1. Marketing: Developing Relationships
Part 5
Marketing: Developing Relationships
Part 5 of your textbook is: Marketing: Developing Relationships.
© 2015 McGraw-Hill Education.

2. CHAPTER 11 CHAPTER 12 CHAPTER 13 Customer-Driven Marketing
Dimensions of Marketing Strategy
CHAPTER 13
Digital Marketing and Social Networking
Chapter eleven focuses on the important role that marketing plays in enhancing the success of companies. We will examine the functions of marketing, explain the marketing concept, and discuss the development of a marketing strategy that includes the concepts of market segmentation and the marketing mix.

3. Learning Objectives
LO 11-1 Define marketing and describe the exchange process.
LO 11-2 Specify the functions of marketing.
LO 11-3 Explain the marketing concept and its implications for developing marketing strategies.
LO 11-4 Examine the development of a marketing strategy, including market segmentation and marketing mix.
LO 11-5 Investigate how marketers conduct marketing research and study buying behavior.
LO 11-6 Summarize the environmental forces that influence marketing decisions.
After reading this chapter, you will be able to:
Define marketing, and describe the exchange process.
Specify the functions of marketing.
Explain the marketing concept and its implications for developing marketing strategies.
Examine the development of a marketing strategy, including market segmentation and marketing mix.
Investigate how marketers conduct marketing research and study buying behavior.
Summarize the environmental forces that influence marketing decisions.

4. The Nature of Marketing
A group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas
Create value by allowing individuals and organizations to obtain what they need and want
Other functional areas of the business (operations, finance, and all areas of management) must be coordinated with marketing decisions
Marketing is not:
Manipulating consumers to get them to buy products they do not want
Just selling and advertising
We define marketing as a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services and ideas. The goal of marketing is to create value by allowing individuals and organizations to obtain what they need and want. Other functional areas of the business (operations, finance, and all areas of management) must be coordinated with marketing decisions.
Businesses cannot achieve their objectives unless they provide something that customers value. It is important to understand what marketing is and what it is not. Marketing is NOT manipulating customers nor is it simply selling and advertising. What marketing IS represents a process to satisfy consumers.

5. The Exchange Relationship
The act of giving up one thing (money, credit, labor, goods) in return for something else (goods, services, or ideas)
Each participant must be willing to give up his or her respective “something of value” to receive the “something” held by the other
The tangible product itself may not be as important as the image or the benefits associated with the product
This intangible “something of value” may be:
Capability gained from using a product
The image evoked by it
The brand name
Marketing is focused on creating exchanges that satisfy consumer needs, wants, and desires. This exchange relationship is defined as the act of giving up one thing, for example money, credit, labor, or goods, in return or exchange for something else. That something else could include goods, services, or ideas. Thus businesses create exchanges with customers and create exchanges with each other.
When you think of marketing products, you may think of tangible things—cars, MP3 players, or books, for example. What most consumers want, however, is a way to get a job done, solve a problem, or gain some enjoyment. You may purchase a Hoover vacuum cleaner not because you want a vacuum cleaner but because you want clean carpets. Therefore, the tangible product itself may not be as important as the image or the benefits associated with the product. This intangible “something of value” may be capability gained from using a product or the image evoked by it, or even the brand name.

6. The Exchange Process: Giving Up One Thing in Return for Another
For an exchange to occur, certain conditions are required. As indicated by the arrows in Figure 11.1, displayed on this slide, buyers and sellers
must be able to communicate about the “something of value” available to each. An exchange does not necessarily take place just because buyers and sellers have something of value to exchange. Each participant must be willing to give up his or her respective “something of value” to receive the “something” held by the other.
Remember, exchange relationships are not restricted to manufactured goods, but extend to all segments of business and organizations including goods, services, and ideas.

7. Functions of Marketing
Marketing Activities
Buying
Selling
Transporting
Storing
Grading
Financing
Marketing Research
Risk Taking
Marketing focuses on a complex set of activities that must be performed to accomplish objectives and generate exchanges. These activities include buying, selling, transporting, storing, grading, financing, marketing research, and risk taking.

8. Creating Value with Marketing
A customer’s subjective assessment of benefits relative to costs in determining the worth of a product
Benefits – Anything a buyer receives in an exchange
Costs – Anything a buyer must give up to obtain the product’s benefits
Monetary costs and time and effort expended to procure the product
Customer Value
Customer Benefits –
Customer Costs =
We view value as a customer’s subjective assessment of benefits relative to costs in determining the worth of a product. Customer benefits include anything a buyer receives in an exchange. Customer costs include anything a buyer must give up to obtain the benefits the product provides.

9. The Marketing Concept Marketing Concept
The idea that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its own goal
A business must find out what consumers desire and then develop the good, service, or idea that fulfills their needs or wants
The business must then get the product to the customer
The business must continually alter, adapt, and develop products to keep pace with changing consumer needs and wants
To implement the marketing concept, a firm must have good information about what consumers want, adopt a consumer orientation, and coordinate its efforts throughout the organization. Otherwise, it will waste resources on products consumers do not want or need. Successfully implementing the marketing concept requires that businesses view customer value as the ultimate measure of performance, and improving value as the measure of the rate of success.

10. Trader Joe’s, which sells many different lines of organic and natural food products, is often thought to have better deals than some of its competitors
The grocery chain attempts to meet consumer demands for high-quality food at reasonable prices
Trader Joe’s, which sells many different lines of organic and natural food products, is often thought to have better deals than some of its competitors. The grocery chain attempts to meet consumer demands for high-quality food at reasonable prices.

11. Evolution of the Marketing Concept
Our society and economic system have changed over time, and marketing has become more important as markets have become more competitive
Production orientation
19th century
Manufacturing efficiency
Sales orientation
Early 20th century
Supply exceeds demand; a need to “sell” products grew
The marketing concept has developed over time. During the second half of the nineteenth century, the Industrial Revolution was well under way in the US. This phase of development represents the production orientation with its focus on manufacturing goods with increasing efficiencies. In the early twentieth century, a sales orientation emerged due to increasing manufactured goods that created a surplus. For the first time, goods had to be marketed or sold to consumers as there were abundant options available to them.

12. Evolution of the Marketing Concept
Today some people still inaccurately equate marketing with a sales orientation
Market Orientation
An approach requiring organizations to gather information about customer needs, share that information throughout the firm, and use that information to help build long-term relationships with customers
In the 1950s, the marketing orientation evolved suggesting that rather than simply manufacturing goods and then trying to sell them, it made far better sense to determine first what customers wanted and then provide those goods and services. New technologies are helping firms to improve communication and learn what customers want.
Today, the marketing orientation is in full development and requires organizations to gather information about what customers need, share that information within the firm, and use that information to build lasting relationships with the firm’s customers. As you can see, this is a far cry from the production orientation of the nineteenth century.
Began in the 1950s and continues today
New technologies are helping firms to improve communication and learn what customers want

13. Developing a Marketing Strategy
A plan of action for developing, pricing distributing, and promoting products that meet the needs of specific customers
Has two major components:
Selecting a target market
Developing an appropriate marketing mix to satisfy that target market
We now know the importance of companies developing relationships with their customers and the importance of ensuring that these are built for the long term. How do firms achieve these objectives? It begins with the development of a marketing strategy. Formally defined, a marketing strategy is a plan of action for developing, pricing, distributing, and promoting products that meet the needs of specific customers.

14. Business to Business (B2B) Markets
Depending on the type of business you work for, other businesses can be your customer
Businesses buy products to resell, use in the production of other products, or for use in operations
While the marketing concepts are the same for both businesses and consumers, there are complexities to the business market that need to be considered
Customer populations in the business market are smaller than in the consumer market, products tend to be highly technical as does the buyer, and how the product affects the rest of the businesses marketing channel are all important characteristics of the business market
Businesses also tend to buy in larger quantities than consumers and long-term relationships are seen as necessary
Business to Business (B2B) markets
Depending on the type of business you work for, other businesses can be your customer. Businesses buy products to resell, use in the production of other products, or for use in operations. While the marketing concepts are the same for both businesses and consumers, there are complexities to the business market that need to be considered. Customer populations in the business market are smaller than in the consumer market, products tend to be highly technical as does the buyer, and how the product affects the rest of the businesses marketing channel are all important characteristics of the business market. Businesses also tend to buy in larger quantities than consumers and long-term relationships are seen as necessary.
SOURCE: William M. Pride and O.C. Ferrell. Foundations of Marketing. Fifth ed. South-Western Cengage Learning: Mason, OH Page 178.
SOURCE: William M. Pride and O.C. Ferrell. Foundations of Marketing. Fifth ed. South-Western Cengage Learning: Mason, OH Page 178.

15. Selecting a Target Market
A group of people who have a need, purchasing power, and the desire and authority to spend money on goods, services, and ideas
Target Market
A specific group of consumers on whose needs and wants a company focuses its marketing efforts
Total-Market Approach
An approach whereby a firm tries to appeal to everyone and assumes that all buyers have similar needs
Developing a marketing strategy has two major components: First selecting a target market and secondly, developing an appropriate marketing mix to satisfy that target market. A target market is a very specific group of consumers that a company focuses its marketing efforts toward.
While some firms use a target market approach as we see with Nike golf, other firms use a total market approach. A total market approach is when a firm tries to appeal to everyone and assumes that all buyers have similar needs. This total market approach is certainly appropriate for certain products such as salt, sugar and other agricultural products.
Sellers of salt, sugar, and many agricultural products use a total-market approach because everyone is a potential consumer of these products

16. Selecting a Target Market
Market Segmentation
A strategy whereby a firm divides the total market into groups of people who have relatively similar product needs
Market Segment
A collection of individuals, groups, or organizations who share one or more characteristics and thus have relatively similar product needs and desires
With certain commodities such as salt and sugar, companies may use a total market approach. However, most firms use market segmentation in developing their marketing strategies. We define market segmentation as a strategy to divide the total market into groups of people with relatively similar product needs called market segments. We define a market segment as a collection of individuals, groups, or organizations sharing one or more characteristics thus having relatively similar needs and desires for products.
Women are the largest market segment, with 51% of the U.S. population
Marketers are focusing on the growing Hispanic population

17. Market Segmentation Approaches
Concentration Approach
A market segmentation approach whereby a company develops one marketing strategy for a single market segment
Porsche directs all its marketing efforts toward high-income individuals who want to own high-performance vehicles
Multisegment Approach
A market segmentation approach whereby the marketer aims its efforts at two or more segments, developing a marketing strategy for each
Raleigh bicycles has designed separate marketing strategies for racers, tourers, commuters, and children
The market segmentation strategy based on concentration exists when a company develops one marketing strategy for a single market segment. This is most often used where there is a high degree of specialization. A multi-segment approach exists when a firm targets two or more segments with a specific strategy for each.

18. Market Segmentation Approaches
Niche Marketing
Is a narrow market segment focus when efforts are on one small, well-defined group that has a unique, specific set of needs
Niche segments are usually very small compared to the total market for the product
Many airlines cater to first-class flyers, who comprise only 10% of international air travelers
To meet the needs of these elite customers, airlines include special perks along with spacious seats
Niche marketing is a narrow market segment focus when efforts are on one small, well-defined group that has a unique, specific set of needs. Niche
segments are usually very small compared to the total market for the products. Many airlines cater to first-class flyers, who comprise only 10 percent
of international air travelers. To meet the needs of these elite customers, airlines include special perks along with the spacious seats.

19. Market Segmentation Approaches
For a firm to successfully use a concentration or multisegment approach to market segmentation:
Consumers’ needs for the product must be heterogeneous
The segments must be identifiable and divisible
The total market must be divided in a way that allows estimated sales potential, cost, and profits of the segments to be compared
At least one segment must have enough profit potential to justify developing and maintaining a special marketing strategy
The firm must be able to reach the chosen market segment with a particular market strategy
For a firm to successfully use a concentration or multisegment approach to market segmentation, several requirements must be met:
1. Consumers’ needs for the product must be heterogeneous.
2. The segments must be identifiable and divisible.
3. The total market must be divided in a way that allows estimated sales potential, cost, and profits of the segments to be compared.
4. At least one segment must have enough profit potential to justify developing and maintaining a special marketing strategy.
5. The firm must be able to reach the chosen market segment with a particular market strategy.

20. Bases for Segmenting Markets
Companies segment markets on the basis of several variables:
Demographic
Geographic
Psychographic
Behavioristic
How does a company approach market segmentation, generally. Typically, there are four bases upon which to segment markets. These bases are the demographic base, geographic base, psychographic base, and the behavioristic base. Demographic segmentation is based on key characteristics such as age or gender. Geographic is based on location; psychographic considers personality characteristics and life styles, and behavioristic is concerned with some characteristic of the consumer’s behavior toward the product.

21. Developing a Marketing Mix
The four marketing activities—product, price, promotion, and distribution—that the firm can control to achieve specific goals within a dynamic marketing environment
The buyer or the target market is the central focus of all marketing activities
The second step in developing a marketing strategy is to create and maintain a satisfying marketing mix. The marketing mix refers to four marketing activities—product, price, distribution, and promotion—that the firm can control to achieve specific goals within a dynamic marketing environment ( Figure 11.3 , on the next slide). The buyer or the target market is the central focus of all marketing activities.

22. The Marketing Mix: Product, Price, Distribution, and Promotion
As you can see from this slide, the marketing environment consists of the exchange with the customer based on the customer’s needs. It consists of the product, price, promotion, and distribution of the good, service, or idea. We will examine each of these in turn in the next few slides.

23. Product A product whether a
Good – A physical entity you can touch (a car, computer, or adopted kitten)
Service – The application of human and mechanical efforts to people or objects to provide intangible benefits to customers (Air travel, dry cleaning, or haircuts)
Idea – Can be a concept, philosophy, image, or issue (attorney advise or political parties)
Is a complex mix of tangible and intangible attributes that provide satisfaction and benefits
The first element of the marketing mix that we define is the product. The product is a good, service, or idea that has tangible and intangible attributes that provide satisfaction and benefits to consumers. It is important that the product be sold at a profit in order for the firm to be able to continue satisfying the consumer’s needs.

24. Price
Price
A value placed on an object exchanged between a buyer and a seller
The buyer usually exchanges purchasing power— income, credit, wealth—for the satisfaction of utility associated with a product
Key element of the marketing mix because it relates directly to the generation of revenue and profits
Can be changed quickly to stimulate demand or respond to competitors’ actions
The second element of the marketing mix is price. We define price as the value placed on a product or service or idea that is exchanged between a buyer and a seller.

25. Distribution Distribution
Making products available to customers in the quantities desired
Sometimes referred to as “place” because it helps to remember the marketing mix as the “4 Ps”
Product, price, place, and promotion
Intermediaries—usually wholesalers and retailers— perform many of the activities required to move products efficiently from producers to consumers or industrial buyers
Involves transporting, warehousing, materials handling, and inventory control
The third element of the marketing mix is distribution. Distribution involves making the products available to consumers in the quantities and locations where they are needed.

26. Promotion
Promotion
A persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals, groups, and organizations to accept goods, services, and ideas
Includes advertising, personal selling, publicity, and sales promotion
Digital advertising on websites and social media sites are growing
The marketing mix element called promotion consists of a persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals and organizations to accept goods, services, and ideas.

27. Expeditionary Marketing
Expeditionary marketing is a strategy that both small and large companies use to find untapped markets
In the case of a startup, The goal is to find emerging markets where there is little competition, design a product for that market, and establish themselves as a leader
For more established businesses, both large and small, the goal of expeditionary marketing is to find new areas for growth in markets that are small but growing
Internal and external research is done to find markets that are complementary to the skills of the company and the needs of the market, as is extensive planning for new products or services
Expeditionary marketing
Expeditionary marketing is a strategy that both small and large companies use to find untapped markets. In the case of a startup, the goal is to find emerging markets where there is little competition, design a product for that market, and establish themselves as a leader. For more established businesses, both large and small, the goal of expeditionary marketing is to find new areas for growth in markets that are small but growing. Internal and external research is done to find markets that are complementary to the skills of the company and the needs of the market, as is extensive planning for new products or services.
SOURCE: Marketing-Schools.org. “Expeditionary Marketing”. (accessed September 25, 2013).
SOURCE: Marketing-Schools.org. “Expeditionary Marketing”. (accessed September 25, 2013).

28. Marketing Research and Information Systems
A systematic, objective process of getting information about potential customers to guide marketing decisions
Guides marketing decisions
May include data on age, income, ethnicity, educational level, etc. of the target market and how frequently they purchase the product
Before the marketing mix can be adequately developed, marketers must collect in depth up to date information about what customers need. This approach is called marketing research and is defined as a systematic, objective process of getting information about potential customers that guide marketing decisions. This can include information about age, income, ethnicity, gender and educational level of people in the target market.

29. Marketing Research and Information Systems
Marketing information system – A framework for accessing information about customers from sources both inside and outside the organization
Inside the organization
Continuous flow of information on prices, sales, and expenses
Outside the organization
Data are available through public and private reports, census statistics, digital media sources, etc.
Marketing information system is a framework for accessing information about customers from sources both inside and outside the organization. Inside the organization, there is a continuous flow of information about prices, sales, and expenses. Outside the organization, data are readily available through private or public reports and census statistics, as well as from many other sources.

30. Marketing Research and Information Systems
Primary Data
Marketing information that is observed, recorded, or collected directly from respondents
“Mystery shoppers”, surveys, and focus groups
Passive observation of consumer behavior and open-ended questions techniques
Secondary Data
Information that is compiled inside or outside an organization for some purpose other than changing the current situation
Information compiled by the U.S. Census Bureau and other government agencies, databases created by marketing research firms, as well as sales and other internal reports
Marketing research can be based on either primary or secondary data collection and analysis. In primary data collection, the marketing information is directly collected from the consumers, called respondents, in the target market. In secondary data collection, information is compiled from other sources of information such as the U.S. census or perhaps opinion polls on specific products or services collected by outside agencies.

31. Online Marketing Research
New information technologies are changing how businesses learn about consumers and market their products
Digital media and online social networks
Opportunity to reach new markets via the Internet
Online surveys are becoming an important part of marketing research
Virtual testing – Interactive multimedia research that combines sight, sound, and animation to improve testing of products and their features
New information technologies are changing the way businesses learn about their customers and market their products. Interactive multimedia research, or virtual testing, combines sight, sound, and animation to facilitate the testing of concepts as well as packaging and design features for consumer products.

32. Buying Behavior Buying Behavior
The decision processes and actions of people who purchase and use products
Marketers analyze buying behavior because a firm’s marketing strategy should be guided by an understanding of buyers
To carry out the marketing concept, marketers need to know what, where, when and how consumer buy. Marketing research assists in this as well. Marketing research attempts to discover what factors influence consumer buying behavior. This information helps firms develop appropriate marketing strategies in line with these factors. Marketers, depending upon the products or services being developed, consider consumer buying behavior where individuals buy products for personal and household use; or organizational buying behavior which is focused on organizations buying products or services for business use.

33. Psychological Variables of Buying Behavior
Perception
The process by which a person selects, organizes, and interprets information received from his or her senses
Motivation
Inner drive that directs a person’s behavior toward goals
Learning
Changes in a person’s behavior based on information and experience
Attitude
Knowledge and positive or negative feelings about something
Personality
The organization of an individual’s distinguishing character traits, attitudes, or habits
Consumer buying behavior is influenced by perception. We define perception as a process by which a person selects, organizes, and interprets information received from seeing an advertisement, holding product, reading a label, and so on. How a customer perceives a product or service is critical to developing the marketing concept. Motivation is another variable that is related to consumer buying behvaior. Other psychological factors that influence buying behavior include learning, attitude, and personality. These three factors, in addition to perception and motivation, are important in developing the marketing approach for a product or service.

34. Social Variables of Buying Behavior
Social Roles
A set of expectations for individuals based on some position they occupy
Reference Groups
Groups with whom buyers identify and whose values or attitudes they adopt
Social Classes
A ranking of people into higher or lower positions of respect
Culture
The integrated, accepted pattern of human behavior, including thought, speech, beliefs, actions, and artifacts
We have seen how psychological factors can influence buying behavior, such as perception, learning, and attitudes. There are social factors that influence consumers behavior as well. Social factors include social roles which are a set of expectations for individuals based on some position they occupy. Other social factors that influence buying behavior include reference groups, social class, and culture. Each of these social factors, including those of social roles, will influence the marketing concept and strategy of the firm.

35. People’s cultures have a big impact on what they buy
Goya Foods sells more than three dozen types of beans to U.S. supermarkets because people with different cultural roots demand different types of beans
People’s cultures have a big impact on what they buy. Goya Foods sells more than three dozen types of beans to U.S. supermarkets because people with different cultural roots demand different types of beans. Which products are delivered to which stores depends on the heritage of those living in each area.
Which products are delivered to which stores depends on the heritage of those living in each area

36. Understanding Buying Behavior
Trying to understand consumers is the best way to satisfy them
Tools and techniques for analyzing consumers are not exact
To combat declining gum sales, companies have begun to turn gum into a “fashion statement”
Kraft is engaging young artists to create designs for its gum packaging
Rockstar Iced Mint Energy is touting its energy-boosting caffeine and taurine content
These overhauls are an attempt to reconnect with the teen market, which is the largest purchaser of gum products
What is the key to understanding buying behavior? The best way is to try to understand consumers, what they value and the best way to satisfy them. There are no magic bullets or special tools to answer this question.
For example, To combat declining gum sales, companies have begun to turn gum into a “fashion statement”. Kraft is engaging young artists to create designs for its gum packaging. Rockstar Iced Mint Energy is touting its energy-boosting caffeine and taurine content. These overhauls are an attempt to reconnect with the teen market, which is the largest purchaser of gum products.

37. The Marketing Environment
External forces directly or indirectly influence the development of marketing strategies:
Political, legal, and regulatory forces
Social forces
Competitive and economic forces
Technological forces
Marketing requires creativity and consumer focus because environmental forces can change quickly and dramatically
The marketing environment’s external forces impact marketing strategy. The political, legal, and regulatory forces can influence the direction of marketing strategy. Social forces and competitive forces also play a role. Changing technology must be considered when developing an effective marketing strategy.

38. The Marketing Mix and the Marketing Environment
Although the forces in the marketing environment are sometimes called uncontrollables, they are not totally so. A marketing manager can influence some environmental variables. For example, businesses can lobby legislators to dissuade them from passing unfavorable legislation. Figure 11.4, displayed in this slide, shows the variables in the marketing environment that affect the marketing mix and the buyer.

39. Importance of Marketing to Business and Society
Marketing is a necessary function to reaching consumers, establishing relationships, and driving sales
Marketing is essential in communicating the value of products and services
Nonprofits, government institutions, and even people must market themselves to spread awareness and achieve desired outcomes
All organizations must reach their target markets, communicate their offerings, and establish high-quality services
As this chapter has shown, marketing is a necessary function to reaching consumers, establishing relationships, and driving sales. While some critics
might view marketing as a way to change what consumers want, marketing is essential in communicating the value of products and services. It is not just for-profit businesses that engage in marketing activities. Nonprofits, government institutions, and even people must market themselves to spread awareness and achieve desired outcomes. All organizations must reach their target markets, communicate their offerings, and establish high-quality services.

40. Discussion What is the marketing concept? Why is it so important?
List the variables in the marketing mix. How is each used in a marketing strategy?
What is the marketing concept? Why is it so important?
The marketing concept states that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its own goals. Adoption of the marketing concept is important because it provides the organization with a philosophy of meeting customers’ needs without sacrificing the long run needs of the organization.
List the variables in the marketing mix. How is each used in a marketing strategy?
The marketing mix involves four variables: product, promotion, price, and distribution. The product is a complex mix of tangible and intangible attributes that provide satisfaction and benefits. Price represents the value placed on an object in an exchange; it quantifies value and is the basis of most market exchanges. Distribution makes products available in the quantities desired to as many customers as possible while holding total inventory, transportation, and storage costs as low as possible. Promotion is a persuasive form of communication that attempts to facilitate a marketing exchange by influencing individuals, groups, or organizations to accept an organization’s products.