Social Responsibility and Marketing Ethics Social responsibility concerns a firm's obligation to improve its positive effects on society and reduce its negative effects Marketing ethics are the moral standards that guide marketing decisions and actions

Excerpt from the Code of Ethics of the American Marketing Association “...Participants in the marketing exchange process should be able to expect that: 1. Products and services offered are safe and fit for their intended uses; 2. Communications about offered products and services are not deceptive; 3. All parties intend to discharge their obligations, financial and otherwise, in good faith; and 4. Appropriate internal methods exist for equitable adjustment and/or redress of grievances concerning purchases…”

Target Marketing vs. Mass Marketing TARGET MARKETING –Marketing mix is tailored to fit specific target customer(s) MASS MARKETING –Vaguely aims at "everyone" with the same marketing mix

The Four Ps and Marketing Mix Planning Why is the Four "Ps" idea helpful? –Provides an organizing framework –Helps to bring many, more detailed decisions together in a logical fashion –Focuses thinking on the idea that all marketing decisions must work together as a whole –Focuses on a managerial orientation—and what a marketing manager/firm can do about needs of target customers

The Marketing Plan Marketing plan: a written statement of a marketing strategy and the time related details for carrying out the strategy. Spells out, in detail: –What marketing mix is to be offered –To what target market –For how long –What resources (costs) are needed at what rate –What results are expected –What control procedures will be used.

Marketing Program Marketing program: blends all of the firm's marketing plans into one "big" plan— which is an integrated part of the whole- company strategic plan –Program requires an effective "building up" process –A good program must be based on good plans –Each plan must be carefully developed –Each plan is based on a marketing strategy –Each strategy is based on a marketing mix and a target market Plans in overall program should work together to enhance a competitive advantage

Competitive Advantage Competitive advantage: the firm has a marketing mix that the target market sees as better than a competitor's mix –A better marketing mix offers target customers better customer value –Note: customers who are not in the target market may not see the marketing mix as offering better value Requires that the firm: –understand current competitors' offerings –anticipate competitors' likely plans –monitor effects of changes in competition –REALLY understand the target customers' needs

Marketing Strategy Planning Process Narrowing down from broad market opportunities that a firm might pursue to a specific strategy –Marketing strategy specifies a specific target market and a specific marketing mix –Not just “some” strategy, but one that will offer target customers superior value Segmentation helps pinpoint a specific target market Differentiation helps pinpoint a marketing mix that is different from and better than what is available from a competitor Screening criteria make it clear why you select a specific strategy (and why others are “screened out”) S.W.O.T. analysis identifies and lists a firm’s strengths and weaknesses and its opportunities and threats –S.W.O.T helps identify relevant screening criteria (what is needed to get a competitive advantage)

Examples of Different Types of Opportunities Market Penetration –Arm & Hammer promotes new uses of its baking soda Market Development –Marriott Hotels target families for weekend "get-aways" to rent rooms filled by business travelers during the week Product Development –Microsoft develops a new version of its Windows operating system to appeal to the people who bought an earlier version but now want more features Diversification –RJR, the cigarette producer, adds baked goods to its product line to appeal to new customers

How Readings Relate to Market Segmentation Introduction to market segmentation concepts (Chapter 3) How changes in the external environments affect segmentation opportunities (Chapter 4) Why demographic variables are useful for segmentation and what they tell us about the size of segments (Chapter 5) How understanding customer behavior leads to better segmentation (Chapters 6 and 7) How to improve the information on which segmentation decisions are based (Chapter 8) Estimating (forecasting) segment size and likely profitability (Chapter 21)

The bicycle-riders product market A Market Grid Diagram with Submarkets Submarket 3 Transportation Riders Submarket 5 Environmentalists Submarket 4 Socializers Submarket 1 Exercisers Submarket 2 Off-Road Adventurers Concept: divide a broad product-market (or generic market) into homogeneous submarkets

Criteria for Segmenting Customers within a segment should be homogeneous –similar responses to marketing mix –similar segmenting dimensions Customers in different segments are heterogeneous –different responses to marketing mix –different segmenting dimensions Segment is substantial –segment is big enough to be profitable Segmenting dimensions are operational –useful for identifying customers –helpful in deciding on marketing mix

Three Ways to Develop Market- Oriented Strategies Single Target Market Approach –select one homogeneous segment as the target Multiple Target Market Approach –select two or more target segments –develop a different marketing mix for each segment Combined Target Market Approach –combine submarkets into a single target market –develop one marketing mix for the combined target

Relation of Potential Target Market Dimensions to Marketing Strategy Decision Areas Behavioral needs, attitudes, and how present and potential goods and services fit into customers' consumption patterns. –Affects Product (features, packaging, product line assortment, branding) and Promotion (what potential customers need and want to know about the firm's offering, and what appeals should be used). Urgency to get need satisfied and desire and willingness to seek information, compare, and shop. –Affects Place (how directly products are distributed from producer to customer, how extensively they are made available, and the level of service needed) and Price (how much potential customers are willing to pay). Geographic location and other demographic characteristics of potential customers. –Affects size of Target Markets (economic potential), Place (where products should be made available), and Promotion (where and to whom to target advertising and personal selling).

Examples of Possible Segmenting Dimensions for Consumer Markets CUSTOMER RELATED: –Customer needs (automobiles) –Geographic location (tire chains) –Age (insurance policies) –Sex (clothing) –Family size (child care services) –Income (vacation services) –Education (magazines) SITUATION RELATED: –Benefits offered (toothpaste) –Consumption/use patterns (cameras) –Brand familiarity (health care products) –Buying situation (soft drinks)

Some Examples of Possible Segmenting Dimensions and Typical Breakdowns for Consumer Markets Needs –Economic, functional, physiological, social, and more detailed needs Attitudes –Favorable or unfavorable attitudes, interests and opinions Purchase relationship –Favorable and ongoing; intermittent; none; bad relationship Brand familiarity –Insistence, preference, recognition; nonrecognition; rejection Geographic –By country, region, size of city Income –Under $20,000, $20,000 to $39,999, $40,000 or over

Examples of Possible Segmenting Dimensions for Business Markets Type of organization (computer software) Closeness of relationship with customer (travel services) Size (buildings) North American Industry Classification System (NAICS) codes (machinery) Geographic location (electronic parts) Type of product (X-ray film) Buying situation (automobile components) Source loyalty (office supplies) Reciprocity (transporting services)

Possible Segmenting Dimensions for Business/Organizational Markets Kind of relationship –Weak loyalty > strong loyalty to vendor –Single source > multiple vendors –"Arm's length" dealings > close partnership –No reciprocity > complete reciprocity Type of customer –Manufacturer, service producer, government agency, military, nonprofit, wholesaler or retailer (when end user), and so on Demographics –Geographic location (region of world, country, region within country, urban > rural) –Size (number of employees, sales volume) –Primary business or industry (North American Industry Classification System) –Number of facilities How customer will use product –Installations, accessories, components, raw materials, supplies, professional services Type of buying situation –Decentralized > centralized –Buyer > multiple buying influence –Straight rebuy > modified rebuy > new-task buying Purchasing methods –Vendor analysis, inspection buying, sampling buying, specification buying, competitive bids, negotiated contracts, long-term contracts

Segmenting Dimensions Qualifying Dimensions –Segmenting dimensions relevant to the product- market –Are there characteristics typical of customers who are at least potentially interested in the relevent product type? Determining Dimensions –Segmenting dimensions that affect the purchase of a specific product or brand –Why does a potential customer select one brand over another?

Applying Segmentation Concepts: A Seven-Step Approach to Segmenting Product- Markets 1. Name broad product-market 2. List potential customers' needs 3. Form homogeneous submarkets 4. Identify determining dimensions 5. Name possible product-markets 6. Evaluate why segments behave as they do 7. Estimate size of each product- market segment

Toothpaste Market Segment Description

Positioning and Differentiation Positioning analysis is based on how (potential) customers think about a firm's current or potential offering Positioning considers how customers think about competitors' offerings as well as the firm’s own offering Positioning analysis identifies what kind of offering different segments see as ideal Differentiation focuses on developing a marketing mix that target customers will see as distinct from competing mixes Positioning and differentiation help with combining and segmenting, by revealing which segments view the market in similar (or dissimilar) ways

Mission Statement Provides Guidance Mission statement helps set the course of a firm by explicitly stating the organization’s basic purpose for being –May make it clear that some opportunities (target market or marketing mix alternatives) are not related to the mission –Some opportunities may be a good fit with mission, but not as good a fit or as high a priority as others Mission statement works in combination with specific objectives and should relate to screening criteria used to evaluate strategy alternatives

Examples of Company Resources Financial strength (AT&T) Producing flexibility (Chrysler) Patents (IBM) Channel relationships (Kraft) Loyal customer base (Coke) Technical capability (3M)

Competitor Analysis (summary): Disposable Diaper Competition in Japan

Examples of Effect of Technological Environment Rapid changes in the Internet and World Wide Web Robotics (better quality control, lower production costs) Computer scanners at retail check-out counters Worldwide satellites for data communication Automated inventory control Electronic fuel injection on automobiles Cellular phones and fax machines for communication

Examples of Changes in the Political/Legal Environment Deregulation of energy industries Less emphasis on antitrust laws by federal government Maturing of consumerism More attention to laws governing international trade Changes in labeling requirements

Focus (mostly prohibitions) of Federal Antimonopoly Laws on the Four Ps

Major Focus of Some Important Laws that Affect Marketing Sherman Act (1890) –prohibits conspiracy to reduce competition –example: price "fixing" agreements among competing firms Federal Trade Commission Act (1914) – prohibits unfair methods of competition – example: use of deceptive advertising Robinson-Patman Act (1936) – prohibits most types of price-related discrimination – example: offering "advertising allowances" to some middlemen but not others (without cost justification)

Outline of Federal Legislation Now Affecting Competition in Marketing

Some Important U.S. Federal Regulatory Agencies

Examples of Trends in the Cultural Environment More women in the work force "Aging" of America, but accompanied by new growth in the “teen” group More single-person households More health consciousness More concern about the environment

An Example of Product-Market Screening Criteria for a Small Retail and Wholesale Distributor ($5 million annual sales) Quantitative criteria –Increase sales by $750,000 per year for the next five years. –Earn ROI of at least 25 percent before taxes on new ventures. –Break even within one year on new ventures. –Opportunity must be large enough to justify interest (to help meet objectives) but small enough so company can handle with the resources available. –Several opportunities should be pursued to reach the objectives--to spread the risks. Qualitative criteria –Nature of business preferred. Should take advantage of our on-line Internet order system. New goods and services for present customers to strengthen relationships. "Quality" products that do not cannibalize sales of current products. Competition should be weak and opportunity should be hard to copy for several years. There should be strongly felt (even unsatisfied) needs--to reduce promotion costs and permit "high" prices. –Constraints Nature of businesses to exclude –Manufacturing. –Any requiring large fixed capital investments. –Any requiring many support people who must be "good" all the time and would require much supervision. Geographic –United States, Mexico, and Canada only. General –Make use of current strengths. –Attractiveness of market should be reinforced by more than one of the following basic trends: technological, demographic, social, economic, political. –Market should not be bucking any basic trends.

GE's Strategic Planning Grid A way of organizing business judgments about existing and/or proposed product- market plans Business Strengths Dimension –Company size, market share –Profit margins –Technology position –Limiting factors (personnel, capital needed, etc.) Industry Attractiveness Dimension –Size of market and growth trends –Competitive situation –Social impact –Industry profitability

Demographic Dimensions for Select Countries

Demographic Dimensions Important operational dimensions for understanding market segments and developing marketing mixes –Much good data is available Important for determining size of consumer target markets –Is the market substantial? Seeing demographic trends helps identify opportunities –Shifts in age distribution –Geographic growth/decline

Age Distribution Average age is increasing But there is a big teen cycle on the way Post World War II "Baby Boomers": still a big, influential group 50 and older group to grow dramatically in next decade

Median Family Income, (in 1996 dollars)

Percent of Total Income Going to Different Income Groups in 1996 Note: the 20 percent of all families who have the lowest incomes account for only 4.2% of total income; the 20% with the highest incomes have 46.8 percent-- a 10-fold difference between the “haves” and “have-nots”

Income Distribution Growth in real income has slowed down Middle income groups in U.S. enjoy real choices –U.S. distribution like Canada, Western Europe, Japan, Australia, New Zealand Higher income groups still have much of the spending power –Top 20% income group has 47 percent of total income! –Bottom 20% income group has only about 4 percent!

Types of Income DISPOSABLE INCOME –Income that is left after taxes DISCRETIONARY INCOME –What is left of disposable income after paying for "necessities"

Family Spending for Several Family Income Levels (in 1995 dollars)

Stages in the Family Life Cycle

Examples of Economic Needs Economy of purchase or use Convenience Efficiency in operation or use Dependability in use Improvement in earnings

Psychological (intra-personal) Variables Motivation Perception Learning Attitudes and beliefs Personality Lifestyle (psychographics)

Possible Needs Motivating a Person to Some Action

Lifestyle Dimensions (and some related demographic dimensions)

Social (inter-personal) Influences on Consumers Family Reference groups Social class Culture and subculture

Characteristics and Relative Size of Different Social Class Groups in the United States Successful professionals and managers; community minded and ambitious for their children... Relative sizeGroupSome (abbreviated) characteristics Upper-class Upper-middle class Lower-middle class* Upper-lower (“working”) class* Lower-lower class 1.5% 12.5% 32% 38% 16% People from old wealthy families and socially prominent new rich... Small business people, teachers, office workers, technicians--the typical white collar workers... The blue collar workers--factory workers, skilled laborers, and service people…most earn good incomes... Unskilled laborers and people in very low status occupations * America’s “mass market”

Characteristics and Attitudes of Middle and Lower Classes Middle classes –Plan and save for the future –Analyze alternatives –Understand how the world works –Feel they have opportunities –Willing to take risks –Confident about decision making –Want long-run quality or value Lower classes –Live for the present –"Feel" what is "best" –Have simplistic ideas about how things work –Feel controlled by the world –"Play it safe" –Want help with decision making –Want short-run satisfaction