisk Management 9 Functions of Marketing 4 Economic Utilities

Financing Risk Management Selling Promotion Pricing Marketing Information Management Product & Service Management Market Planning Distribution 9 Functions of Marketing Which Marketing Function would be primarily responsible for the Economic Utility?

Financing Risk Management Selling Promotion Pricing Marketing Information Management Product & Service Management Market Planning Distribution 9 Functions of Marketing and Economic Utilities Place Possession Time Form

What else does Marketing do? Besides adding value to products, marketing activities also help increase demand for products. When demand is high, manufacturers can make products in large quantities, which reduces the unit cost of each product.

Lower Prices High demand – lower prices  Fixed costs (building rent) remain the same whether the company produces 10 units or 10,000  Larger quantity – less fixed costs per unit – lower price for product Quantity Fixed Cost Produced Per Unit 10,000 $ ,000.10

Marketing Increases Competition  As a product becomes popular, more competitors enter the marketplace. In order to be competitive, marketers find ways to lower their prices.  VCR  Original cost $  Now $  Cell Phone  Original Cost $3,000.  Now $149.00

Marketing also generates New and Improved Products  As competition increases, new and improved products enter the marketplace.  Businesses want to better satisfy customers’ wants and needs.  Larger variety of goods and services for consumers.  Personal Computer – Smaller, more powerful and less expensive.

New and Improved Products  Detergents demonstrate the change in consumer preference and competition in that market.  Powder – Liquid  Measuring top.  Easy to use containers.  Tablets

Marketing Adds Value  How else can your product be used?  Multiple uses means increased value which leads to increased customer satisfaction.  Baking Soda  A derivative of trona, a naturally occurring mineral mined in Wyoming.  1846 sold in 1 lb. bags as a baking ingredient

Marketing Adds Value  1970 and today used as a multipurpose household cleaner, an antacid, a deodorizer for the refrigerator/freezer, and a baking ingredient.  Baking soda can be found in:  Laundry detergent  Toothpaste  Shampoo  Scope Mouthwash  Odor Eaters Foot powder  Deodorant  No clinical proof that baking soda actually makes anything cleaner!

Baking Soda – A matter of ethics  Since there is no clinical proof that baking soda makes anything cleaner, is it ethical for the companies to suggest that it does? Marketers should not make claims that cannot be substantiated. This particular claim however, reflects how people feel when they use the product, not scientific fact.

What other products do you know can be used for multiple uses?

Marketing adds cost to the product.  Marketing costs represent approximately 50% of the selling price of an item. 1. Is marketing worth the additional cost?

Place Time Possession Information Selling Promotion Pricing Purchasing Marketing- Information Management Product/ Service Planning Distribution Assignment: Work in a group to create a marketing wheel for a product of your choosing. This could be a new product, or a change to an existing product. Financing Risk Management Selling Promotion Pricing Marketing Information Management Product & Service Management Market Planning Distribution Place Possession Time Form

Place Time Possession Information Selling Promotion Pricing Purchasing Marketing- Information Management Product/ Service Planning Distribution Product: Back Pack Financing Risk Management Selling Promotion Pricing Marketing Information Management Product & Service Management Market Planning Distribution Target large college campuses then diffuse into high schools. Every backpack comes with a free binder. $35.00 middle of competition Survey students and find out what they want in a backpack. Trucks On campus, parents buying school supplies. Direct market. Small business loan. Need more pockets, leather bottom and other compartments. Students in school in need of a better, easier to use backpack

Place Time Possession Information Selling Promotion Pricing Purchasing Marketing- Information Management Product/ Service Planning Distribution Product: Back Pack Financing Risk Management Selling Promotion Pricing Marketing Information Management Product & Service Management Market Planning Distribution Place Possession Time Form

Place Possession Time Product: Back Pack POSTER