Chapter 1 - BUSI 406

How does the American Marketing Association (AMA) define marketing?

The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.

(marketing defined) What are the 4 components of marketing when the AMA definition is broken down into plain terms?

Identifying customer needs (through marketing research), anticipating customer needs (predicting how products should change), satisfying customer needs (so customers become repeat buyers), and doing all of this profitably (adding enough value that price exceeds the cost of making the product).

What does it mean for marketing to be done 'profitably'?

It means adding value to a product so that the price customers pay for it is greater than the cost of making it, since profitability occurs when a company's revenue is greater than its expenses.

What are interested parties (stakeholders) in marketing, and what are the two categories?

Persons or entities that have an interest in the success or failure of a company; they are categorized as internal interested parties and external interested parties.

Who are internal interested parties, and what is internal marketing?

Internal interested parties are entities within the organization, such as employees, owners, managers, and investors (shareholders). Internal marketing is promoting a company's objectives, products, and services to these internal groups, particularly employees.

Who are external interested parties?

Those outside the company, such as customers, creditors, suppliers, distributors, and society at large; they don't have a direct say in company decisions but are vital to the company's success.

What does 'utility' mean in a marketing context?

A product's usefulness to customers, that is, how convinced customers are to make a purchase because of it.

What is form utility, and what is a simple example?

The value added when a company changes or alters a product's physical form to increase its worth to the customer, such as a bakery combining flour, sugar, and eggs into a finished donut.

What is time utility, and what is a simple example?

The value added by making a product or service available when it is most convenient for the customer to buy it, such as a store staying open evenings, weekends, or 24/7.

What is place utility, and what is a simple example?

The value added by making goods or services physically available, convenient, and accessible to customers, such as Uber Eats delivering food so you don't have to go get it yourself.

What is possession utility, and what is a simple example?

The value added by making a product easy for the customer to acquire, such as automobile manufacturers offering low or no interest rate car loans; it also includes the pride or satisfaction of owning the product.

What are the 5 steps in the marketing process (in order)?

Step 1: Understand the marketplace and your customers. Step 2: Develop a customer driven marketing strategy. Step 3: Deliver high customer value. Step 4: Grow profitable customer relations. Step 5: Capture value from customers.

In Step 1 of the marketing process, what does a company need to understand about the marketplace and customers?

Who the customers are, their income and purchasing power, and how much they are likely to spend, particularly on your products or services.

What is a customer driven marketing strategy (Step 2), and how does it differ from a product driven strategy?

A customer driven marketing strategy shifts the focus from the product itself to the users: you analyze prospective consumers first and then create something they want or need. A product driven, 'build it and they will come' strategy instead starts with the product.

What is a value proposition?

A promise of value from a company to the customer that identifies the quantifiable benefits customers can expect; it communicates why a customer should buy the product and how it differs from and is superior to competitors' offerings.

What is the formula for customer value (Step 3)?

Customer value equals the ratio of perceived benefits to the costs incurred by the customer in acquiring the product or service (Value = Benefits / Price).

What are the 4 types of value from the customer's perspective?

Functional value (what the product does to solve a want or need), monetary value (what the product costs relative to its perceived worth), social value (how much owning it lets the customer connect with others), and psychological value (how much it lets the customer feel better).

How can a company increase customer value?

By boosting the benefits, in the form of product, place, or promotion, or by minimizing the price.

What happens in Step 4 of the marketing process, growing profitable customer relations?

Marketers acquire, keep, and grow customer relationships by reminding customers about products/services and how they've met their needs, encouraging repeat purchases rather than a one and done sale.

What is customer equity (Step 5), and what is the goal related to it?

Customer equity is the potential profits a company earns from its current and potential customers (the total combined customer lifetime values of all of a company's customers); the goal is to increase customer loyalty in order to increase customer equity.

What is the marketing mix?

The set of tactics a company can use to promote its products or services in the market in order to influence consumers to buy; it is also known as the 4Ps.

What are the 4Ps of the marketing mix?

Product (the good or service the company provides), price (what the consumer pays for it), place (where the product is purchased), and promotion (advertising, sales, and other communication efforts used to attract customers).

In the marketing mix, what two questions does pricing a product typically need to answer?

What is the minimum price the company can charge and still make a profit, and what is the maximum price the company can charge without losing customers?

In the marketing mix, what does 'place' actually refer to?

Not the location of the company itself, but the location of the customers or potential customers, and the strategies used to get the product from its present location (such as a warehouse) to where the customers are.

What is the marketing environment?

The internal and external factors and forces that influence an organization's decisions about its marketing activities. Internal factors are within the organization's control; external factors are outside its control.

What are the two components of a company's internal marketing environment?

The 5M framework (5Ms of marketing) and organizational culture.

What are the 5Ms of marketing?

Minds (staffing), Minutes (time), Machinery (equipment), Materials (production inputs), and Money (finance).

What is organizational culture, and how can it impact marketing?

The shared values, attitudes, expectations, norms, and practices that guide everyone in the company ("the way we do things around here"). A strong culture strengthens the marketing message by showing customers the company's real values, and it also helps attract and retain employees.

What are the two components of a company's external marketing environment?

The microenvironment (task environment) and the macroenvironment (broad environment).

What are the 5 factors that make up the microenvironment?

Suppliers, market intermediaries, customers, competitors, and the general public.

In the microenvironment, what is the difference between suppliers and market intermediaries?

Suppliers are the partners from whom a company receives the parts and products needed for its business. Market intermediaries are third party sellers, like retailers and wholesalers, who distribute the finished products to end customers.

In the microenvironment, what is the difference between a retailer and a wholesaler?

Retailers (like Walmart or Target) purchase large quantities of goods from producers and sell smaller quantities to end customers. Wholesalers purchase large quantities from producers and sell to smaller businesses, such as retail stores.

What does PESTLE stand for, and what does it assess?

Political, Economic, Social, Technological, Legal, and Environmental factors; it is a framework used to assess the macroenvironment and give marketers a comprehensive view of external influences.

Under PESTLE, what do political factors and economic factors each cover?

Political factors cover things like trade restrictions, political stability, and business policy. Economic factors cover things like inflation, spending power, and supply and demand, which affect pricing and sales.

Under PESTLE, what do social and technological factors each cover?

Social factors cover cultural norms, health consciousness, population trends, age distribution, and career attitudes. Technological factors cover innovations, developments, and the rate of technological change that impact operations.

Under PESTLE, what do legal and environmental factors each cover?

Legal factors cover changes to legislation affecting employment, industry regulation, licenses/permits, and intellectual property. Environmental factors cover the physical environment, such as climate change, pollution, and scarcity of raw materials.

What are the 5 stages in the evolution of marketing (in order)?

The production concept, the product concept, the sales concept, the marketing concept, and the societal marketing concept.

What is the production concept?

The idea that consumers are mostly interested in product availability and price, not product features, so companies focus on high production, low costs, and mass distribution ('if you build it, they will come').

What is the product concept, and what pitfall is associated with it?

The idea that consumers favor products offering quality, performance, and innovative features, so companies focus on making superior products and improving them over time. The pitfall is 'marketing myopia,' where marketers fall in love with their product and fail to realize what the market actually wants or needs (as with railroads overlooking competition from cars and airlines).

What is the sales concept?

The idea that consumers and businesses need to be 'coaxed' into buying, so companies focus on persuading customers through advertising and personal selling, aiming to sell what they made rather than make what consumers wanted.

What is the marketing concept?

The idea that an organization achieves its goals by satisfying the needs and wants of the consumer, so firms focus on customer needs before developing products; it also marks the start of relationship marketing, fostering long term customer relationships.

What is the societal marketing concept?

The idea that companies should make marketing decisions by balancing consumers' wants and needs, the company's own capabilities, and society's long term interests, including the environmental impact of marketing decisions on future generations.

What are the 5 types of customer needs?

Stated needs, real needs, unstated needs, delight needs, and secret needs.

What is the difference between a stated need and a real need?

A stated need is what the customer explicitly requests (example: 'I need a new phone'). A real need is one level more specific, defining what the stated need actually means (example: wanting long battery life or a high resolution camera).

What is the difference between an unstated need and a delight need?

An unstated need is something the customer expects but doesn't ask for (example: expecting good service from the carrier). A delight need is an extra 'wow factor' that makes a product more desirable even though the customer didn't expect it (example: a free phone case).

What is a secret need?

A need the customer may not state or even realize, but that can be a main reason they choose a particular product, such as wanting a new phone as a status symbol without admitting status matters to them.

Does marketing create consumer needs, or does it satisfy them?

Marketing does not create needs; rather, it opens consumers' eyes to their existing wants, and marketers work to understand and satisfy those wants so consumers can find their way to purchasing the product.

In the exchange process, what is the difference between a customer and a consumer?

The customer is the individual or business that purchases the product or service; the consumer is the person who actually uses it. Example: a grandmother who buys a toy for her grandson is the customer, and the grandson is the consumer.

In the exchange process, what are the buyer, the desired object, and the seller?

The buyer is the individual or business with a want or need who is willing to pay for it. The desired object is the product, service, or experience itself. The seller is the individual or organization that supplies the need satisfying product, service, or experience.

What is the exchange process?

The act of obtaining a desired product or service from an individual or business by providing something of value in return.

What is customer relationship management (CRM)?

The means through which companies track, manage, and analyze customer interactions; it is a system for managing information regarding leads, prospects, and customers.

What is operational CRM?

CRM software that deals with marketing, sales, and service automation, intended to help businesses automate how they approach leads and convert prospects into actual customers.

What is analytical CRM?

CRM software focused on collecting, organizing, and analyzing customer data, providing management with insights needed to understand trends and make data-driven strategic decisions.

What is collaborative CRM?

CRM software that allows companies to share customer information and data with each other so that both parties mutually benefit from insights they wouldn't otherwise have access to.

What is customer loyalty, and what is customer retention?

Customer loyalty is an ongoing positive relationship between a customer and a business. Customer retention is the company's ability to turn a new customer into a repeat, returning customer.

What are the 5 ways CRM positively impacts customer loyalty and retention?

Leveraging customer data, enhancing customer communications, ascertaining customer needs, gathering feedback, and managing customer loyalty programs.

How does CRM help build customer equity?

Customer equity is a core CRM benchmark; CRM is a two-way street that lets customers help shape offerings based on their requirements, creating open dialogue that ultimately leads to higher customer equity.

What are the 4 core principles of ethical marketing?

All marketing should be true, the privacy of the end user is most important, marketing campaigns must adhere to government rules and regulations, and marketing professionals must be transparent about what they're conveying and to whom.

According to the textbook, what percentage of US consumers stop buying from companies they believe are unethical?

56 percent, according to research by Mintel.

What are the 3 'dos' of ethical marketing?

Ensure transparency, protect (respect) data privacy, and prioritize the concerns of the consumer.

What are the 3 'don'ts' of ethical marketing?

Don't overemphasize or exaggerate (puffery), don't make false or unverified claims, and don't make false comparisons about competitors' products.

What real-world example illustrates the consequence of not respecting data privacy in marketing?

Vizio, the TV manufacturer, was sued in a class action lawsuit after it was learned that its devices tracked and reported viewing information without asking customers for permission, a potential violation of the Video Privacy Protection Act.

What real-world example illustrates the consequence of making false or unverified marketing claims?

Living Essentials, LLC, maker of 5-Hour Energy, advertised its product as 'doctor recommended' and superior to traditional caffeine; those claims were found misleading, and the company was ordered to pay $4.3 million in damages.