Marketing Notes – Core Concepts

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ABOUT THIS CONTENT

Basic notes from core MBA marketing course, focusing on core marketing concepts
Subject: Marketing

Production Concept

holds that consumers will favor those products that are widely available & low cost.

Product Concept

holds that consumers will favor those products that offer the most quality, performance, or innovative features.

Selling Concept

holds that consumers, if left alone, will ordinarily not buy enough of the organization’s products. The organization must therefore undertake an aggressive selling and promotion effort.

Marketing Concept

holds that the key to achieving organizational goals consists of being more effective than competitors in integrating marketing activities toward determining and satisfying the needs and wants of target markets.

Four Pillars

  1. target market
  2. customer needs
  3. integrated marketing
  4. profitability.

Societal Marketing Concept

holds that the organization’s task is to determine the needs , wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the customer’s and society’s well-being.

Five Types of Needs

  1. stated
  2. real
  3. unstated
  4. delight
  5. secret

6 Macro-environment Forces

  1. demographic
  2. economic
  3. natural
  4. technological
  5. political/legal
  6. social/cultural.

Strategic groups are a group of firms following the same strategy in a given target market

3 Shares

  1. share of the market
  2. share of the mind
  3. share of the heart

Four Categories of Reaction Patterns

  1. the laid-back competitor: the competitor who does not react quickly or strongly because they may feel that their customers are loyal or it may not have noticed its rival’s moves or they may lack the funds to react; it is important for a company to assess reasons for slow reactions
  2. the selective competitor: the competitor that reacts only to certain types of attacks.
  3. the tiger competitor: a competitor that reacts swiftly and strongly to any assault.
  4. the stochastic competitor: a competitor that does not exhibit a predictable reaction pattern.

4 Levels of Competition

(based on the degree of product substitutability)

  1. Brand competition: competitors as other companies offering a similar product and services to the same customers at similar prices
  2. Industry competition: competitors as all companies making the same product or class of products
  3. Form competition: competitors as all companies manufacturing products that supply the same service
  4. Generic competition: competitors as all companies that compete for the same consumer dollars

Seven Steps to Benchmarking

  1. Determine which functions to benchmark
  2. Identify the key performance variables to measure
  3. Identify the best-in-class companies
  4. Measure performance of best-in-class companies
  5. Measure the company’s performance
  6. Specify programs and actions to close the gap
  7. Implement and monitor results

Positioning Strategy

The way in which a company distinguishes itself from competitors; a company can differentiate itself using the following criteria:

  • important: the difference delivers highly valued benefit to buyers
  • distinctive: the difference either is not offered by others or is offered in a more distinctive way by the company
  • superior: the difference is superior to other ways of obtaining the same benefit
  • communicable: the difference is communicable and visible to buyers
  • preemptive: the difference cannot be easily copied by competitors
  • affordable: the buyer can afford to pay for the difference
  • profitable: the company will find it profitable to introduce the difference

In developing a positioning strategy working out the tactical details is essentially determining the marketing mix: product, price, place, and promotion. A company can position its products along several lines: attribute, benefit, use/application, user, competitor, product category, or quality/price.

Value Chain

5 Primary Activities

  1. bring materials into the business (inbound logistics)
  2. convert them into final products (operations)
  3. ship out final products (outbound logistics)
  4. market them (marketing and sales)
  5. and service them (service).

4 Support Activities

  1. procurement
  2. technology development
  3. human resource management
  4. firm infrastructure:
    • The value-delivery network is formed when companies partner with specific suppliers and distributors to gain competitive advantages beyond their own operations. Moves from a Pull (by demand) system to a Push (by supply) system
    • Institutional procurement has low budgets and captive clienteles. The buying objective is not profit nor is cost minimization the sole objective. The purchasing agent for institutions must purchase goods that meet or exceed a certain minimum standard and whose prices are low.
    • Government procurement usually operates by requiring suppliers to submit bids, and normally award the contract to the lowest bidder. Because government purchases are subject to public review the suppliers face considerable paperwork, bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel.
    • Business procurement usually requires the supplier to develop a marketing orientation and product differentiation. Institutional / government markets do not require such things because their procurement policies more traditionally emphasize price and because the product’s characteristics tend to be carefully specified. Suppliers who sell to institutions and governments tend to invest their efforts in bringing costs down rather than investing in advertising or personal selling to win bids.

Market Segmentation

Identify and profile distinct groups of buyers who might require separate products and/or marketing mixes.

Ways to Segment a Market

Two broad groups of variables are used: consumer characteristics
(geographic, demographic, psychographic characteristics) and consumer responses (responses to benefits sought, use occasions, or brands)

  • Geographic segmentation
  • Demographic segmentation
  • Behavioral segmentation where buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Depending on what the clock is used for, the clock company will want to segment based on such factors.

    Behavior variables:

    1. Occasions – buyers distinguished by the occasions the develop a need, purchase the product or use a product. (OJ usually for breakfast – push drinking it other times)
    2. Benefits – what benefits do the buyers want from the product (ex. Toothpaste – do buyers want economy, medicinal, cosmetic or taste)
    3. User Status – non users, ex-users, potential users, first-time users, regular users
    4. Usage Rate – light, medium and heavy product users. Usually prefer to attract one heavy user than several light users. (ex. Beer drinkers)
    5. Loyalty Status
      Hard core loyals – consumers who buy one brand all the time
      Split loyals – consumers who are loyal to 2 or 3 brands
      Shifting loyals – consumers who shift from favoring one brand to another
      Switchers – consumers who show no loyalty to a brand; could be deal prone (brand on sale) or variety prone (something different)

      Brand loyal purchases may be that or may be habit, indifference, low price, high switching cost or nonavailability of other brands. Companies must be interpret buying patterns carefully.

    6. Buyer Readiness – unaware of product, aware, informed, interested, desire the product, intend to buy
    7. Attitude – enthusiastic, positive, indifferent, negative, hostile
  • Psychographic segmentation divides groups on the basis of lifestyle and/or personality.

6 Levels of Market Segmentation

  1. Mass marketing – mass production, distribution and promotion of one product for all buyers largest potential market, lower costs can translate to lower prices or higher margin
  2. Segment marketing – a large identifiable group within a market. Buyers differ in wants, purchasing power, geographical locations, buying attitudes and habits. Company not willing customize offer to individual customers
  3. Niche marketing – a more narrowly defined group, typically a small market whose needs are not being well served. Marketers usually define a group with a distinctive set of traits who may seek a special combination of benefits. Niche marketers understand their niche markets needs so well that the customers willingly pay a premium
  4. Local marketing – programs targeted to the wants and needs of local customer groups, (trading areas, neighborhoods, even individual stores)
  5. Individual marketing – customized or one-to-one marketing
    Mass customization – the ability to prepare on a mass basis individually designed products and communications to meet each customers needs.
  6. Self marketing – form of individual marketing where the customer takes more responsibility for determining which products and brands to buy.

Patterns of Market Segmentation – Preference Segments

  1. Homogeneous preferences – a market where all the consumers have roughly the same preference
  2. Diffused preferences – consumers vary greatly in their preferences
  3. Clustered preferences – distinct preference clusters called natural market segments.

Market Segmentation Procedure

  1. Survey Stage – exploratory interviews and focus groups to gain insight into consumer motivations, attitudes and behavior , uses this to prepare a questionnaire to collect data on: attributes and importance, brand awareness and ratings, product usage, attitudes toward product category, demographics, psychographics, and mediagraphics.
  2. Analysis Stage – factor analysis to remove highly correlated variables, and cluster analysis to create a specified number of maximally different segments.
  3. Profiling Stage – clusters are profiled in terms of distinguishing attitudes, behavior, demographics, psychographics, and media patterns – given an name based on dominant distinguishing characteristic. Example of 6 segments found in a leisure market — passive homebody, active sports enthusiast, inner-directed self-sufficient, culture patron, active homebody and socially active.

Requirements for Effective Segmentation

  • Measurable
  • Substantial
  • Accessible
  • Differentiable
  • Actionable

3 Business segments based on stage in purchase decision process

  1. First time prospects – not yet purchased, want vendor who can help
  2. Novices – already have purchased, want easy to read manuals, training, customer service
  3. Sophisticates – want speed in maintenance and repair, customization, high tech support

4 Business Segments

  1. Programmed buyers – view product as not important, routine purchase, usu. pay full price
  2. Relationship buyers – view as moderately important, small discount and modest service
  3. Transaction buyers – see as very important, receive 10% discount, above avg. service ready to switch at better price
  4. Bargain hunters – see as very important, demand highest discount and service, ready to switch as slightest dissatisfaction

Market Targeting

  • Single-Segment Concentration – can develop strong position in segment, higher than normal risks
  • Selective Specialization – selects a number of segments, diversifies company’s risk
  • Product Specialization – making a certain product for several segments, through this strategy, company builds strong reputation in the specific product area.
  • Market Specialization – serving many needs of a particular customer group, gains strong reputation for serving the group.
  • Full Market Coverage – serve all customer groups with all the products they need, only very large firms can do this

Ways to Market

  1. Undifferentiated marketing – ignore segment differences, mass distribution & advertising
  2. Differentiated marketing – operates in several markets and designs programs for each

Cost of attracting new customer is estimated to be five times cost of keeping a current customer happy

Seven O’s Framework

  1. Occupants – who constitutes the market?
  2. Objects – what does the market buy?
  3. Objectives – why does the market buy?
  4. Organizations – who participates in the buying?
  5. Operations – how does the market buy?
  6. Occasions – when does the market buy?
  7. Outlets – where does the market buy?

Four Major Trends within the Natural Environment

  1. Shortage of raw materials
  2. Increased energy cost
  3. Increased pollution levels – Research has shown that about 42% of U.S. consumers are willing to pay higher prices for “green” products.
  4. Changing role of governments in environmental protection

4 Current Technology Trends

  1. Accelerating pace of technological pace
  2. Unlimited opportunities for innovation
  3. Varying R&D budgets
  4. Increased regulation of technological change

7 Stages of New Product Development Process

  1. idea screening
  2. concept development & testing
  3. marketing-strategy development
  4. business analysis
  5. product development
  6. marketing test
  7. commercialization.

The six major issues/questions are:

  1. Is there a current need for our product?
  2. What is the market size (i.e. what is the demand)?
  3. What is the potential market share?
  4. What are the number and types of customers?
  5. What is the source of competition (actual or potential)?
  6. Is it a good idea AND a good investment?

Positioning: Errors to Avoid

  1. Underpositioning – buyers have a vague idea of brand –Crystal Pepsi
  2. Overpositioning – buyers have too narrow an image of a product – (Tiffany)
  3. Confused positioning – company keeps changing positioning strategy (Next)
  4. Doubtful positioning – People doubt believe ads

3 Types of Business Buying Situations

Straight Rebuy

The purchasing Dept. reorders products on a routine basis.

  • In-suppliers – want to keep customers so they try to maintain quality and service.
  • Out-suppliers – want to gain customers so they 1) try to offer something new or 2) exploit customer dissatisfaction with current supplier.

Modified Rebuy

Buyer wants to modify product specifications, prices, delivery requirements. Requires more people to come to decision. Makes in-suppliers nervous because they have to negotiate business and have a potential to lose a customer. Makes out-suppliers happy because they may have an opportunity to gain a customer.

New Task

Purchaser is buying product for the first time. This buying situation takes

  1. the largest # of decision participants
  2. most information sharing
  3. longest time to make decision.

This is the best opportunity for a supplier to gain a buyer. Types of new task buying include:

  • Systems buying and selling – where a company buys a total solution to a problem from a seller. Example: Buying a dam or utilities for a community.
  • Type of Systems buying is MRO – (maintenance, repair, operating) here the supplier, provides all the MRO supplies the customers will need. The Buyer saves money because they don’t have to maintain inventory or search for a supplier and they are price protected by a contract. The Seller saves money because they get a steady demand.

5 Stages of Buying Process

  1. problem recognition
  2. information search
  3. evaluate alternatives
  4. purchase decision
  5. post purchase decision

4 Types of Buying

  1. Complex buying – expensive, brands risky, self – expressive (buying car)
  2. Dissonance reduced buying – expensive, infrequent, risky, no focus on brands (buying rug)
  3. Habitual buying – ad repetition, inexpensive, no loyalty, habit buying
  4. Variety seeking buying – low involvement

Mature markets tend to acquire a fixed set of suppliers, competitors, distributors, and customers. These groups of players tend to join forces to protect themselves from intruders. This situation is often supported by outside groups such as government regulatory boards, labor unions, business associations, lending institutions, and the like

The key to niche marketing is specialization. Strategies include:

  1. higher prices and higher quality
  2. narrower product line
  3. narrower market segment
  4. similar distribution channels to that of large companies
  5. superior service
  6. lower expenditure on sales force, advertising, and promotion.

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