PRINCIPLES OF MARKETING NOTES Chapters 7-9

Chapter VII: Business Markets and Buying Behavior

Business Markets

A business market (also called a business-to-business market or B2B market) consists of individuals, organizations, or groups that purchase a specific kind of product for one of three purposes:

• Resale

• Direct use in producing other products

• Use in general daily operations

Marketing to businesses employs the same concepts—defining target markets, understanding buyer behavior, and developing effective marketing mixes—as marketing to ultimate consumers.

Business marketing is often based on long-term mutually profitable relationships across members of the marketing channel based on cooperation, trust, and collaboration.

For most business marketers, the goal is to understand customer needs and provide a value-added exchange that shifts from attracting customers to keeping customers and developing relationships.

There are four categories of business markets:

Producer Markets

Producer Markets: Individuals and business organizations that purchase products to make profits by using them to produce other products or using them in their operations

• Include buyers of raw materials, as well as purchasers of semi-finished and finished items, used to produce other products

• Producer markets include a broad array of industries; including agriculture, forestry, fisheries, mining, construction, transportation, communication, and utilities.

Reseller Markets

Reseller Markets: Intermediaries that buy finished goods and resell them for a profit

• Intermediaries consist of wholesalers and retailers.

Government Markets

Government Markets: Federal, state, county, or local governments that buy goods and services to support their internal operations and provide products to their constituencies

• Because government agencies spend public funds to buy the products needed to provide services, they are accountable to the public.

• Governments advertise their product needs through releasing bids or negotiated contracts. 

Institutional Markets

Institutional Markets: Organizations with charitable, educational, community,

or other nonbusiness goals

Because institutions often have different goals and fewer resources than other types of organizations, firms may use special marketing efforts to serve them.

Industrial Classification Systems

North American Industry Classification System (NAICS): An industry classification system that generates comparable statistics among the United States, Canada, and Mexico

See web site: https://www.census.gov/naics/ 

• Is based on types of production activities performed

• Is similar to the International Standard Industrial Classification (ISIC) system used in Europe and many other parts of the world

• NAICS divides industrial activity into 20 sectors with 1,170 industry classifications.

Examples of NAICS Classification

Although an industry classification system is a vehicle for segmentation, it is best used in conjunction with other types of data to determine exactly how many and which customers a marketer can reach.

A business marketer can identify and locate potential customers in specific groups by using state directories, commercial industrial directories, or commercial data services.

To estimate the purchase potential of business customers or groups of customers, a marketer must find a relationship between the size of potential customers’ purchases and a variable available in industrial classification data, such as the number of employees.

• Once this relationship is established, it can be applied to customer groups to estimate the size and frequency of potential purchases.

Dimensions of Business Customers and Business Transactions

Methods of Business Buying

Most business purchasers use one of the following purchase methods:

Types of Business Purchases

Most business purchases are one of three types, each subject to different influences and requiring business marketers to modify their selling approaches appropriately:

• New-task purchase: An organization’s initial purchase of an item to be used to perform a new job or solve a new problem

• Straight rebuy purchase: A routine purchase of the same products under approximately the same terms of sale by a business buyer

• Modified rebuy purchase: A new-task purchase that is changed on subsequent orders or when the requirements of a straight rebuy purchase are modified

Business Buying Decisions

Business (organizational) Buying Behavior: The purchase behavior of producers, government units, institutions, and resellers

Buying Center: The people within an organization who make business purchase decisions

Business (Organizational) Buying Decision Process and Factors That May Influence It

Reliance on the Internet and Other Technology

Whereas in the past, an organization seeking a type of product might contact product suppliers, speak with someone on the sales force, and request a catalog or brochure, business customers today first turn to the internet to search for information and find sources.

• The internet allows buyers to research potential solutions, talk with peers about their experiences with those products, read blogs, consult webinars and watch YouTube videos, examine specifications, and find reviews of potential products long before beginning a formal buying process.

B2B E-Commerce Sites: Online marketplaces where buyers and sellers from around the world can exchange information, goods, services, ideas, and payments

• Variously known as trading exchanges, B2B exchanges, and ehubs

• May be independent or private

• May operate as online auctions

Chapter VIII: Reaching Global Markets

The Nature of Global Marketing Strategy

Technological advances and rapidly changing political and economic conditions are making it easier than ever for companies to market their products overseas as well as at home.

With most of the world’s population and two-thirds of total purchasing power outside the United States, international markets represent lucrative opportunities for growth.

Traditionally, most companies entered the global marketplace gradually and incrementally as they gained knowledge and experience.

International Marketing: Developing and performing marketing activities across national boundaries

• To encourage international growth, many countries offer practical assistance and valuable research to help their domestic firms become more competitive globally.

• The Export Solutions website managed by the U.S. Department of Commerce’s International Trade Administration offers resources for businesses that want to export to other countries.

Environmental Forces in Global Markets

The environmental forces that affect foreign markets differ dramatically from those that affect domestic markets.

• Conducting research to understand the needs and desires of international customers is crucial to global marketing success.

Proper environmental analysis of international markets can:

• Generate tremendous financial rewards

• Increase market share

• Heighten customer awareness of products around the world

Sociocultural Forces

Marketing activities are influenced by beliefs and values regarding family, religion, education, health, and recreation.

Local preferences, tastes, and idioms can prove complicated for international marketers.

It can be difficult to transfer marketing symbols, trademarks, logos, and even products to international markets, especially if these are associated with objects that have profound religious or cultural significance in a particular culture.

Consumer preferences for products depend on both the country of origin and the product category of competing products.

When products are introduced from one nation into another, acceptance is far more likely if similarities exist between the two cultures.

For international marketers, cultural differences have implications for product development, advertising, packaging, and pricing.

Economic Forces

Global marketers need to understand the international trade system, particularly the economic stability of individual nations, as well as trade barriers that may stifle marketing efforts.

Economic differences among nations—differences in standards of living, credit, buying power, income distribution, national resources, exchange rates, and the like—dictate many of the adjustments firms must make in marketing internationally.

Country-specific factors such as economic wealth and national culture have a direct influence on the success of a new product in specific countries.

Instability is a constant in the global business environment.

Even the most economically stable countries were severely disrupted by the COVID-19 (coronavirus) pandemic, resulting in high unemployment, corporate bankruptcies, and supply chain disruptions.

Gross Domestic Product (GDP): The market value of a nation’s total output of goods and services for a given period; an overall measure of economic standing

• Gives general insights into a nation’s wealth and market potential

Opportunities for international trade are not limited to countries with the highest incomes.

• The countries of Brazil, Russia, India, China, and South Africa (BRICS) have economies that are rapidly expanding.

• These countries value long-term and close interactions with marketers they can trust, making relationship marketing more effective in reaching these emerging markets.

Political, Legal, and Regulatory Forces

The political, legal, and regulatory forces of the environment are closely intertwined.

A nation’s legal and regulatory infrastructure is a direct reflection of its political climate.

Businesses from different countries might be similar in nature but operate differently based on legal, political, or regulatory conditions in their home countries.

Import Tariff: A duty levied by a nation on goods bought outside its borders and brought into the country

Quota: A limit on the amount of goods an importing country will accept for certain product categories in a specific period of time

Embargo: A government’s suspension of trade in a particular product or with a given country

Ethical and Social Responsibility Forces

The use of payoffs and bribes is deeply entrenched in many parts of the world.

Foreign Corrupt Practices Act (FCPA) of 1977

• Makes it illegal for U.S. firms to attempt to make large payments or bribes to influence policy decisions of foreign governments

• Subjects all publicly held U.S. corporations to rigorous internal controls and record-keeping requirements for their overseas operations

Differences in ethical standards can affect marketing efforts:

• Standards regarding intellectual property differ dramatically in some countries, creating potential conflict for marketers of computer software, music, and books.

• The amount of counterfeit products available, the time it takes to track them down, and legal barriers in certain countries make the pursuit of counterfeiters challenging.

Self-reference criterion (SRC) – The unconscious reference to one’s own cultural values, experiences, and knowledge

• When confronted with a situation, we react on the basis of knowledge we have accumulated over a lifetime, which is usually grounded in our culture of origin.

  • Our reactions are based on meanings, values, and symbols that relate to our culture but may not have the same relevance to people of other cultures.

• Is especially pronounced in marketers who have not traveled extensively or interacted with foreigners in business or social settings

Many companies try to conduct global business based on the local culture.

• These businesspeople adapt to the cultural practices of the country they are in and use the host country’s cultural practices as the rationalization for sometimes straying from their own ethical values when doing business internationally.

Cultural Relativism: The concept that morality varies from one culture to another and that business practices are therefore differentially defined as right or wrong by particular cultures

Competitive Forces

Competition is often viewed as a staple of the global marketplace.

The increasingly interconnected marketplace and advances in technology have resulted in competitive forces that are unique to the international marketplace.

Firms that operate internationally must do the following:

• Be aware of the competitive forces in the countries they target.

• Identify the interdependence of countries and the global competitors in those markets.

• Be mindful of a new breed of customer: the global customer.

Each country has unique competitive aspects—often founded in the other environmental forces—that are independent of the competitors in that market.

The global consumer has changed the landscape of international competition drastically.

Technological Forces

Advances in technology have made international marketing much easier, more affordable, and more convenient.

In many developing countries, marketers are beginning to capitalize on opportunities to leapfrog existing technology.

The use of analytics by companies to engage in decision-making as well as to perform tasks is changing the global marketing environment.

Despite the enormous benefits of digital technology, however, the digital economy may actually be increasing the divide between skilled wealthy workers and the rest of the labor force

Regional Trade Alliances, Markets,and Agreements

The North American Free Trade Agreement (NAFTA) was implemented in 1994.

• Eliminated virtually all tariffs on goods produced and traded among Canada, Mexico, and the United States to create a free trade area

• Made it easier for U.S. businesses to invest in Mexico and Canada

• Provided protection for intellectual property

• Expanded trade by requiring equal treatment of U.S. firms in both countries

• Simplified country-of-origin rules

United States–Mexico–Canada Agreement (USMCA): An alliance that merges Canada, Mexico, and the United States into a single market

• Replaced NAFTA in 2020

• Includes comprehensive updates related to intellectual property protections, digital trade, financial services, currency, labor policies, and environmental standards

• Canada is the single largest trading partner of the United States.

Mexico is Canada’s fifth largest export market and third largest import market.

Mexico’s membership in these agreements links the United States and Canada with other Latin American countries, providing additional opportunities to integrate trade among all the nations in the Western Hemisphere.

European Union (EU): An alliance that promotes trade among its member countries in Europe

• Consists of 19 (27) separate countries with varying political landscapes.

• Was 28 until UK dropped out (BREXIT)

• Comprises more than half a billion consumers with a combined GDP of nearly $17.1 trillion.

The EU is a relatively diverse set of democratic European countries; it is not a state that is intended to replace existing country states, nor is it an organization for international cooperation.

• Instead, its member states have common institutions to which they delegate some of their sovereignty to allow specific matters of joint interest to be decided at the European level.

Southern Common Market (MERCOSUR): An alliance that promotes the free circulation of goods, services, and production factors, and has a common external tariff and commercial policy among member nations in South America

• Represents two-thirds of South America’s population

• Has a combined GDP of more than $2.9 trillion, making it the third-largest trading bloc behind the EU and USMCA

• South America and Latin America are drawing the attention of many international businesses.

• Has an estimated growth rate of more than 2 percent

• Is experiencing more stable democracies

Asia-Pacific Economic Cooperation (APEC): An alliance that promotes open trade and economic and technical cooperation among member nations throughout the world

• Established in 1989

• Is a 21-member alliance

• Represents approximately 39 percent of the world’s population, 60 percent of the world’s GDP, and nearly 47 percent of global trade

• Differs from other international trade alliances in its commitment to facilitating business and its practice of allowing the business/private sector to participate in a wide range of APEC activities

APEC’s most important emerging economic power is China.

• Has initiated economic reforms to stimulate its economy

• Has become a major global producer in virtually every product category

China is the United States’ largest trading partner.

China’s economic reforms include:

• Privatizing many industries

• Restructuring its banking system

• Increasing public spending on infrastructure

Pacific Rim regions are also major manufacturing and financial centers:

• South Korea, Thailand, Singapore, Taiwan, and Hong Kong

Association of Southeast Asian Nations (ASEAN): An alliance that promotes trade and economic integration among member nations in Southeast Asia

• The region is home to over 635 million people with a combined GDP of $2.7 trillion.

• Despite positive growth rates, ASEAN is facing many obstacles in becoming a unified trade bloc.

• Conflicts exist among members as well as concerns over issues such as human rights and disputed territories.

• Unlike the EU, there is no common currency or fully free labor flows between members

World Trade Organization (WTO):  An entity that promotes free trade among

member nations by eliminating trade barriers and educating individuals,

companies, and governments about trade rules around the world

• Established rules to guide international commerce, such as rules to prevent dumping – selling products at unfairly low prices

Modes of Entry into International Markets

Importing: The purchase of products from a foreign source

Exporting: The sale of products to foreign markets

• Exporting intermediaries can perform most marketing functions for minimal effort and cost:

  • Export agents bring together buyers and sellers from different countries and collect a commission for arranging sales.

  • Export houses and export merchants purchase products from different companies and then sell them abroad.

  • Using export intermediaries involves limited risk because no foreign direct investment is required.

Trading Company: A company that links buyers and sellers in different countries

• Is not involved in manufacturing and does not own assets related to manufacturing

• Acts like a wholesaler; buys products in one country at the lowest price consistent with quality and sells them to buyers in another country

• Takes title to products and performs all the activities necessary to move the products to the targeted foreign country

• Reduces risk for firms that want to get involved in international marketing

Licensing: An alternative to direct investment that requires a licensee to pay commissions or royalties on sales or supplies used in manufacturing

• Is an attractive alternative when:

  • Resources are unavailable for direct investment

  • The competencies of the firm or organization are not related to the product being sold

  • The political stability of a foreign country is in doubt

  • A small manufacturer wishes to launch a well-known brand internationally

Franchising: A form of licensing in which a franchiser grants a franchisee the right to market its product, using its name, logo, methods of operation, advertising, products, and other elements associated with the franchiser’s business, in return for a financial commitment and an agreement to conduct business in accordance with the franchiser’s standards

Allows franchisers to minimize risks of international marketing in four ways:

• The franchiser does not have to put up a large capital investment. (comparatively)

• The franchiser’s revenue stream is fairly consistent because franchisees pay a fixed fee and royalties.

• The franchiser retains control of its name and increases global penetration of its products.

• Franchise agreements ensure a standard of behavior from franchisees, which protects the franchise name.

Contract Manufacturing: The practice of hiring a foreign firm to produce a designated volume of the domestic firm’s product or a component of it to specification; the final product carries the domestic firm’s name

Marketing may be handled by the contract manufacturer or by the contracting company.

Three specific forms of contract manufacturing have become popular in the last decade:

• Outsourcing: The practice of contracting noncore operations with an organization that specializes in that operation (tech support, HR, accounting)

• Offshoring: The practice of moving a business process that was done domestically at the local factory to a foreign country, regardless of whether the production accomplished in the foreign country is performed by the local company (e.g., in a wholly owned subsidiary) or a third party (e.g., a subcontractor)

• Offshore Outsourcing: The practice of contracting with an organization to perform some or all business functions in a country other than the country in which the product will be sold

Joint Venture: A partnership between a domestic firm and a foreign firm or government

• Especially popular in industries that require large investments

• Often a political necessity because of nationalism and government restrictions on foreign ownership

• May be the result of a trade-off between a firm’s desire for completely unambiguous control of an enterprise and its quest for additional resources

Strategic Alliance: A partnership that is formed to create a competitive advantage on a worldwide basis

• Firms may be traditional rivals competing for the same market.

• Firms may compete in certain markets while working together in other markets where it is beneficial for both parties.

• Whereas joint ventures are formed to create a new identity, partners in strategic alliances often retain their distinct identities, with each partner bringing a core competency to the union.

•Direct ownership – A situation in which a company owns subsidiaries or other facilities overseas

Multinational Enterprise: A firm that has operations or subsidiaries in many countries

• Often, the parent company is based in one country and carries on production, management, and marketing activities in other countries.

• The firm’s subsidiaries may be autonomous so they can respond to the needs of individual international markets, or they may be part of a global network led by the headquarters.

A wholly owned foreign subsidiary may be allowed to operate independently of the parent company to give its management more freedom to adjust to the local environment.

A wholly owned foreign subsidiary may export products to the home country, its market may serve as a test market for the firm’s global products, or it may be a component of the firm’s globalization efforts.

Customization Versus Globalization of International Marketing Mixes

Traditionally, international marketing strategies have customized marketing mixes according to cultural, regional, and national differences.

Today, many firms strive to build their marketing strategies around similarities that exist instead of customizing around differences.

Globalization: The development of marketing strategies that treat the entire world (or its major regions) as a single entity

• Standardized products, prices, distribution channels, and promotion campaigns for all markets

• The degree of similarity among the various environmental and market conditions determines the feasibility and degree of globalization

A global presence generates five opportunities for creating value:

• To adapt to local market differences

• To exploit economies of global scale (in many countries)

• To exploit economies of global scope (universal–macro view)

• To mine optimal locations for activities and resources

• To maximize the transfer of knowledge across locations

To exploit these opportunities, marketers need to conduct marketing research and work within the constraints of the international environment and regional trade alliances, markets, and agreements

Chapter IX: Digital Marketing and Social Networking

Define Digital Marketing

Digital Media: Electronic media that function using digital codes; media available via computers, cellular phones, smartphones, and other digital devices that have been released in recent years

Digital Marketing: Using all digital media, including the internet and mobile and interactive channels, to develop communication and exchanges with customers

Electronic Marketing (e-marketing): The strategic process of pricing, distributing, and promoting products, and discovering the desires of customers using digital media and digital marketing

Growth and Benefits of Digital Marketing

The phenomenal growth of the internet has provided unprecedented opportunities for marketers to forge interactive relationships with consumers.

As the internet and digital communication technologies have advanced, they have made it possible to target markets more precisely and reach markets that were previously inaccessible.

One of the most important benefits of e-marketing is the ability of marketers and customers to share information.

• Today’s marketers can use the internet to form relationships with a variety of stakeholders, including customers, employees, and suppliers.

For many businesses, engaging in digital and online marketing activities is essential to maintaining competitive advantages.

• (Mktg and feedback/communication)

One of the biggest mistakes a marketer can make when engaging in digital marketing is to treat it like a traditional marketing channel.

• Some of the characteristics that distinguish online media from traditional marketing include:

Characteristics of Online Media

Types of Consumer-Generated Marketing and Digital Media

Two major trends have caused consumer-generated information to gain importance:

• The increased tendency of consumers to publish their own thoughts, opinions, reviews, and product discussions through blogs or digital media

• Consumers’ tendencies to trust other consumers over corporations

Marketers can use these online forums to interact with consumers, address problems, and promote their companies.

Social Media Marketing

Social media marketing involves communication with consumers through social media sites.

• Companies can create conversations through multiple platforms.

User-generated content relates to consumers who create, converse, rate, collect, join, or simply read online materials.

Social media should be included in corporate and marketing strategy.

Marketing should be focused on relationship building, and social media can influence consumer behavior and deliver value to the firm.

Social Network: A website where users can create a profile and interact with other users, post information, and engage in other forms of web-based communication

A benefit of social networking is marketers’ ability to reach out to new target markets.

As social networks evolve, this enables a large reach for the advertiser.

Blogs

Blogs: Web-based journals (short for “weblogs”) in which writers editorialize and interact with other internet users

• More than three-fourths of internet users read blogs. (anyone here?)

• Companies can use blogs to answer consumer concerns, defend their corporate reputations, build enthusiasm, and develop customer relationships.

Media-Sharing Sites

Podcast: Audio or video file that can be downloaded from the internet with a subscription that automatically delivers new content to listening devices or personal computers

• Podcasts have been shown to be influential over consumer buying habits.

• Companies can use podcasts to demonstrate how to use their products or to explain certain features.

• Through podcasting, many companies hope to create brand awareness, promote their products, and encourage customer loyalty.

Mobile Marketing

More than 95 percent of American adults have a mobile device, many of which are smartphones.

Marketers worldwide spend more than $76 billion on mobile ad spending.

Mobile marketing has proven effective in grabbing consumers’ attention.

Some of the more common mobile marketing tools include the following:

• SMS Messages: Text messages of 160 characters or less

• Multimedia Messages: Used to send video, audio, photos, and other media using mobile devices

• Mobile Advertisements: Visual advertisements that appear on mobile devices

• Mobile Websites: Websites designed for mobile devices

• Mobile Applications: A software program that runs on mobile devices and give users access to certain content

Monitoring Digital Media Behaviors of Consumers

Online Monitoring and Analytics

In order to maximize resources and minimize costs in social media marketing, companies must monitor and evaluate digital media.

• Monitoring social media involves tracking, measuring, and evaluating digital marketing initiatives.

Digital marketing programs can be managed through analytics.

• Analyzing performance can help make decisions about what works best, since trends and changes in outcomes are important to performance.

• Predictive analytics use historical data with statistical techniques to find answers and solutions to address future decisions

Key Performance Indicators (KPIs) should be embedded at the onset of a social media strategy that can allow almost real-time measurement and evaluation.

E-Marketing Strategy

About 40 percent of the world’s population uses the internet, and this number is growing at a high rate.

As more and more shoppers go online for purchases, the power of brick-and-mortar businesses is lessening.

This makes it essential for businesses, small and large alike, to learn how to effectively use social media.

Most businesses are finding it necessary to use digital marketing to gain or maintain market share.

Distribution Considerations

Omnichannel Retailing – Offering a seamless experience across mobile, desktop, and traditional retail spaces

• Omnichannel retailing synchronizes everything that contributes to the customer experience.

• Seventy-three percent of shoppers use multiple channels while shopping.

• A seamless shopping experience can differentiate a retailer from its competitors.

Ethical and Legal Issues

Privacy

Companies collect personal information from website visitors in their efforts to foster long-term relationships with customers.

• Some people fear that collection of personal information from website users may violate users’ privacy, especially when it is done without their knowledge.

The Federal Trade Commission (FTC) is/has been developing regulations that would protect consumer privacy by limiting the amount of consumer information that businesses can gather online.

• Other countries are pursuing similar actions.

• While consumers may welcome such added protections, web advertisers, who use consumer information to target advertisements to online consumers, see it as a threat.

Amazon.com is one of the web’s most recognizable marketers. One of the ways in which Amazon adds value to its customers’ buying experience is by remembering them and recommending items to purchase based on their past purchases. Other companies, like Netflix, operate similarly.