Midterm 2 Combined (Chapter 7-12, Financial Advice and other info)

B2B Marketing:

Business marketing:

- The process of buying and selling goods or services to be used in the production of other goods and services, for consumption by the buying organization, or for resale by wholesalers and retailers.

- Business marketing is the marketing of goods and services to individuals and organizations for purposes other than personal consumption.

- The sale of a PC to a college or university is an example of business marketing.

- Typically involves manufacturers selling to wholesalers

- Service firms that sell services to businesses but not the ultimate consumers

- The distinction between B2B and B2C is who the ultimate user is (business or consumer)

- involves multiple members of buying and selling teams between firms

- focus on key segments and and industries just like B2C

B2B:

- Close Relationships with Customer

- Few Customers - Buyers

- Less Price Sensitive

- Large Orders

- Complex decisions/High Risk

- Ongoing Relationships

- Concentrated Few Players

- Others initiate purchase

B2B Markets:

- Resellers

- Institutions

- Government

- Manufacturer / Service Providers

B2B Marketing: B2B Markets:

- Resellers

- Institutions

- Government

- Manufacturer / Service Providers

B2B Marketing: Ways to enhance B2B relationships include:

Blogs and social media (LinkedIn, Twitter, Snapchat, etc.) can:

- Build awareness

- Provide search engine results

- Educate clients about products and services

- "Warm up" a seemingly cold corporate culture

White papers prepared by B2B marketers provide information while not appearing as a promotion.

- When executives confront an unfulfilled business need, they normally turn to white papers prepared by potential B2B marketers. White papers are a promotional technique used by B2B sellers to provide information about a product or service in an educational context, thereby not appearing like a promotion or propaganda.

B2B Marketing: Top Marketing Trends in B2B

Content Marketing:

- Web rules, mobile, social consumerization of communication, less sales staff & catalogues

- Employee Advocacy and Social Selling:

- Big Data & Enhanced CRM:

Agile Marketing:

- quick tests w/data, individual focus, collaboration

Strategic Alliances:

- strengthen delivery & competitive advantage, relationships based on partnership not ownership

B2B Marketing: Organizational Buying Criteria:

- Quality Specifications

- Delivery Schedules

- Past Performance

- Production Facilities/Capacity

- Warranty/Claim Policies

- Technical Capability

- Price

B2C Marketing

Consumer Marketing:

- refers to the strategies and tactics businesses use to sell products and services directly to consumers rather than to other businesses (B2B).

- This approach emphasizes understanding consumer needs, preferences, and behaviors to create effective marketing campaigns that drive sales and build brand loyalty.

- simple transaction between retailer and consumer

B2C:

- Impersonal Mass Communication

- Many Customers

- More Price Sensitive

- Small Orders

- Simpler decisions/Lower Risk

- Isolated events

- Many Players

- Self-Initiation more often

Business vs. Consumer Products

- The key in classification as a business product is intended use.

Business Products:

- Are used to manufacture other products

- Become part of another product

- Aid the normal operations of an organization

- Are acquired for resale without change in form

Consumer Products:

- A product that is purchased for personal use is considered a consumer good.

-If the same product is purchased for use in a business, it is a business product.

Types of Business Buyers:

- Manufacturers

- Institutions

- Government

- Reseller

Manufacturers and Service Providers:

- Buy raw materials, components, or parts.

- Manufacture their own goods and ancillary services.

Example

- To optimize and increase the efficiency of the processes associated with searching for, analyzing, and validating information about parts and components, the Volkswagen group reached out to IBM's consulting business for help designing a B2B integration platform.

- Purchasing agents for all 12 brands can now use the VW Group's ONE.Konzern Business Platform to communicate with suppliers for all their transactions, from procurement to logistics.

Institutions:

- Hospitals, educational institutions, and religious organizations

Examples of purchases by institutions:

- Textbooks

- Capital construction

- Equipment

- Supplies

- Food

- Janitorial services

Government:

- In most countries, the central government is one the largest purchasers of goods and services.

- Local, state, and federal governments.

Example

- The U.S. government spends approximately $4 trillion annually on procuring goods and services

- If you add in what state and local governments spend, these numbers reach staggering proportions.

- The Department of Defense was slated to receive $561 billion in fiscal year 2016,

- $14 billion of that amount was to be dedicated to working with cybersecurity firms that can provide services to help the U.S. government protect against cyberterrorism attacks.

Resellers:

- Resellers are marketing intermediaries that resell manufactured products without significantly altering their form.

- Wholesalers

- Distributors

- Retailers

Example

- For instance, wholesalers and distributors buy Xerox products and sell them to retailers (B2B transaction), then retailers resell those Xerox products to the ultimate consumer (B2C transaction).

Types of Business Buyers: Manufacturers and Service Providers:

- Buy raw materials, components, or parts.

- Manufacture their own goods and ancillary services.

Example:

- To optimize and increase the efficiency of the processes associated with searching for, analyzing, and validating information about parts and components, the Volkswagen group reached out to IBM's consulting business for help designing a B2B integration platform.

- Purchasing agents for all 12 brands can now use the VW Group's ONE.Konzern Business Platform to communicate with suppliers for all their transactions, from procurement to logistics.

Types of Business Buyers: Institutions:

- Hospitals, educational institutions, and religious organizations

Examples of purchases by institutions:

- Textbooks

- Capital construction

- Equipment

- Supplies

- Food

- Janitorial services

Types of Business Buyers: Government:

- In most countries, the central government is one the largest purchasers of goods and services.

- Local, state, and federal governments.

Example:

- The U.S. government spends approximately $4 trillion annually on procuring goods and services

- If you add in what state and local governments spend, these numbers reach staggering proportions.

- The Department of Defense was slated to receive $561 billion in fiscal year 2016,

- $14 billion of that amount was to be dedicated to working with cybersecurity firms that can provide services to help the U.S. government protect against cyberterrorism attacks.

Types of Business Buyers: Resellers:

Resellers are marketing intermediaries that resell manufactured products without significantly altering their form:

- Wholesalers

- Distributors

- Retailers

Example:

- For instance, wholesalers and distributors buy Xerox products and sell them to retailers (B2B transaction), then retailers resell those Xerox products to the ultimate consumer (B2C transaction).

Differences B2B vs. B2C

B2B vs. B2C:

- Close Relationships with Customers vs. Impersonal Mass Communication

- Few Customers - Buyers vs. Many Customers

- Less Price Sensitive vs. More Price Sensitive

- Large Orders vs. Small Orders

- Complex decisions/High Risk vs. Simpler decisions/Lower Risk

- Ongoing Relationships vs. Isolated events

- Concentrated Few Players vs. Many Players

- Others initiate purchase vs. Self-Initiation more often

Buying Center Roles:

- Initiator

- Influencer

- Decider

- Buyer

- User

- Gatekeeper

Initiator:

- The buying center participant who first suggests buying the particular product or service.

Influencer:

- The buying center participant whose views influence other members of the buying center in making the final decision.

Decider:

- The buying center participant who ultimately determines any part of or the entire buying decision—whether to buy, what to buy, how to buy, or where to buy.

Buyer:

- The buying center participant who handles the paperwork of the actual purchase.

User:

- The person who consumes or uses the product or service purchased by the buying center.

Gatekeeper:

- The buying center participant who controls information or access to decision makers and influencers.

Buying Center Roles: Initiator (Example: Hospital Buying Center Roles)

- The buying center participant who first suggests buying the particular product or service.

- They give suggestions about purchasing a product or service

Doctor

- When you seek treatment from your physician for a shattered elbow, he or she initiates the buying process by determining the products and services that will best address and treat your illness or injury.

Buying Center Roles: Influencer (Example: Hospital Buying Center Roles)

- The buying center participant whose views influence other members of the buying center in making the final decision.

- They try to affect the outcome decision with their opinions

Medical device supplier, pharmacy

- Her first introduction to ElbowMed screws came from the company's sales representative, who visited her office to demonstrate how ElbowMed screws were far superior to those of its competition.

Buying Center Roles: Decider (Example: Hospital Buying Center Roles)

- The buying center participant who ultimately determines any part of or the entire buying decision—whether to buy, what to buy, how to buy, or where to buy.

- They have the final call on purchasing decision

Hospital

- Even though your doctor requested ElbowMed screws, the hospital ultimately is responsible for deciding whether to buy ElbowMed screws.

Buying Center Roles: Buyer (Example: Hospital Buying Center Roles)

- The buying center participant who handles the paperwork of the actual purchase.

- They are the prospective buyers who are responsible for the contract

Materials manager

- The actual buyer of the screw will likely be the hospital's materials manager, who is charged with buying and maintaining inventory for the hospital in the most cost-effective manner.

Buying Center Roles: User (Example: Hospital Buying Center Roles)

- The person who consumes or uses the product or service purchased by the buying center.

- They are users of the item being purchased

Patient

- Ultimately, the buying process for this procedure will be greatly affected by the user, namely the patient.

Buying Center Roles: Gatekeeper (Example: Hospital Buying Center Roles)

- The buying center participant who controls information or access to decision makers and influencers.

- They are responsible for controlling the flow of information

Insurance company

- Your insurer may believe that ElbowMed screws are too expensive and that other screws deliver equally effective results and therefore refuse to reimburse the hospital in full or in part for the use of the screws.

Business Buying Process

1. Need Recognition

2. Product Specification

3. RFP Process

4. Proposal Analysis/Negotiation

5. Order Specifications

6. Vendor Assessment

Business Buying Process: Step 1: Need Recognition

- Just like the consumer buying process, the B2B process begins with need recognition.

- The buying organization recognizes, through either internal or external sources, that it has an unfilled need..

Sellers actively work to prompt such need recognition, as detailed in Social & Mobile Marketing 7.1.:

- The growth of direct-to-consumer (DTC) companies has spurred important B2B relationships among advertising agencies, networks, and these DTC companies.

Business Buying Process: Step 2: Product Specification

- After recognizing the need and considering alternative solutions, create a list of potential specifications.

- Used by suppliers/ vendors to develop proposals.

Example:

- In the text's example of a university buying tablets, after recognizing the need and considering alternative solutions, the university wrote a list of potential specifications that vendors might use to develop their proposals

Business Buying Process: Step 3: RFP (Request for Proposal Process)

- The request for proposals (RFP) is a common process through which organizations invite alternative vendors or suppliers to bid on supplying their required components or specifications.

- The purchasing company may simply post its RFP needs on its website or work through various B2B web portals or inform their preferred vendors directly.

- Smaller companies may lack the ability to attract broad attention to their requests, so they might turn to a web portal, an Internet site whose purpose is to be a major starting point for users when they connect to the web.

- The web link on this page brings you to the Contracts Opportunities site, which exists for any firm that wishes to bid on government contracts. Potential suppliers can view the products/services being sought.

- Website: https://beta.sam.gov/

Business Buying Process: Step 4: Proposal Analysis. Vendor Negotiation, and Selection

- The buying organization evaluates all the proposals received in response to an RFP.

- Price, Quality, and Financing

- Often several vendors are negotiating against each other.

- Considerations other than price play a role in final selection.

Firms apply different strategies for vendor selection:

- Some always choose the lowest price, whereas others apply more complicated selection criteria. The government uses preferred contractor programs, designed to offer small and minority-owned firms' greater opportunity.

Business Buying Process: Step 5: Order Specification

- In the fifth stage of the B2B buying process, the firm places its order with its preferred supplier (or suppliers).

- The exact details of the purchase are specified. The order includes a detailed description of the goods, prices, delivery dates, and, in some cases, penalties for noncompliance.

- All terms are detailed including payment.

- The supplier then sends an acknowledgment that it has received the order and fills it by the specified date.

Business Buying Process: Step 6: Vendor Performance Assessment Using Metrics

- Just as in the consumer buying process, firms analyze their vendors' performance so they can make decisions about their future purchases.

- The difference is that in a B2B setting, this analysis is typically more formal and objective.

Example:

- Exhibit 7.3 represents how Hypothetical University might evaluate a tablet vendor's performance, as in, using the following metrics: customer service, issue resolution, delivery (based on promised delivery date), and quality.

Buying situations

Buying Situations:

1. New Buy

2. Modified Rebuy

3. Straight Rebuy

1. New Buy:

- A situation requiring the purchase of a product or technology for the first time.

- Most likely when purchasing for the first time.

- Usually quite involved.

- The buying center will probably use all six steps in the buying process and involve many people in the buying decision because the buyer or buying organization does not have any experience with the item

2. Modified Rebuy:

- A situation where the purchaser wants some change in the original good or service, or the product has changed

- Purchasing a similar product but changing specifications such as price, quality level, customer service level, options, etc.

- Current vendors have an advantage.

3. Straight Rebuy:

- A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers.

- Buying additional units of products that have been previously purchased.

- Most B2B purchases fall into this category.

- Usually, the buyer is the only member of the buying center involved.

Globalization

- The processes by which goods, services, capital, people, information, and ideas flow across national borders.

Assessing Global Markets

Elements of Country Market Assessment:

- Infrastructure and Technology:

- Governmental Actions:

- Sociocultural Analysis:

- Economic Analysis Using Metrics:

Infrastructure and Technology:

- Transportation

- Channels

- Communication

- Commerce

Governmental Actions:

- Tariffs

- Quotas

- Exchange Control

- Trade Agreements

Sociocultural Analysis:

- Power distance

- Uncertainty avoidance

- Individualism

- Masculinity

- Time orientation

Economic Analysis Using Metrics:

- General economic environment

- Market size and population growth

- Real income

- Trade deficit or surplus

- Gross domestic product (GDP)

- Gross national income (GNI)

- Purchasing power parity (PPP)

- Each of these standardized measures allows for comparisons across countries. The use of each depends on specific circumstances.

Assessing Global Markets: Infrastructure and Technology

- A firm's ability to conduct business in a particular country is in large measure determined by that country's infrastructure.

Infrastructure:

- Infrastructure is defined as the basic facilities, services, and installations needed for a community or society to function

- such as transportation and communications systems, water and power lines,

-and public institutions such as schools, post offices, and prisons.

Marketers are especially concerned with four key elements of a country's infrastructure:

- 1. Transportation

- 2. Distribution Channels

- 3. Communications

- 4. Commerce

Assessing Global Markets: Governmental Actions

Governmental Actions:

- Tariffs

- Quotas

- Exchange Control

- Trade Agreements

Tariffs

- Tax on Imported good.

- Artificially raises prices.

- Lowers demand.

Quotas

- Minimum or maximum limit.

- Reduces availability of imported goods.

Tariffs and Quotas (Created this topic myself)

- Both benefit domestically made products because they reduce foreign competition.

- Trade negotiations often revolve around reducing or eliminating tariffs, quotas, or similar impediments to trade.

Exchange Control

- Regulation of a country's currency exchange rate

Exchange rate:

- the measure of how much one currency is worth in relation to another.

Trade Agreements

-an intergovernmental agreement designed to manage and promote trade activities for a specific region,

Governmental Actions: Tariffs

- Tax on Imported good.

- Artificially raises prices.

- Lowers demand.

Governmental Actions: Quotas

- Minimum or maximum limit.

- Reduces availability of imported goods.

Governmental Actions: Tariffs and Quotas (Created this topic myself)

- Both benefit domestically made products because they reduce foreign competition.

- Trade negotiations often revolve around reducing or eliminating tariffs, quotas, or similar impediments to trade.

Example:

- Discuss the recent trade battles between the United States and foreign agriculture producers (e.g., sugar, corn).

- Many foreign producers accuse the United States of limiting market access through unfair tariffs and quotas, whereas the United States insists that it must protect United States agriculture.

Governmental Actions: Exchange Control

- Regulation of a country's currency exchange rate

Exchange rate:

-the measure of how much one currency is worth in relation to another.

- In recent years, the value of the U.S. dollar has changed significantly compared with other important world currencies.

- Prices are nearly always lower in the country of origin because there are no customs or import duties to pay, and international transportation expenses are less than domestic ones.

The central bank of a country generally regulates its currency:

- Many countries try to keep their markets attractive to foreign investors while simultaneously making their goods attractive to foreign buyers through exchange control.

Governmental Actions: Trade Agreements

- an intergovernmental agreement designed to manage and promote trade activities for a specific region,

Trading Bloc:

- a trading bloc consists of those countries that have signed a particular trade agreement.

There have been recent challenges to long-established regional trade agreements (RTAs)"

- Yet RTAs account for more than half of international trade.

Assessing Global Markets: Sociocultural Analysis

- Understanding another culture is crucial to the success of a global marketing initiative.

Culture:

- the shared meanings, beliefs, morals, values, and customs of a group of people

- how people's demographics, values, norms, lifestyles, media habits, languages, religions, subcultures, and identity shape demand and how you should position, price, distribute, and promote. It sits at the macro-environment level (outside your control) but informs what you should do inside the firm

Sociocultural Analysis/ Hofstede's Cultural Dimensions:

- Power distance

- Uncertainty avoidance

- Individualism

- Masculinity

- Time orientation

Assessing Global Markets: Economic Analysis Using Metrics

- General economic environment

- Market size and population growth

- Real income

- Trade deficit or surplus

- Gross domestic product (GDP)

- Gross national income (GNI)

- Purchasing power parity (PPP)

- Each of these standardized measures allows for comparisons across countries. The use of each depends on specific circumstances.

- Many reports now feature gross national income (GNI) rather than gross domestic product (GDP), because it includes the economic impact of firms that earn income from their global operations, unlike GDP, which dramatically undercounts the impact of those activities on the economy of the firms' home markets.

The Economist's Big Mac Index:

- a novel metric that uses purchasing power parity (PPP) to assess the relative economic buying power among nations, may be interesting to students.

Cultural Dimensions

- Understanding another culture is crucial to the success of a global marketing initiative.

Culture:

- the shared meanings, beliefs, morals, values, and customs of a group of people

Culture exists on two levels:

visible artifacts

- (e.g., behavior, dress, symbols, physical settings, ceremonies)

underlying values

- (thought processes, beliefs, and assumptions).

- Visible artifacts are easy to recognize, but businesses often find it more difficult to understand the underlying values of a culture and appropriately adapt their marketing strategies to them, a challenge that companies selling disposable sanitary products in India confront when it comes to attitudes toward trash disposal.

- Hofstede's cultural dimensions offer an effective understanding of the subtle elements of a culture.

Hofstede's Cultural Dimensions:

- Power distance

- Uncertainty avoidance

- Individualism

- Masculinity

- Time orientation

- Indulgence

Hofstede's Cultural Dimensions:

Hofstede's Cultural Dimensions:

- Power distance

- Uncertainty avoidance

- Individualism

- Masculinity

- Time orientation

- Indulgence

Power distance:

- willingness to accept social inequality as natural.

Uncertainty avoidance:

- the extent to which the society relies on orderliness, consistency, structure, and formalized procedures to address situations that arise in daily life.

Individualism:

- perceived obligation to and dependence on groups.

Masculinity:

- the extent to which dominant values are male oriented. A lower masculinity ranking indicates that men and women are treated equally in all aspects of society;

Time orientation:

- short- versus long-term orientation. A country that tends to have a long-term orientation values long-term commitments and is willing to accept a longer time horizon for, say, the success of a new product introduction.

Indulgence:

- the extent to which society allows for the gratification of fun and enjoyment needs or else suppresses and regulates such pursuits.

Hofstede's Cultural Dimensions: Power distance:

- willingness to accept social inequality as natural.

- High PDI cultures tend to have hierarchical structures and centralized authority, while low PDI cultures strive for equality and participative decision-making.

Hofstede's Cultural Dimensions: Uncertainty avoidance:

- the extent to which the society relies on orderliness, consistency, structure, and formalized procedures to address situations that arise in daily life.

- High UAI cultures prefer structured conditions and clear rules, while low UAI cultures are more comfortable with ambiguity and uncertainty.

Hofstede's Cultural Dimensions: Individualism

- perceived obligation to and dependence on groups.

- Individualistic societies value personal achievement and autonomy, while collectivist societies emphasize group harmony and interdependence.

Hofstede's Cultural Dimensions: Masculinity:

- the extent to which dominant values are male oriented. A lower masculinity ranking indicates that men and women are treated equally in all aspects of society;

- Masculine cultures value competitiveness, achievement, and material success, while feminine cultures prioritize relationships, quality of life, and care for the weak.

Hofstede's Cultural Dimensions: Time orientation:

- short- versus long-term orientation. A country that tends to have a long-term orientation values long-term commitments and is willing to accept a longer time horizon for, say, the success of a new product introduction.

Hofstede's Cultural Dimensions: Indulgence:

- the extent to which society allows for the gratification of fun and enjoyment needs or else suppresses and regulates such pursuits.

- the extent to which a society allows relatively free gratification of basic and natural human desires related to enjoying life and having fun (indulgence) versus suppressing gratification and regulating it through strict social norms (restraint).

Global Market Entry Strategies:

- Exporting

- Licensing

- Contract Manufacturing

- Joint Venture

- Direct Investment

- Franchising

- Strategic Alliance

Global Market Entry Strategies: Exporting

- Exporting means producing goods in one country and selling them in another.

- This entry strategy requires the least financial risk but also allows for only a limited return to the exporting firm.

- Global expansion often begins when a firm receives an order for its product or service from another country, in which case it faces little risk because it has no investment in people, capital equipment, buildings, or infrastructure.

- By the same token, it is difficult to achieve economies of scale when everything has to be shipped internationally.

Example:

- The Swiss watchmaker Rolex sells relatively small numbers of expensive watches all over the world. Because its transportation costs are relatively small compared with the cost of the watches, the best way for it to service any market is to export from Switzerland.

Global Market Entry Strategies: Licensing

- Involves a company (the licensor) granting rights to a foreign company (the licensee) to use its intellectual property, such as patents, trademarks, or copyrights, in exchange for royalty payments.

Global Market Entry Strategies: Contract Manufacturing

- involves a company outsourcing the manufacturing of its products to a third-party producer in a foreign country.

Global Market Entry Strategies: Joint Venture

- A joint venture is formed when a firm entering a market pools its resources with those of a local firm.

-Ownership, control, and profits are shared.

- The local partner offers the foreign entrant greater understanding of the market and access to resources such as vendors and real estate.

Problems with the joint venture entry approach can arise when:

- the partners disagree or if the government places restrictions on the firm's ability to move its profits out of the foreign country and back to its home country.

Example:

- Some countries require joint ownership of firms entering their domestic markets, as is the case with the new regulations affecting multi-line retailers entering India, though many of these restrictions have loosened as a result of WTO negotiations and ever-increasing globalization pressures.

Global Market Entry Strategies: Direct Investment

- Direct investment requires a firm to maintain 100 percent ownership of its plants, operation facilities, and offices in a foreign country, often through the formation of wholly owned subsidiaries.

- Requires the highest level of investment and exposes the firm to significant risks, including the loss of its operating and/or initial investments.

- Many firms believe that in certain markets, these potential risks are outweighed by the high potential returns.

- With this strategy, none of the potential profits must be shared with other firms.

- In addition to the high potential returns, direct investment offers the firm complete control over its operations in the foreign country.

Global Market Entry Strategies: Franchising

- Franchising is a contractual agreement between a firm, the franchisor, and another firm or individual, the franchisee.

- Global franchising entails lower risks and requires less investment than opening units owned wholly by the firm.

- However, when it engages in franchising, the firm has limited control over the market operations in the foreign country, its potential profit is reduced.

Franchising Contract:

- A franchising contract allows the franchisee to operate a business—a retail product or service firm or a B2B provider—using the name and business format developed and supported by the franchisor.

Example:

- Many of the best-known retailers in the United States are also successful global franchisors, including McDonald's, Pizza Hut, Starbucks, Domino's Pizza, KFC, and Holiday Inn.

Global Market Entry Strategies: Strategic Alliance (Added myself)

- Strategic alliances refer to collaborative relationships between independent firms

- the partnering firms do not create an equity partnership; that is, they do not invest in one another.

Example:

- The music streaming service Spotify, with headquarters in Sweden, and the ride-sharing app Uber, with headquarters in San Francisco, have a strategic alliance that allows Uber customers to use Spotify to control the music during their ride, although each company still operates independently.

Anti-dumping Laws

- Determining the selling price in the global marketplace is an extremely difficult task. Many countries still have rules governing the competitive marketplace, including those that affect pricing.

- domestic regulations that allow a country to impose an additional import tax, or duty, on foreign goods that it determines are "dumped" (sold below market price or cost of production ) in its domestic market.

Global Pricing Strategies: Influence on Price

- Tariffs

- Quotas

- Anti-dumping laws

- Currency Exchange Policies

- Competitive Factors

Global Pricing Strategies: Influence on Price

- Tariffs

- Quotas

- Anti-dumping laws

- Currency Exchange Policies

- Competitive Factors

Chapter 9 Notes: Orbitz (2011):

- Mac users pay $20-30 more on hotel rooms

- 40% higher chance of 4- or 5-star hotel

- Same hotel, mac users pick more expensive rooms

Overall goal of STP:

- Seeking an advantageous fit between what we can do well and what people are willing to pay for

Segmentation

- Group customers based on similar needs

- Profile each segment

Bases for Segmentation:

Who are the customers?

- (demographics, media habits, lifestyle)

What have the customers done?

- (Usage, loyalty, profitability)

Why do the customers make the decisions they do?

- (Needs, preferences, decision process)

Orbitz (2011):

- Mac users pay $20-30 more on hotel rooms

- 40% higher chance of 4- or 5-star hotel

- Same hotel, mac users pick more expensive rooms

Step 1: Establish the Overall Strategy or Objectives

-The first step in the segmentation process is to articulate the vision or objectives of the company's marketing strategy clearly.

- must be consistent with the firm's mission statement (Derived from mission and objectives)

- and be based on the current assessments from SWOT analyses. )Consistent with SWOT _

Example:

- Food marketers, for instance, divide the traditional pasta sauce landscape into with or without meat. This segmentation method is based on what consumers derive from the products.

Marketing Segmentation Strategies:

Micro/One-to-one marketing:

- not profitable

Marketing Segmentation:

- Just right

Mass Marketing:

- low customer satisfaction

Step 2: Use Segmentation Methods:

- The second step in the segmentation process is to use a particular method or combination of methods to segment the market.

Marketing Segmentation Methods

- Geographic (Continent, Country, etc)

- Demographic (Age, gender, income, education)

- Psychographic (Lifestyle, self-concept, self-values)

- Benefit (Convenience, economy, prestige)

- Behavioral (Occasion, Loyalty)

Bases for Segmentation:

Who are the customers?

- (demographics, media habits, lifestyle)

What have the customers done?

- (Usage, loyalty, profitability)

Why do the customers make the decisions they do?

- (Needs, preferences, decision process)

Segmentation Step 1:

Establish the Overall Strategy or Objectives:

-The first step in the segmentation process is to articulate the vision or objectives of the company's marketing strategy clearly.

- must be consistent with the firm's mission statement (Derived from mission and objectives)

- and be based on the current assessments from SWOT analyses. )Consistent with SWOT _

Example:

- Food marketers, for instance, divide the traditional pasta sauce landscape into with or without meat. This segmentation method is based on what consumers derive from the products.

Marketing Segmentation Strategies:

Micro/One-to-one marketing:

- not profitable

Marketing Segmentation:

- Just right

Mass Marketing:

- low customer satisfaction

Segmentation Step 2:

Use Segmentation Methods:

- The second step in the segmentation process is to use a particular method or combination of methods to segment the market.

Marketing Segmentation Methods:

- Geographic (Continent, Country, etc)

- Demographic (Age, gender, income, education)

- Psychographic (Lifestyle, self-concept, self-values)

- Benefit (Convenience, economy, prestige)

- Behavioral (Occasion, Loyalty)

Marketing Segmentation Methods: Geographic

- Most useful for companies whose products satisfy needs that vary by region.

Geographic Segmentation Method:

- Continent: North America, Asia, Europe, Africa

- Within the United States: Pacific, Mountain, Central, South, Mid-Atlantic, Northeast

Geographic segmentation:

- Geographic Segmentation organizes customers into groups on the basis of where they live.

- Geographic information software (GIS) aids in such segmentation.

Market could be grouped by:

- Country

- Region (Northeast, Southeast)

- Areas within the region: (State, city, neighborhoods, zip codes.)

Example:

- Many firms use regional brands of popular products. When Dunkin' Donuts introduced soup to its menu, it included New England Clam Chowder which appealed to northeastern consumers, but franchisees in Texas objected to this choice. Understanding regional preferences can define a company's success—or failure.

Marketing Segmentation Methods: Demographic

Demographic Segmentation Method:

- Age

- Gender

- Income

- Education

Demographic segmentation:

- Most common segmentation strategy.

- Easy to identify, Easy to measure, objective characteristics (age, gender, income, education).

- These variables represent the most common means to define segments because they are easy to identify, and demographically segmented markets are easy to reach.

The U.S. Census Bureau provides one of the most important marketing research tools:

- Census data, which offers a rich, free source of information about various consumers that suggests segmentation possibilities.

Marketing Segmentation Methods: Psychographic

Determining psychographics involves knowing and understanding three components:

- 1. self-values

- 2. Self-concept

- 3. and lifestyles.

Psychographic segmentation:

- Psychographic segmentation is the segmentation method that delves into how consumers actually describe themselves.

- Usually marketers determine (through demographics, buying patterns, or usage) into which segment an individual consumer falls.

Firms can target consumers based on consumers' self-values:

- From a marketing point of view, self-values help determine the benefits the target market may be looking for from a product.

- For customers that value purchasing from minority-owned businesses, for example, continuing to support the business once it has been purchased by a massive, international conglomerate can be a difficult choice, as presented in Ethical & Societal Dilemma 9.1.

Adding Value 9.1: Dealing with Modern Life by Playing: LEGO Promises Mindfulness and Meaning for Adults

- Adding Value 9.1 examines another innovative demographic segment for LEGO—stressed-out adults:

- Unlike its conventional market of children learning to develop their cognitive skills, adults playing with LEGOs tend to want clear instructions. They do not want to have to think too hard, exhibit creativity, or come up with solutions to design-related problems.

- LEGO is targeting its bricks and building sets as the perfect respite for this demographic segment, frazzled adults who just want a break from modern life.

- The casual adult builder is the new demographic segment for LEGO.

Marketing Segmentation Methods: Benefit

Benefit Segmentation Method:

- Convenience

- Economy

- Prestige

Benefit Segmentation:

- Benefit segmentation groups consumers on the basis of the benefits they derive from products or services.

- Because marketing is all about satisfying consumers' needs and wants, dividing the market into segments whose needs and wants are best satisfied by the product benefits can be a very powerful tool.

Example:

- How does the movie industry use a benefit segmentation strategy?

- Group activity: Have students identify products that provide different types of benefits. How else might these products be segmented?

- This activity provides a good opportunity to remind students that products exist in multiple segments, just as consumers do.

- Different motives lead different consumers to purchase the same product.

Marketing Segmentation Methods: Behavioral

Behavioral Segmentation Method:

- Occasion

- Loyalty

- TRUE BRAND LOYALTY IS EXTREMELY RARE

Occasion segmentation:

- Based on when a product or service is purchased or consumed.

- Clothing, snack foods.

- Men's Wearhouse uses this type of segmentation to develop its merchandise selection and its promotions. Sometimes men need a suit for their everyday work, but other suits are expressly for special occasions such as a prom or a wedding.

- Snack food companies such as Frito-Lay also make and promote snacks for various occasions—individual servings of potato chips for a snack on the run but 16-ounce bags for parties.

Loyalty segmentation:

- Loyal customers are those who feel so strongly that the firm can meet their relevant needs best that any competitors are virtually excluded from their consideration; that is, these customers buy almost exclusively from the firm.

- Loyal customers are the most profitable in the long term.

- Hotels, airlines, restaurants (Starbucks).

- Firms encourage loyalty in various ways, such as airline mileage or hotel point reward programs. Marketing Analytics 9.1 discusses the My Starbucks Reward program, which has more than 9 million members.

Example:

- Ask students: Are you a loyal buyer of any single product, to the extent that you refuse to purchase a substitute?

- Students may refer to soft drinks, but true brand loyalty is extremely rare.

Occasion segmentation:

- Based on when a product or service is purchased or consumed.

- Clothing, snack foods.

- Men's Wearhouse uses this type of segmentation to develop its merchandise selection and its promotions. Sometimes men need a suit for their everyday work, but other suits are expressly for special occasions such as a prom or a wedding.

- Snack food companies such as Frito-Lay also make and promote snacks for various occasions—individual servings of potato chips for a snack on the run but 16-ounce bags for parties.

Loyalty segmentation:

- Loyal customers are those who feel so strongly that the firm can meet their relevant needs best that any competitors are virtually excluded from their consideration; that is, these customers buy almost exclusively from the firm.

- Loyal customers are the most profitable in the long term.

- Hotels, airlines, restaurants (Starbucks).

- Firms encourage loyalty in various ways, such as airline mileage or hotel point reward programs. Marketing Analytics 9.1 discusses the My Starbucks Reward program, which has more than 9 million members.

Tapestry

Using Multiple Segmentation Methods

- Although all segmentation methods are useful, each has its unique advantages and disadvantages.

- Thus, firms often employ a combination of segmentation methods, using demographics and geography to identify and target marketing communications to their customers

- then using benefits or lifestyles to design the product or service and the substance of the marketing message.

One very popular mixture of segmentation schemes is geodemographic segmentation:

- Based on the adage "birds of a feather flock together," geodemographic segmentation uses a combination of geographic, demographic, and lifestyle characteristics to classify consumers.

Tapestry Segmentation System:

- One widely used tool for geodemographic market segmentation is the Tapestry™ Segmentation system developed and marketed by Esri.

- Tapestry™ uses a combination of geographic, demographic, and lifestyle characteristics to classify consumers.

- Tapestry Segmentation classifies all U.S. residential neighborhoods into 65 distinctive segments based on detailed demographic data and lifestyles of people who live in each U.S. block tract (zip code +4).

Using Multiple Segmentation Methods

- Although all segmentation methods are useful, each has its unique advantages and disadvantages.

- Thus, firms often employ a combination of segmentation methods, using demographics and geography to identify and target marketing communications to their customers

- then using benefits or lifestyles to design the product or service and the substance of the marketing message.

One very popular mixture of segmentation schemes is geodemographic segmentation:

- Based on the adage "birds of a feather flock together," geodemographic segmentation uses a combination of geographic, demographic, and lifestyle characteristics to classify consumers.

geodemographic segmentation:

- Based on the adage "birds of a feather flock together," geodemographic segmentation uses a combination of geographic, demographic, and lifestyle characteristics to classify consumers.

Family Life Cycle

- Consumption patterns among people of the same age and gender differ because of differences in the family life cycle stage.

Family Life Cycle (FLC):

- The FLC is a series of stages determined by a combination of age, marital status, and the presence or absence of children.

Segment Attractiveness:

- Identifiable

- Substantial

- Reachable

- Responsive

- Profitable

Segment Attractiveness: Identifiable

- Who is in their market?

- Are the segments distinct from one another?

- Does each segment require a unique marketing mix?

- Firms must be able to identify who is within their market to be able to design products or services to meet their needs.

- It is equally important to ensure that the segments are distinct from one another, because too much overlap between segments means that distinct marketing strategies aren't necessary to meet segment members' needs.

Example:

- Ask students: When would these women all be in the same segment? When would they be in different segments?

- These women would appear in the same segment if the segmentation variable were gender but in individual segments based on race or lifestyle. They also may be in different geographic or income segments, for example.

Segment Attractiveness: Substantial

- How large is the market segment in terms of size and buying power?

- If a market segment is too small, it won't generate sufficient profits.

- If its buying power is insignificant, despite its size, the marketing mix cannot be supported.

- Just because a firm can find a market does not necessarily mean it represents a good market.

- If a market is too small or its buying power insignificant, it won't generate sufficient profits or be able to support the marketing mix activities.

Segment Attractiveness: Reachable

- Can the market be reached through persuasive communication and product distribution?

The consumer must:

- Know the product exists.

- Understand what it can do.

- Recognize how to buy.

- The best product or service cannot have any impact, no matter how identifiable or substantial the target market is, if that market cannot be reached (or accessed) through persuasive communications and product distribution.

- The consumer must know that the product or service exists, understand what it can do for him or her, and recognize how to buy it.

Example:

- Ask students: What types of media influence the way they shop?

- The answer may lead to an interesting discussion about how difficult it is to reach Generation Y customers either because they don't participate in traditional media such as newspapers or because they are skeptical about being influenced by commercial messages.

Segment Attractiveness: Responsive

- Customers must react similarly and positively to the firm's offering.

- If a firm cannot provide products and services to the segment, it shouldn't be targeted.

Example:

- For instance, the Cadillac division of General Motors (GM) has introduced a line of cars to the large and very lucrative luxury car segment. People in this market typically purchase Porsches, BMWs, Audis, and Lexuses.

- In contrast, GM has been somewhat successful competing for the middle-priced, family-oriented car and light truck segments. Thus, even though the luxury car segment meets all the other criteria for a successful segment, GM took a big risk in attempting to pursue this market.

Segment Attractiveness: Profitable

- Assess potential profitability of each segment, both current and future.

Key factors:

- Current market growth rate.

- Future (Expected) growth rate.

- Market competitiveness. (number of competitors, entry barriers, product substitutes)

- Market access costs. (ease of developing or accessing distribution channels and brand familiarity)

How to Determine the Profitability of a Segment

Segment = Children under 15:

- Segment size = 60 million (<15 yrs.).

- Segmentation Adoption Percentage = 35%.

- Purchase Behavior = $500 × 1 time purchase.

- Profit margin % = 10%.

- Fixed Cost = $50M.

Is this segment profitable?

- Children under 15 represent a very profitable market segment, as this example illustrates.

Exhibit 9.6: Profitability of Two Market Segments for Camillo's Lawn Service

- A hot segment today may not last long enough to make it worth investment.

- Many firms are investigating when and how much to invest in the Millennial/GenY generational cohort.

-Firms in financial services and housing understand that it provides a new potential market, but the debt levels this segment carries makes it difficult to target effectively.

- To illustrate how a business might determine a segment's profitability, consider Camillo's start-up lawn service. He is trying to determine whether to target homeowners or businesses in a small midwestern town. The slide estimates the profitability of the two segments.

Factors include:

- Segment Size

- Segment adoption percentage

- Fixed costs

- Segment profit

- example illustrates that sometimes smaller segments can be more profitable

Pareto's Principle

- The Pareto Principle, also known as the 80-20 rule, states that approximately 80% of consequences come from 20% of causes.

- 32% of beer-drinkers consume 80%

- 23% of laxative users consume 80%

- 14% of gin drinkers consume 80%

Targeting Strategies:

-Mass Market / Undifferentiated

- Differentiated

- Concentrated

- Micromarketing / One-to-one

Mass Market / Undifferentiated

- When everyone might be considered a potential user of its product, a firm uses an undifferentiated targeting strategy (mass marketing).

- Mass Market Products = There are very few mass market products. Even commodity goods such as flour are now differentiated.

Differentiated

- Firms using a differentiated targeting strategy target several market segments with a different offering for each.

- Differentiated = Coca Cola

Example Orbitz (2011):

- Mac users pay $20-30 more on hotel rooms

- 40% higher chance of 4- or 5-star hotel

- Same hotel, mac users pick more expensive rooms

Concentrated

- When an organization selects a single, primary target market and focuses all its energies on providing a product to fit that market's needs, it is using a concentrated targeting strategy.

- Concentrated = Helena Rubenstein or Clinique

Micromarketing / One-to-one

- When a firm tailors a product or service to suit an individual customer's wants or needs, it is undertaking an extreme form of segmentation called micromarketing or one-to-one marketing.

- Micromarketing = Financial Services Providers

Targeting Strategies: Mass Market / Undifferentiated

- When everyone might be considered a potential user of its product, a firm uses an undifferentiated targeting strategy (mass marketing).

- Mass Market Products = There are very few mass market products. Even commodity goods such as flour are now differentiated.

Targeting Strategies: Differentiated

- Firms using a differentiated targeting strategy target several market segments with a different offering for each.

- Differentiated = Coca Cola

Example Orbitz (2011):

- Mac users pay $20-30 more on hotel rooms

- 40% higher chance of 4- or 5-star hotel

- Same hotel, mac users pick more expensive rooms

Targeting Strategies: Concentrated

- When an organization selects a single, primary target market and focuses all its energies on providing a product to fit that market's needs, it is using a concentrated targeting strategy.

- Concentrated = Helena Rubenstein or Clinique

Targeting Strategies: Micromarketing / One-to-one

- When a firm tailors a product or service to suit an individual customer's wants or needs, it is undertaking an extreme form of segmentation called micromarketing or one-to-one marketing.

- Micromarketing = Financial Services Providers

(TED video) Malcom Gladwell: Choice, happiness and spaghetti sauce: Horizontal Segmentation

- Horizontal segmentation is the idea that there is no single "best" product for everyone — instead, different people have different preferences, and companies should offer multiple equally valid options to satisfy diverse tastes.

There's no single "perfect" product:

- Consumer preference isn't one bell curve; it breaks into clusters. Howard Moskowitz realized companies shouldn't hunt for the perfect Pepsi—but for many "perfect Pepsis."

Pepsi experiment → epiphany:

- Early Diet Pepsi tests produced messy data, prompting Moskowitz to see that asking for one sweetness level was the wrong question.

Prego case study:

- Back in the 1980's Ragu and Prego each produced one version of pasta sauce

- Prego, which by all accounts was a better tasting sauce, was losing the marketing war with Ragu, the gold standard of pasta sauces in the day.

- Prego made a decision to hire Dr. Moskowitz to help them understand why they were unable to challenge the market leader Ragu.

- Moskowitz created 45 sauces and tested them widely, and found three big taste clusters: plain, spicy, and extra-chunky.

Lesson #1:

- People can't always tell you what they want.

Lesson #2:

- Embrace "horizontal segmentation." Products don't live on a single quality ladder (good→better→best). They spread horizontally across different styles that make different people happy (e.g., mustards, vinegars, olive oils).

Business outcome:

- After the Prego breakthrough, variety exploded across categories (dozens of mustards, many kinds of Ragu, etc.), reshaping how the food industry designs products.

Core takeaway:

- To increase happiness, design for differences: identify meaningful preference clusters and build products for each, instead of forcing everyone toward one ideal.

Positioning Statement

Purpose:

- A single sentence that defines who you're for, what category you're in, the unique benefit you deliver, and why it's believable. It guides all 4P decisions; it's not a tagline.

Market positioning:

- Defining marketing mix variables so target customers have a clear, distinctive, desirable understanding of what the product does.

What is the primary goal of market positioning?

- To create a clear, distinctive, and desirable understanding of a product in the target customer's mind.

Value proposition:

- Communicates the customer benefits to be received from a product or service.

- represented by the benefits that a firm provides but that its competitors do not.

Value Prop Example:

- Airline customers who are looking for a good value and will therefore tolerate a cattle-call approach to seating, which allows them to choose their own seats on the plane as long as they get an early check-in, turn to Southwest for their flights.

Positioning:

- "What the product does, and who is it for." : David Ogilvy

- Positioning is seen through the eyes of the customer

- Designing the company's offering and image so that it occupies a distinct and valued position in the target customers' mind

A positioning statement answers:

- "If we pursue this segment, how would we approach it and what would we want segment members to see in us?"

- Positioning statements are intended to get the whole organization aligned regarding the aspiration decision.

Positioning Statement Key elements: The main value proposition components are:

- 1. Target market

- 2. Offering name or brand

- 3. Product/service category or concept

- 4. Unique point of difference/benefits.

The Positioning Statement Template

- For [your target market] who [target market need], [your brand name] provides [main benefit that differentiates your offering from competit

Perceptual Maps

Perceptual Maps:

- A perceptual map displays, in two or more dimensions, the position of products or brands in the consumer's mind.

Ideal Points:

- Where a particular market segment's ideal product would lie on the map.

- Marketers determine their brand's position by asking a series of questions about their firm's and the competitors' products.

- Displays, in two or more dimensions, the position of products or brands in the consumer's mind.

Six Positioning Steps to Derive a Perceptual Map

- 1. Determine consumers' perceptions and evaluations in relation to competitors' product or service.

- 2. Identify the market's ideal points and size.

- 3. Identify competitors' positions.

- 4. Determine consumer preferences.

- 5. Select the position.

- 6. Monitor the positioning strategy.

Example:

- Here, cars are depicted on two dimensions: style and price. Kia is known for having a low price and a more traditional style.

Repositioning

- a marketing strategy that involves altering the perception of a product, service, or brand in the minds of consumers

- Deliberately changing how a target segment perceives a brand or product—by redefining the target, frame of reference (category), point of difference (benefit), and/or reasons to believe. It's about moving mental real estate, not just new ads.

Unique Selling Proposition

- a core marketing concept that defines what makes a product, service, or brand uniquely different and superior to its competitors.

- A single, sharp, and defensible promise that sets your brand apart in its category—one benefit only your brand can credibly claim, aimed at a specific target and backed by proof

Chapter 10 Notes

Brehm's psychological reactants:

- If you give something to someone and you take it away then they want that something even more

Example:

- Busch Apple

Tabs:

- Pepsi Challenge, New Cola

- You want something more when it is taken away

Redbull:

- Make it taste bad (medicinal) to be good

- Give it a smaller can

Structured vs. Unstructured

- arm and hammer baking soda ask people what they use it for (unstructured)

- Lady said she keeps it in freezer to eliminate odors

TEST QUESTION

- 5 V's of big data

Brehm's psychological reactants:

- If you give something to someone and you take it away then they want that something even more

Example:

- Busch Apple

Structured vs. Unstructured

- arm and hammer baking soda ask people what they use it for (unstructured)

- Lady said she keeps it in freezer to eliminate odors

The Marketing Research Process

1. Defining the objectives and research needs

2. Designing the research

3. Collecting the data

4. Analyzing data and developing insights

5. Developing and implementing an action plan

- The marketing research process consists of five steps. Although we present the stages of the marketing research process in a step-by-step progression, of course research does not always, or even usually, happen that way.

- Researchers go back and forth from one step to another as the need arises.

The Marketing Research Process: Step 1: Defining Objectives and Research Needs

To determine whether to conduct research, two questions must be addressed:

1. What?

- What information is needed to answer specific research questions?

2. How?

- How should that information be obtained?

The Marketing Research Process: Step 2: Designing the Research

- In this step, researchers identify the type of data needed and determine the type of research necessary to collect it. The objectives of the project drive the type of data needed.

- Determine the type of research needed to obtain data.

- Identify the type of data needed.

The Marketing Research Process: Step 3: Collecting the Data

- After answering why and how, researchers must determine where they can find the data. Discuss how the types of data required determine the methods used to collect them.

- If you can connect to your college library, look at some of the data sources at your own school. Databases like mintel, tablebase, ABI Inform and Business Source Premier are excellent sources of data.

Secondary Data:

- Collected prior to the start of the research project.

- External as well as internal data sources.

Primary Data:

- Collected to address specific research needs.

- Examples: focus groups, in-depth interviews, surveys.

- Sample: Choose a group of customers who represent the customers of interest and generalize their opinions to the market segment.

The Marketing Research Process: Step 4: Analyzing the Data and Developing Insights

- Converting data into information that is useful in making more effective marketing decisions.

- The next step in the marketing research process—analyzing and interpreting the data—should be both thorough and methodical.

- To generate meaningful information, researchers analyze and make use of the collected data.

- In this context, data can be defined as raw numbers or other factual information that, on their own, have limited value to marketers.

- However, when the data are interpreted, they become information, which results from organizing, analyzing, and interpreting data and putting them into a form that is useful to marketing decision makers.

The Marketing Research Process: Step 5: Developing and Implementing an Action Plan

Parts of Action Plan:

- Executive Summary

- Body of the report

- Conclusions

- Limitations

- Supplements including tables, figures, and appendices

- A typical marketing research report would start with a two-page executive summary. This would highlight the objectives of the study, methodology and key insights.

- The body of the report would go through the objectives of the study, issues examined, methodology, analysis and results, insights and managerial implications.

- The report would end with conclusions and any limitations or caveats.

- Many consultants today provide an executive summary, a PowerPoint presentation of the report, and questionnaire and tabulated study results.