Introduction to Marketing Midterm

Marketing

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

For marketing to occur, at least four factors are required:

(1) two or more parties (individuals or organizations) with unsatisfied needs,

(2) a desire and ability on their part to have their needs satisfied,

(3) a way for the parties to communicate, and

(4) something to exchange

Exchange

The trade of things of value between a buyer and a seller so that each is better off after the trade

Marketing mix: 4 Ps

• Product: A good, service, or idea to satisfy the consumer’s needs

• Price: What is exchanged for the product

• Promotion: A means of communication between the seller and buyer

• Place: A means of getting the product to the consumer

Environmental forces

Social, economic, technological, competitive, and regulatory forces

• These five forces may serve as accelerators or brakes on marketing, sometimes expanding an organization’s marketing opportunities and at other times restricting them

Customer value

Unique combination of benefits received by targeted buyers that includes quality, convenience, on-time delivery, and both before-sale and after-sale service at a specific price

Market segments

Relatively homogeneous groups of prospective buyers who

(1) have common needs and

(2) will respond similarly to a marketing action

Customer relationship management

The process of identifying prospective buyers, understanding them intimately, and developing favorable long-term perceptions of the organization and its offerings so that buyers will choose them in the marketplace and become advocates after their purchase

Strategy

An organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals

Corporate level

Top management directs overall strategy for the entire organization. “Top management” usually means the board of directors and senior management officers with a variety of skills and experiences that are invaluable in establishing the organization’s overall strategy

Strategic business unit (SBU)

A subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined target market

Strategic business unit level

Managers set a more specific strategic direction for their businesses to exploit value-creating opportunities

Functional level (Department)

Specialized functions such as marketing and finance

• At the functional level, the organization’s strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization

Organizational purpose

Describes why an organization exists, what problems it wishes to solve, and who it wants to be to every person it touches through its work. Consider the “top line” on organizational purpose expressed by the chief executive officers at Meta Platforms and Apple, two visionary organizations. According to Meta’s Mark Zuckerberg

• Ex: The most important thing we at Facebook [Meta] can do is to develop the social infrastructure to give people the power to build a global community that works for all of us

Core values

Fundamental, passionate, and enduring principles that guide its conduct over time. A firm’s founders or senior management develop and nurture these core values, which are consistent with their essential beliefs and character

• They capture the firm’s heart and soul and serve to inspire and motivate its stakeholders—employees, shareholders, board of directors, suppliers, distributors, creditors, unions, government, local communities, and customers

Mission

A statement of the organization’s function in society that often identifies its customers, markets, products, and technologies

Organizational culture

The values, ideas, attitudes, and norms of behavior that are learned and shared among the members of an organization. Southwest Airlines, for example, communicates the importance of a warm and friendly experience

Goals or objectives

Statements of an accomplishment of a task to be achieved, often by a specific time

• Goals convert an organization’s mission and business into long- and short-term performance targets. Business firms can pursue several different types of goals

BCG

• Question marks: are SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it

• Stars: are SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows

• Cash cows: are SBUs that generate large amounts of cash, far more than they can use. They have dominant shares of slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs

• Dogs: are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they may no longer be or may not become real winners for the organization

Four market-product strategies

• Market penetration: a marketing strategy to increase sales of current products in current markets, such as selling more Ben & Jerry’s Chocolate Chip Cookie Dough ice cream to U.S. consumers

• Market development: a marketing strategy to sell current products to new markets. For Ben & Jerry’s, Argentina is an attractive new market

• Product development: a marketing strategy of selling new products to current markets. Ben & Jerry’s could leverage its brand by selling children’s clothing in the United States

• Diversification: a marketing strategy of developing new products and selling them in new markets. This is a potentially high-risk strategy for Ben & Jerry’s if it decides to try to sell Ben & Jerry’s branded clothing in Argentina

SWOT Analysis

Acronym describing an organization’s appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats

• The SWOT analysis is based on an exhaustive study of four areas that form the foundation upon which the firm builds its marketing program

  • Identify changes and trends in the organization’s industry

  • Analyze the organization’s current and potential competitors

  • Assess the organization itself, including available resources

  • Research the organization’s present and prospective customers

Marketing strategy

A marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it

Environmental scanning

The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends

Social forces: Environmental forces

Social forces: include the demographic characteristics of the population and its culture

• Demographics: A type of social force, describing a population according to selected characteristics such as age, gender, ethnicity, income, and occupation

  • Silent Generation (1928–1945): Grew up during the Great Depression and World War II, valuing stability, hard work, and traditional social norms

  • Baby Boomers (1946–1964): Grew up during postwar economic growth and social change, often associated with ambition, career success, and traditional institutions

  • Generation X (1965–1980): Grew up during increasing divorce rates, economic shifts, and the rise of technology, often characterized by independence and adaptability

  • Millennials (1981–1996): Came of age with the internet and globalization, experiencing events like 9/11 and the Great Recession while embracing technology and new workplace norms

  • Generation Z (1997–2012): Grew up as digital natives with smartphones and social media, placing strong emphasis on technology, individuality, and social issues

  • Generation Alpha (2013–2024): Growing up surrounded by AI, smart devices, and highly digital environments, they are expected to have an even deeper integration of technology into everyday life

• Culture: A type of social force, incorporates the set of values, ideas, and attitudes that are learned and shared among the members of a group

Economic forces: Environmental forces

Economy: pertains to the income, expenditures, and resources that affect the cost of running a business and household

• Gross income: the total amount of money made in one year by a person, household, or family unit

• Disposable income: the money a consumer has left after paying taxes to use for necessities such as food, housing, clothing, and transportation

• Discretionary income: the money that remains after paying for taxes and necessities. Discretionary income is used for luxury items such as a Cunard cruise. An obvious problem in defining discretionary versus disposable income is determining what is a luxury and what is a necessity

Technological forces: Environmental forces

Technology: refers to methods, systems, and devices that are the result of scientific and engineering knowledge being used for practical purposes. Each new wave of technology can replace existing products, services, and companies, or create new ones.

Competition forces: Environmental forces

Competition: refers to the alternative firms that could provide a product to satisfy a specific market’s needs

• Pure competition: there are many sellers and each has a similar product

• Monopolistic competition: many sellers compete with substitutable products within a price range. For example, if the price of coffee rises too much, consumers may switch to tea. Coupons or sales are frequently used marketing tactics

• Oligopoly: a common industry structure, occurs when a few companies control the majority of industry sales

• Pure monopoly: occurs when only one firm sells the product

Barriers to entry: business practices or conditions that make it difficult for new firms to enter the market. Barriers to entry can be in the form of capital requirements, advertising expenditures, product identity, distribution access, or the cost to customers of switching suppliers

Regulatory forces: Environmental forces

Regulation: consists of restrictions state and federal laws place on business with regard to the conduct of its activities. Regulation exists to protect companies as well as consumers. Much of the regulation from the federal and state levels is the result of an active political process and has been passed to ensure competition and fair business practices

Sherman Antitrust Act (1890): (1) contracts, combinations, or conspiracies in restraint of trade and (2) actual monopolies or attempts to monopolize any part of trade or commerce

Clayton Act (1914): forbids certain actions that are likely to lessen competition, although no actual harm has yet occurred

Robinson-Patman Act (1936): makes it unlawful to discriminate in prices charged to different purchasers of the same product, where the effect may substantially lessen competition or help create a monopoly

Digital Millennium Copyright Act (1998): to improve protection of copyrighted digital products

• The copyright law gives the author of a literary, dramatic, musical, or artistic work the exclusive right to print, perform, or otherwise copy that work. Copyright is secured automatically when the work is created

Trademark Law Revision Act: resulted in a major change to the Lanham Act, allowing a company to secure rights to a name before actual use by declaring an intent to use the name

Madrid Protocol: a treaty that facilitates the protection of U.S. trademark rights throughout the world

Ethics

Moral principles and values that govern the actions and decisions of an individual or group.2 They serve as guidelines on how to act rightly and justly when faced with moral dilemmas

Laws

Society’s values and standards that are enforceable in the courts

Four ways to classify marketing decisions according to ethical and legal relationships

Ethical but illegal:

• Society used to see as acceptable or normal can become viewed as unethical or illegal over time

  • Ex: Drunk driving, smoking, LGBTQ+ rights

Consumer Bill of Rights

Codified the ethics of exchange between buyers and sellers. These were the right

• Right to Safety: Consumers should be protected from dangerous or defective products

• Right to Be Informed: Consumers should receive complete and accurate information about products and how their personal data is used

• Right to Choose: Consumers should have access to a variety of products and services

• Right to Be Heard: Consumers should be able to voice complaints and have their concerns addressed

Economic espionage

Clandestine collection of trade secrets or proprietary information about a company’s competitors

• This practice is illegal and unethical and carries serious criminal penalties for the offending individual or business

• Ex: illegal trespassing, theft, fraud, misrepresentation, electronic hacking, the search of a competitor’s trash, and violations of written and implicit employment agreements with noncompete clauses

Social responsibility, stakeholder responsibility, and profit responsibility

Social responsibility: organizations are part of a larger society and are accountable to that society for their actions. Like ethics, agreement on the nature and scope of social responsibility is often difficult to come by, given the diversity of values present in different societal, business, and corporate cultures

Stakeholder responsibility: focuses on the obligations an organization has to those who can affect achievement of its objectives. These constituencies include consumers, employees, suppliers, and distributors. Failure to consider a company’s broader constituencies when making decisions can have dire consequences

Profit responsibility: holds that companies have a simple duty: to maximize profits for their owners or stockholders.

Consumer behavior

The actions a person takes in purchasing and using products and services, including the mental and social processes that come before and after these actions

Purchase decision process

1) Problem recognition: initial step in the purchase decision process, is perceiving a difference between a person’s ideal and actual situations big enough to trigger a decision

• Finding an empty milk carton in the refrigerator; noting, as a first-year college student, that your high school clothes are not in the style that other students are wearing; or realizing that your notebook computer may not be working properly

2) Information search: After recognizing a problem, a consumer begins to search for information, the next stage in the purchase decision process

• Internal search: first, you may scan your memory for previous experiences with products or brands

• External search: this is needed when past experience or knowledge are insufficient, the perceived risk of making a wrong purchase decision is high, and the cost of gathering information is low

  • Personal sources: such as relatives and friends, as well as social networking platforms that the consumer trusts

  • Public sources: including various product-rating organizations such as Consumer Reports, government agencies, and TV “consumer programs”

  • Marketer-dominated sources: such as information from sellers including digital and print advertising, company websites, salespeople, and point-of-purchase displays in stores

3) Alternative evaluation: clarifies the information gathered by

• suggesting criteria to use for the purchase

• yielding brand names that might meet the criteria

• developing consumer value perceptions

4) Purchase decision: you are almost ready to make a purchase decision. Two choices remain: (1) from whom to buy and (2) when to buy

5) Post-purchase behavior: after buying a product, the consumer compares it with personal expectations and is either satisfied or dissatisfied

• If the consumer is dissatisfied, marketers must determine whether the product was deficient or consumer expectations were too high. Product deficiency may require a design change

• If expectations are too high, a company’s advertising or the salesperson may have oversold the product’s features and benefits

Involvement

The personal, social, and economic significance of the purchase to the consumer

• High-involvement purchase occasions: typically have at least one of three characteristics: The item to be purchased

  • (1) is expensive, (2) can have serious personal consequences, or (3) could reflect on one’s social image

  • Ex: college, car

• Low-involvement purchases: such as toothpaste and soap, barely involve most of us, but audio and video systems and automobiles are very involving

Cognitive dissonance

Feeling of post-purchase psychological tension or anxiety

• Often a consumer is faced with two or more highly attractive alternatives, such as the choice between the Apple Watch Series 9 and the Samsung Galaxy Watch 6. If you choose the Samsung Galaxy 6, you might think, “Should I have purchased the Apple Watch Series 9?”

Situational influences

An impact on the purchase decision process:

(1) the nature of the purchase task

(2) social surroundings

(3) physical surroundings

(4) temporal effects

(5) antecedent states

• Social surroundings, including the other people present when a purchase decision is made, may also affect what is purchased. Consumers accompanied by children buy about 40 percent more items than consumers shopping by themselves. Physical surroundings such as décor, music, and crowding in retail stores may alter how purchase decisions are made

• Consumers with credit cards purchase more than those with cash or debit cards

Psychological influence

Motivation: energizing force that stimulates behavior to satisfy a need. Because consumer needs are the focus of the marketing concept, marketers try to arouse these needs

Personality

person’s consistent behaviors or responses to recurring situations

• Research suggests that people who are generally compliant prefer known brand names and use more mouthwash and toilet soaps. People who tend toward more assertive behaviors use razors, not electric shavers, apply more cologne and aftershave lotions, and purchase signature goods such as Gucci and Yves St. Laurent as an indicator of status

• Personality characteristics often reveal a person’s self-concept, which is the way people see themselves and the way they believe others see them

Perception

The process by which an individual selects, organizes, and interprets information to create a meaningful picture of the world

• Selective perception: the human brain attempts to organize and interpret information, a filtering of exposure, comprehension, and retention

  • Your mind subconsciously chooses what you want to see

• Selective exposure: occurs when people pay attention to messages that are consistent with their attitudes and beliefs and ignore messages that are inconsistent with them

• Selective comprehension: involves interpreting information so that it is consistent with your attitudes and beliefs

• Selective retention: means that consumers do not remember all the information they see, read, or hear, even minutes after exposure to it

• Subliminal perception: means that you see or hear messages without being aware of them

Perceived risk

Represents the anxiety felt because the consumer cannot anticipate the outcomes of a purchase but believes there may be negative consequences

• Ex: eliminate the risk by offering money-back guarantee, free-trial, Costco free samples

Learning

refers to those behaviors that result from (1) repeated experience and (2) reasoning

Values, Beliefs, and Attitudes

Attitude: a “learned predisposition to respond to an object or class of objects in a consistently favorable or unfavorable way”

Beliefs: a consumer’s subjective perception of how a product or brand performs on different attributes. Beliefs are based on personal experience, advertising, and discussions with other people

Associative group

One to which a person actually belongs, including fraternities and sororities and alumni associations. Such groups are easily identifiable and are targeted by firms selling insurance, insignia products (including tattoos), and charter vacations

Aspiration group

One that a person wishes to be a member of or wishes to be identified with, such as a professional society or sports team. Firms frequently rely on spokespeople or settings associated with their target market’s aspiration group in their advertising

Dissociative group

One that a person wishes to maintain a distance from because of differences in values or behaviors. Firms often avoid dissociative reference groups in their marketing

• Ex: Apple does not permit villainous characters to use its products in movies

Social class

The relatively permanent, homogeneous divisions in a society into which people sharing similar values, interests, and behavior can be grouped. A person’s occupation, source of income (not level of income), and education determine social class

Business-to-business marketing

The relatively permanent, homogeneous divisions in a society into which people sharing similar values, interests, and behavior can be grouped. A person’s occupation, source of income (not level of income), and education determine social class

Organizational buyers

Manufacturers, wholesalers, retailers, service companies, nonprofit organizations, and government agencies that buy products and services for their own use or for resale

(1) industrial: Businesses that buy products/services and use or reprocess them to create something else

• Ex: A construction company buying steel to build buildings.

(2) reseller: Businesses that buy products and resell them to customers without significantly changing them

• Ex: Walmart buying products from manufacturers and selling them in stores

(3) government: federal, state, and local agencies that buy goods and services for the constituents they serve

North American Industry Classification System (NAICS)

A six-digit system used to classify businesses by industry in the U.S., Canada, and Mexico

• Ex: A restaurant has a specific NAICS code that identifies it as part of the food-service industry

Derived demand

Demand for business products is based on the demand for the final consumer products they help produce

• Ex: More people buying cars creates more demand for car parts

International standard organization ISO 9000

A set of international standards that help companies maintain consistent quality in their products and services

• ISO 9000 certificate: Proof that a company’s quality management system meets international standards for consistently producing quality products or services

Buying center

The individuals in this group share common goals, risks, and knowledge important to a purchase decision

• Users: The people who actually use the product

  • Ex: Employees using the new laptops

• Influencers: People who help decide what the company needs and what features it should have

  • Ex: IT recommends laptops with certain storage and security features

• Buyers: People who handle the actual purchase and negotiate with the seller

  • Ex: A purchasing manager gets quotes and places the order

• Deciders: People who give the final approval or choose the supplier

  • Ex: An IT director approves which laptop company to buy from

• Gatekeepers: People who control who gets information or access to the decision-makers

  • Ex: An assistant decides which salesperson's emails reach the purchasing manager

Marketing research

The process of defining a marketing problem and opportunity, systematically collecting and analyzing information, and recommending actions

1) Define problem

Define the problem: means clearly figuring out what the company needs to know or solve before doing research. The problem should be specific enough to research but not so narrow that the results aren't useful

• Ex: LEGO is deciding between two new SPIKE® Prime designs, so the problem could be: Which design will middle and high school students prefer and use more?

Exploratory research: used when a company doesn't fully understand a problem yet and wants to get ideas or learn more about it. It usually involves things like interviews, focus groups, or open-ended questions

• Ex: LEGO is worried that students might get bored because SPIKE® Prime has 500+ pieces. LEGO talks to students in focus groups and discovers that students want to be able to build and test something within about 20 minutes

Descriptive research: used to find out what is happening, how often something happens, or whether two things are related. It usually involves collecting more specific information through surveys or other data

Ex: LEGO surveys students to find out which SPIKE® Prime design middle school students prefer versus high school students. It can then compare school level with kit preference

Causal research: looks at whether changing one thing causes another thing to change. Researchers change one factor and see what effect it has

• Ex: LEGO changes the number or type of pieces in a SPIKE® Prime kit and measures whether students can build the robot faster or are more likely to finish it

2) Developing plan

Developing the research plan means deciding exactly how the research will be done, including the limits of the study, what information is needed, and how that information will be collected

Sample: choosing a smaller group of people from the larger group you want to study and using their answers to learn about that larger group

• Ex: LEGO surveys 100 students instead of every middle school student who might buy the product

Statistical inference: means using the results from a sample to make conclusions about the larger population

• Ex: If most of the 100 students surveyed prefer Design A, LEGO may use that information to estimate that students overall would also prefer Design A

3) Collect Relevant Information

Primary data: new information collected specifically for the current research project

• Watching / Observing: researchers watch how consumers actually behave

  • Mechanical observation: technology records behavior automatically
    Example: Nielsen uses devices to track what people watch on TV and other devices

  • Mystery shopping: researchers act like normal customers to evaluate things like customer service, prices, product availability, and store cleanliness

  • Neuromarketing: uses brain and body responses to understand how consumers react to things like ads, packaging, and products
    Example: eye tracking or EEG measuring how someone reacts to an advertisements

• Focus Groups: a small group of about 6–10 consumers who discuss a product or idea with a moderator

  • Example: A company asks 8 customers what they think about a new product and what they would change

  • Used mainly to generate ideas and understand consumer opinions

  • Surveys / Questionnaires

  • Survey: asking people questions to collect information about their opinions, behaviors, awareness, or intentions

  • Common types of questions:

    • Open-ended: people answer in their own words
      Example: “What do you like most about this product?”

    • Close-ended: people choose from given answers

    • Dichotomous: only two choices, usually yes/no
      Example: “Would you buy this product? Yes / No”

    • Likert scale: measures how strongly someone agrees or disagrees with a statement
      Example: “I would recommend this product” → Strongly disagree → Strongly agree

    • Demographic questions: ask about characteristics such as age, income, gender, education, etc

    • In-depth interview: long, detailed interview where the researcher asks follow-up questions to understand deeper opinions and feelings

    • Email/online survey: survey sent through email or completed online; usually cheaper and faster than traditional interviews

  • Primary Data: Other Sources

  • Social media: companies collect consumer opinions and behavior from platforms like Instagram, Facebook, and X

  • Important social media metrics:

    • Conversation velocity: how quickly people are talking about a brand/topic

    • Share of voice: how much of the overall conversation is about one brand compared with competitors

    • Brand sentiment: whether comments about a brand are positive, negative, or neutral

  • Intelligent Enterprise / Internet

    • Intelligent enterprise: using large amounts of data, technology, and analytics to turn information into useful marketing decisions

    • The Internet and devices collect data from things like websites, phones, apps, and connected devices

Secondary data: information that was already collected before the current research project

• Ex: A company uses a McKinsey report that already contains research instead of collecting the information itself

• Internal Secondary Data: information that comes from inside the company

  • Examples:

    • Sales records

    • Customer emails

    • Social media comments

    • Marketing budgets

    • Customer purchases

• External Secondary Data: information collected by organizations outside the company

  • Examples

    • U.S. Census Bureau

    • Nielsen

    • McKinsey reports

    • Trade associations

    • Universities

    • Business publications

    • Syndicated Panels

• Syndicated panel: a sample of households, consumers, or businesses that provides information repeatedly over time

  • Ex: Nielsen tracks the TV viewing behavior of a panel of households and sells that information to many companies

Primary Data

Advantages:

• More specific to the research problem

• More flexible

• Can collect exactly the information the company needs

Disadvantages:

• More expensive

• More time-consuming

Secondary Data

Advantages:

• Quick and easy to access

• Usually cheaper or free

• A lot of information may already be available

Disadvantages:

• May be outdated

• May not perfectly match the researcher's needs

• May not have enough detail or use the right categories

4) Develop findings

Develop findings: analyze the data and turn it into useful information that helps managers make marketing decisions

Analyze the Data: researchers look at the data to find patterns, problems, and opportunities

• Ex: Tony’s Pizza had flat sales from 2021–2024. The research showed that each household was buying fewer Tony’s pizzas, but more households were buying pizza overall

Present findings: show the results clearly so managers can easily understand them and decide what to do

• Marketing dashboards = visual displays of data using charts, graphs, and other information

• Findings should be clear, easy to understand, and focused on information managers can actually use

• Ex: Tony’s dashboard showed that sales were flat overall, but purchases were declining among households with children ages 6–12 → Tony’s could focus its marketing on this group

5) Take action

Take marketing actions: use the research findings to make a decision, put the decision into action, and check whether it worked

Make Action Recommendations: Turn the research findings into specific marketing actions

• Ex: Tony’s found that sales were declining among households with children ages 6–12, so they recommend:

  • Advertising aimed at children 6–12 and their families

  • Monthly promotions targeting this group

  • Special events for this age group

Implement the Action Recommendations: Actually put the marketing recommendations into practice

• Ex: Tony’s creates several ads, tests them with children, chooses the most appealing one, and uses it in its advertising campaign

Evaluate the Results: Check whether the marketing action worked and whether the research process itself could be improved

• Ex: Tony’s checks whether sales increased among households with children ages 6–12 and whether the new ads were successful

Step 1 = Define the Problem → What problem are we trying to solve?

Step 5 = Take Marketing Actions → Did our actions solve the problem?

Sale forecasting

Refers to the total sales of a product that a firm expects to sell during a specified time period under specified environmental conditions and its own marketing efforts

• Three main sales forecasting techniques are often used: (1) judgments of the decision maker (2) surveys of knowledgeable groups, and (3) statistical methods

Market segmentation

involves aggregating prospective buyers into groups, or segments, that

(1) have common needs and (2) will respond similarly to a marketing action

Product differentiation

The existence of different market segments has caused firms to use a marketing strategy

• This strategy involves a firm using different marketing mix actions, such as product features and advertising, to help consumers perceive the product as being different and better than competing products. The perceived differences may involve physical features, such as size or color, or nonphysical ones, such as image or price

Cannibalization

When a company introduces a new product or service and it causes sales of its existing product/service to decrease because customers switch to the new one

• Ex:

  • McDonald’s introduces a new burger

  • Customers who used to buy the Big Mac start buying the new burger instead

  • Big Mac sales decrease → that is cannibalization

Mass customization

Tailoring products or services to the tastes of individual customers on a high-volume scale

• Is the next step beyond build-to-order (BTO), which involves manufacturing a product only when there is an order from a customer

• A segment of one: tailoring a product or service to the specific preferences of each individual customer, instead of treating customers as part of a larger group

Four general bases of segmentation

Geographical Segmentation: Dividing a market based on where customers live or are located

• Examples: region, state, city, climate

• Scenario: Campbell Soup Company found that its canned nacho cheese sauce was too spicy for customers in the East but not spicy enough for customers in the West and Southwest

• Campbell’s plants in Texas and California began producing a hotter version to better serve those regions

• Easy way: Geographical = Where do they live?

Demographic Segmentation: Dividing a market based on measurable characteristics of customers or households

• Examples: age, gender, income, household size, education

• Scenario: More than half of U.S. households have only one or two people, so Campbell Soup Company packages some meals with only one or two servings

• Easy way: Demographic = Who are they?

Psychographic Segmentation: Dividing a market based on lifestyles, interests, values, or personalities

• Based on the idea that people with similar lifestyles tend to live near one another, have similar interests, and buy similar products

• This is useful because marketers can target people with similar lifestyles and buying habits

• Scenario: A company targets active, health-conscious people with fitness clothing, running shoes, and healthy food products

• Claritas PRIZM classifies U.S. households into 68 different market segments based on characteristics and lifestyles

• Easy way: Psychographic = How do they live?

Behavioral Segmentation, Product Features: Dividing customers based on which product features are important to them

• Different customers may value different features in the same product

• Understanding these differences can lead directly to marketing actions, such as creating a new product, advertising campaign, or distribution channel

• Scenario: College dorm students often want to prepare and store their own food, but dorm rooms have very little space

• MicroFridge targets these students with an appliance that combines a microwave, refrigerator, freezer, smoke sensor, and charging station

• Important feature = saving space and combining multiple functions

• Easy way: Product features = What features do they want?

Behavioral Segmentation, Usage Rate: Dividing customers based on how much they use a product/service or how often they visit a store during a specific period

• Usage rate = the quantity consumed or number of visits/purchases during a specific period

• Usage rate can vary significantly between different customer groups

• Customers can be light, medium, or heavy users

• Scenario: Airlines use frequent-flyer programs to encourage passengers who fly often to continue using the same airline

• This is called frequency marketing

• Goal = increase usage and create loyal customers

• Easy way: Usage rate = How much/how often do they use it?

Criteria to Use in Selecting the Target Segments

1. Market Size

The estimated number of customers in a market segment helps determine whether the segment is worth targeting

• Large market → more potential sales

• Tiny/no market → not worth spending marketing effort on

• Example: Dorm students with meal plans already have breakfast included, so there is basically no market for breakfast among them

• In the market-product grid, this segment gets a “0” to show there is no market

2. Expected Growth

A segment may be small now but could grow significantly in the future

• Small market today → could still be attractive if it is expected to grow

• Example: Sales of fast-food meals eaten outside restaurants are expected to become greater than meals eaten inside restaurants

• Wendy’s has been shown to have the fastest average drive-thru service time, faster than McDonald’s

• This speed and convenience could be especially important to night commuters in adult education programs

3. Competitive Position

Look at how much competition exists in the segment now and how much is expected in the future

• Less competition → more attractive segment

• More competition → less attractive segment

• Example: If college dorms announce “no meals on weekends,” students would need somewhere else to eat, making the restaurant market more promising

• Companies may also add features to keep up with competitors

• Example: Wendy’s introduced a mobile app for ordering and payment to compete with Burger King’s similar service

4. Cost of Reaching the Segment

A company should consider whether it can easily and affordably reach the customers in the segment through its marketing

• Easy/cheap to reach → more attractive

• Difficult/expensive to reach → less attractive

• If a segment is basically inaccessible through the company's marketing methods, it should not be targeted

• Example: If only a few nonstudents live in the area and they cannot be effectively reached through newspapers or other advertising, the restaurant shouldn't waste money advertising to them

5. Compatibility with Organization’s Objectives and Resources

The segment needs to fit the company's goals and available resources

• The company needs to have the money, equipment, employees, and capabilities to serve the segment

• Example: If Wendy’s doesn't have the cooking equipment needed to make breakfast and has a policy against spending more money on restaurant equipment, it should not target the breakfast segment

6. Capability

Does the company have the ability to successfully serve the segment?

• Does the company have the right skills, technology, employees, equipment, and knowledge?

• If the company doesn't have the capability to serve the segment well → don't target it

• Example: A restaurant wants to target customers who want healthy meals, but it doesn't have the equipment, ingredients, or employees needed to prepare healthy meals → it may not have the capability

7. Complications

Are there any problems or difficulties that could make targeting the segment difficult?

• A segment may look attractive but have complications that make it harder or riskier to target

• Example: A restaurant targets college students, but students leave during summer and holidays → inconsistent demand could be a complication

• Another example: A market may have complicated regulations or difficult distribution requirements

Product positioning

Refers to the place a product occupies in consumers’ minds based on important attributes relative to competitive products

Product repositioning

Changing the place a product occupies in a consumer’s mind relative to competitive products

• Head-to-head positioning: involves competing directly with competitors on similar product attributes in the same target market. Using this strategy, Dollar Car Rental competes directly with Avis and Hertz

• Differentiation positioning: involves seeking a less-competitive, smaller market niche in which to locate a brand. Whole Foods, for example, differentiates itself from large supermarket chains with its “wholesome” and organic selection of products, unique store design, local ambience, and promotion of a “greener” lifestyle

Perceptual map

A means of displaying in two dimensions the location of products or brands in the minds of consumers. This enables a manager to “see” how consumers perceive competing products or brands, as well as the firm’s own product or brand

• Identify the important attributes (or scales) for adult drinks. Research reveals the key attributes adults use to judge various drinks are (a) low versus high nutrition and (b) children’s drinks versus adult drinks, as shown by the two axes

• Discover how adults see various competing drinks. Locate various adult drinks on these axes

• Discover how adults see chocolate milk. Figure 9–9 shows adults see chocolate milk as moderately nutritious (on the vertical axis) but as mainly a child’s drink (on the horizontal axis)

• Reposition chocolate milk to make it more appealing to adults. What actions did U.S. dairies take to increase sales? They repositioned chocolate milk to the location of the red star shown in the perceptual map

Product

Good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers’ needs and is received in exchange for money or something else of value

• Good: has tangible attributes that a consumer’s five senses can perceive. For example, the Apple Watch can be touched and its features can be seen and heard. A good also may have intangible attributes consisting of its delivery or warranties and embody more abstract concepts, such as becoming healthier or wealthier

  • Nondurable good: an item consumed in one or a few uses, such as food products and fuel

  • Durable good: one that usually lasts over many uses, such as appliances, cars, and smartphones

• Services: are intangible activities or benefits that an organization provides to satisfy consumers’ needs in exchange for money or something else of value. Services have become a significant part of the U.S. economy and often augment products

  • Ex: Apple’s iPhone is a product and Verizon is a wireless network service provider

Consumer products

Products purchased by the ultimate consumer

Business products

Also called B2B products or industrial products) are products organizations buy that assist in providing other products for resale

• Some products can be considered both consumer and business items. For example, an Apple iMac computer can be sold to consumers for personal use or to business firms for office use

Convenience products

Items that the consumer purchases frequently, conveniently, and with a minimum of shopping effort

Shopping products

Items for which the consumer compares several alternatives on criteria such as price, quality, or style

Specialty products

Items that the consumer makes a special effort to search out and buy

Unsought products

Items that the consumer does not know about or knows about but does not initially want

Product item

A specific product that has a unique brand, size, or price

• Ex: Ultra Downy softener for clothes comes in different forms (liquid for the washer and sheets for the dryer) and load sizes (40, 60, etc.)

• Each of the different product items represents a separate stock keeping unit (SKU), which is a unique identification number that defines an item for ordering or inventory purposes

  • Ex: a pack of three has a different SKU and barcode than one pack

Product line

Group of product or service items that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same outlets, or fall within a given price range

• Nike’s product lines include shoes and clothing, whereas the Mayo Clinic’s service lines consist of inpatient hospital care and outpatient physician services. Each product line has its own marketing strategy

Product mix

Consists of all the product lines offered by an organization

• Ex: Cray Inc. has a small product mix of three lines (supercomputers, storage systems, and a “data appliance”) that are mostly sold to governments and large businesses

Protocol

A statement that, before product development begins, identifies

(1) a well-defined target market

(2) specific customers’ needs, wants, and preferences; and

(3) what the product will be and do to satisfy consumers

CPG (Consumer Packaged Goods): Products that consumers buy frequently and use regularly, usually packaged and sold in stores

Ex:

• Snacks

• Cereal

• Shampoo

FMCG (Fast-Moving Consumer Goods): Basically, very similar to CPG, but the emphasis is on products that sell quickly and are replaced frequently

• Ex:

  • Chips

  • Soda

  • Milk

Marketing Reasons for New-Product Failures

1. Insignificant Point of Difference: The product does not offer a unique or important enough benefit compared with competing products

• A successful new product needs a clear reason for customers to choose it over existing products

• Example: General Mills launched Fingos, a sweetened cereal flake meant to be eaten like a snack

• Consumers continued choosing snacks like popcorn and potato chips because Fingos did not offer a strong enough reason to switch

• Easy way: No strong difference = no reason to buy

2. Incomplete Market and Product Protocol: The company does not clearly define who the product is for, what customers need, and how the product will satisfy those needs before developing it

• Without a clear product protocol, companies may create a product for a vague market that doesn't really exist

• Example: Kimberly-Clark created Avert Virucidal tissues, which were designed to kill cold and flu germs

• Consumers did not believe the product's claims and disliked the word "cidal" because it sounded like "suicidal"

• The company had not clearly determined what consumers wanted or how the product would satisfy them

• Easy way: Don't build the product before knowing the customer and their needs

3. Failure to Satisfy Customer Needs on Critical Factors: The product may be good overall but fails on one or two things that customers consider extremely important

• A product can have high quality but still fail if it gets critical factors wrong

• Example: Keurig's Kold machine made good-tasting cold soda at home, but:

  • It was too large

  • It took too long to make a drink

  • It was too expensive ($370 for the machine and $1.25 per 8-ounce drink)

• Easy way: Getting the important things wrong can kill an otherwise good product

4. Bad Timing: The product is introduced too early, too late, or when consumer preferences are changing

• Timing can determine whether customers are ready for a product

• Example: HP launched the TouchPad tablet after Apple's iPad was already successful

• The TouchPad was also behind the iPad 2 in available apps

• HP abandoned the product only two months after launch

• Easy way: Right product + wrong time = failure

5. No Economical Access to Buyers: The company cannot reach enough customers at a reasonable cost, often because it cannot get access to important distribution channels

• This is especially difficult for CPG products that need supermarket shelf space

• Supermarkets may carry 60,000+ SKUs, so new products have to compete for limited shelf space

• Example: Thirsty Dog! was bottled water for dogs, but it failed to generate enough sales to justify the shelf space it occupied

• Easy way: If you can't affordably reach customers, the product can't sell

6. Poor Execution of the Marketing Mix: The company makes a mistake with one or more parts of the marketing mix: brand name, package, price, promotion, or distribution

• Even a good product can fail because of poor marketing execution

• Example: Garlic Cake was intended to be an hors d'oeuvre eaten with sweet breads, spreads, and meats

• The company failed to explain what Garlic Cake was, when to eat it, and why customers would want it

• Consumers were confused, so the product failed

• Easy way: Good product + bad marketing = failure

7. Too Little Market Attractiveness: The target market is too small, too competitive, or doesn't have enough demand to justify the cost of entering it.

• The ideal market is large, growing, and has a real customer need

• Example: Artifact was an AI-powered news app created by the co-founders of Instagram

• It offered personalized news recommendations and later added social-media features

• However, it faced competition from apps like Flipboard, NewsBreak, and SmartNews

• The market wasn't large enough to justify continued investment, so Artifact shut down about one year after launch

• Easy way: If the market isn't attractive enough, don't invest heavily in it

8. Poor Product Quality: The product fails because its quality is poor or it was not tested thoroughly enough before being launched. Poor quality can cause major costs for the company, including:

• Labor and materials needed to fix the problem

• Lost sales and profits

• Lost market share

• Example: Hoverboards became popular with teens, but many models were later found to catch fire or explode

• Because of these safety and quality problems, hoverboard sales suffered greatly

• Easy way: Poor quality = product doesn't work safely or reliably

New-product development process

The seven stages an organization goes through to identify opportunities and convert them into salable products or services

1. New-Product Strategy Development: Defines the role of a new product in the company’s overall objectives and product portfolio

• Uses SWOT analysis and environmental scanning to identify strengths, weaknesses, opportunities, and threats

• Creates a “protocol” that guides what the new product should accomplish

• Based on the company’s business model

• Closed innovation → ideas come mainly from inside the company

  • Example: Apple

• Open innovation → ideas/solutions also come from outside the company

  • Example: PepsiCo’s “The Hive”

2. Idea Generation: Creates a pool of possible new-product ideas

• Goal is to move from “what is?” → “what if?”

• Ideas can come from:

  • Employees → Flamin’ Hot Cheetos came from an employee’s idea

  • Customers and suppliers → companies ask them for ideas and problems that need solving

  • Crowdsourcing → getting ideas from large numbers of people

  • R&D → company laboratories

  • Competitors → studying competitors can inspire new products

  • Smaller firms, universities, and inventors → outside innovation

  • GenAI → generating new ideas with AI

• Example: Dell received 13,464 ideas through crowdsourcing and implemented 402

3. Screening and Evaluation: Evaluates new-product ideas and eliminates ideas that aren't worth pursuing.

• Internal approach → employees check whether the idea is technically feasible and fits the company's strategy

• External approach → consumers evaluate the idea through a concept test

• Concept test = consumers evaluate a product idea before the finished product is created

• Companies may show consumers descriptions, sketches, or mockups

• Important questions:

  • How do customers perceive it?

  • Who would use it?

  • How would they use it?

4. Business Analysis: Determines whether the product makes business and financial sense before major resources are invested

• Sales and profit projections

• Production costs

• Marketing strategy

• Equipment and technology needed

• Fit with company objectives

• Whether existing resources can be used

• Whether the product will cannibalize existing products

Also considers:

• MVP (Minimum Viable Product): the simplest version of a product that can be created and tested with customers

• MVO (Minimum Viable Offering): the simplest version of the product/service that can actually be offered to customers and provide value

5. Development: Turns the idea into an actual prototype

• Prototype = full-scale working model of the product

• Product is tested to make sure it meets the standards in the product protocol

• Can involve many prototypes and changes

• Example: Apple tested and rejected more than 25 computer mouse prototypes before choosing one

6. Market Testing: Tests the actual product with potential customers under realistic buying conditions to see if they will buy it.

3 types:

• Standard test market: product is sold through normal retailers in selected test cities

• Controlled test market: outside company manages the test and tracks sales

• Simulated test market: consumers see the product and ads, then choose whether to buy it in a simulated store

Why companies may avoid standard test markets:

• Expensive

• Time-consuming

• Can reveal the company's plans to competitors

7. Commercialization: The product is launched into full-scale production and sales

• Usually the most expensive stage

• Company fully positions and launches the product

• Company may still stop the launch if:

  • A competitor introduces a better product

  • The new product causes too much cannibalization of existing products

Newness Compared with Existing Products

A product is considered new if it is functionally different from products that already exist.

• Newness can range from adding a few new features to creating a completely new industry

  • Ex: Apple’s smartphone was a major innovation that created a new industry

• Feature bloat: Adding too many features to a product

• Feature fatigue: Consumers become overwhelmed by too many features

Newness in Legal Terms

Looks at how long a product can legally be called “new.”

• The FTC says “new” should generally be used for a product for up to 6 months after it enters regular distribution

• The problem is that “regular distribution” can be difficult to define

Newness from the Consumer’s Perspective

Looks at how much the consumer has to change their behavior to use the product.

• Continuous innovation: Consumers do not need to change their behavior

  • Ex: Colgate adds whitening or plaque-removing benefits, but people still brush their teeth the same way

  • Marketing mainly focuses on creating awareness

• Dynamically continuous innovation: Consumers only need to make minor behavior changes

  • Ex: Swiffer WetJet changes how people mop but does not require a completely new behavior

  • Marketing focuses on explaining the benefits and proper use

• Discontinuous innovation: Consumers must learn entirely new consumption behaviors

  • Ex: Smart-home technology requires consumers to learn how to install and operate new systems

  • Marketing must educate consumers about both the benefits and proper use

Newness from the Organization’s Perspective

Looks at the amount of innovation and risk for the company

1. Product line extension: Small improvement or addition to an existing product line

   • Lowest risk

   • Ex: Purina added Elegant Medleys to its Fancy Feast line

   • Can attract new customers but may increase costs or cause cannibalization

2. Significant innovation/technology or brand extension: A bigger change

   • Significant technology jump: Major technological improvement, such as new smartphones or digital cameras

   • Brand extension: Using an existing brand name for a product in an unfamiliar market

   • Ex: Colgate frozen dinners failed because consumers strongly associate Colgate with toothpaste

3. Radical invention: A truly revolutionary product that creates new value

   • Highest level of innovation and risk

   • Ex: 3D printer