1. Chapter 10
Marketing

2. 10-1 Marketing Basics
After finishing this section, you will be able to:
Define important marketing concepts
Identify the steps in a marketing strategy
Describe the consumer decision-making process

3. Understand Marketing
Marketing- organizational function and a set of processes for creating, communicating, and delivering value to customers and managing customer relationships in ways that benefit the organization and its stakeholders
A complex but key part of every business

4. Marketing Activities
As a consumer, you are exposed to marketing activities all the time.
You see or hear advertisements for products and services.
You see the brand names on packages of food and clothes
You read descriptions on a company’s Web site
You interact with salespeople at a retail store

5. There are less obvious but equally important marketing activities:
Storing products in warehouses and distribution centers
Moving the products to places where they will be used or sold
Establishing and accepting credit
Arranging means of online payment

6. Not all marketing is aimed toward final consumers
Businesses market products and services to other businesses
More time and money is spend in business-to-business marketing than business to consumers

7. Marketing Businesses
All businesses must complete some marketing activities even if it is not its focus.
Many businesses are directly involved in marketing.

8. Marketing businesses include: Advertising agencies
Market research firms
Transportation companies such as:
Trucking
Railroad
Air freight
Shipping and delivery companies- provide express pickup and delivery of documents and packages
Financial service companies- issue and manage credit cards and grant loans to businesses
Wholesalers and retailers- store, distribute, and sell products

9. Marketing Functions
Marketing activities can be categorized into seven functions, each of which take place every time a product or service is developed and sold.

10. Product and service management- designing, developing, maintaining, improving, and acquiring products and services that meet consumer needs
Other businesses are involved in product/service management when they obtain products for resale
Services are created and provided by the employees of a service business

11. Distribution- involves determining the best ways for customers to locate, obtain, and use the products and services of an organization
Careful shipping, handling, and storing of products are needed for effective distribution

12. Selling- communicating directly with potential customers to determine and satisfy their needs
Can be face-to-face, over the phone, or videoconferencing with a customer

13. Marketing-information management- obtaining, managing, and using market information to improve business decision-making and the performance of marketing activities
Includes market research and the creation of databases with information about products, customers, and competitors

14. Financial analysis- budgeting for marketing activities, obtaining needed funds, and providing financial assistance to customers
Customers must have the resources to pay for their purchase
Businesses must receive timely payments to continue to operate

15. Pricing- setting and communicating the value of products and services
Customers must easily be able to identify the price or they will move on to another product
Consumers want to know they are getting a fair value for their money

16. Promotion- communicating information about products and services to potential customers
Advertising is done through tv, newspapers, magazines, radio, direct mail, and the Internet
Other methods include; contests, product displays, and sponsorships

17. Checkpoint>>
Why is it important for businesses to consider/complete each of the seven marketing functions?

18. MARKETING STRATEGY
Marketing activities often cost 50% or more of the selling price of a product.
In order for a company to make a profit, marketing must be carefully planned.

19. Marketing Planning
Marketing strategy- company plan that identifies how it will use marketing to achieve its goals
Developing a marketing strategy is a two step process:
Step 1
Target market- a specific group of consumers who have similar wants and needs
Many companies try to promote their products to a wide group of consumers with similar wants and needs.
Focusing on a target market makes it easier for companies to develop products and services that specific consumers want.

20. Step 2
Marketing mix- blending of four marketing elements –product, distribution, price, and promotion
A successful marketing mix satisfies the wants and needs of the target market and provides profit for the company.

21. Develop a Successful Marketing Strategy
To increase the chances of developing a product or service that meets customer needs and can be sold at a profit, companies adopt a marketing orientation.

22. Business people don’t assume they know what customers want.
Marketing orientation- considers needs of customers when developing marketing mix
Business people don’t assume they know what customers want.
They use research to study customers and their needs.
Results of the research used to plan marketing mix to meet customer needs

23. Checkpoint>>
Why are both steps in developing a marketing strategy important to the success of businesses?

24. UNDERSTAND CUSTOMERS Effective marketing begins with customers
Many new businesses fail because owners have an idea for a product but fail to consider customers and their needs.
If customers do not see a need for a product or think they have better choices the product won’t succeed

25. Businesses can develop products for two types of consumers:
Final consumers- people who buy products and services for their own use
Business consumers- people, companies, and organizations that buy products for the operation of a business for incorporation into other products and services, or for resale to their customers

26. Consumer Decision Making
Consumer decision-making process- specific sequence of steps consumers follow to make a purchase
Both the steps and the sequence of decisions are the same for all consumers.
The length of time taken to complete the process and the information used to complete each step might be quite different from one consumer to the next.

27. Steps in the Consumer Decision-Making Process
1. recognize a need
2. gather information
3. select and evaluate alternatives
4. make a purchase decision
5. determine the effectiveness of the decision

28. Step 1 If the need is urgent, you will try to satisfy it right away.
If it is less important, you may put it off or even ignore it.
If it is a need that has been satisfied before, you will use previous experience to help make a decision.

29. Step 2 People use information to make decisions.
Choose sources that you trust and that provide information you understand.
Using this information, you will select very few products that seem to meet your needs.

30. Step 3
Once the choices are narrowed, you will compare them to determine if one appears to be a better choice or a greater value than the others.

31. Step 4
Based on the information you have obtained and the urgency and importance of the need, you will make a decision.
The decision is usually to buy the product that is best for you.
The decision may also may be not to buy due to no satisfying choices or lack of experience to make a good choice

32. Step 5
If the product was not what you expected, you will likely not purchase the product again.

33. Buying Motives
Buying motives- reasons consumers decide what products and services to purchase
Emotional buying motives- reasons to purchase based on feelings, beliefs, and attitudes
Rational buying motives- guided by facts and logic

34. Checkpoint>>
Why is it important to follow all steps in the consumer decision-making process?

35. 10-1 Assessment
Complete the 3 assessment questions for section 10-1 located at the end of the packet.

36. 10.2-Develop Effective Products and Services
After finishing section two, you will know:
Justify the importance of marketing research
Identify the components of a product
Describe how services differ from products

37. CREATE AND IMPROVE PRODUCTS
Often products that are identified as new in advertisements are not new at all.
Some type of change has been made in the product that may be a major improvement.
The change may also be a minor one that provides little benefit to the customer.
The business calls the product new to attract the attention of customers and encourage them to buy.

38. Totally new products that have never been seen before by customers are not often introduced.
Most products you use today are major or minor improvements in existing products.
Example: A CD or MP3 player uses new technology to store and replay music.
New improvements occur through the development of new technology or redesign of current products.
Marketing research- finding solutions to problems through carefully designed studies involving consumers

39. Plan Marketing Research
Many types of research procedures can be used to solve marketing problems.
Each type of research follows the scientific problem solving process:
1. Define the marketing problem
2. Study the situation
3. Develop a data collection procedure
4. Gather and analyze information
5. Propose a solution

40. Secondary research- analyzing existing information gathered for another purpose but used to solve a current problem
Primary research- studies carried out to gather information specifically directed at a current problem

41. Types of Research Studies
Surveys- gather information from people using a carefully planned set of questions
Focus groups- small number of consumers take part in a group discussion
Less structured way of gathering ideas, experiences, and opinions
Group leader acts to identify areas of agreement and disagreement and to develop new ideas

42. Observations- collect information by recording the actions of consumers rather than asking them questions
Experiment- presents two carefully controlled alternatives to subjects in order to determine which is preferred or has better results

43. Checkpoint>>
Why is it important to follow all steps in the Marketing Research Study?

44. PRODUCT PLANNING
Each part of the marketing mix is important when you decide to buy a product.

45. Parts of a Product
Product- everything a business offers to satisfy a customer’s needs
Basic product- simplest form of a product
Not unique and usually available from several companies.

46. Product features- additions and improvements to the basic product
Options- features offered to customers
Example: When buying a car, features offered to customers include color, engine size, manual or automatic transmission.

47. Brand name- unique identification for a company’s products
Packaging- provides protection and security for the product before it is used
May make product storage easier.
Example: A new container for ground coffee is created with indentations that allow customers to pick it up easily with one hand. This was changed because some customers struggled with the original container.
Package is also a convenient way to provide information to customers that helps them make a purchase decision or explain a product.

48. Guarantee or warranty- if a product breaks or does not meet customer expectations, the company will repair, replace, or provide a refund.

49. Product Planning Procedures
New product planning is a costly and time-consuming process

50. There are six steps to new product planning:
idea development- generating new product ideas is a creative process
idea screening- companies evaluate ideas to determine which have the best chance to be successful
strategy development- target market is studied and alternative marketing mixes are developed and tested

51. production and financial planning- the company develops a production procedure and identifies the facilities, equipment, and people that will be needed to produce the product.
limited production and test marketing- if a new product idea makes its way through the planning process , a company may produce a limited quantity to test it on the market.
full-scale production- if each of the preceding steps is completed successfully, the product will move into full-scale production and marketing.

52. Checkpoint>>
What are the components (parts) of a product?

53. SERVICES
Services- activities that are consumed at the same time they are produced
Intangible- having no physical form
Marketers must find a way to describe the service in understandable ways.

54. Effective service marketing is done in much the same way as product marketing; using the two-step marketing strategy:
Step 1- identify the target market
Step 2- develop a marketing mix that appeals to the market
In addition to the service itself, the marketing mix includes distribution, pricing and promotion.

55. Inseparable- consumed at the same time they are produced
The person or technology must be available when and where the customer needs it
Perishable- the availability of a service must match the demand for that service at a specific time
Cannot be stored for later consumption
Example: If all seats at a concert are filled, no more people will be able to hear that performance.

56. Heterogeneous- there will be differences in the type and quality of service provided
Because people usually provide services at the time they are consumed, there is less control over quality than is possible with products.

57. Checkpoint>>
In what ways are services different from products?

58. Assignment
Complete the three 10-2 Assessment Questions at the end of your packet.

59. 10-3 Price and Distribute Products
After finishing this section, you will be able to:
Discuss how the selling price of a product is calculated
Differentiate between a direct and an indirect channel of distribution

60. VALUE AND PRICE
When you decide to purchase a product, how do you determine what to pay?
Do you always pay the price that is marked on the product by the seller?
Do you compare prices of several businesses to find the lowest price?
Do you consider how much money you will have available to spend on other things?
Buyers usually want to pay the lowest price possible and sellers what to charge the highest price possible.

61. Pricing Factors Supply and demand
A product that has a ready supply will have a lower price than a product with a very limited supply.
If demand for a product is high, prices will increase.
Products with low levels of demand will have comparatively low prices.

62. Uniqueness
When a product has few competitors because it is unique, the price will be higher than similar products.
Age
When products are first introduced to the market, their prices will be high.
As products age, the price gradually decreases.

63. Season
Many products are used at a particular time of year
Examples: winter apparel, air conditioners, and holiday decorations.
These products have high levels of sales for a short time and then almost no sales for the rest of the year.
Prices will be highest right before and at the beginning of the season.
Prices will be lower during other times of the year.

64. Complexity
Highly complex and technical products have higher prices than simple products.
Products with many features and options will also cost more.
Convenience
If a product is easily available and the seller provides a high level of customer service, prices will go up.
Customers expect to pay low prices if they shop at a large warehouse store that offers little service.

65. Price a Product
Price- money a customer must pay for a product or service
The price of a product changes as it moves from producer to consumer.
The manufacturer sets a price that is paid by other businesses that will sell the product to the final consumer.

66. The price is set by the business following a formula that identifies the components of the price:
Selling Price = Product Costs + Operating Expenses + Profit

67. Selling price- price paid by the customer for the product
Product costs- costs to the manufacturer of producing the product or price to businesses to buy the product
Operating expenses- all expenses of operating the business associated with the product
These can include; salaries, storage and display equipment, facilities, utilities, or taxes.

68. Profit- amount of money available to the business after all costs and expenses have been paid.
Gross margin- difference between selling price and the product costs
Represents the amount of money on hand to pay for operating expenses and provide a profit.

69. Markup
A pricing concept related to gross margin.
Markup- amount added to the cost of a product to set the selling price.

70. Markdown
Businesses are not always able to sell products at the original price.
If customer demand is not as high as projected, the selling season is ending, or if there is a flaw in the product, the business may have to take a markdown.
Markdown- reduction from the original selling price

71. Checkpoint>>
What is the formula for calculating the selling price of a product?

72. CHANNELS OF DISTRIBUTION
Distribution- locations and methods used to make a product or service available to the target market
Channel of distribution- the route a product follows and the businesses involved in moving a product from the producer to the final consumer

73. Need for Distribution Channels
In complex economies, exchanges of goods are difficult due to several differences existing between producers consumers.
Differences in Quantity
Businesses produce or sell large amounts of each product to many consumers.
Each consumer needs only a very small number of products at a given time.

74. Differences in Assortment
Businesses typically specialize in producing a specific type of product while consumers want to purchase a variety of products.
Differences in Location
It today’s global economy, thousands of miles often separate producers and consumers
Businesses may need to distribute their products to customers in many countries.

75. Differences in Timing
Businesses gain efficiency by producing large amounts of a product at one time.
Some agricultural products can only be produced at a specific time of the year.
Consumers may want to buy products at different times than when they are produced.

76. Channels and Channel Members
Channel members- businesses that take part in a channel of distribution
Direct channel of distribution- products move from the producer straight to the consumer
Indirect channel of distribution- includes one or more others businesses between the producer and consumer
Channel members may be: transportation companies, sales organization, or financial institution

77. Retailers- final business in an indirect channel of distribution for consumer products
Offer a range of products at convenient locations for consumers.
Help consumers select the best products
Provide financing and delivery services
Assist manufacturers by storing, displaying, and advertising products.

78. Checkpoint>>
What is the difference between a direct and an indirect channel of distribution?

79. Assignment
Complete the two questions at the end of your packet.