Marketing
Notes 2013
Table of Contents
1: Marketing management ... 9
The 4 Cs...9
The marketing management process ...9
2: Corporate strategies and their marketing implications...10
The components of strategy... 10
The hierarchy of strategies ... 10
Key components of corporate, business and marketing strategies ... 10
Corporate mission... 11
Boston Consulting Group (BCG) Growth–Share Matrix ... 12
3: Business strategies and their marketing implications ...14
How business strategies differ in scope, objectives, resource deployments and synergy...16
Differences in marketing policies across different strategies ...17
4: Environmental analysis ...18
SLEPTD ...18
Opportunity/threat matrix ...19
5: Industry analysis and competitive advantage ...20
Pricing strategies... 20
Porter’s five competitive forces... 20
SWOT analysis...20
Rivalry among present competitors ...21
Potential competitors...21
Bargaining power of suppliers...21
Bargaining power of buyers ...21
Threat of substitute products ...22
Product adoption... 22
The adoption process ...22
Rate of adoption...22
Adopter categories ...23
Product life cycle ... 23
6: Understanding customer buying behaviour...26
Steps in high-involvement, complex decision-making process ... 26
Problem identification ...27
Information search...27
Evaluation of alternatives...28
Purchase...28
Post-‐purchase evaluation ...28
Low-involvement purchase decisions ... 29
Perception and memory... 29
Perception ...29
Memory ...30
Needs and attitudes ... 30
Non-‐compensatory attitude models ...31
Marketing implications of attitude models...31
Demographics and lifestyle... 31
Demographics...31
Lifestyles ...31
7: Understanding organisational markets & buying behaviour...32
Organisational purchasing / markets ... 32
Roles in the organisational purchasing process ... 32
Deciders...32
Buyers ...32
Influencers ...33
Users ...33
Gatekeepers...33
Types of buying situations... 33
Straight rebuy ...33
Modified rebuy ...33
New-‐task buying...33
The purchase decision-making process ... 34
Recognition of a problem or need...34
Search for information about products and suppliers...34
Evaluation and selection of suppliers ...35
The purchase...35
Performance evaluation and feedback ...36
Categories of goods bought by organisations ... 36
Raw materials...36
Component materials and parts ...36
Installations ...37
Accessory equipment ...37
Operating supplies...37
Business services ...38
8: Measuring market opportunities ...39
Forecasting tools... 39
Statistical and other quantitative methods...39
Observation ...39
Surveys ...39
Analogy...39
Judgement ...40
Market tests...40
SWAG...40
Mathematics entailed in forecasting... 40
Chain ratio forecast ...40
Indices...40
Market knowledge systems... 41
Internal record systems ...41
Marketing databases...41
Client contact management systems ...41
Competitive intelligence systems ...41
Marketing research... 42
Identify managerial problem and establish research objectives ...42
Determine data sources and types of data required...42
Design research...43
Analyse data ...43
Report results ...43
9: Market segmentation and target marketing ...44
Market segmentation and target marketing ... 44
Market segmentation ...44
Target marketing...44
Brand positioning ...44
Most markets are heterogeneous ... 44
Who they are: Segmenting demographically ...45
Where they are: Segmenting geographically ...45
How they behave: Behavioural Segmentation...45
Choosing attractive market segments... 46
A five-‐step process...46
Market-‐attractiveness/competitive-‐position matrix ...46
Market-‐attractiveness factors...46
Competitive-‐position factors ...46
Different targeting strategies for different opportunities ... 47
Niche-‐market strategy ...47
Mass-‐market strategy...47
Growth-‐market strategy ...47
10: Positioning decisions ...48
Differentiation... 48
Differentiation in business strategies ...48
Differentiation among competing brands ...48
Physical positioning ... 49
Perceptual Positioning...49
Brand positioning process ... 49
Step 1: Identify a relevant set of competitive products...50
Step 2: Identify determinant attributes...50
Step 3: Collect data about customer’s perception for products in the competitive set...50
Step 4: Analyse the current positions of product in the competitive set...50
Step 5: Determine customers’ most preferred combination of attributes...52
Step 6: Consider fit of possible positions with customer needs and segment attractiveness ...53
Step 7: Write positioning statement or value proposition to guide development of marketing strategy...54
11: Product Decisions ...56
Branding ... 56
Branding strategies ...56
Packaging decisions... 58
Managing product lines ... 58
Line filling...58
Line stretching...58
Line extensions ...59
Brand extensions...59
Dropping products ...59
Product systems ...60
New product development process decision ... 60
New product success and failure...60
Stage-‐gate new product development system ...60
Who staffs how many gates?...60
Gate 1: Idea generation and initial screening decisions...61
Gate 3: Decisions on the business case...61
Gate 4: Post-‐development review decisions ...61
Gate 5: Pre-‐commercialisation business analysis decisions ...61
Stage 5: Commercialisation decisions...62
12: Pricing decisions ...63
Strategic pricing objectives... 63
The price-‐setting decision process...63
Maximise sales growth ...63
Maintain quality and service differentiation...64
Maximise current profit ...64
Survival...65
Social objectives...65
Factors affecting customers’ price sensitivity ... 66
Price level... 66
Cost-‐oriented pricing...67
Competition-‐oriented methods ...68
Customer-‐oriented methods...69
Adapting prices to market variations... 70
Geographic adjustments ...70
Global Adjustments ...71
Discounts and allowances ...72
13: Distribution channel decisions...74
Designing Distribution Channels ... 74
Ways by which using middlemen improves market efficiency...74
Distribution channel objectives...74
Channel design alternatives ... 74
Marketing channels for consumer goods and services...74
Marketing channels for industrial goods and services ...75
Channel design for global markets... 75
Market entry strategies ...75
Channel alternatives ...76
Channel management decisions... 77
Vertical Marketing Systems...77
Sources of channel power ...78
Channel control strategies ...78
14: Integrated promotion decisions...79
Developing an Integrated Marketing Communications (IMC) plan... 79
Step 1: Define the audience to be targeted ...79
Step 2: Set the promotional objectives ...79
Step 3: Set the promotion budget ...79
Step 4: Design the promotion mix ...80
Step 5: Evaluate the results ...81
Implementing the strategic sales programme ... 82
The sales cycle ...82
Evaluating and controlling salesforce performance...83
15: Marketing strategies for new market entries...84
How new is new?... 84
Market entry strategies... 85
Pioneer strategy...85
Follower strategy ...85
16: Marketing strategies for growth markets...88
Opportunities and risks in growth markets... 88
Growth-market strategies for market leaders ... 88
Marketing actions and strategies to achieve share-‐maintenance objectives...89
Growth-‐Market strategies for market leaders ...89
Fortress (position defence) strategy ...90
Flanker strategy...90
Confrontation strategy...90
Market expansion strategy ...91
Contraction (strategic withdrawal) strategy ...91
Growth-market strategies for followers... 92
Frontal attack strategy...92
Leapfrog strategy ...93
Flanking and encirclement strategies ...93
17: Marketing strategies for mature and declining markets...96
The transition from market growth to maturity ... 96
Common strategic traps firms can fall into during the shakeout period...96
Strategic choices in mature markets ... 96
Strategies for maintaining competitive advantage ...96
Methods of differentiation ...97
Determinants of perceived service quality...98
Methods of maintaining a low-‐cost position ...99
Marketing strategies for mature markets... 99
Strategies for extending volume growth ...99
Strategies for declining markets ...101
Marketing strategies for remaining competitors ...102
Harvesting ...102
Maintenance ...102
Profitable survivor...102
Niche...102
18: Organising and planning for effective implementation ... 103
Organisational structures...103
Functional Organisations...103
Product management organisations...104
Market management organisations ...105
Matrix organisations...105
SBU organisational structure for different strategies...105
Functional competencies and resource allocation ...106
Marketing plans ...106
Contents of an annual marketing plan...106
Situational analysis ...107
Key issues ...108
Objectives ...108
Marketing strategy ...109
Action plans ...109
Projected profit-‐and-‐loss statement...109
Contingency plans...109
19: Measuring and delivering marketing performance ... 110
Designing marketing metrics ...110
The control process...110
Identifying key variables ...112
Tracking and monitoring...112
Strategy reassessment ...112
Sales analysis ...113
The marketing audit...113
Marketing environment audit ...113
Objectives and strategy audit ...114
Planning and control system audit...114
Organisation audit ...114
Marketing productivity audit...114
Marketing functions audit ...115
Ethical audit...115
Product manager audit...115
A: Acronyms... 116
B: Quick cheat sheet... 117
The 4 Cs...117
The 4 Ps...117
BCG Growth–Share Matrix ...117
Strategies...117
Hierarchy ...117
Porter ...117
Robert Miles / Charles Snow...117
Environmental analysis...118
SLEPTD ...118
SWOT...118
Porter’s five forces...118
Pricing strategies...118
Product adoption process...118
Rate of adoption depends on ...118
Adopter categories ...119
Product life cycle ...119
5 steps of purchase decision-‐making process ...119
Roles in the organisational purchasing process ...119
Types of buying situations ...119
Categories of goods bought by organisations...119
Forecasting tools...120
Marketing research ...120
Market segmentation ...120
Market segmentation process ...120
Segmentation decisions...121
5-‐step process to choose attractive market segments...121
Different targeting strategies for different opportunities...121
Brand positioning process ...121
Managing product lines ...121
Pricing decisions...122
The 7-‐step price-‐setting decision process...122
Strategic pricing objectives...122
Setting a price level ...122
Adapting prices to market variations...123
Designing Distribution Channels ...123
Ways by which using middlemen improves market efficiency...123
Sources of channel power ...124
Developing an Integrated Marketing Communications (IMC) plan...124
Market strategies...124
Determinants of Success for Pioneers and Followers...124
Growth-‐Market strategies for market leaders ...125
Growth-‐market strategies for followers ...125
Marketing strategies for mature markets ...125
Marketing strategies for declining markets ...125
Organisational structures...125
Structural variables...125
Annual marketing plan...126
Marketing management control process ...126
Types of marketing audits...126
C: Exam topics ... 127
December 2012...127
June 2012...127
December 2011...127
June 2011...127
December 2010...127
June 2010...127
December 2009...128
June 2009...128
December 2008...128
June 2008...128
December 2007...128
June 2007...128
1: Marketing management
The 4 Cs
-‐ The company’s internal resources, capabilities and strategies -‐ The environmental context
-‐ The needs, wants and characteristics of current and potential customers -‐ The relative strengths and weaknesses of competitors
The marketing management process
“The process of analysing, planning, implementing, co-‐ordinating and controlling programmes involving the conception, pricing, promotion and distribution of products, services and ideas designed to create and maintain beneficial exchanges with target markets for the purpose of achieving organisational objectives.”
-‐ Integrating marketing plans with company strategies
o Corporate strategies and their marketing implications (Module 2) o Business strategies and their marketing implications (Module 3) -‐ Market opportunity analysis
o Environmental analysis: Tools to identify attractive markets (Mod. 4)
o Industry analysis and competitive advantage (Module 5)
o Understanding customer buying behaviour (Module 6)
o Understanding organisational markets and buying behaviour (Mod-‐ ule 7)
o Measuring market opportunities: forecasting and market research
(Module 8)
o Market segmentation and targeting marketing (Module 9) o Positioning decisions (Module 10)
-‐ Marketing programmes components (the 4 Ps)
o Product decisions (Module 11) o Pricing decisions (Module 12)
o Distribution decisions (place) (Module 13)
o Promotion decisions (Module 14)
-‐ Strategic marketing programmes for selected situations
o Strategies for new markets (Module 15) o Strategies for growing markets (Module 16)
o Strategies for mature and declining markets (Module 17)
-‐ Implementation and control
o Organising and planning for effective implementation (Module 18)
2: Corporate strategies and their marketing implications
“A strategy is a fundamental pattern of present and planned objectives, resource deployments and interactions of an organisation with markets, competitors and other environmental factors.”
The components of strategy
A well-‐developed strategy contains five components or sets of issues: -‐ Scope
-‐ Goals and objectives -‐ Resource deployments
-‐ Identification of sustainable competitive advantage -‐ Synergy
The hierarchy of strategies
Three major levels of strategy -‐ Corporate strategy -‐ Business-‐level strategy -‐ Functional strategy
Key components of corporate, business and marketing strategies
Strategy component
Corporate strategy Business strategy Marketing strategy Scope “Which business
should we be in?”
“Which product-‐
markets should we be in within this
business or in-‐ dustry?”
Target market definition
Corporate develop-‐
ment strategy Business develop-‐ment strategy Product-‐market development plan
Goals and
objectives Overall corporate objectives aggregated across businesses:
-‐ Revenue growth
-‐ Profitability -‐ ROI
-‐ EPS
Constrained by
corporate goals Constrained by corporate and business goals
Objectives aggregated
across product-‐
market entries in the business unit:
-‐ Sales growth -‐ New product or
market growth -‐ Profitability -‐ ROI
-‐ Cash flow
market-‐entry: -‐ Sales
-‐ Market Share -‐ Contribution
margin
-‐ Customer
satisfaction
Allocation of resources
Allocation among businesses in the corporate portfolio
Allocation among product-‐market entries in the business unit
Allocation across components of the marketing plan for a specific product-‐ market entry
Allocation across
functions shared by multiple businesses (corporate R&D)
Allocation across functional depart-‐ ments within the business unit
Sources of competitive advantage
Primarily through superior corporate financial or human resource
Primarily though competitive strategy
Primarily through effective product positioning
Better organisational
processes or
synergies relative to competitors across all industries
Business unit’s
competencies relative to competitors in the industry
Superiority on one or more compo-‐ nents of the marketing mix relative to
competitors within a specific product-‐ market
More corporate R&D
Sources of
synergy Shared resources Shared resources (including favourable customer image)
Shared marketing resources
Technical or
functional competen-‐ cies across busines-‐ ses within the firm
Functional compe-‐ tencies across product-‐market within an industry
Competencies or activities across product-‐market entries
Corporate mission
Boston Consulting Group (BCG) Growth–Share Matrix
Portfolio model developed by the Boston Consulting Group in the late 1960s. Analyses the impact of investing resources in different businesses on the corporation’s future earnings and cash flow.
Four quadrants:
Relative market share Market growth High Low
High Stars Question marks
Low Cash cows Dogs
Question marks
Businesses in high-‐growth industries with a low relative market share. Require large amounts of cash for keeping up with the expanding market and for
marketing activities. Can become a star if managed properly or a dog if not.
Stars
the short run due to the need to invest in R&D, production capacity and market-‐ ing activities to maintain market share.
Cash cows
Relatively high market share in a slow-‐growing (or mature) market. Generate profits and cash companies can use to promote stars and question marks. Do not require a lot of capital investment. Enjoy economies of scale and relatively high margins due to stable market and share leadership position.
Dogs
3: Business strategies and their marketing implications
Three different strategies (or competitive positions) according to Michael Porter to gain and maintain competitive advantage:
-‐ Overall cost leadership -‐ Differentiation
Building customer perception of superior product quality, design or service -‐ Focus
Avoid direct confrontation with major competitors by concentrating on narrowly defined market niches
Robert Miles and Charles Snow identified another set of business strategies based on a business’s intended rate of product-‐market development. They classify business units into four strategic types:
-‐ Prospector
o Operates within a broad product-‐market domain that undergoes pe-‐ riodic redefinition
o Values being a ‘first mover’ in new product and market areas o Responds rapidly to early signals concerning areas of opportunity
and these responses often lead to new rounds of competitive action
o Competes primarily by stimulating and meeting new market oppor- tunities but may not maintain strength over time in all markets it en-‐ ters
-‐ Defender
o Attempts to locate and maintain a secure position in relatively stable
product or service areas
o Offers relatively limited range of products or services compared to
competitors
o Tries to protect its domain by offering lower prices, higher quality or better service then competitors
o Usually not at the forefront of technological/new product develop-‐
ment in its industry
o Tends to ignore industry change not directly related to its area of op-‐
eration
-‐ Analyser
o An intermediate type: Makes fewer and slower product-‐market chan-‐
ges than prospectors but is less committed to stability end efficiency than defenders
o Attempts to maintain a stable, limited line of products or services but carefully follows a selected set of promising new developments in its industry
o Seldom a first mover but often a second or third entrant in product-‐
markets related to its existing market base – often with lower-‐cost or higher-‐quality product or service offering
-‐ Reactor
o Lacks any well-‐defines competitive strategy
o Does not have as consistent a product-‐market orientation as its com-‐ petitors
o Not as willing to assume the risks of new-‐product or market devel-‐ opment as its competitors
o Not as aggressive in marketing established products as some com-‐ petitors
o Responds primarily when it is forced by environmental pressures
How business strategies differ in scope, objectives, resource deploy-‐
ments and synergy
Low-‐cost defender Differentiated
defender Prospector Analyser Scope Ma-‐
ture/stable/well-‐ defined domain
Ma-‐
ture/stable/well-‐ defined domain
Broad/dynamic
domains Mixture of defender and prospector strategies
Mature technology and customer segments
Mature technology and customer segments
Technology and customer segments not well
established
Goals and
objectives
Adaptability (new product success)
Very little Little Extensive Mixture of defender and prospector strategies Effectiveness
(increase in market share)
Little Little Large Mixture of
defender and prospector strategies Efficiency
(ROI) High High Low Mixture of defender and
prospector strategies
Resource
deployment Generate excess cash (cash cows) Generate excess cash (cash cows) Need cash for product development (question marks or stars)
Need cash for product
development but less so than prospectors
Synergy Need to seek operating synergies to achieve
efficiencies
Need to seek operating synergies to achieve
efficiencies
Danger in sharing operating facilities and programmes – better to share technol-‐
ogy/marketing skills
Danger in sharing operating facilities and programmes – better to share technol-‐
Differences in marketing policies across different strategies
Strategy
Programme
component Low-cost defender Differentiated defender Prospector
Product policies
Product-‐line breadth
-‐ + +
Technical sophisti-‐ cation
-‐ + +
Product quality -‐ + ?
Service quality -‐ + ?
Price policies
Price levels -‐ + +
Distribution
policies
Degree of forward vertical integration
? + -‐
Trade promotion expenses (% of sales)
-‐ -‐ +
Promotion policies
Advertising expenses (% of sales)
-‐ ? +
Sales promotion expenses (% of sales)
-‐ ? +
Salesforce expenses (% of sales)
-‐ + ?
4: Environmental analysis
There are six macro-‐environmental components in terms of how the dynamics of change affect the attractiveness of particular markets and influence market-‐ ing strategies and programmes.
1. Demographic environment -‐ Aging
-‐ AIDS
-‐ Imbalanced population growth -‐ Increased immigration
-‐ Declining marriage rates 2. Sociocultural environment
-‐ Business ethics -‐ Fitness and nutrition 3. Economic Environment
-‐ Interest rates -‐ Fiscal policy -‐ Economic crisis
4. Regulatory Environment -‐ Market deregulation 5. Technological environment
-‐ Creating new markets
-‐ Impact on marketing communication, distribution, packaging and re-‐ search
6. Natural environment -‐ Emission schemes -‐ Carbon trading -‐ ‘Green’ products
SLEPTD
-‐ Social -‐ Legal
-‐ Economical -‐ Political
Opportunity/threat matrix
The opportunity/threat matrix enables examination of a large number of events in such a way that management can focus on the most important ones. Manage-‐ ment must determine the probability of the occurrence and the degree of impact of each event.
Level of impact /
Probability High Low
High
Low
5: Industry analysis and competitive advantage
Pricing strategies
-‐ Penetration pricing -‐ Demand function pricing -‐ Skimming
-‐ Pricing at the margin
Porter’s five competitive forces
Five interactive competitive forces collectively determine an industry’s long-‐term attractiveness:
-‐ Present competitors
-‐ Potential competitors (threat of new entrants) -‐ Bargaining power of suppliers
-‐ Bargaining power of buyers -‐ Threat of substitute products
The strength of the individual forces varies from industry to industry and, over time, within the same industry.
SWOT analysis
Rivalry among present competitors
Rivalry is greater under the following conditions: -‐ High investment intensity
The amount of fixed and working capital required to produce a dollar of sales is large (airlines)
-‐ There are many small firms in an industry or no dominant firm exists -‐ There is little product differentiation
-‐ It’s easy for customers to switch from one seller’s products to those of others
Potential competitors
Entry into a market is more difficult under the following conditions: -‐ Strong economies of scale are present
-‐ The industry has strong capital requirements -‐ Strong product differentiation does exist -‐ Gaining distribution is particularly difficult
A recent study suggests that establishing entry barriers may be overrated as a mechanism for sustaining a competitive advantage. Entry barriers are less likely to deter innovative new entries into a market.
Bargaining power of suppliers
The power of suppliers is increased under the following conditions: -‐ The cost of switching suppliers is high
-‐ The prices of substitutes is high
-‐ Suppliers can realistically threaten forward integration
-‐ The supplier’s product is a large part of the buyer’s value added
The greater the bargaining power of the suppliers the less will the overall attractiveness of the industry be.
Bargaining power of buyers
The extent to which buyers succeed in their bargaining efforts depends on -‐ The extent of buyer concentration
Few large buyers account for a large portion of the industry sales -‐ Switching costs that reduce the buyer’s bargaining power
-‐ The products importance to the performance of the buyer’s product The greater the importance the lower the bargaining power
-‐ Buyer profitability
Low buyer profits and high relative cost of the product will lead to more aggressive bargaining
Threat of substitute products
Substitutes are alternative product types (not other brand producing the same product) that perform essentially the same function as the product. Substitute products put a ceiling on the profitability of an industry by limiting the price that can be charged.
Product adoption
The adoption process
The five steps of the adoption process are:
1. Awareness
Person is aware of the existence of a new product but not sufficiently moti-‐ vated to seek information about it.
2. Interest
In this phase the individual becomes sufficiently interested in a new pro-‐ duct but is not yet involved
3. Evaluation
The individual mentally applies the new product to his or her own use and anticipates the results.
4. Trial
The person tries the actual product. If possible on a limited basis to mini-‐ mise risk.
5. Adoption
In this stage the individual continues to use the product and adopts it in-‐ stead of substitutes.
Rate of adoption
The speed of adoption depends on the following factors: -‐ Risk
Cost of product or dissatisfaction
-‐ Relative advantage (over other products) -‐ Simplicity
-‐ Ease of trial
-‐ Ease of communication (of the products central ideas)
Adopter categories
Using time of adoption for classifying individuals five major groups can be distinguished:
-‐ Innovators
Represent the first 2-‐3% of all individuals who ultimately adopt the new product
-‐ Early adopters
The next 13 to 14% who adopt the product. Often opinion leaders, serve as links to members of the early majority group.
-‐ Early majority
34% of those who adopt the product. Display less leadership than early adopters. Do not like to take unnecessary risks.
-‐ Late Majority
The next 34%. Often adopt a product because they are forced to for either economic or social reasons. Rarely assume a leadership role. -‐ Laggards
The last 16% of people. Stubbornly resist change. Sometimes adopt pro-‐ ducts so late that it has already been replaced by another new product.
Product life cycle
Generalised product life cycle
Common product life-cycle curves
Stages in product life-cycle
Stage
characterist- ics
Introduction Growth Shake-out Mature Decline
Market growth rate (net
inflation)
Moderate High Levelling
off
Insignificant Negative
Technical change in product design
High Moderate Limited Limited Limited
Segments Few Few to many
Few to many
Few to many Few
Competitors Small Large Decreasing Limited Few
Profitability Negative Large Low Large for high-‐market-‐ share
holders
Low
Firm’s responses
Stage character-
istics Introduction Growth Shake-out Mature Decline Strategic
marketing objectives
Stimulate primary demand
Build share Build
share Hold share Harvest
Product Quality
improvement Continue quality improvement
Rationalise Concentrate
on features No change
Product line Narrow Broad Rationalise Hold length of line
Reduce length of line
Price Skimming versus penetration
Reduce Reduce Hold or
reduce selectively
Reduce
Channels Selective Intensive Intensive Intensive Selective
Communications High High High High to
declining Reduce
6: Understanding customer buying behaviour
Some purchase decisions are more important than others. High-‐involvement purchases involve goods or services that are psychological important to the buyer because the address social or ego needs and carry associated risks.
The decision process involved in purchasing high-‐ and low-‐involvement products or services are quite different.
Extent of decision involvement Extent of decision making High Low
Extended Complex decision
making
Limited decision making
Habit/routine Brand loyalty Inertia
Steps in high-‐involvement, complex decision-‐making process
5 steps of decision-‐making process -‐ Problem identification
-‐ Information search -‐ Alternative evaluation -‐ Purchase
Problem identification
Customers’ purchase decision processes are triggered by unsatisfied needs or wants.
Information search
When a problem exists for the consumer that might be satisfied by the purchase and consumption of a product or service (hungry -‐> food) the customer’s next step is to refer to information gained from past experience (McDonald’s has burgers!).
The amount of information the consumer seeks depends on the importance of the decision. Opportunity cost of the time spent searching must be in an acceptable correlation with the importance of the decision. Psychological costs also come into play and might shorten the search.
Sources of information
-‐ Personal sources (Friends and family) -‐ Commercial sources
Doctors, lawyers, consumer interest groups, blogs
Evaluation of alternatives
Difficult to consider all alternatives. Customers use evoked set of brands they are familiar with and that are likely to satisfy their needs. Products are evaluated on a limited number of product dimensions or attributes and judged by the relative importance of these attributes.
Cost attributes
Purchase price, operating costs, repair costs, cost of extras or options, cost of installation, trade-‐in allowance, likely resale value.
Performance attributes
Durability, quality of materials, construction, dependability, functional perform-‐ ance (acceleration, nutrition, taste), efficiency, safety, styling.
Social attributes
Reputation of brand, status image, popularity with friends, popularity with family members, style, fashion.
Availability attributes
Carried by local stores, credit terms, quality of service available from local dealer, delivery time.
Purchase
After the decision to buy has been taken the consumer still has to decide where to buy the product or service. Choosing the source from which to buy involves
essentially the same mental process as does the product-‐purchase decision. Consumers obtain information about alternative sources from personal experi-‐ ence, advertising, friends/families, etc.
Post-‐purchase evaluation
Low-‐involvement purchase decisions
Low-‐involvement products are not very important to the consumer the search for information about alternatives is likely to be minimal. As a result impulse buying decision happen in-‐store based on brand-‐familiarity for example. As the risk involved with these decisions is low the consumer are less likely to stay with the same brand all the time.
Inertia
People buy the same product all the time to avoid making a decision. Must not be confused with brand loyalty by marketers as those consumers can be relatively easily enticed by competitors to switch brands.
Impulse purchasing and variety seeking
Due to the low risk involved in the decision consumers are more likely to
impulsively decide to buy a different brand from their customary choice to try a new variety of a product.
Perception and memory
Perception
Perception is the process by which a person selects, organises, and interprets information. When consumers collect information about a high-involvement service, they follow a series of steps, or a hierarchy of effects.
Exposure to a piece of information, such as a new product, an ad, or a friend’s recommendation, leads to attention, then to comprehension, and finally to
retention in memory.
The perception process is different for low-involvement products. Exposure may cause consumers to retain enough information so that they are familiar with a brand when they see it in a store.
Memory
Information from the environment is first processed by the short-term memory, which forgets most of it within 30 seconds or less because of inattention or
displacement of new incoming information. Some information, however, is transferred to long-term memory, from which it can be retrieved later.
For information to be transferred to long-‐term memory for later recall, it must be actively rehearsed and internalised.
Needs and attitudes
An attitude is a positive or negative feeling about an object (say, a brand) that predisposes a person to behave in a particular way toward that object. Attitudes derive from a consumer’s evaluation that a given brand provides the benefits necessary to help satisfy a particular need.
Fishbein model
Martin Fishbein pioneered an attitude model that specified how consumers combine evaluations of a brand across multiple attributes to arrive at a single overall attitude toward that brand:
AttitudeA=
€
Bi i=1
k
∑
Ii
Where
AttitudeA Consumer’s overall attitude towards brand A
Bi Consumer’s belief concerning the extend to which attribute i is associated with brand A
Ii The importance of attribute i to the consumer when choosing a brand to buy
k The total attributes considered by the consumer when evaluating alternative brands in the product category
i Any specific product attribute
Non-‐compensatory attitude models
For low-‐involvement products consumers can use a simpler model and only one attribute is evaluated at a time. Such an approach is non-compensatory as a poor evaluation in the chosen attribute can’t be offset by another one.
The lexicographic model suggests that consumer evaluate brand based on the (to them) most important attribute first. Only if this attribute shows no clear
preference the consumer continues the evaluation process with the second-‐most important attribute, and so on.
Marketing implications of attitude models
To design appealing product offerings and structure effective marketing programmes, marketers must have information about
1. The attributes or decision criteria consumers use to evaluate a particular product category
2. The relative importance of those attributes to different consumers 3. How consumers rate their brand relative to competitors’ offerings on
important attributes.
Demographics and lifestyle
Demographics
Demographics influence
-‐ The nature of consumers’ needs and wants
-‐ Their ability to buy products or services to satisfy those needs
-‐ The perceived importance of various attributes or choice criteria used to evaluate alternative brands
-‐ Consumers’ attitudes toward and preferences for different products and brands.
Lifestyles
Possible lifestyle segments typology -‐ Strivers
7: Understanding organisational markets & buying behav-‐
iour
Organisational purchasing / markets
The demand for industry good and services is
-‐ Derived from the demand for consumer goods and services
-‐ Relatively inelastic and more erratic (compared to that for consumer products)
-‐ More cyclical
Organisational buyers, when compared with buyers of consumer goods, are -‐ Fewer in number
-‐ Larger
-‐ Geographically concentrated
Compared to markets for consumer goods organisational markets -‐ Use buying specialists
-‐ Have closer buyer-‐seller relationships -‐ Are subject to multiple buying influences
Roles in the organisational purchasing process
-‐ Deciders-‐ Buyers -‐ Influencers -‐ Users
-‐ Gatekeepers
Deciders
The person with the authority to make the final purchase decision.
Buyers
Influencers
Influencers provide information for evaluating alternative products and suppli-‐ ers. They are usually technical experts from various departments within the organisation.
Users
The people in the organisation who must use or work with the product or service often have some influence on the purchase decision.
Gatekeepers
Gatekeepers control the flow of information to other people in the purchasing process. They primarily include the organisation’s purchasing agents and the suppliers’ salespeople. Gatekeepers influence a purchase by controlling the information that reaches other decision makers.
Types of buying situations
Straight rebuy
A straight rebuy involves purchasing a common product or service the organisa-‐ tion has bought many times before. Such purchases are often handled routinely by the purchasing department with little participation by other departments.
Modified rebuy
A modified rebuy occurs when the organisation’s needs remain unchanged but purchasing department members are not satisfied with the product or the
supplier used so far. They might desire a higher-‐quality product, a better price or a better service. Modified rebuys present a good opportunity for new suppliers to win an organisation’s business.
New-‐task buying
New-task buying occurs when an organisation faces a new and unique need or problem. The purchasing department will not have enough expertise to decide and will have to involve many technical experts and administrators. The
The purchase decision-‐making process
-‐ Recognition of a problem or need
-‐ Search for information about products and suppliers -‐ Evaluation and selection of suppliers
-‐ The purchase
-‐ Performance evaluation and feedback
Recognition of a problem or need
Requirements planning
Instead of simply monitoring inventories and reordering when they run low, some firms attempt to forecast future requirements so as to plan their purchases in advance. A result of such planning is the signing of long-‐term purchase contracts.
Determining Product Specifications
The need for particular goods and services is usually derived from a firm’s production or operation requirements and must meet specific technical
requirements. Technical experts from the firm’s R&D, engineering, and produc-‐ tion departments are often involved early in the purchase decision.
Search for information about products and suppliers
Once specifications for the desired product/service are developed, purchasing (and possibly other departments) performs a value analysis. It includes an analysis of the extent to which the product might be redesigned, standardised, or processed using less-‐expensive production methods. A cost analysis that
attempts to determine what the product costs a supplier to produce is also part of a value analysis.
Make-or-Buy Decisions
Sometimes a firm has the option of producing some components and services
internally (advertising, marketing research) or buying them from outside suppliers. Economic considerations typically dominate such decisions, although in the long run other factors may be important (for instance, overdependence on a single supplier).
Information about potential suppliers
Many firms evaluate a supplier’s performance on a regular basis; there is often
considerable information about that supplier’s quality of performance on file. Where new suppliers are involved, the purchasing department typically engages in an in-depth investigation before qualifying that firm as a potential supplier. An investigation would include such information as the firm’s finances,
reputation for reliability, and the ability to meet quality standards.
Evaluation and selection of suppliers
Vendor Analysis
Some purchasing departments construct quantitative ratings of potential suppliers to aid in the selection process. These ratings look very much like the
multi-attribute, compensatory attitude model we discussed for individual consumers.
The procedure involves selecting a set of salient attributes and assigning to each a weight reflecting its relative importance. Suppliers are then rated by summing their weighted scores across all attributes.
The purchase
The purchase agreement between a supplier and an organisational customer can take several forms, ranging from individual spot contracts on the open market, to long-‐term purchasing contracts covering a year or more, to ongoing informal relationships based on cooperation and trust rather than legal agreements.
Logistical Alliances
Technology has changed organisational purchasing over the past decade by facilitating logistical alliances involving the sharing of sales and inventory data and computerised reordering.
Sales information from the retailer’s checkout scanners is shared directly with the supplier’s computers, which figure out when to replenish the stock of each item and schedule deliveries to appropriate distribution centres or even
Performance evaluation and feedback
When a purchase is made and the goods delivered, the buyer’s evaluation of both product and supplier begins. The buyer inspects the goods on receipt to determine whether they meet the required specifications. Later, the department using the product judges whether it performs to expectations.
In many organisations this process is done formally through reports submitted by the user department and other persons involved in the purchase.
Categories of goods bought by organisations
-‐ Raw materials
-‐ Component materials and parts -‐ Installations
-‐ Accessory equipment -‐ Operating supplies -‐ Business services
Raw materials
Two types of raw materials: -‐ Natural products
Fish, lumber, iron ore, crude petroleum -‐ Farm products
Fruits, vegetables, grains, beef, cotton, wool
Implications for marketing decision makers
The supply of natural products is limited and there can be shortages, which the producers can use to their advantage (limit supply and administer prices).
Natural materials are generally bulky and low in unit value, hence producers try to minimise handling and transportation costs. Few middlemen are used; most materials are marketed directly to processors and manufacturers.
Component materials and parts
Implications for marketing decision makers
Manufacturers buy most component materials and parts in large quantities. Therefore they are usually sold direct, without the use of middlemen. JIT systems are used to ensure timely supply to the buyer of the component materials and parts. These systems require a continuing and close working relationship between buyer and seller.
Installations
Installations are buildings and major capital equipment that manufacturers and service producers use to carry out their operations. They are expensive and long-‐ lived. Examples are factory buildings, office buildings, and aircraft.
Implications for marketing decision makers
Marketing of installations is a real challenge because there are few potential customers at any one time and the average sale is very large. Many installations are custom-‐made and therefore require engineering and design services from the seller.
Due to the small number of buyers and the large dollar volumes of each sale distribution is usually direct from producer to consumer.
Accessory equipment
Accessory equipment include industrial machines and tools that manufacturers, service producers and governments use to carry out their operations. Compared to installations the impact of accessory equipment is lower with relatively short lives and small price tags. Examples are personal computers, desks and file cabinets.
Implications for marketing decision makers
Personal selling remains the most important promotional method for accessory equipment.
Operating supplies
organisation’s day-‐to-‐day operations. Examples include heating fuel, floor wax, typing paper and pencils.
Implications for marketing decision makers
Purchased in small quantities by many different organisations so wholesale
middlemen are typically used for distribution. Price is usually the critical decision variable, little brand loyalty.
Business services
Business services include security and guard services, janitorial services, equipment repair, consulting and marketing research services and legal and accounting services.
Implications for marketing decision makers
Services are intangible and are purchased before the buyer can evaluate them. Thus the supplier’s qualifications, past performance and reputation become
critical determinants of the success of the marketing effort. Price is less important and often serves as an indicator for quality.
8: Measuring market opportunities
Forecasting tools
Statistical and other quantitative methods
Use past history and statistical methods (regression, time series) to forecast the future based on extrapolation. Only useful when the future can be expected to be like the past. Not useful for new products.
Observation
Observe or gather data about what real customers do in the product-‐market of interest. Not possible for new products (what can be observed?!?). Like statistical methods attractive because observations are based on what people actually do instead of what they say they will do.
Behavioural or usage data can be found in existing secondary sources: Company files, library, the Internet. Data collection is then much faster and cheaper than if a new study is conducted.
Surveys
Done with different groups of respondents. People are asked how likely they are to buy the product, creating a survey of buyer’s intentions.
Problem: What people say is not always what people do! Use chain ratio logic (use multipliers to reduce the numbers that people have given) to get to more realistic values (based on experience).
Analogy
An approach often used
