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Why should marketing managers understand consumer product and service preferences are constantly changing?
Marketing managers must understand these desires in order to create a proper marketing mix for a well-defined market.
Describes how consumers make purchase decisions and how they use and dispose of the purchased goods or services. The study of consumer behavior also includes factors that influence purchase decisions and product use.
How can understanding consumer purchase decision behavior help marketing managers?
If a managers know through research that gas mileage is the most important attribute for a certain target market, the manufacturer can redesign a car to meet that criterion. If a marketing manager can not change consumers' decision in the short run, it can use promotion in an effort to change a consumers decsion by promoting a style, durability, and cargo capacity.
Shaping Public Policy and Educating Consumers
Understanding consumer behavior can also help the government make better public decsions and aid in educating consumers against buying and using goods and services that may injure thier health and hurt society. Research on childhood obesity has lef to public service advertising campaigns targeted toward parents to help them plan healthy diets for thier children. Some states have passedd laws regarding the types of meals that can be served at schools. Recent research on the use of tanning beds has found that it dramatically increases the risk of deadly skin cancers. In the light of this research, the U.S. federal government instituted a 10 percent tax on indoor tanning sessions, which will increase the cost of a session by approximately $1.70.
The 5 step consumer Decision-Making Process
- When consumers by productions new or expensive items 5 steps are used:
- 1. Need recognition
- 2. information search
- 3. evaluation of alternatives
- 4. purchase
- 5. postpurchase behavior
- These 5 steps represent a general process that can be used as a guide for studying how consumers make decisions. It is important to note, though, that consumers' decsions do not always proceed in order through all of these steps. The consumers may end the purchase or no not make the purchase. Cultural, social, individual, and psychological factors effect all steps.
Step 1. Need Recognition (Consumer Decision Making Process)
First stage in the consumer decision making process. It occurs when consumers are faced with an imbalance between actual and desired states that arouses and activates the consumer decision making process. A want is the new way that a consumer goes about addressing a need. Ex: blisters from an old running shoe or a t.v. commercial for a new sports car and wanted to buy it. Need recognition is triggered when a consumer is exposed to either an internal or an external stimulus. Internal stimuli are occurrrences you experience, such as hunger or thirst. External stimuli are influences from an outside source such as someone's recommendation of a new restaurant, the color of an automobile, the design of a package, a brand name mentioned by a friend, or an advertisement on television or radio.
What is the imbalance in step 1 "need recognition" between actual and desired states?
want-got-gap. THere is a difference between what a customer has and what they like to have. This gap doesn't always trigger consumer action. The gap must be large enough to drive the consumer to do something. Just because your stomach growls once doesn't mean that you necessarily will stop what your are doing and go eat. A marketing manager's objective is to get consumers to recognize this want-got gap. Advertising and sales promotion often provide this stimulus. Surveying buyer preferences provides marketers with information about consumer needs and wants that can be used to tailor products and services. Marketings managers can create wants on the part of the consumer. Exp: when college students move into thier or own house they need to furnish them and want new furniture rather than hand me downs from thier parents. A want can be a for a pecfic product, or it can be for a certain attribute or featur of a product. In this example, the college students not only need homw furnishings but also want itesm that reflect thier personal sense of style. Similarly, consumers may want ready-to-war meals, dive-through dry cleaning service and internet shopping to finll thier needs for convenience.
Understanding Needs and Wants in the first step of "need recognition"
If marketers don't properly understand the target market's needs, the chances are good that the right good or service may not be produced. An excellent way to understand needs is to view them as job statements or outcome statements. A job is a fundamental goal that consumers are trying to accomplish or a problem they are trying to resolve. Examples: prevent mildew in shower, hang a picture, or prepare income taxes. Desired outcome statements help marketers understand what consumers are seeking form a job. A desired outcome might be to minimize the time it takes to file an accurate income tax form that finds all possible legitimate deductions. People then can solve this problem several different ways: do the work themselves using givernment provided information, do it themselves using software such as turbo tax, or hire a CPA to do it. If you live in CA and decife to go to college in FL, the job is to get your furniture and stuff to FL. The desired outcome is to get it there when needed, with the least hassle, and at the lowest cost. U-Haul understands the job and desired outcome. THe firm is a one stop shor for moving supplies; U-Haul offeres customers prepackaged moving kits that reduce the time it takes to gather the various boxes and supplies required for a move. In addition, an online parnership with eMove helps customers quickly locate a variety of imputs in the form of human helpers such as packers, babysitters, cleaners and painters.
Why do marketers need to understand the "needs and wants" of consumers in different reasons?
Marketers selling thier products in global markets must carefully observe the needs and wans of consumers in various regions. LG Electronics, a Korean company, is anticipating rising demand for education among India's rural population. Increased levels of education often preceded growth in purchasing power, so LG is targeting India's rural population by developing durable appliacnces for little cost. Brightly colored appliances are designed with surge stabilizers (to handle sporadic electrib supply) and more durable plastic parts (to wishstand harsher environments). Consumers in rural villages have responded with to the appliances. LG has seen a 30 percent growth in its rural sales.
Step 2. Incormation Search (Consumer Decision Making Process)
Consumers search for information about the various alternatives available to satisfy the need or want. EXP: you see a great price on a bottle of wine, but you haven't heard of the brand or the type of wine, so you go to a website to get realistic, jargon -free look at just what the wine tastes like. An information search can occur internally, externally, or both.
Internal Information Search
In an internal infomation search, the person recalls information stored in the memory. This stored information stems largely form previous experience with a product. EX: while traveling with your family, you encounter a hotel where you stayed during spring break earlier that year. By searching your memory, yur can probably remember whether the hotel had clean rooms and friendly service.
External Information search - Nonmarketing Controlled Information Source
Seeks information in the ourstide environment. There are two basic types of external information sources: Non-marketing controlled and marketing controlled. A nonmarketing controlled information source is not associated with marketers promoting a product. These indormation sources include personal experiences (trying or observing a new product), personal sources (family, freinds, acquaintences, and co-workers who may recommend a product or service), an public sources (such as Underwriters Labiratories, Consumer Reports, and other rating orgs that comment on products and services). EX: if you are in the mood to go to the movies, you may search your memory for past experiences at various cinemas when determining which one to go to (personal experiences). To choose which movie you will see, you may rely on the recommendations of friends and family (personal sources). Marketers gather information on how these information sources work and use it to attract customers. ExL car manufactacturers know that yournger custoemrs are likely to get information from friends and family, so they try to develop enthusiasm for their products via word of mouth. Living thn the digital age has changed the way consumers get non marketing controlled information. It can be from blogs, bulletin boards, activists, Websites, Web forums, or consumer opinion sites. Nearly 94 percent of U.S. consumers regularly or occasionally research products online before making an offline purchase, and nearly half of those consumers then share the infromation and advice they gleaned online with other consumers. To give you an idea of the number of searchs this implies, in the Inited States alone there were 23.7 billion searchs in April 2010. The lates research has examined how consumers ude information picked up on the Internet. For example, in Web forums, the information seekers has normally never met the infomration provider or ever interacted with the person before. Hui Chen found that online reviews presenting full accounts of thier entire online shopping experience influenced other shoppers to promote the company through work of mouth the most. Reviews about priceing and quality of product influenced other shoppers the second most and reviews duiscussing customer service by the company affected new consumers the least. If other information seekers had found the provider trustworthy and kind, then the current seeker tended to believe the information, make a purchase, and then promote the company through other reviews.
External Information search - Marketing controlled information source
- Is biased toward a specific product because it originates with marketers promoting that product. marketing controlled information sources include mass media advertising (radio, newspaper, television, and magazine advertising), sales promotion (contests, displays, premiums, and so forth), salespeople, products labels and packaging, and the Internet. many consumers, however, are wary of the information they receive form marketing controlled sources, believing that most marketing campaigns stress the product's positive attributes and ignore its faults. These sentiments tend to be stronger among better educated and higher income consumers. Some marketing controlled information sources cna shift out marketers control, however, when there is bad news to report. When news media blanketed the airwaves with coverage of Toyota's braking and acceleration problems, the carmaker responded with a series of television ads featuring customers talking about their loyalty to the brand and discussing Toyota's commitment to safety. The bottom line of the Toyota ads stressed the company's commitment to safety and continued investment in safety research for its vehicles.
- The extent to which an individual conducts an external search depends on his or her perceived risk, knowledge, prior experience, and level of interest in the good or service. As perceived risk of the purchase increases, the consumer enlarges the search and considers more alternative brands. Ex: suppose that you want to purchase a surround sound system for your home stereo system, so you are motivated to search for infomration about models, prices, options, compatibility wit existing entertainment products, and capabilities. You may decide to compare attributes of many speaker systems because the value of the time expended finiding the "right" stereo will beless than the cost of buying the wrong system.
- A consumer's knowledge about the product or service will also addect the extent of an external information search. A consumer who is knoledgeable and well informed about a potential purchase is less likely to search for additional information. The more knowledgeable consumers are, the more efficiently they will conduct the search process, thereby requiring less time to search. EX: many consumers know that AirTran and other discount airlines have much lower fares, so they generally use the discounters and do not even check fares at other airlines.
- The extent of a consumer's external search is also affected by confidence in one's decision making ability. A confident consumer not only has suffienct stored information about the product but also feels self-assured about making the reight decisin. People lacking this confidence with continue an infomration search even when they know agreat deal about the product. COnsumers with prior experience bying a ceratin product will have less percevied risk than inexperienced consumers. Therefore, they will spend less time searching and limit the number of products they consider.
- A third factor influencing the external information search is product experience. Consumers who have had a positive prior experience with a product are more likely to limit their search to items related to the positive prior experience. EX: when flying, consumers are likely to choose airlines with which they have had positive experiences, such as consistent on-time arrivals, and avoid airlines whith which they had a negative experience, such as lost luggage.
The extent of the search is positively related to the amount of interest a consumer has in a product. A consumer who is more interested in a product will spend more time dearching form information and alternatives. EX: suppose you are a dedicated runner who reads jogging and fitness magazines. In searching for a new pair of running shoes, you may enjoy reading about the new brands available and spend more time and effort than other buyers in deciding on the right shoe.
Evoked Set - Consideration Set
The consumer's information search should yeild a group of brands, sometimes called the buyer's evoked set (or consideration set), which are the consumer's most preferred alternatives. From this set, the buyer will further evaluate the alternatives and make a choice. Consumers do not consider all brands available in a product catefory, but they do seriously consider a much smaller set. EX: from they many brands of pizza available, consumers are likely to consider only the alternatives that fit their price range, location, take-out/delivery needs, and taste preferences. Having too many choices can, in fact, confust consumers and cause them to delay the decision to buy or, in some instances, cause them not to buy at all.
Step 3. Evaluation of Alternatives (Consumer Decision Making Process)
- After getting information and constructing an evoked set of alternative products, the consumer is ready to make a decision. A consumer will use the information stored in memory and obtained from outside sources to develop a set of criteria. Recent research as shown that exposure to certain cures in your everyday environment can affect decisions criteria and purchase. EX: NASA landed the Pathfinder spacecraft on Mars, it captured media attention worldwide. The candy maker Mars also noted a rather unusual increase in sales. ALthough the Mars bar takes its name from the company's founder and not the panet, comsumers apparently responded to news about the planet Mars by purchasing more Mars bars. Further research also suggests that consumer reviews are influenced by existing reviews - if there are existing one-stat ratings, even positive sonsumer reviews will have fewer starts. If consumers see large variations in consumer reviews, they are more likely to purchase the item and make a postpurchase evaluation on that site.
- The environment, internal information, and external information help consumers evaluate and compare alternatives. One way to begin narrowing the number of choices in the evoked set is to pick a product attribute and then exclude all products in the set that don't have that attribute. EX: assume Jane and Jill, both college sophomores, are looking for thier first apartment. They need a two bedroom apartment, reasonably priced and located near campus. They want the apartment to have a swimming pool, washer and dryer, and covered parking. They begin their search with all apartments in the area and then systematically eliminate possibilities that lack the features they need. If there are 50 alternatives in the area, they may rduce thier list to just ten apartments that possess all of the desired attributes. ANother wayt to narrow the number of choices is to use cutoffs. Cutoffs are either minimum or maximum levels of an attribute that an alternative must pass to be considered. They set a maximum of $1000 per month to spen on combined rent. Then all apartments with rent higher than 1000 will be eliminated, further reducting the list of apartments from ten to eight. A final way to narrow the choices is to rank the attribute under consideration order of importance and evaluate the products based on how ell each performs on the most important attributes. To reach a final decision on one of the remaining eight apartments, they may decide proximity to campus is the most important attribute. As a result, they will choose to rent the apartment closest to campus.
- If new brans are added to an evoked set, the consumers's evaluation of the existing brands in that set changes. As a result, cetain brands in the original set may become more desirable. Suppose they find two apartments located equal distance from campus, one priced at 800 abd the other at 750. Faced with this choice, they may decide that the 800 apartment is too expensive given that a comparable apartment is cheaper. If they add a 900 apartment to the list, however, then they may perceive the 800 apartment as more reasonable and decide to rent it.
- The purchase decision process described us a piecemeal process. That is, the evaluation is made by examining alternative advantages and disadvantages along important product attributes. A different way consumers can evaluate a product is according to a catergorization proces. The evaluation of an alternative depends upon the particular catefory to which it is assigned. Categories can be vry general (motorized forms of transportation), or they can be very specific (Harly-Davidson motorcycles). Typically, they categories are associated with some degree of liking or disliking. To the exten that the product can be assigned membership in the particular category, it will receive an evaluation similar to that attached to the catefory. If you go to the grocery store and see a new organic food on the shelf, you may evaluate it on your liking and opinions of organic good.
- When consumers relay on a categorization proces, a product's evaluation depends on the particular catefory to which it is perceived as belonging. Give this, companies need to understand whether consumers are using catergories that evoke the desired evaluations. How a product is catergorized can strongly influence consumer demand. EX: what products come to mind when you think about the "morning beverage" category? To the soft drink industry's dismay, far too few consumers include sodas in this category. Several attempts have been made at getting soft drinks on the breakfast table, but with little success.
- Brand extensions, in which a well-known and respected brand name from one product catefory is extended into other product catefories, is one way companies employ categorization to their advantage. Brand extentions are a common business practive, J.Crew and Urban Outfitters are both extending the aesthetic of ther clothing brands into bridal by launching wedding stores that sell weding dresses, bridal accessories, and other bridal needs. Similarly, Collective Brands, which owns Payless ShoeSource, has teamed with Maesa Group, a cosmetics company that designs and manufactures products for retailers and beauty brands, to offer beauty and body care products at Payless stores.
Step 4. Purchase (Consumer Decision Making Process)
To buy or not to buy. What specifically must consumers decide?
- 1. whether to buy
- 2. when to buy
- 3. what to buy (product type and brand)
- 4. where to buy (type of retailer, specific retailer, online or in store)
- 5. how to pay
- When a person is buying an expensive or complex item, it is often a fully planned purchase based upon a lot of information. People rarely buy a new home simply on impulse. Often consumers will make a partially planned purchase when they know the product catefory they want to buy (shirt, pants, reading lamp, car flor mats) but wait until they get to the store to choose a specific style or brand. There is the unplanned purchase, which people buy on impulse. Research has found that up to 68 percent of the items bought during major shopping trips and 54 percent on smaller shopping trips are unplanned.
Step 5. Postpurchase Behavior (Consumer Decision Making Process) **Dissonance
- When buying products, consumers expect certain outcomes from the purchase. How well these expectations are met determines whether the consumer is satisfied or dissatisfied with the purchase. EX: if a person bids on a used car stereo from eBay and wins, he may have fairly low expectations regarding performance. If the stereo's performance turns out to be superior quality, they the person's satisfaction will be high because this expectations were exceeded. Conversly, if the person bid on a new car stereo expectation superior quality and performance, but the stereo broke within one month, he would be very dissatisfied because his expectations were not met. Price oftem influences the level of expectations for a product or service.
- For the marketer, an important element of any postpurchase evaluation is reducing any lingering doubts that the decision was sound. When people recognie inconsistency between thier values or opinions and their behavior, they tend to feel an inner tension called cognitive dissonance. EX: say someone is looking to upgrade her cellphone to a new Android. For $299, she can get a Samsung Galaxy S II with a two year contract, a dual core processor, all the up to date features. Or for 249 she can buy the Thunderbokt by HTC, which runs Flash and has two cameras and one well above average processor. Prior to choosing the Samsung Galaxy S II, the shopper may experience inner tension or anxiety because she is worried that the current top of the line technology, which costs much more than the middle of the line technoligy, will be obsolete in a couple of months. That feeling of dissonance arises as her worries over obssolesecence battle her practical bature, which is focused on the lower cost of the Thunderbolt and its adequate - but less fancy - technology.
- Consumers try to reduce dissonance by justifying thier decision. They may seek new information that reinforces positive ideas about the purchase, avoid information that contradicts their decision, or revoke the original decision by returing the product. To ensure satisfaction, thereby reducing dissonance, the customer buying the Samsung, may talk to people who have the phone, read online reviews, and talk to her provider to obtain additional information. In some instances, people deliberately seek contrary information in order to refute it and reduce dissonance. Dissatidfied customers sometimes rely on word of mouth to reduce cognitive dissonance by letting friends and family know they are displeased.
- Marketing managers can help reduce dissonance through effective communication with purchasers. EX: a customer service manager may slip a note inside the package congratulating the buyer on making a wise decision. Postpurchas letters sent by manufacturers and dissonance reducing statements in instruction bookslets may help customers feel at ease with their purchase. Advertising that displays the products superiority over competing brands or guarantees can also help relieve the possible dissonance of someone who has already bought the product. Inthe case of the cell phone, Samsung's web site, offers in depth technology specifications about the different Samsung phones in the Galaxy line. Because the decision to purchase the top of the line technology suggests the customer is influenced by technology, a web site with detailed specifications is likely to reduce dissonance and exceed her expectations.
3 types of Consumer Buying Decisions and Consumer Involvement
All consumer buying decisions generally fall along a continuum of three broad categories: routine reponse behavior, limited decision making, and extensive decision making.
Goods and services in these three categories (routine reponse behavior, limited decision making, and extensive decision making) can best be described in terms of five factors:
level of consumer involvement, length of time to make a decision, cost of the good or service, degree of information search, and the number of alternatives considered.
is the amount of time and effor a buyer invests in the search, evaluation, and decision processes of consumer behavior. The level of consumer involvement is perhaps the most significan determinant in classifying buying decisions.
1. Routine Response Behavior (3 types of Consumer Buying Decisions and Consumer Involvement)
These goods and services can also be called low involvement products because consumers spend little time on search and decision before making the purchase. Usually, buyers are familiar with several different brands in the product category but stick with one brand. EX: a person may routinely by Tropicana orange juice. Consumers engaged in routine response behavior normally don't experience need recognition until they are exposed to advertising or see the product displayed on the store shelf. Consumers buy first and evaluate later, whereas the reverse is true for extensive decision making. A consumer who has previously purchased a whitenning toothpaste and was satisfied with it will probably walk to the toothpaste aisle and select that same brand without spending 20 minutes examings all other alternatives.
2. Limited decision making (3 types of Consumer Buying Decisions and Consumer Involvement)
typically occurs when a consumer has previous product experience but is unfamiliar with the current brands available. Limited decision making is also associated with lower levels of involvement (although higher than routine decisions) because consumers expend only moderate effor in searching for information or in considering various alternatives. But what happens if the consumer's usual brand of whitening toothpaste is sold out? Assuming that toothpaste is needed, the consumer will be forced to choose another brand. Before making a final decision, the consumer will likely evaluate several other brands based on their active ingredients, their promotional claims, and the consumer's prior experiences.
3. Extensive Decision Making (3 types of Consumer Buying Decisions and Consumer Involvement)
consumers practice when buying an unfamiliar, expensive product or an infrequently bought item. This process is the most complex type of consumer buying decision and is associated with high involvement on the part of the consumer. These consumers want to make the right decision, so they want to know as much as they can about the product category and available brands. People usually experience the most cognitive dissonance when buying high involvement products. Buyers use several criteria for evaluating their options and spend much time seeking information. Buying a home or a car, requires extensive decision making.
When do consumer buying decisions change?
The type of decision making that consumers use to purchase a product does not necessarily remain constant. If a routinely purchased product no longer satifies, consumers may practice limited or extensive decision making to switch to another brand. An people who first use extensive decision making may then use limited or routine decision making for future purchases. EX: when a family gets a new puppy, they will spend a lot of time and energy trying out different toys to determine which on the dog prefers. Once the new owners learn that the dog prefers a bone to a ball, however, the purchase no longer requires extensive evaluation and will become routine.
Continuum of Consumer Buying Decisions
4 Factors Determining the Level of Consumer Involvement.
Previous Experience, Interest, Preceived risk of negative consequences, Financial risk, Social risks, Psychological risks, Social Visiability
1. Previous Experience (Factors Determining the Level of Consumer Involvement)
When consumers have had previous experience with a good or service, the level of involvement typically decreases. After repeated product trials, consumers learn to make quick choices. Because consumers are familiar with the product and know whether it will satisfy their needs, they become less involved in the purchase. EX: a consumer purchasing cereal has many brans to choose from - just think of any grocery store cereal aisle. If the consumer always buys the same brand because it satisfies his hunger, then he has a low level of involvement. When a consumer purchases cereal for the first time, however, it likely will be a much more involved purchase.
2. Interest (Factors Determining the Level of Consumer Involvement)
Involvement is directly related to consumer interests, as in cars, music, movies, bicycling, or electronics. Naturally, these areas of interest vary from on individual to another. A person highly involved in bike racing will be more interested in the type of bike she owns and will spend quite a bit of time evaluating different bikes. If a person wants a bike only for recreation, however, he may be fairly uninvolved in the purchase and just look for a bike from the most convenient location.
3. Perceived risk of negative consequences. (Factors Determining the Level of Consumer Involvement)
- As the preceived risk in purchasing a product increases, so does a consumer's level of involvement. They types of risks that concern consumers include financial risk, social risk, and psychological risk.
- Fiancial Risk: Is exposure to loss of wealth or purchasing power. Because high risk is associated with high priced purchases, consumers tend to become extremely involved. Price and involvement are usually directly relatedL as price increases, so does the level of involvement. EX: someone who is purchasing a new car for the first time (higher perceived risk) will spend a lot of time and effort making this purchase. Financial risk may carry greater weight today because of the Great Recession of 2008-2009. The loss of jobns and potential los of jobs meant that prices did not necessarliy have to be high to have high involvement. One study found that consumers are not only buying less but want brands to offer proof of value - 73 percent of consumers would rather have a few, high-quality items. The recession has created more value driven shoppers - more than 90 percent of consumers use coupons, shop at discount stores and buy store brands.
- Social risks: occur when consumers buy products that can affect people's social opinions of them. EX driving an old, beat up car or wearing unstylish clothes.
- Psychological Risks: occur if consumers feel that making the wrong decision might cause some concern or anxiety. EX: some consumers feel guilty about eating foods that are not healthy, such as regular ice bream rather than fat free frozen yogurt
4. Social Visibility (Factors Determining the Level of Consumer Involvement)
involvement also increases as the social visibility of a product increases. Products often on social display include clothing (especially designer labels) jewelry, cars, and furniture. All these items make a statement about the purchaser and, therefore, carry a social risk.
What are the 5 Different roles of High Involvement?
Product involvement, situational involvement, shopping involvement, enduring involvement, emotional involvement
1. Product Involvement (5 Different roles of High Involvement)
means that a product category has high personal relevance. Produc enthusiasts are consumers with high involvement in a product category. The fashion industry has a large segment of product enthusiasts. These people are seeking the latest fashion trends and want to wear the latest clothes.
2. Situational Involvement (5 Different roles of High Involvement)
Means that the circumstances of a purchase may temporarily transform a low involvement decision into a high involvement one. High involvement comes into play when the consumer preceives risk in a specific situation. EX: an individual might routinely buy low priced brans of liquor and wine. When the boss visits, the consumer might make a high involvement decision and buy more presitigious brands.
3. Shopping involvement (5 Different roles of High Involvement)
represents the personal relevance of the process of shopping. Some people simply love shopping whether they buy anything or not. These highly involved shoppers are more likely to process information about deals and more likely to react to price reductions and limited offers. They are also more likely to leave slack in their budgets to make unplanned purchases when on a shopping excursion.
4. Enduring involvement (5 Different roles of High Involvement)
an ongoing interest in some product or activity. The consumer is always searching for opportunities to consume the product or participate in the activity. Enduring involvement typically gives personal gratification to consumers as they continue to learn about, shop for, and consume these goods and services. Therefore, there is often linkage between involvement and shopping and product involvement.
53. Emotional Involvement (5 Different roles of High Involvement)
Represents how emotional a consumer gets during some specific consumption activity. Emotional involvement is closely related to enduring involvement because the things that consumers care most about will eventually create high emotional involvement. Sports fans typify consumers with high emotional involvement. Recall the outpouring of emotion at the recent World Cup Soccer Tournament in South Africa.
What are marketing implications of imvolvement?
- Marketing strategy varies according to the level of involvement associated with the product. For high involvement product purchases, marketing managers have several responsibilities.
- 1) promotion to the target market should be extensive and informative. A good ad gives consumers the information they need for making the purchase decision and specifies the benefits and unique advantages of owning the product. EX: Ford has a vehicle with many custom options that is marketed to small business owners. Ex: is a Ford Transit Connect to help him have better efficiency for his home theater and electronics installation business. For highlights the fact that unique businesses need unique and customizable transportation. This ad not only demonstrates the customers satisfaction, but also shows the hauling capacity of the vehicle.
- 2) For low involvement product purchases, consumers may not recognize their wants until they are in the store. In store promotion is an important tool when promoting low involvement products. Marketing managers focus on package design so the product will be eye catching and easily recognized on the shelf. Ex: of products that take this approach are Campbell's soups, Tide, Velveeta, Heinz. In store displays also stimulate sales of low involvement products. A good display can explain the product's purpose and prompt recognition of a want. Displays of health and beauty aid items in supermarkets have been know to increase sales many times above normal. Coupons, cents of deals, and two for one offers also effectively promote low involvement items.
- 3). Linking a product to a higher involvement issue is another tactic that marketing managers can use to increase the sales or positive publicity of a low involvement product.. PepsiCO channeled the money usually spent on Super Bowl ads ($3 milion for 30 seconds) into the Pepsi Refresh Product, a grant program designed to fund people's ideas to improve their communities. To participate, people pitch their ideas on the web, where site visitors vote of proposals. The projects that receive the most votes each month are each awarded a grant of $5000 to $250000. Funded projects range from pajamas for babies to self defense classes for women.
What are factors influencing consumer buying decisions?
The consumer decision making process does not occur in a vacuum. On the contrary, underlying cultural, social, individual, and psychological factors strongly influence the decision process. These factors have an effect from the time a consumer perceives a stimulus through postpurchas behavior. Cultural factos, which include culture and values, subculture, and social factors sum up the social interactions between a consumer and influential groups of people, such as reference groups, opinion leaders, and family members. Individual factors, which include gender, age, family life cycle stage, personality, self concept, and lifestyle, are unique to each individual and play a major role in the type of products and services cuonsumers want. Psychological factors determin how consumers perceive and interact with their environments and influence the ultimate decisions consumers make. They include perception, motivation, learning, beliefs, and attitudes.
- Social Factors: Reference groups, Opinion leaders, family
- Individual Factors: gender, age and family life cycle stage, personality, self concept, and lifestyle
- Cultural factors: culture and values, subculture, social class
- Psychological Factors: perception, motivation, learning, beliefs and attitudes
1. Cultural influences: consumer buying decisions.
- Of all the factors that affect consumer decision making, cultural factors exert the broadest and deepest influence. Marketers must understand the way people's culture and its accompanying values, as well as their subculture and social class, influence their buying behavior.
- Culture is the essential character of a society that distinguishes it from other cultural groups. The underlying elements of every culture are the values, language, myths, customs, rituals, and laws that shape the behavior of people, as well as the material arifacts, or products, of that behavior as they are transmitted from on generation to the next.
- Cutlure is pervasive. Cultural values and influences are the ocean in which individuals swim, and yet most are completely unaware that it is there. What people eat, how they dress, what they think and feel, and what language they speak are all dimensions of culture. It encompasses all the things consumers do without conscious choice because their culture's values, customs, and rituals are ingrained in their daily habits.
- Culture is functional. Human interaction creats values and prescribes acceptable behavior for each culture. By establishing common expectations, culture gives order to society. Sometimes these expectations are enacted into laws. EX: drivers in our vulture must stop at a red light. Other times these expectations are taken for granted: Grocery stores and hospitals are open 24 hours, whereas banks open during bankers' hours.
- Culture is learned. COnsumers are not born knowing the values and norms of their society. Instead, they must learn what is acceptable from family and friends. Children learn the values that will govern theri behavior from parents, teachers and peers. As members of our society, they learn to shake hands when they greet someone, to drive on the right hand side of the road, and to eat pizza and drink coke.
- Culture is dynamic. It adapts to changing needs and elvolving environments. The rapid growth of technology in today's workd has accelerated the rate of cultural change. Television has changed entertainement patterns and family communication and has heightened public awareness of political and other news events. Automation has increased the amount of leisure time we have and, in some ays, has changed the traditional work ethic. Cultural norms will continute to evolve because of our need for social patterns that solve problems.
- The most defining element of a culture is its values. A value is an enduring belief shared by a society that a specific mode of conduct is personally or socially preferable to another mode of conduct. Peoples value systems have a great effect on their consumer behavior. Consumers with similar value systems tend to react alike to prices and other marketing related inducements. Values also correspond to consumption patterns. EX: Americans place a high value on convenience. This value has created lucrative markets for products such as breakfast bars, energy bars, and nutrition bars that allow consumers to eat on the go. Values can also influence consumers' television viewing habits or magazines they read. EX: people who strongly object to violvence avoid crime shows, and those who oppose pornography do not buy Hustler.
Understanding Cultural Differences
- As more companies expand their operations globally, the need to understand cultures of foreign countries becomes more important. A firm has little chance of selling products in a culture that it does not understand. Like people, products have cultural values and rules that influence their perception and use. Culture, must be understood before the behavior of individuals within the cultural context can be understood. EX: colors may have differnt meanings in global markets than they do at home. In China, white is the color of mourning and brides wear red. In the US, black is mourning and brides wear white.
- Language is another importants aspect of culture that flobal marketers must consider. When translating product names, dlogans, and promotional messages into foreign languages, they must be careful not to convey the wrong message. GM discovered too late that Nova (the name of an economical car) literally means "doesn't go" in Spanish; Cors encouraged its English-speaking customers to "turn it loose," but the phrase in Spanish means, "Suffer from diarrhea."
- Although marketers expanding into global markets generally adapt their products and business formats to local culture, some fears that increasing globalization as well as the proliferation of Internet, will result in homogeneous world culture of the future. US companies in particular, they fear, are Americanizing the workd by exporting bastions of American culture, such as McDonalds fast food, Starbucks, Microsoft software, and American movies and entertainment.
- A culture can be divided into subcultures on the basis of demographic characteristics, geographic regionds, national and ethnic background, political beliefs, and religious beliefs. A subculture is a homogeneous group of people who share elements of the overall culture as well as cultural elements unique to their own group. Within subcultures, people's attitudes, values, and purchase decisions are enven more similar than they are within the broader culture. Subcultural differences may result in considerable variation within a culture in what, how, when and where people buy goods and services.
- In the US alone, countless subcultures can be identified. Many are concentrated geographically. EX: People who belong to the Mormans, are clustered mainly in Uta; Cajuns ar elocated in the bayou regions of southern Louisiana. Many hispanics live in states borderign Mexico, whereas the majority of Chinese, Japanese, and Korean Americans are found on the west coast. Other subcultures are geographically dispersed. Computer hackers, people who are hearing or visually impared, Harley-davidson bikers, military families, university professors, and gays may be found throughout the country. Yet they have identified attitudes, values, and needs that distinguish them from larger culture.
- Once marketers identify subcultures, they can design special marketing to serve their needs. Some companies launch simultaneous campaigns to reach different subcultures. According to the US census Bureau, the Hispanic population is the largest and fastest growing subculture, increasing four times as fast as the general population. To tap into this large and geowing segment, marketers have been forming partnerships with broadcasters that have an established Latino audience. The Univision Radio network covers approx 73 percent of the US hispanic population and has over 10 million listeners weekly. MocoSpace is a youthful multicultural social networking toold developed for people without traditional Internet access who have a feature phone, which is a cell phone with less connectivity than a Smartphone. The phone only approach appeals to the 87 percent of African Americans and Latinos who own cell phones. MocoSpace is projected to earn $10 mill this year, mainly from advertising directed at Latinos and African Americans. It has had successful campaigns with Kmart back to school, Spike TV, and the US Census.
- The US, like other societies, has a social class system. A social class is a group of people who are considered nearly equal in status or community esteem, who regulary socialize among themselves both formally and informally, and who share behavioral norms.
- A number of techniques have been used to measure social class, and a number of criteria have been used to define it. The upper and upper middle class comprise the small segment of affluent and ealthy Americans. Interms of consumer buying patterns, the affluent are more likely to own their own home and purchase new cars and trucks and are less likely to smoke. The very rich flex their financial muscles by spending more on vaction homes, vacations an cruises, and housekeeping and gardening services. The most affluent consumers are more likely to attend art auctions and galleries, dance performances, operas, the theater, museums, concerts, and sporting events. Marketers often pay attention to the superwealthy collectors with books sporting price tags that rival original artwork. EX: ten limited edition copies of an autobiography by Indian cricket star Achin Tendulkar feature a page with his blood mixed into a paper pulp. Even though a copy of the book costs $75000, all ten sold. Taschen, another novelty publisher, sold pieces of the moon with 12 copies of its photography book of the lunar landing for 112500.
- The majority of Americans today define themselves as middle class, regardless of their actual income or educational attainment. This phenomenon most likely occurs because working class Americans tend to aspire to the middle class lifestyle, while some of those who do achieve may downwardly aspire to respectable middle class statuse as a matter of principle.
- The working class is a distinct subset of the middle class. Interest in organized labor is one of the most common attributes among the working class. This group often rates job security as the most important reason for taking a job. The working class person depends heavily on relatives and the community for economic and emotional support.
- Lifestyle distinctions between the social classes are greater than the distinctions within a given class. The most significant differnence between the classes occurs between the middle and lower classes, where there is a major shift in lifestyles. Members of the lower class have incomes at or below the poverty level.
- Social class is typically measured as a combination of occupation, income, education, wealth, and other variables. EX: affluent upper class consumers are more likely to be salaried executives or self employed professionals with at least an undergraduate degree. Working class or Middle class consumers are more likely to be hourly service workers or blue collar employeeds with only a high school education. Educational attainment, seems to be the most reliable indicator of a persons social and economic status. Those with college degrees or graduate degrees are more likely to fall into the upper classes, while those people with some college experience fall closest to traditional concepts of the middle class.
- Marketers are interested in social class for two main reason.
- 1) social class often indicates which medium to use for advertising. EX: an insurance company seeks to sell its policies to middle class families. It might advertise during the local evening news because middle class families tend to watch more television than other classes do. If the company wanted to sell more polieces to upscale individuals, it might place an ad in a business publication like the Wall Street Journal. The internet, long the domain of more educated and addluent families, is becoming an increasingly important advertising outlet for advertisers hoping to reach blue collar workers and homemakers. As the middle class rapidly adopts the medium, marketers have to do more research to find out which websites will reach their audience.
- 2) knowing what products appeal to which social classes can help marketers determine where to best distribute their products. Addluent Americans, a fifth of the US population, have changed their buying habits since the recession. They now are willing to spend more of their dicretionary income on travel, but wnat to pay a large price only for unique one of a kind items. They also don't think less of a brand that purts items on sale - a major shift in a group of consumers who have traditionally viewed items that don't go on sale as an idication of quality.
- For the first time in a long while, industry analysts are seeing discount chains faring better than their full priced and upscale counterparts. These days, analysts say the big box and discount retailers greatest challeng has been courting consumers who fall in the middle income level. The results is a fiercely competitive retail envoironment where discount retailers have focused less on their core low income consumers, whare most affected by rising housing and gas costs. Overall discount chains fared better during the Great Recession because more affluent customers traded down to obtain more value for their money. Harrison Group researchers discovered that Target and Costco were wealthy consumers favorite stores.
Social Influences on Consumer Buying Decisions
Many consumers seek out the opinions of others to reduce their search and evaluation effort or uncertainty, especially as the perceived risk of the decision increases. Consumers may also seek out others’ opinions for guidance on new products or services, products with image-related attributes, or products for which attribute information is lacking or uninformative. Specifically, consumers interact socially with 1) reference groups, 2) opinion leaders, and 3) family members to obtain product information and decision approval.
1) Reference Groups (Social Influences on Consumer Buying Decisions)
For marketers, reference groups have three important implications:
(1) They serve as information sources and influence perceptions; (2) they affect an individual's aspiration levels; and (3) their norms either constrain or stimulate consumer behavior.
- People interact with many reference groups. A reference group consists of all the formal and informal groups that influence the buying behavior of an individual. Consumers may use products or brands to identify with or become a member of a group. They learn from observing how members of their reference groups consume, and they use the same criteria to make their own consumer decisions. Reference groups can be categorized very broadly as either direct or indirect (see Exhibit 6.5). Direct reference groups are face to face membership groups that touch people's lives directly.
- They can be either primary or secondary. A primary membership group includes all groups with which people interact regularly in an informal, face-to-face manner, such as family, friends, and co-workers. Today, they may also communicate by mail, text messages, Facebook, Skype, or other electronic means.
- In contrast, people associate with a secondary membership group less consistently and more formally. These groups might include clubs, professional groups, and religious groups.Consumers also are influenced by many indirect, nonmembership reference groups to which they do not belong.
- An aspirational reference group is a group a person would like to join. To join an aspirational group, a person must at least conform to the norms of that group.
- (A norm consists of the values and attitudes deemed acceptable by the group.) Thus, a person who wants to be elected to public office may begin to dress more conservatively, as other politicians do. He or she may go to many of the restaurants and social engagements that city and business leaders attend and try to play a role that is acceptable to voters and other influential people. Similarly, teenagers today may dye their hair and experiment with body piercing and tattoos. Athletes are an aspirational group for several market segments. To appeal to the younger market, Coca-Cola signed basketball star LeBron James to be the spokes-person for its Sprite and Powerade brands, and Nike signed a sneaker deal with him reportedly worth $90 million. Coca-Cola and Nike assumed James would encourage consumers to drink Coke brands and buy Nike shoes because they would like to identify with him.
- Nonaspirational reference groups , or dissociative groups, influence our behavior when we try to maintain distance from them. A consumer may avoid buying some types of clothing or cars, going to certain restaurants or stores, or even buying a home in a certain neighborhood in order to avoid being associated with a particular group.The activities, values, and goals of reference groups directly influence consumer behavior.
- For marketers, reference groups have three important implications: (1) They serve as information sources and influence perceptions; (2) they affect an individual's aspiration levels; and (3) their norms either constrain or stimulate consumer behavior. EX: research firms devoted to uncovering what's cool in the teen market have identified a couple of influential groups among today's teens based on their interests in clothes, music, and activities. Tracking these groups reveals how products become cool and how groups influence the adoption of cool products by other groups. A trend or fad often starts with teens who have the most innovative tastes. These teens are on the cutting edge of fashion and music, and they wear their attitude all over their bodies in the form of tattoos, body piercings, studded jewelry, or colored tresses. Certain fads embraced by these “Edgers” will spark an interest in the small group of teens researchers call “Influencers,” who project the look other teens covet. Influencers also create their own trends in music and clothing choices. Once a fad is embraced and adopted by Influencers, the look becomes cool and desirable. The remaining groups that comprise the majority of the teen population will not embrace a fad until it gets its seal of approval from the Influencers.
- Research has shown that reference groups are particularly powerful in influencing purchases of fragrances, wine, snack food, candy, clothing, and sodas.19 LG Electronics and General Electric are using the sustainable green living movement as a reference group to encourage green homeowners to functionally and stylistically “keep up with the Joneses.” Once hidden away, boilers and water heaters are now designed to be aesthetically pleasing as well as energy efficient. After purchasing an expensive solar-powered water heater, homeowners want to show it off, so it must be stylish. In-room air conditioners look like sculptures, and the Everun water heater has a shelf that hides wires and holds decorative objects. Some consumers even consider the mechanical room to be like a wine cellar or library—a place to demonstrate how you fit in with your peers and the eco-friendly movement.
- 20 People with well-formed networks of somewhat overlapping reference groups and those with strong personal values are less susceptible to reference group influences.
2. Opinion Leaders (Social Influences on Consumer Buying Decisions)
- Reference groups frequently include an individual known as a group leader, or opinion leader —a person who influences others. Obviously, it is important for marketing managers to persuade such people to purchase their goods or services. Many products and services that are integral parts of Americans’ lives today got their initial boost from opinion leaders. For example, Kindles and iPads were purchased by opinion leaders well ahead of the general public. Opinion leaders are often the first to try new products and services out of pure curiosity. They tend to possess more accurate knowledge and to be more innovative. 22 Technology companies have found that teenagers, because of their willingness to experiment, are key opinion leaders for the success of new technologies. Opinion leadership is a casual phenomenon and is usually inconspicuous, so locating opinion leaders can be a challenge. Thus, marketers often try to create opinion leaders. They may use high school cheerleaders to model new fall fashions or civic leaders to promote insurance, new cars, and other merchandise. On a national level, companies sometimes use movie stars, sports figures, and other celebrities to promote products, hoping they are appropriate opinion leaders. The effectiveness of celebrity endorsements varies, though, depending largely on how credible and attractive the spokesperson is and how familiar people are with him or her. Endorsements are most likely to succeed if a reasonable association between the spokesperson and the product can be established.
- Respected organizations such as the American Heart Association and the American Cancer Society may also serve as opinion leaders. Marketers may seek endorsements from them as well as from schools, churches, cities, the military, and fraternal organizations as a form of group opinion leadership. Salespeople often ask to use opinion leaders’ names as a means of achieving greater personal influence in a sales presentation. Increasingly, marketers are looking to blogs to find opinion leaders, but the sheer volume of blogs makes determining true opinion leaders challenging. So, marketers are focusing their attention on teen blogs because those blogs better identify the social trends that are shaping consumer behavior. With their unprecedented ability to network and communicate with each other, young people rely on each others’ opinions more than marketing messages when making purchase decisions. And blogs are becoming a key way that teens communicate their opinions.
- Consequently, today's marketers are reading teen blogs, developing products that meet the very specific needs that teens express there, and learning unique and creative ways to put key influencers in charge of marketing their brands for them. Marketers are also using other social networking and online media to determine and attract opinion leaders.
3. Family (Social Influences on Consumer Buying Decisions)
- The family is the most important social institution for many consumers, strongly influencing values, attitudes, self-concept, and buying behavior. EX: a family that strongly values good health will have a grocery list distinctly different from that of a family that views every dinner as a gourmet event.
- Moreover, the family is responsible for the socialization process , the passing down of cultural values and norms to children. Children learn by observing their parents’ consumption patterns, so they tend to shop in similar patterns. Decision-making roles among family members tend to vary significantly, depending on the type of item purchased. Family members assume a variety of roles in the purchase process.
- Initiators suggest, initiate, or plant the seed for the purchase process. The initiator can be any member of the family. EX, Sister might initiate the product search by asking for a new bicycle as a birthday present.
- Influencers are those members of the family whose opinions are valued. In our example, Mom might function as a price-range watchdog, an influencer whose main role is to veto or approve price ranges. Brother may give his opinion on certain makes of bicycles. The decision maker is the family member who actually makes the decision to buy or not to buy. EX, Dad or Mom is likely to choose the final brand and model of bicycle to buy after seeking further information from Sister about cosmetic features such as color and then imposing additional criteria of his or her own, such as durability and safety. The purchaser (probably Dad or Mom) is the one who actually exchanges money for the product. Finally, the consumer is the actual user—Sister, in the case of the bicycle.
- Marketers should consider family purchase situations along with the distribution of consumer and decision-maker roles among family members. Ordinary marketing views the individual as both decision maker and consumer. Family marketing adds several other possibilities: Sometimes more than one family member or all family members are involved in the decision, sometimes only children are involved in the decision, sometimes more than one consumer is involved, and sometimes the decision maker and the consumer are different people. In most households, when parental joint decisions are being made, spouses consider their partner's needs and perceptions to maintain decision fairness and harmony. This tends to minimize family conflict. Research also shows that in harmonious households, the spouse who has “won” a previous decision is less likely to use strong influence in a subsequent decision. This balancing factor is key in maintaining long-term family harmony. Children can have great influence over the purchase decisions of their parents. In many families, with both parents working and short on time, children are encouraged to participate. In addition, children in single-parent households become more involved in family decisions at an earlier age. Children influence purchase decisions for many products and services. They are most influential in purchase decisions for products with which they will be directly involved or will be the primary user. Among the products about which children exhibit greatest influence are breakfast cereal, juice, mobile phones, and soft drinks. Children also often participate in decisions about many other products, including toys, clothes, vacations, recreation, and automobiles, even though they usually are not the actual purchasers of such items. What if those children happen to be teenagers? There are 20 million U.S. teens, and half of them receive as much as $39 a week. Teen spending power amounts to more than $200 billion, a significant amount of money for a group that is willing to spend. Traditionally, children learned about consumption from their parents. In today's technologically overloaded world, that trend is reversing. Teenagers and adult children often contribute information and influence the purchase of parents’ technology products. Often they even help with installation and show the parents how to use the product!
Individual Influences on Consumer Buying Decisions pg 101
A person's buying decisions are also influenced by personal characteristics that are unique to each individual, such as gender; age and life cycle stage; and personality, self-concept, and lifestyle. Individual characteristics are generally stable over the course of one's life. For instance, most people do not change their gender, and the act of changing personality or lifestyle requires a complete reorientation of one's life. In the case of age and life cycle stage, these changes occur gradually over time
1. Gender (Individual Influences on Consumer Buying Decisions)
Physiological differences between men and women result in different needs, such as health and beauty products. Just as important are the distinct cultural, social, and economic roles played by men and women and the effects that these have on their decision-making processes. EX: the wedding industry is overwhelmingly focused on brides and what they want. But Chris Easter and Bob Horner thought that the groom should be able to register for gifts he would like as well. So they began The Man Registry (www.themanregistry.com ), a Web site with thousands of guy-friendly gifts for which grooms can register. The Man Registry also offers advice to grooms about groomsmen gifts and local vendors. Trends in gender marketing are influenced by the changing roles of men and women in society. EX, men used to rely on the women in their lives to shop for them. Today, however, more men are shopping for themselves. Fifty-seven percent of men shopped online in 2007, up from 38 percent in 2006. In 2009, 7.4 percent of fathers with children younger than 18 years stayed at home while their wives worked. That is the highest recorded percentage, up 2 percentage points from 2008. Whether because of the advent of online shopping or retailers becoming aware of the way men like to shop, today more men are comfortable shopping for themselves. A study commissioned by GQ found that 84 percent of men said they purchased their own clothes, up from 65 percent four years earlier. On the other hand, technology companies are working to develop new high-tech products that resonate with women. EX Barnes & Noble's Nook was rated more highly by women than Apple's iPad. A campaign featuring women's magazines and greater availability of titles loved by women on the Nook (not to mention the purse-friendly size) have given Barnes & Noble the edge on the coveted female tech market.
1. Gender (Individual Influences on Consumer Buying Decisions)
Physiological differences between men and women result in different needs, such as health and beauty products. Just as important are the distinct cultural, social, and economic roles played by men and women and the effects that these have on their decision-making processes. EX: the wedding industry is overwhelmingly focused on brides and what they want. But Chris Easter and Bob Horner thought that the groom should be able to register for gifts he would like as well. So they began The Man Registry (www.themanregistry.com ), a Web site with thousands of guy-friendly gifts for which grooms can register. The Man Registry also offers advice to grooms about groomsmen gifts and local vendors. Trends in gender marketing are influenced by the changing roles of men and women in society. EX, men used to rely on the women in their lives to shop for them. Today, however, more men are shopping for themselves. Fifty-seven percent of men shopped online in 2007, up from 38 percent in 2006. In 2009, 7.4 percent of fathers with children younger than 18 years stayed at home while their wives worked. That is the highest recorded percentage, up 2 percentage points from 2008. Whether because of the advent of online shopping or retailers becoming aware of the way men like to shop, today more men are comfortable shopping for themselves. A study commissioned by GQ found that 84 percent of men said they purchased their own clothes, up from 65 percent four years earlier. On the other hand, technology companies are working to develop new high-tech products that resonate with women. EX Barnes & Noble's Nook was rated more highly by women than Apple's iPad. A campaign featuring women's magazines and greater availability of titles loved by women on the Nook (not to mention the purse-friendly size) have given Barnes & Noble the edge on the coveted female tech market.
2. Age and Family Life Cycle Stage (Individual Influences on Consumer Buying Decisions)
The age and family life cycle stage of a consumer can have a significant impact on consumer behavior. How old a consumer is generally indicates what products he or she may be interested in purchasing. Consumer tastes in food, clothing, cars, furniture, and recreation are often age related. Related to a person's age is his or her place in the family life cycle. As Chapter 8 explains in more detail, the family life cycle is an orderly series of stages through which consumers’ attitudes and behavioral tendencies evolve through maturity, experience, and changing income and status. Marketers often define their target markets in terms of family life cycle, such as “young singles,” “young married couples with children,” and “middle-aged married couples without children.” EX, young singles spend more than average on alcoholic beverages, education, and entertainment. New parents typically increase their spending on health care, clothing, housing, and food and decrease their spending on alcohol, education, and transportation. Households with older children spend more on food, entertainment, personal care products, and education, as well as cars and gasoline. After their children leave home, spending by older couples on vehicles, women's clothing, health care, and long-distance calls typically increases. For instance, the presence of children in the home is the most significant determinant of the type of vehicle that's driven off the new car lot. Parents are the ultimate need-driven car consumers, requiring larger cars and trucks to haul their children and all their belongings. It comes as no surprise then that for all households with children, SUVs rank either first or second among new-vehicle purchases, followed by minivans. Marketers should also be aware of the many non-traditional life cycle paths that are common today and provide insights into the needs and wants of such consumers as divorced parents, lifelong singles, and childless couples. Three decades ago, married couples with children under the age of 18 accounted for about half of U.S. households. Today, such families make up only 23 percent of all households, while people living alone or with nonfamily members represent more than 30 percent. Furthermore, according to the U.S. Census Bureau, the number of single-mother households grew by 25 percent over the last decade. The shift toward more single-parent households is part of a broader societal change that has put more women on the career track. Although many marketers continue to be wary of targeting nontraditional families, Charles Schwab targeted single mothers in an advertising campaign featuring Sarah Ferguson, the Duchess of York and a divorced mom. The idea was to appeal to single mothers’ heightened awareness of the need for financial self-sufficiency.
3. Life Events Age and Family Life Cycle Stage (Individual Influences on Consumer Buying Decisions)
Another way to look at the life cycle is to look at major events in one's life over time. Life-changing events can occur at any time. A few examples are death of a spouse, moving, birth or adoption of a child, retirement, job loss, divorce, and marriage. Typically, such events are quite stressful, and consumers will often take steps to minimize that stress. Many times, life-changing events will mean new consumption patterns. EX, a recently divorced person may try to improve his or her appearance by joining a health club and dieting. Someone moving to a different city will need a new dentist, grocery store, auto service center, and doctor, among other things. Marketers realize that life events often mean a chance to gain a new customer. The Welcome Wagon offers free gifts and services for area newcomers. Lowe's sends out a discount coupon to those moving to a new community. And when you put your home on the market, very quickly you start getting flyers from moving companies promising a great price on moving your household goods.
4. Personality, Self-Concept, and Lifestyle(Individual Influences on Consumer Buying Decisions)
Each consumer has a unique personality. Personality is a broad concept that can be thought of as a way of organizing and grouping how an individual typically reacts to situations. Thus, personality combines psychological makeup and environmental forces. It includes people's underlying dispositions, especially their most dominant characteristics. Although personality is one of the least useful concepts in the study of consumer behavior, some marketers believe personality influences the types and brands of products purchased. EX, the type of car, clothes, or jewelry a consumer buys may reflect one or more personality traits. Self-concept , or self-perception, is how consumers perceive themselves. Self-concept includes attitudes, perceptions, beliefs, and self-evaluations. Although self-concept may change, the change is often gradual. Through self-concept, people define their identity, which in turn provides for consistent and coherent behavior. Self-concept combines the ideal self-image (the way an individual would like to be perceived) and the real self-image (how an individual actually perceives himself or herself). Generally, we try to raise our real self-image toward our ideal (or at least narrow the gap). Consumers seldom buy products that jeopardize their self-image. EX, someone who sees herself as a trendsetter wouldn't buy clothing that doesn't project a contemporary image. Human behavior depends largely on self-concept. Because consumers want to protect their identity as individuals, the products they buy, the stores they patronize, and the credit cards they carry support their self-image. No other product quite reflects a person's self-image as much as the car he or she drives. EX, many young consumers do not like family sedans like the Honda Accord or Toyota Camry and say they would buy one for their mom but not for themselves. Likewise, younger parents may avoid purchasing minivans because they do not want to sacrifice the youthful image they have of themselves just because they have new responsibilities. To combat decreasing sales, marketers of the Nissan Quest minivan decided to reposition it as something other than a “mom mobile” or “soccer mom car.” They chose the ad copy “Passion built it. Passion will fill it up,” followed by “What if we made a minivan that changed the way people think of minivans?” By influencing the degree to which consumers perceive a good or service to be self-relevant, marketers can affect consumers’ motivation to learn about, shop for, and buy a certain brand. Marketers also consider self-concept important because it helps explain the relationship between individuals’ perceptions of themselves and their consumer behavior.Many companies now use psychographics to better understand their market segments. For many years, marketers selling products to mothers conveniently assumed that all moms were fairly homogeneous and concerned about the same things—the health and well-being of their children—and that they could all be reached with a similar message. But recent lifestyle research has shown that there are traditional, blended, and nontraditional moms, and companies like Procter & Gamble and Pillsbury are using strategies to reach these different types of mothers. Psychographics is also effective with other market segments. Psychographics and lifestyle segmentation are discussed in more detail in Chapter 8.
Psychological Influences on Consumer Buying Decisions pg 104
- Perception, Motivation, LearningBeliefs, and Attitudes
- An individual's buying decisions are further influenced by psychological factors: perception, motivation, learning, and beliefs and attitudes. These factors are what consumers use to interact with their world. They are the tools consumers use to recognize their feelings, gather and analyze information, formulate thoughts and opinions, and take action. Unlike the other three influences on consumer behavior, psychological influences can be affected by a person's environment because they are applied on specific occasions. EX, you will perceive different stimuli and process these stimuli in different ways depending on whether you are sitting in class concentrating on the instructor, sitting outside of class talking to friends, or sitting in your dorm room watching television.
1. Perception (Psychological Influences on Consumer Buying Decisions)
The world is full of stimuli. A stimulus is any unit of input affecting one or more of the five senses: sight, smell, taste, touch, and hearing. The process by which we select, organize, and interpret these stimuli into a meaningful and coherent picture is called perception . In essence, perception is how we see the world around us and how we recognize that we need some help in making a purchasing decision. People cannot perceive every stimulus in their environment. Therefore, they use selective exposure to decide which stimuli to notice and which to ignore. A typical consumer is exposed to more than 2,500 advertising messages a day but notices only between 11 and 20. The familiarity of an object, contrast, movement, intensity (such as increased volume), and smell are cues that influence perception. Consumers use these cues to identify and define products and brands. The shape of a product's packaging, such as Coca-Cola's signature contour bottle, can influence perception. Color is another cue, and it plays a key role in consumers’ perceptions. Packaged foods manufacturers use color to trigger unconscious associations for grocery shoppers who typically make their shopping decisions in the blink of an eye. Ampacet, a world leader in color additives for plastics, reported in 2007 that nature-inspired colors and organic values were becoming more popular as the economy and global focus shifted from the tech-boom to the bio- or eco-boom. Ecological consequences and concerns have resulted in marketing initiatives such as “going green.” Colors like natural greens, earthy browns, and strong yellows, as well as metallics such as steely silver, carbon black, gold, and copper, are popular for packaging. Color researchers speculate that technological overload has led to a resurgence in the appreciation of simple luxury. Color names for fabrics and makeup reflect that trend with names such as Grounded, Champagne Chic, and Serene Blue.32 What is perceived by consumers may also depend on the stimuli's vividness or shock value. Graphic warnings of the hazards associated with a product's use are perceived more readily and remembered more accurately than less vivid warnings or warnings that are written in text. “Sexier” ads excel at attracting the attention of younger consumers. Companies like American Apparel and Abercrombie & Fitch appeal to the 8-to-18 age group with ads that push the envelope by setting models in provocative poses and highlighting their intimates collections with push-up bras and panties saying “Eye Candy.”33 On the other hand, baby carrot farmers are using junk food packaging—or the perception of high-fat, much coveted food—to market baby carrots as a delicious snacking alternative. The campaign is aggressive and edgy, a stance marketers hope sticks to baby carrots, making them cool.34 Two other concepts closely related to selective exposure are selective distortion and selective retention. Selective distortion occurs when consumers change or distort information that conflicts with their feelings or beliefs. For example, suppose a college student buys a Microsoft Zune MP3 player. After the purchase, if the student gets new information about an alternative brand, such as an Apple iPod, he or she may distort the information to make it more consistent with the prior view that the Microsoft Zune is just as good as the iPod, if not better. Business travelers who fly often may distort or discount information about plane crashes because they must use air travel constantly in their jobs.Selective retention is remembering only information that supports personal feelings or beliefs. The consumer forgets all information that may be inconsistent. After reading a pamphlet that contradicts one's political beliefs, for instance, a person may forget many of the points outlined in it. Similarly, consumers may see a news report on suspected illegal practices by their favorite retail store but soon forget the reason the store was featured on the news.Which stimuli will be perceived often depends on the individual. People can be exposed to the same stimuli under identical conditions but perceive them very differently. For example, two people viewing a television commercial may have different interpretations of the advertising message. One person may be thoroughly engrossed by the message and become highly motivated to buy the product. Thirty seconds after the ad ends, the second person may not be able to recall the content of the message or even the product advertised.Marketing Implications of PerceptionMarketers must recognize the importance of cues, or signals, in consumers’ perception of products. Marketing managers first identify the important attributes, such as price or quality, that the targeted consumers want in a product and then design signals to communicate these attributes. For example, consumers will pay more for candy in expensive-looking foil packages. But shiny labels on wine bottles signify less expensive wines; dull labels indicate more expensive wines. Marketers also often use price as a signal to consumers that the product is of higher quality than competing products. Of course, brand names send signals to consumers. The brand names of Close-Up toothpaste, DieHard batteries, and Caress moisturizing soap, for example, identify important product qualities. Names chosen for search engines and sites on the Internet, such as Yahoo!, Amazon.com , and Excite, are intended to convey excitement, intensity, and vastness.Consumers also associate quality and reliability with certain brand names. Companies watch their brand identity closely, in large part because a strong link has been established between perceived brand value and customer loyalty. Brand names that consistently enjoy high perceived value from consumers include Kodak, Disney, National Geographic, Mercedes-Benz, and Fisher-Price. Naming a product after a place can also add perceived value by association. Brand names using the words Santa Fe, Dakota, or Texas convey a sense of openness, freedom, and youth, but products named after other locations might conjure up images of pollution and crime. Marketing managers are also interested in the threshold level of perception, the minimum difference in a stimulus that the consumer will notice. This concept is sometimes referred to as the “just-noticeable difference.” For example, how much would Apple have to drop the price of its iPod Shuffle before consumers recognized it as a bargain—$25? $50? or more? One study found that the just-noticeable difference in a stimulus is about a 20 percent change. For example, consumers will likely notice a 20 percent price decrease more quickly than one of only 15 percent. This marketing principle can be applied to other marketing variables as well, such as package size or loudness of a broadcast advertisement.35 Besides changing such stimuli as price, package size, and volume, marketers can change the product or attempt to reposition its image. But marketers must be careful when adding features. How many new services will discounter Target need to add before consumers perceive it as a full-service department store? How many sporty features will General Motors have to add to a basic two-door sedan before consumers start perceiving it as a sports car?Marketing managers who intend to do business in global markets should be aware of how foreign consumers perceive their products. For instance, in Japan, product labels are often written in English or French, even though they may not translate into anything meaningful. Many Japanese associate foreign words on product labels with the exotic, the expensive, and high quality.Marketers have often been suspected of sending advertising messages subconsciously to consumers in what is known as subliminal perception. The controversy began when a researcher claimed to have increased popcorn and Coca-Cola sales at a movie theater after flashing “Eat popcorn” and “Drink Coca-Cola” on the screen every five seconds for 1/300th of a second, although the audience did not consciously recognize the messages. Almost immediately consumer protection groups became concerned that advertisers were brainwashing consumers, and this practice was pronounced illegal in California and Canada. Although the researcher later admitted to making up the data and scientists have been unable to replicate the study since, consumers are still wary of hidden messages that advertisers may be sending.
2. Motivation (Psychological Influences on Consumer Buying Decisions)
By studying motivation, marketers can analyze the major forces influencing consumers to buy or not buy products. When you buy a product, you usually do so to fulfill some kind of need. These needs become motives when aroused sufficiently. For instance, suppose this morning you were so hungry before class that you needed to eat something. In response to that need, you stopped at Subway for a breakfast sandwich. In other words, you were motivated by hunger to stop at Subway. A motive is the driving force that causes a person to take action to satisfy specific needs.Why are people driven by particular needs at particular times? One popular theory is Maslow's hierarchy of needs , shown in Exhibit 6.6, which arranges needs in ascending order of importance: physiological, safety, social, esteem, and self-actualization. As a person fulfills one need, a higher-level need becomes more important. The most basic human needs—that is, the needs for food, water, and shelter—are physiological. Because they are essential to survival, these needs must be satisfied first. Ads showing a juicy hamburger or a runner gulping down Gatorade after a marathon are examples of appeals to satisfy the physiological needs of hunger and thirst.Safety needs include security and freedom from pain and discomfort. Marketers sometimes appeal to consumers’ fears and anxieties about safety to sell their products. For example, aware of the aging population's health fears, the retail medical imaging centers Heart Check America and HealthScreen America advertise that they offer consumers a full body scan for early detection of health problems such as coronary disease and cancer. On the other hand, some companies or industries advertise to allay consumer fears. For example, in the wake of the September 11 terrorist attacks, the airline industry found itself having to conduct an image campaign to reassure consumers about the safety of air travel.After physiological and safety needs have been fulfilled, social needs—especially love and a sense of belonging—become the focus. Love includes acceptance by one's peers, as well as sex and romantic love. Marketing managers probably appeal more to this need than to any other. Ads for clothes, cosmetics, and vacation packages suggest that buying the product can bring love. The need to belong is also a favorite of marketers, especially those marketing products to teens. Teens consider Apple's iPod to be not only their favorite branded product but also something that defines their generation. Given the group's need for customization within a controlled environment, this love for Apple makes sense. Millennials’ relationship with their parents is completely different from that of previous generations, and staying connected with family and friends is a priority. For marketers, this means understanding how to maximize crowdsourcing and peer-to-peer networks. For example, Relayrides offers the first peer-to-peer car-sharing where a person can borrow a neighbor's car for a quick trip to the store, and lenders can make up to $250 a month loaning out their cars.36 Love is acceptance without regard to one's contribution. Esteem is acceptance based on one's contribution to the group. Self-esteem needs include self-respect and a sense of accomplishment. Esteem needs also include prestige, fame, and recognition of one's accomplishments. Montblanc pens, Mercedes-Benz automobiles, and Neiman Marcus stores all appeal to esteem needs.The highest human need is self-actualization. It refers to finding self-fulfillment and self-expression, reaching the point in life at which “people are what they feel they should be.” Maslow felt that very few people ever attain this level. Even so, advertisements may focus on this type of need. For example, American Express ads convey the message that acquiring its card is one of the highest attainments in life. Microsoft appealed to consumers’ needs for self-actualization when it chose “I'm a PC and Windows 7 was my idea” as the slogan for Windows 7; similarly, the U.S. Army changed its slogan from “Be all that you can be” to “Army of One.”
3. Learning (Psychological Influences on Consumer Buying Decisions)
Almost all consumer behavior results from learning , which is the process that creates changes in behavior through experience and practice. It is not possible to observe learning directly, but we can infer when it has occurred by a person's actions. For example, suppose you see an advertisement for a new and improved cold medicine. If you go to the store that day and buy that remedy, we infer that you have learned something about the cold medicine.There are two types of learning: experiential and conceptual. Experiential learning occurs when an experience changes your behavior. For example, if the new cold medicine does not relieve your symptoms, you may not buy that brand again. Conceptual learning, which is not acquired through direct experience, is the second type of learning. Assume, for example, that you are standing at a soft drink machine and notice a new diet flavor with an artificial sweetener. Because someone has told you that diet beverages leave an aftertaste, you choose a different drink. You have learned that you would not like this new diet drink without ever trying it.Reinforcement and repetition boost learning. Reinforcement can be positive or negative. If you see a vendor selling frozen yogurt (stimulus), buy it (response), and find the yogurt to be quite refreshing (reward), your behavior has been positively reinforced. On the other hand, if you buy a new flavor of yogurt and it does not taste good (negative reinforcement), you will not buy that flavor of yogurt again (response). Without positive or negative reinforcement, a person will not be motivated to repeat the behavior pattern or to avoid it. Thus, if a new brand evokes neutral feelings, some marketing activity, such as a price change or an increase in promotion, may be required to induce further consumption. Learning theory is helpful in reminding marketers that concrete and timely actions are what reinforce desired consumer behavior.Repetition is a key strategy in promotional campaigns because it can lead to increased learning. Most marketers use repetitious advertising so that consumers will learn what their unique advantage is over the competition. Generally, to heighten learning, advertising messages should be spread out over time rather than clustered together.A related learning concept useful to marketing managers is stimulus generalization . In theory, stimulus generalization occurs when one response is extended to a second stimulus similar to the first. Marketers often use a successful, well-known brand name for a family of products because it gives consumers familiarity with and knowledge about each product in the family. Such brand name families spur the introduction of new products and facilitate the sale of existing items. Oxo relies on consumers’ familiarity with its popular kitchen and household products to sell office and medical supplies; Sony's film division relies on name recognition from its home technology, such as the PlayStation. Clorox bathroom cleaner relies on familiarity with Clorox bleach, and Dove shampoo relies on familiarity with Dove soap. Branding is examined in more detail in Chapter 10.Another form of stimulus generalization occurs when retailers or wholesalers design their packages to resemble well-known manufacturers’ brands. Such imitation often confuses consumers, who buy the imitation thinking it's the original.The opposite of stimulus generalization is stimulus discrimination , which means learning to differentiate among similar products. Consumers may perceive one product as more rewarding or stimulating. For example, some consumers prefer Coca-Cola and others prefer Pepsi. Many insist they can taste a difference between the two brands.With some types of products—such as aspirin, gasoline, bleach, and paper towels—marketers rely on promotion to point out brand differences that consumers would otherwise not recognize. This process, called product differentiation, is discussed in more detail in Chapter 8. Usually, product differentiation is based on superficial differences. For example, Bayer tells consumers that it's the aspirin “doctors recommend most.”
4. Beliefs and Attitudes (Psychological Influences on Consumer Buying Decisions)
- Beliefs and attitudes are closely linked to values. A belief is an organized pattern of knowledge that an individual holds as true about his or her world. A consumer may believe that Sony's Cyber-shot camera takes the best HD video, is easiest to use, and is the most reasonably priced. These beliefs may be based on knowledge, faith, or hearsay. Consumers tend to develop a set of beliefs about a product's attributes and then, through these beliefs, form a brand image—a set of beliefs about a particular brand. In turn, the brand image shapes consumers’ attitudes toward the product.An attitude is a learned tendency to respond consistently toward a given object, such as a brand. Attitudes rest on an individual's value system, which represents personal standards of good and bad, right and wrong, and so forth; therefore, attitudes tend to be more enduring and complex than beliefs.For an example of the nature of attitudes, consider the differing attitudes of consumers around the world toward the practice of purchasing on credit. Americans have long been enthusiastic about charging goods and services and are willing to pay high interest rates for the privilege of postponing payment. To many European consumers, doing what amounts to taking out a loan—even a small one—to pay for anything seems absurd. Germans especially are reluctant to buy on credit. Italy has a sophisticated credit and banking system well suited to handling credit cards, but Italians prefer to carry cash, often huge wads of it. Although most Japanese consumers have credit cards, card purchases amount to less than 1 percent of all consumer transactions. The Japanese have long looked down on credit purchases but acquire cards to use while traveling abroad.
- If a good or service is meeting its profit goals, positive attitudes toward the product merely need to be reinforced. If the brand is not succeeding, however, the marketing manager must strive to change target consumers’ attitudes toward it. Changes in attitude tend to grow out of an individual's attempt to reconcile long-held values with a constant stream of new information. This change can be accomplished in three ways: changing beliefs about the brand's attributes, changing the relative importance of these beliefs, and adding new beliefs.
- Changing the Importance of Beliefs
- The second approach to modifying attitudes is to change the relative importance of beliefs about an attribute. J.Crew was suffering from plummeting sales in 2003, due in part to a frumpy, preppy persona, but has risen to new profits by offering luxurious basics, such as tailored basic dresses and cashmere sweaters. An endorsement from Michelle Obama further elevated the brand.38 Marketers can also emphasize the importance of some beliefs over others. For example, McDonald's has been fingered as the culprit for Americans’ obesity. But, now the chain offers a large line of salads and healthy meals and side options, hoping to demonstrate its ability to serve healthier options to customers who want them.
- Adding New BeliefsThe third approach to transforming attitudes is to add new beliefs. Although changes in consumption patterns often come slowly, cereal marketers are betting that consumers will eventually warm up to the idea of cereal as a snack. A print ad for General Mills’ Cookie Crisp cereal features a boy popping the sugary nuggets into his mouth while he does his homework. Koch Industries, the manufacturer of Dixie paper products, is also attempting to add new beliefs about the uses of its paper plates and cups with an advertising campaign aimed at positioning its product as a “home cleanup replacement.” Commercials pitch Dixie paper plates as an alternative to washing dishes after everyday meals and not just for picnics.U.S. companies attempting to market their goods overseas may need to help consumers add new beliefs about a product in general. Coca-Cola and PepsiCo have both found it challenging to sell their diet cola brands to consumers in India partly because diet foods of any kind are a new concept in that country where malnutrition was widespread until recently. Indians also have deep-rooted attitudes that anything labeled “diet” is meant for a sick person, such as a diabetic. As a general rule, most Indians are not diet conscious, preferring food prepared in the traditional manner that tastes good. Indians are also suspicious of the artificial sweeteners used in diet colas. India's Health Ministry has required warning labels on cans and bottles of Diet Coke and Diet Pepsi saying “Not Recommended for Children.”
What Is Business Marketing?
Business marketing (also called industrial marketing) is the marketing of goods and services to individuals and organizations for purposes other than personal consumption. The sale of a PC to your college or university is an example of business marketing. Business products include those that are used to manufacture other products, become part of another product, or aid the normal operations of an organization. The key characteristic distinguishing business products from consumer products is intended use, not physical characteristics.
How do you distinguish between a consumer product and a business product?
How do you distinguish between a consumer product and a business product? A product that is purchased for personal or family consumption or as a gift is a consumer good. If that same product, such as a PC or a cell phone, is bought for use in a business, it is a business product. Some common items that are sold as both consumer goods and business products are office supplies (e.g., pens, paper, staple removers). Some items, such as forklifts, are more commonly sold as business products than as consumer goods. A survey by HubSpot revealed that the two primary marketing goals of U.S. business marketers’ Web sites are making sales and attracting customers, clients, and other new business.1 The size of the business market in the United States and most other countries substantially exceeds that of the consumer market. In the business market, a single customer can account for a huge volume of purchases. For example, IBM's purchasing department spends more than $40 billion annually on business products. Procter & Gamble, Apple, Merck, Dell, and Kimberly Clark each spend more than half of their annual revenue on business products.2 Some large firms that produce goods such as steel, computer memory chips, or production equipment market exclusively to business customers. Other firms market to both businesses and to consumers. Hewlett-Packard marketed exclusively to business customers in the past, but now markets laser printers and personal computers to consumers. Sony, traditionally a consumer marketer, now sells office automation products to businesses. Both companies have had to make organizational and marketing changes to expand into the new market categories.
business-to-business (B2B) electronic commerce= Business Marketing on the Internet
The use of the Internet to facilitate activities between organizations is called business-to-business electronic commerce (B-to-B or B2B e-commerce). This method of conducting business has evolved and grown rapidly throughout its short history. In 1995, the commercial Web sites that did exist were static. Only a few had data-retrieval capabilities. Frames, tables, and styles were not available. Security of any sort was rare, and streaming video did not exist. Today, B2B sites look more like consumer sites with social media and community building applications. EX: Before the Internet, customers had to call Dow Chemical and request a specification sheet for the products they were considering. The information would arrive a few days later by mail. After choosing a product, the customer could then place an order by calling Dow (during business hours, of course). Now, such information is available through MyAccount@Dow, which provides information tailored to the customer's requirements, such as secure internal monitoring of a customer's chemical tank levels. When tanks reach a predetermined level, reordering can be automatically triggered.
Companies selling to business buyers face the same challenges as all marketers, including determining who, exactly, the market is and how best to reach them. This is particularly difficult in business marketing because business has rapidly moved online. EX: A recent report from Forrester Research, “B2B US Interactive Marketing Forecast 2009–2014,” predicted that interactive spending by B-to-B marketers will reach $4.8 billion by 2014. In 2010, spending was approximately $2.3 billion. Some of the expected increase can be attributed to companies looking to bypass more expensive offline tactics and use more measurable online tactics. Most B-to-B marketers primarily use e-mail marketing, SEO organic, online ads and banners, search key words, webinars, and viral videos to attract business customers. The reviews on social media are mixed. Some B-to-B marketers feel that social media are not as useful to them as to business-to-consumer (B-to-C) marketers. But other experts see growth in social media use as B-to-B marketers use opportunities to generate quality leads. Most of the spending is allocated to creating customer community (32 percent); podcasts (20 percent) and blogs (18 percent) to convey thought leadership; and Twitter (14 percent). It is clear from some companies’ Web sites that they are embracing new tools and applications. The primary tools used by B-to-B marketers are blogs, social networking sites, Twitter, video streaming sites, and mobile marketing. B-to-B marketers are experimenting with how to effectively use these media to build relationships with business customers. EX, You-Tube has a “how to” guide for B-to-B marketers about effectively using online videos to promote their brands. LinkedIn, a social networking site, is seen as a repository for finding new talent for companies. Each year, BtoBonline.com identifies ten business marketing Web sites that are particularly good examples of how companies can use the Web to communicate with customers. Many of these companies have also been recognized in past years for effectively communicating with their target markets.
Measuring Online Success
Most marketers use some sort of web analytics (like Google Analytics
or an enterprise system like Omniture
) to determine which activities generate leads and then use that information to make the Web site more effective. Metrics
include external search traffic, internal search engine analytics, and key word search results
. activities generate leads and then use that information to make the Web site more effective. Metrics include external search traffic, internal search engine analytics, and key word search results.
- Three of the most important measurements of online success are
- 1) recency: Recency relates to the fact that customers who have made a purchase recently are more likely to purchase again in the near future than customers who haven't purchased for a while.
- 2) frequency, Frequency data help marketers identify frequent purchasers who are definitely more likely to repeat their purchasing behavior in the future.
- 3) monetary value, The monetary value of sales is important because big spenders can be the most profitable customers for a business.
Stickiness = Frequency x Duration x Site Reach
First, though, the marketer must determine what measures are required and which factors can be combined to arrive at those measurements.
- One common way of evaluating a Web application, Web site, or other piece of interactive technology is to evaluate its stickiness factor by combining frequency data with the length of time a visitor spent on the Web site (duration) and the number of site pages viewed during each visit (total site reach). EX, Apple's iCloud, which allows users to remotely store all content in the cloud and access it from any Apple device, increases user stickiness in the Apple software systems, meaning users will use all Apple software for long periods of time.
- Stickiness = Frequency x Duration x Site
- ReachBy measuring the stickiness factor of a Web site before and after a design or function change, the marketer can quickly determine whether visitors embraced the change. By adding purchase information to determine the level of stickiness needed to provide a desired purchase volume, the marketer gains an even more precise understanding of how a site change affected business. An almost endless number of factor combinations can be created to provide a quantitative method for determining buyer behavior online.
Trends in B-to-B Internet Marketing
- Social media usage in B-to-B marketing and B-to-C marketing has been the largest marketing trend in the past five years. It requires vigilant adjustment to keep track of new applications and platforms, as well as constant evaluation to determine whether these new avenues are beneficial to (or used by) customers. While 43 percent of marketers are measuring social media on some level, it is still a work in progress for many B-to-B marketers.Many marketers use social media to create awareness and build relationships and community rather than generate leads. As various platforms, such as mobile and video grow, marketers must develop new ways to measure campaign effectiveness across those platforms. According to a survey by BtoB and the Web Analytics Association, social media measurement was low for mobile (17 percent) and video (14 percent) and high for Web site traffic (88 percent) and e-mail campaigns (76 percent). Because e-mail and Web sites have been in use by marketers longer, analytics to measure various metrics are more developed for those platforms. Some metrics that are particularly useful for social media are awareness, engagement, and conversion.
- 1) Awareness is the attention that social media attracts, such as the number of followers or fans.
- 2) Engagement refers to the interactions between the brand and the audience such as comments, retweets, and searches.
- 3) Conversions occur when action is taken.
Each of these metrics affects the return on investment. As the increasing use of social media indicates, over the past decade marketers have become more and more sophisticated in the use of the Internet.
- Companies have had to transition from “We have a Web site because our customer does” to having a site that attracts, interests, satisfies, informs, and retains customers. New applications that provide additional information about present and potential customers; increase efficiency; lower costs; increase supply chain efficiency; or enhance customer retention, loyalty, and trust are being developed each year.
- Increasingly, business customers expect suppliers to know them personally, keep tabs on people's movement within their company, and offer personal interaction through social media, e-mail, and personal mailers.
- disintermediation , which means eliminating intermediaries such as wholesalers or distributors from a marketing channel. EX A prime example of disintermediation is Dell, which sells directly to business buyers and consumers. Dell is now using Twitter to sell its overstock inventory. Large retailers such as Walmart use a disintermediation strategy to help reduce costs and prices.A few years ago, many people thought the Internet would eliminate the need for distributors. Why would customers pay a distributor's markup when they could buy directly from the manufacturer with a few mouse clicks? Yet Internet disintermediation has occurred less frequently than many expected. The reason is that distributors often perform important functions such as providing credit, aggregation of supplies from multiple sources, delivery, and processing returns. Many business customers, especially small firms, depend on knowledgeable distributors for information and advice that is not available to them online.
**Building channel partnerships and trust has replaced aggressive disintermediation initiatives as a priority for most firms.
**Some firms have followed disintermediation with reintermediation , the reintroduction of an intermediary between producers and users. They realized that providing direct online purchasing only was similar to having only one store in a city selling a popular brand.
EX, Cisco is dropping its direct-to-consumer line of products and services to focus entirely on helping corporate customers expand consumer offerings, including offering networking products and solutions.
TOP SOCIAL MEDIA PLATFORMS FOR B-TO-B MARKETERS
- BtoB magazine surveyed 577 B-to-B marketers on their favorite social media platforms at work, and while LinkedIn, Facebook, and Twitter were used by nearly all of the marketers,
- ***LinkedIn was their favorite social media tool (chosen by 26 percent of respondents). Runners up were Facebook (20 percent), blogs (19 percent), customer communities (14 percent), Twitter, (13 percent), and YouTube (7 percent).Those who didn't use social media marketing cited difficulty in convincing top management of its usefulness. This could be due in part to lack of measurable success metrics or simply poor understanding of the medium.
Relationship Marketing and Strategic Alliances
Relationship marketing is a strategy that entails seeking and establishing ongoing partnerships with customers.
**Relationship marketing has become an important business marketing strategy as customers have become more demanding and competition has become more intense. Loyal customers are also more profitable than those who are price sensitive and perceive little or no difference among brands or suppliers. Relationship marketing is increasingly important as business suppliers use platforms like Facebook, Twitter, and other social networking sites to advertise themselves to businesses. The social networking sites encourage businesses to shop around and research options for all their needs. This means that for many suppliers, retaining their current customers has become a primary focus, whereas acquiring new customers was the focus in the past. Maintaining a steady dialogue between the supplier and the customer is a proven way to gain repeat business. Building long-term relationships with customers offers companies a way to build competitive advantage that is hard for competitors to copy. EX, the FedEx PowerShip program includes a series of automated shipping, tracking, and invoicing systems that save customers time and money while solidifying their loyalty to FedEx. This produces a win-win situation.
A strategic alliance
, sometimes called a strategic partnership
, is a cooperative agreement between business firms
- **Strategic alliances can take the form of licensing or distribution agreements, joint ventures, research and development consortia, and partnerships.
- ***They may be between manufacturers, manufacturers and customers, manufacturers and suppliers, and manufacturers and channel intermediaries. Business marketers form strategic alliances to strengthen operations and better compete.
- EX Honest Tea, a leader in the sustainable, organic beverage market, accepted a partnership with Coca-Cola in order to gain access to the beverage giant's larger, established distributors and get Honest Tea's healthier drinks into schools and supermarkets. Coca-Cola, now the largest shareholder of Honest Tea, encourages the brand to continue its pursuit of sustainable, organic, fair-trade beverages by providing new, top-of-the-line equipment set to Honest Tea's specifications.
- **Sometimes alliance partners are fierce competitors. EX, in the face of rising fuel prices and increasing business competition from Delta Airlines, Singapore Airlines and Virgin Australia have teamed up to offer greater range for both airlines. Virgin's expansive Australian and Pacific routes will give Singapore Airlines access to the lucrative Australia–United States route, and Virgin will have access to 70 new routes. The companies will also collaborate on pricing and a frequent flyer program, hoping to increase their share in the business traveler market.
- ***Other alliances are formed between companies that operate in completely different industries. EX, MasterCard and Avis Budget Group formed an alliance to provide MasterCard users discounts on services provided by Budget and Avis car rental services. MasterCard users prefer discounts in the travel sector, and the alliance gives Budget and Avis an opportunity to increase market share in the $4 billion-a-year U.S. car rental market.
- **For an alliance to succeed in the long term, it must be built on commitment and trust. Relationship commitment means that a firm believes an ongoing relationship with some other firm is so important that it warrants maximum efforts at maintaining it indefinitely.
- **A perceived breakdown in commitment by one of the parties often leads to a breakdown in the relationship.
Trust exists when one party has confidence in an exchange partner's reliability and integrity. Some alliances fail when participants lack trust in their trading partners. EX, General Motors, Ford, DaimlerChrysler, Nissan Motor Company, and Renault SA created an Internet automobile parts exchange, called Covisint, that they hoped would make $300 billion in sales per year. But the auto industry is characterized by mistrust between buyers and sellers, and the alliance never got a strong foothold. After three years, and hundreds of millions of dollars invested, the exchange was floundering. The investment money was nearly gone, and the workforce had been reduced by 35 percent. Automobile industry suppliers did not trust Covisint, resulting in its failure.
Relationships in Other Cultures
Although the terms relationship marketing and strategic alliances are fairly new
, and popularized mostly by American business executives and educators, the concepts have long been familiar in other cultures.
Businesses in China, Japan, Korea, Mexico, and much of Europe rely heavily on personal relationships.
**In Japan,EX, exchange between firms is based on personal relationships that are developed through what is called amae, or indulgent dependency
. Amae is the feeling of nurturing concern for, and dependence upon, another. Reciprocity and personal relationships contribute to amae.
- Relationships between companies can develop into a keiretsu —a network of interlocking corporate affiliates. Within a keiretsu, executives may sit on the boards of their customers or their suppliers. Members of a keiretsu trade with each other whenever possible and often engage in joint product development, finance, and marketing activity.
- EX, the Toyota Group keiretsu includes 14 core companies and another 170 that receive preferential treatment. Toyota holds an equity position in many of these 170 member firms and is represented on many of their boards of directors.
- ***Many firms have found that the best way to compete in Asian countries is to form relationships with Asian firms.
- EX, German automaker Volkswagen has an alliance with Suzuki Motor Corporation to work on developing new hybrid and electric vehicles under both brands.
Major Categories of Business Customers
- The business market consists of four major categories of customers:
- producers, resellers, governments, and institutions.
- The producer segment of the business market includes profit-oriented individuals and organizations that use purchased goods and services to produce other products, to incorporate into other products, or to facilitate the daily operations of the organization.
- EX of producers include construction, manufacturing, transportation, finance, real estate, and food service firms. In the United States, there are more than 13 million firms in the producer segment of the business market. Some of these firms are small, and others are among the world's largest businesses.
**Producers are often called original equipment manufacturers or OEMs.
This term includes all individuals and organizations that buy business goods and incorporate them into the products they produce for eventual sale to other producers or to consumers. Companies such as General Motors that buy steel, paint, tires, and batteries are said to be OEMs.
- The reseller market includes retail and wholesale businesses that buy finished goods and resell them for a profit.
- **A retailer sells mainly to final consumers; wholesalers sell mostly to retailers and other organizational customers. There are approximately 1.5 million retailers and 500,000 wholesalers operating in the United States.
- Consumer product firms like Procter & Gamble, Kraft Foods, and Coca-Cola sell directly to large retailers and retail chains and through wholesalers to smaller retail units.
- Business product distributors are wholesalers that buy business products and resell them to business customers. They often carry thousands of items in stock and employ sales forces to call on business customers. Businesses that wish to buy a gross of pencils or a hundred pounds of fertilizer typically purchase these items from local distributors rather than directly from manufacturers such as Empire Pencil or Dow Chemical.
- A third major segment of the business market is government.
- Government organizations include thousands of federal, state, and local buying units. They make up what may be the largest single market for goods and services in the world, estimated at $5.5 trillion in 2010.24
- **Marketing to government agencies can be an overwhelming undertaking, but companies that learn how the system works can position themselves to win lucrative contracts and build lasting, rewarding relationships.
- ** Contracts for government purchases are often put out for bid. Interested vendors submit bids (usually sealed) to provide specified products during a particular time. ***Sometimes the lowest bidder is awarded the contract. When the lowest bidder is not awarded the contract, strong evidence must be presented to justify the decision. Grounds for rejecting the lowest bid include lack of experience, inadequate financing, or poor past performance.
- ***Bidding allows all potential suppliers a fair chance at winning government contracts and helps ensure that public funds are spent wisely.
Name just about any good or service and chances are that someone in the federal government uses it. The U.S. federal government buys goods and services valued at more than $600 billion per year, making it the world's largest customer.Although much of the federal government's buying is centralized, no single federal agency contracts for all the government's requirements, and no single buyer in any agency purchases all that the agency needs. We can view the federal government as a combination of several large companies with overlapping responsibilities and thousands of small independent units. One popular source of information about government procurement is Commerce Business Daily. Until recently, businesses hoping to sell to the federal government found the document unorganized, and it often arrived too late to be useful. The online version (www.cbd-net.com ) is timelier and lets contractors find leads using key word searches. Other examples of publications designed to explain how to do business with the federal government include Doing Business with the General Services Administration, Selling to the Military, and Selling to the U.S. Air Force.
State, County, and City Government
Selling to states, counties, and cities can be less frustrating for both small and large vendors than selling to the federal government. Paperwork is typically simpler and more manageable than it is at the federal level. On the other hand, vendors must decide which of the more than 82,000 government units are likely to buy their wares. State and local buying agencies include school districts, highway departments, government-operated hospitals, and housing agencies.
The fourth major segment of the business market consists of institutions that seek to achieve goals other than the standard business goals of profit, market share, and return on investment. This segment includes schools, hospitals, colleges and universities, churches, labor unions, fraternal organizations, civic clubs, foundations, and other so-called nonbusiness organizations. Xerox offers educational and medical institutions the same prices as government agencies (the lowest that Xerox offers) and has a separate sales force that calls on these customers.
The North American Industry Classification System
The North American Industry Classification System (NAICS) is an industry classification system introduced in 1997 to replace the standard industrial classification system (SIC). NAICS (pronounced nakes) is a system for classifying North American business establishments. The system, developed jointly by the United States, Canada, and Mexico, provides a common industry classification system for the North American Free Trade Agreement (NAFTA) partners. Goods- or service-producing firms that use identical or similar production processes are grouped together. NAICS is an extremely valuable tool for business marketers engaged in analyzing, segmenting, and targeting markets. Each classification group is relatively homogeneous in terms of raw materials required, components used, manufacturing processes employed, and problems faced. The more digits in a code, the more homogeneous the group. Therefore, if a supplier understands the needs and requirements of a few firms within a classification, requirements can be projected for all firms in that category. The number, size, and geographic dispersion of firms can also be identified. This information can be converted to market potential estimates, market share estimates, and sales forecasts. It can also be used for identifying potential new customers. NAICS codes can help identify firms that may be prospective users of a supplier's goods and services. For a complete listing of all NAICS codes, see www.naics.com/search.htm .
Business versus Consumer Markets
The basic philosophy and practice of marketing are the same whether the customer is a business organization or a consumer. Business markets do, however, have characteristics different from consumer markets.
Consumer demand for products is quite different from demand in the business market. Unlike consumer demand, business demand is derived, inelastic, joint, and fluctuating.
The demand for business products is called derived demand because organizations buy products to be used in producing their customers’ products. For instance, the number of drills or lathes that a manufacturing firm needs is “derived from,” or based upon the demand for, products that are produced using these machines. Because demand is derived, business marketers must carefully monitor demand patterns and changing preferences in final consumer markets, even though their customers are not in those markets. Moreover, business marketers must carefully monitor their customers’ forecasts, because derived demand is based on expectations of future demand for those customers’ products.Some business marketers not only monitor final consumer demand and customer forecasts but also try to influence final consumer demand. Aluminum producers use television and magazine advertisements to point out the convenience and recycling opportunities that aluminum offers to consumers who can choose to purchase soft drinks in either aluminum or plastic containers.
The demand for many business products is inelastic with regard to price. Inelastic demand means that an increase or decrease in the price of the product will not significantly affect demand for the product. This will be discussed further in Chapter 19.The price of a product used in the production of, or as part of, a final product is often a minor portion of the final product's total price. Therefore, demand for the final consumer product is not affected. If the price of automobile paint or spark plugs rises significantly, say, 200 percent in one year, do you think the number of new automobiles sold that year will be affected? Probably not.
Joint demand occurs when two or more items are used together in a final product. For example, a decline in the availability of memory chips will slow production of microcomputers, which will in turn reduce the demand for disk drives. Likewise, the demand for Apple operating systems exists as long as there is demand for Apple computers. Sales of the two products are directly linked.
The demand for business products—particularly new plants and equipment—tends to be less stable than the demand for consumer products. A small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and equipment needed to make the consumer product. Economists refer to this phenomenon as the multiplier effect (or accelerator principle).
Cummins Engine Company, a producer of heavy-duty diesel engines, uses sophisticated surface grinders to make parts. Suppose Cummins is using 20 surface grinders. Each machine lasts about ten years. Purchases have been timed so 2 machines will wear out and be replaced annually. If the demand for engine parts does not change, 2 grinders will be bought this year. If the demand for parts declines slightly, only 18 grinders may be needed and Cummins won't replace the worn ones. However, suppose that next year demand returns to previous levels plus a little more. To meet the new level of demand, Cummins will need to replace the two machines that wore out in the first year, the two that wore out in the second year, plus one or more additional machines. The multiplier effect works this way in many industries, producing highly fluctuating demand for business products.
Business customers buy in much larger quantities than consumers. Just think how large an order Kellogg's typically places for the wheat bran and raisins used to manufacture Raisin Bran. Or, consider that Enterprise Rent-A-Car purchases 500 electric cars from Nissan at one time
Number of Customers
Business marketers usually have far fewer customers than consumer marketers. The advantage is that it is a lot easier to identify prospective buyers, monitor current customers’ needs and levels of satisfaction, and personally attend to existing customers. The main disadvantage is that each customer becomes crucial—especially for those manufacturers that have only one customer. In many cases, this customer is the U.S. government. The success or failure of one bid can make the difference between prosperity and bankruptcy. Boeing, trying to regain its position as the dominant tanker plane developer, vied for more than three years to win the U.S. Air Force's $35 billion bid to supply refueling planes. Its main competition was European Aeronautic Defence and Space Company, the world's other leading supplier of tanker planes.
Location of Buyers
Business customers tend to be much more geographically concentrated than consumers. For instance, more than half the nation's business buyers are located in California, Illinois, Michigan, New Jersey, New York, Ohio, and Pennsylvania. The aircraft and microelectronics industries are concentrated on the West Coast, and many of the firms that supply the automobile manufacturing industry are located in and around Detroit.
Many consumer products pass through a distribution system that includes the producer, one or more wholesalers, and a retailer. In business marketing, however, because of many of the characteristics already mentioned, channels of distribution for business marketing are typically shorter. Direct channels, where manufacturers market directly to users, are much more common. The use of direct channels has increased dramatically in the past decade with the introduction of various Internet buying and selling schemes. One such technique is called a business-to-business online exchange , which is an electronic trading floor that provides companies with integrated links to their customers and suppliers. The goal of B2B exchanges is to simplify business purchasing and to make them more efficient. For example, Exostar claims more than half of the aerospace industry's firms as its customers and has more than 70,000 registered companies to support those customers.28 Exchanges such as Exostar facilitate direct channel relationships between producers and their customers.
Nature of Buying
Unlike consumers, business buyers usually approach purchasing rather formally. Businesses use professionally trained purchasing agents or buyers who spend their entire career purchasing a limited number of items. They get to know the items and the sellers well. Some professional purchasers earn the designation of Certified Purchasing Manager (CPM) after participating in a rigorous certification program.
Nature of Buying Influence
Typically, more people are involved in a single business purchase decision than in a consumer purchase. Experts from fields as varied as quality control, marketing, and finance, as well as professional buyers and users, may be grouped in a buying center (discussed later in this chapter).
Type of Negotiations
Consumers are used to negotiating price on automobiles and real estate. In most cases, however, American consumers expect sellers to set the price and other conditions of sale, such as time of delivery and credit terms. In contrast, negotiating is common in business marketing. Buyers and sellers negotiate product specifications, delivery dates, payment terms, and other pricing matters. Sometimes these negotiations occur during many meetings over several months. Final contracts are often very long and detailed.
Use of Reciprocity
Business purchasers often choose to buy from their own customers, a practice known as reciprocity . For example, General Motors buys engines for use in its automobiles and trucks from BorgWarner, which in turn buys many of the automobiles and trucks it needs from General Motors. This practice is neither unethical nor illegal unless one party coerces the other and the result is unfair competition. Reciprocity is generally considered a reasonable business practice. If all possible suppliers sell a similar product for about the same price, doesn't it make sense to buy from those firms that buy from you?
Use of Leasing
Consumers normally buy products rather than lease them. But businesses commonly lease expensive equipment such as computers, construction equipment and vehicles, and automobiles. Leasing allows firms to reduce capital outflow, acquire a seller's latest products, receive better services, and gain tax advantages.The lessor, the firm providing the product, may be either the manufacturer or an independent firm. The benefits to the lessor include greater total revenue from leasing compared to selling and an opportunity to do business with customers who cannot afford to buy.
Primary Promotional Method
Business marketers tend to emphasize personal selling in their promotion efforts, especially for expensive items, custom-designed products, large-volume purchases, and situations requiring negotiations. The sale of many business products requires a great deal of personal contact. Personal selling is discussed in more detail in Chapter 18.
Types of Business Products
Business products generally fall into one of the following seven categories, depending on their use: major equipment, accessory equipment, raw materials, component parts, processed materials, supplies, and business services.
Major equipment includes capital goods such as large or expensive machines, mainframe computers, blast furnaces, generators, airplanes, and buildings. (These items are also commonly called installations.) Major equipment is depreciated over time rather than charged as an expense in the year it is purchased. In addition, major equipment is often custom designed for each customer. Personal selling is an important part of the marketing strategy for major equipment because distribution channels are almost always direct from the producer to the business user.
Accessory equipment is generally less expensive and shorter-lived than major equipment. Examples include portable drills, power tools, microcomputers, and fax machines. Accessory equipment is often charged as an expense in the year it is bought rather than depreciated over its useful life. In contrast to major equipment, accessories are more often standardized and are usually bought by more customers. These customers tend to be widely dispersed. For example, all types of businesses buy microcomputers.Local industrial distributors (wholesalers) play an important role in the marketing of accessory equipment because business buyers often purchase accessories from them. Regardless of where accessories are bought, advertising is a more vital promotional tool for accessory equipment than for major equipment.
Raw materials are unprocessed extractive or agricultural products—for example, mineral ore, lumber, wheat, corn, fruits, vegetables, and fish. Raw materials become part of finished products. Extensive users, such as steel or lumber mills and food canners, generally buy huge quantities of raw materials. Because there is often a large number of relatively small sellers of raw materials, none can greatly influence price or supply. Thus, the market tends to set the price of raw materials, and individual producers have little pricing flexibility. Promotion is almost always via personal selling, and distribution channels are usually direct from producer to business user.
Component parts are either finished items ready for assembly or products that need very little processing before becoming part of some other product. Caterpillar diesel engines are component parts used in heavy-duty trucks. Other examples include spark plugs, tires, and electric motors for automobiles. A special feature of component parts is that they can retain their identity after becoming part of the final product. For example, automobile tires are clearly recognizable as part of a car. Moreover, because component parts often wear out, they may need to be replaced several times during the life of the final product. Thus, there are two important markets for many component parts: the original equipment manufacturer (OEM) market and the replacement market.The availability of component parts is often a key factor in OEMs meeting their production deadlines. For example, Boeing has had to delay final assembly of Boeing 787 Dreamliners by more than three years because of slower than expected completion of components prior to their arrival at the final assembly line. In addition to delayed sales and customer disappointment and dissatisfaction, Boeing has already paid billions in penalties and has damaged credibility with customers. Despite the setbacks and the fact that there were only six Dreamliners flying in 2010, Boeing had 866 of the planes on back-order at that time.29 The difference between unit costs and selling prices in the OEM market is often small, but profits can be substantial because of volume buying.The replacement market is composed of organizations and individuals buying component parts to replace worn-out parts. Because components often retain their identity in final products, users may choose to replace a component part with the same brand used by the manufacturer—for example, the same brand of automobile tires or battery. The replacement market operates differently from the OEM market, however. Whether replacement buyers are organizations or individuals, they tend to demonstrate the characteristics of consumer markets that were shown in Learning Outcome 6. Consider, for example, an automobile replacement part. Purchase volume is usually small, and there are many customers, geographically dispersed, who typically buy from car dealers or parts stores. Negotiations do not occur, and neither reciprocity nor leasing is usually an issue.Manufacturers of component parts often direct their advertising toward replacement buyers. Cooper Tire & Rubber, for example, makes and markets component parts—automobile and truck tires—for the replacement market only. General Motors and other carmakers compete with independent firms in the market for replacement automobile parts.
Processed materials are products used directly in manufacturing other products. Unlike raw materials, they have had some processing. Examples include sheet metal, chemicals, specialty steel, treated lumber, corn syrup, and plastics. Unlike component parts, processed materials do not retain their identity in final products.Most processed materials are marketed to OEMs or to distributors servicing the OEM market. Processed materials are generally bought according to customer specifications or to some industry standard, as is the case with steel and plywood. Price and service are important factors in choosing a vendor
Supplies are consumable items that do not become part of the final product—for example, lubricants, detergents, paper towels, pencils, and paper. Supplies are normally standardized items that purchasing agents routinely buy. Supplies typically have relatively short lives and are inexpensive compared to other business goods. Because supplies generally fall into one of three categories—maintenance, repair, or operating supplies—this category is often referred to as MRO items. Competition in the MRO market is intense. Bic and Paper Mate, for example, battle for business purchases of inexpensive ballpoint pens.
Business services are expense items that do not become part of a final product. Businesses often retain outside providers to perform janitorial, advertising, legal, management consulting, marketing research, maintenance, and other services. Contracting an outside provider makes sense when it costs less than hiring or assigning an employee to perform the task and when an outside provider is needed for particular expertise.
Business Buying Behavior
As you probably have already concluded, business buyers behave differently from consumers. Understanding how purchase decisions are made in organizations is a first step in developing a business selling strategy. Business buying behavior has five important aspects: buying centers, evaluative criteria, buying situations, business ethics, and customer service.
In many cases, more than one person is involved in a purchase decision. Identifying who these people are and the roles they play greatly enhances the salesperson's chances for success.30 A buying center includes all those people in an organization who become involved in the purchase decision. Membership and influence vary from company to company. For instance, in engineering-dominated firms like Bell Helicopter, the buying center may consist almost entirely of engineers. In marketing-oriented firms like Toyota and IBM, marketing and engineering have almost equal authority. In consumer goods firms like Procter & Gamble, product managers and other marketing decision makers may dominate the buying center. In a small manufacturing company, almost everyone may be a member.The number of people involved in a buying center varies with the complexity and importance of a purchase decision. The composition of the buying group will usually change from one purchase to another and sometimes even during various stages of the buying process. To make matters more complicated, buying centers do not appear on formal organization charts.For example, even though a formal committee may have been set up to choose a new plant site, it is only part of the buying center. Other people, like the company president, often play informal yet powerful roles. In a lengthy decision-making process, such as finding a new plant location, some members may drop out of the buying center when they can no longer play a useful role. Others whose talents are needed then become part of the center. No formal announcement of “who is in” and “who is out” is ever made.
Roles in the Buying Center
- As in family purchasing decisions, several people may each play a role in the business purchase process.
- Initiator: the person who first suggests making a purchase.Influencers/evaluators: people who influence the buying decision. They often help define specifications and provide information for evaluating options. Technical personnel are especially important as influencers.
- Gatekeepers: group members who regulate the flow of information. Frequently, the purchasing agent views the gatekeeping role as a source of his or her power. A secretary may also act as a gatekeeper by determining which vendors get an appointment with a buyer.Decider: the person who has the formal or informal power to choose or approve the selection of the supplier or brand. In complex situations, it is often difficult to determine who makes the final decision.Purchaser: the person who actually negotiates the purchase. It could be anyone from the president of the company to the purchasing agent, depending on the importance of the decision.Users: members of the organization who will actually use the product. Users often initiate the buying process and help define product specifications.
Implications of Buying Centers for the Marketing Manager
Successful vendors realize the importance of identifying who is in the decision-making unit, each member's relative influence in the buying decision, and each member's evaluative criteria. Successful selling strategies often focus on determining the most important buying influences and tailoring sales presentations to the evaluative criteria most important to these buying center members. For example, Loctite Corporation, the manufacturer of Super Glue and industrial adhesives and sealants, found that engineers were the most important influencers and deciders in adhesive and sealant purchase decisions. As a result, Loctite focused its marketing efforts on production and maintenance engineers.
Business buyers evaluate products and suppliers against three important criteria: quality, service, and price—in that order.
- Quality In this case, quality refers to technical suitability. A superior tool can do a better job in the production process, and superior packaging can increase dealer and consumer acceptance of a brand. Evaluation of quality also applies to the salesperson and the sales-person's firm. Business buyers want to deal with reputable salespeople and companies that are financially responsible. Quality improvement should be part of every organization's marketing strategy.
- Service Almost as much as they want satisfactory products, business buyers want satisfactory service. A purchase offers several opportunities for service. Suppose a vendor is selling heavy equipment. Prepurchase service could include a survey of the buyer's needs. After thorough analysis of the survey findings, the vendor could prepare a report and recommendations in the form of a purchasing proposal. If a purchase results, postpurchase service might consist of installing the equipment and training those who will be using it. Postsale services may also include maintenance and repairs. Another service that business buyers seek is dependability of supply. They must be able to count on delivery of what was ordered when it is scheduled to be delivered. Buyers also welcome services that help them sell their finished products. Services of this sort are especially appropriate when the seller's product is an identifiable part of the buyer's end product.
- Price Business buyers want to buy at low prices—at the lowest prices, under most circumstances. However, a buyer who pressures a supplier to cut prices to a point at which the supplier loses money on the sale almost forces shortcuts on quality. The buyer also may, in effect, force the supplier to quit selling to him or her. Then a new source of supply will have to be found.
Often, business firms, especially manufacturers, must decide whether to make something or buy it from an outside supplier. The decision is essentially one of economics. Can an item of similar quality be bought at a lower price elsewhere? If not, is manufacturing it in-house the best use of limited company resources? For example, Briggs & Stratton Corporation, a major manufacturer of four-cycle engines, might be able to save $150,000 annually on outside purchases by spending $500,000 on the equipment needed to produce gas throttles internally. Yet Briggs & Stratton could also use that $500,000 to upgrade its carburetor assembly line, which would save $225,000 annually. If a firm does decide to buy a product instead of making it, the purchase will be a new buy, a modified rebuy, or a straight rebuy.
A new buy is a situation requiring the purchase of a product for the first time. For example, suppose a manufacturing company needs a better way to page its managers while they are working on the shop floor. Currently, each of the several managers has a distinct ring—for example, two short and one long—that sounds over the plant intercom whenever he or she is being paged by anyone in the factory. The company decides to replace its buzzer system of paging with handheld wireless radio technology that will allow managers to communicate immediately with the department initiating the page. This situation represents the greatest opportunity for new vendors. No long-term relationship has been established for this product, specifications may be somewhat fluid, and buyers are generally more open to new vendors.If the new item is a raw material or a critical component part, the buyer cannot afford to run out of supply. The seller must be able to convince the buyer that the seller's firm can consistently deliver a high-quality product on time.
A modified rebuy is normally less critical and less time-consuming than a new buy. In a modified rebuy situation, the purchaser wants some change in the original good or service. It may be a new color, greater tensile strength in a component part, more respondents in a marketing research study, or additional services in a janitorial contract.Because the two parties are familiar with each other and credibility has been established, the buyer and seller can concentrate on the specifics of the modification. But in some cases, modified rebuys are open to outside bidders. The purchaser uses this strategy to ensure that the new terms are competitive. An example would be the manufacturing company buying radios with a vibrating feature for managers who have trouble hearing the ring over the factory noise. The firm may open the bidding to examine the price and quality offerings of several suppliers.
A straight rebuy is a situation vendors prefer. The purchaser is not looking for new information or other suppliers. An order is placed and the product is provided as in previous orders. Usually, a straight rebuy is routine because the terms of the purchase have been agreed to in earlier negotiations. An example would be the previously cited manufacturing company purchasing additional radios for new managers from the same supplier on a regular basis.One common instrument used in straight rebuy situations is the purchasing contract. Purchasing contracts are used with products that are bought often and in high volume. In essence, the purchasing contract makes the buyer's decision-making routine and promises the salesperson a sure sale. The advantage to the buyer is a quick, confident decision and, to the salesperson, reduced or eliminated competition. Suppliers must remember not to take straight rebuy relationships for granted. Retaining existing customers is much easier than attracting new ones.
As we noted in Chapter 3, ethics refers to the moral principles or values that generally govern the conduct of an individual or a group. Ethics can also be viewed as the standard of behavior by which conduct is judged.Although we have heard a lot about corporate misbehavior in recent years, most people, and most companies, follow ethical practices. To help achieve this, over half of all major corporations offer ethics training to employees. Many companies also have codes of ethics that help guide buyers and sellers. For example, Home Depot has a clearly written code of ethics available on its corporate Web site that acts as an ethical guide for all its employees.
Business marketers are increasingly recognizing the benefits of developing a formal system to monitor customer opinions and perceptions of the quality of customer service. Companies such as McDonald's, L.L. Bean, and Lexus build their strategies not only around products but also around a few highly developed service skills. These companies understand that keeping current customers satisfied is just as important as attracting new ones, if not more so. Leading-edge firms are obsessed not only with delivering high-quality customer service but also with measuring satisfaction, loyalty, relationship quality, and other indicators of nonfinancial performance.Most firms find it necessary to develop measures unique to their own strategies, value propositions, and target markets. For example, Anderson Corporation assesses the loyalty of its trade customers by their willingness to continue carrying its windows and doors, recommend its products to colleagues and customers, increase their volume with the company, and put its products in their own homes. Basically, each firm's measures should not only ask “What are your expectations?” and “How are we doing?” but should also reflect what the firm wants its customers to do.Some customers are more valuable than others. They may have greater value because they spend more, buy higher-margin products, have a well-known name, or have the potential of becoming a bigger customer in the future. Some companies selectively provide different levels of service to customers based on their value to the business. By giving the most valuable customers superior service, a firm is more likely to keep them happy, hopefully increasing retention of these high-value customers and maximizing the total business value they generate over time.To achieve this goal, the firm must be able to divide customers into two or more groups based on their value. It must also create and apply policies that govern how service will be allocated among groups. Policies might establish which customers’ phone calls get “fast tracked” and which customers are directed to use the Web and/or voice self-service, how specific e-mail questions are routed, and who is given access to online chat and who isn't.31 Providing different customers with different levels of service is a very sensitive matter. It must be handled very carefully and very discreetly to avoid offending lesser-value, but still important, customers.
- The term market means different things to different people. We are all familiar with the supermarket, stock market, labor market, fish market, and flea market.
- All these types of markets share several characteristics:
- First, they are composed of people (consumer markets) or organizations (business markets).
- Second, these people or organizations have wants and needs that can be satisfied by particular product categories.
- Third, they have the ability to buy the products they seek.
- Fourth, they are willing to exchange their resources, usually money or credit, for desired products.
- In sum, a market is
- (1) people or organizations with
- (2) needs or wants and with
- (3) the ability and
- (4) the willingness to buy.
- A group of people or an organization that lacks any one of these characteristics is not a market.
- Within a market, a market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. At one extreme, we can define every person and every organization in the world as a market segment because each is unique. At the other extreme, we can define the entire consumer market as one large market segment and the business market as another large segment. All people have some similar characteristics and needs, as do all organizations.
- From a marketing perspective, market segments can be described as somewhere between the two extremes.
- The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups is called market segmentation . The purpose of market segmentation is to enable the marketer to tailor marketing mixes to meet the needs of one or more specific segments.
The Importance of Market Segmentation (history)
- Until the 1960s, few firms practiced market segmentation. When they did, it was more likely a haphazard effort than a formal marketing strategy. Before 1960, for example, the Coca-Cola Company produced only one beverage and aimed it at the entire soft drink market. Today, Coca-Cola offers more than a dozen different products to market segments based on diverse consumer preferences for flavors and calorie and caffeine content. Coca-Cola offers traditional soft drinks, energy drinks (including POWERade), flavored teas, fruit drinks (Fruitopia), and water (Dasani).
- Market segmentation plays a key role in the marketing strategy of almost all successful organizations and is a powerful marketing tool for several reasons:
- Most important, nearly all markets include groups of people or organizations with different product needs andpreferences.
- Market segmentation helps marketers define customer needs and wants more precisely.
- Because market segments differ in size and potential, segmentation helps decision makers to more accurately define marketing objectives and better allocate resources. In turn, performance can be better evaluated when objectives are more precise.
- Ex: Chico's, a successful women's fashion retailer, thrives by marketing to women ages 35 to 55 who like to wear comfortable, yet stylish, clothing. It sells private label clothing that comes in just a few nonjudgmental sizes: zero (standard sizes 4 to 6), one (8 to 10), two (10 to 12), and three (14 to 16). Nestlé has modified its portfolio to increase its market share in emerging economies, such as China, India, Malaysia, and Thailand. It sells food goods enriched with vitamins and has seen sales of enhanced milk products increase.
Criteria for Successful Segmentation
- Marketers segment markets for three important reasons:
- 1. First, segmentation enables marketers to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups.
- 2. Second, segmentation provides marketers with information to help them design marketing mixes specifically matched with the characteristics and desires of one or more segments.
- 3. Third, segmentation is consistent with the marketing concept of satisfying customer wants and needs while meeting the organization's objectives.
- To be useful, a segmentation scheme must produce segments that meet four basic criteria:
- 1. Substantiality: A segment must be large enough to warrant developing and maintaining a special marketing mix. This criterion does not necessarily mean that a segment must have many potential customers. Marketers of custom-designed homes and business buildings, commercial airplanes, and large computer systems typically develop marketing programs tailored to each potential customer's needs. In most cases, however, a market segment needs many potential customers to make commercial sense. In the 1980s, home banking failed because not enough people owned personal computers. Today, a larger number of people own computers, and home banking is a thriving industry.
- 2. Identifiability and measurability: Segments must be identifiable and their size measurable. Data about the population within geographic boundaries, the number of people in various age categories, and other social and demographic characteristics are often easy to get, and they provide fairly concrete measures of segment size. Suppose that a social service agency wants to identify segments by their readiness to participate in a drug and alcohol program or in prenatal care. Unless the agency can measure how many people are willing, indifferent, or unwilling to participate, it will have trouble gauging whether there are enough people to justify setting up the service.
- 3 Accessibility: The firm must be able to reach members of targeted segments with customized marketing mixes. Some market segments are hard to reachfor example, senior citizens (especially those with reading or hearing disabilities), individuals who don't speak English, and the illiterate.
- 4 Responsiveness: Markets can be segmented using any criteria that seem logical. Unless one market segment responds to a marketing mix differently than other segments, however, that segment need not be treated separately. EX, if all customers are equally price conscious about a product, there is no need to offer high-, medium-, and low-priced versions to different segments.
Segmentation Bases (variables)
- Marketers use segmentation bases , or variables, which are characteristics of individuals, groups, or organizations, to divide a total market into segments.
- The choice of segmentation bases is crucial because an inappropriate segmentation strategy may lead to lost sales and missed profit opportunities.
- The key is to identify bases that will produce substantial, measurable, and accessible segments that exhibit different response patterns to marketing mixes.
- Markets can be segmented using a single variable, such as age group, or several variables, such as age group, gender, and education.
- Although it is less precise, single-variable segmentation has the advantage of being simpler and easier to use than multiple-variable segmentation.
- The disadvantages of multiple-variable segmentation are that it is often harder to use than single-variable segmentation; usable secondary data are less likely to be available; and as the number of segmentation bases increases, the size of individual segments decreases. Nevertheless, the current trend is toward using more rather than fewer variables to segment most markets.
- Multiple-variable segmentation is clearly more precise than single-variable segmentation.
- Consumer goods marketers commonly use one or more of the following characteristics to segment markets: geography, demographics, psychographics, benefits sought, and usage rate.
- Geographic segmentation refers to segmenting markets by region of a country or the world, market size, market density, or climate.
- Market density means the number of people within a unit of land, such as a census tract.
- Climate is commonly used for geographic segmentation because of its dramatic impact on residents needs and purchasing behavior. EX: Snowblowers, water and snow skis, clothing, and air-conditioning and heating systems are products with varying appeal, depending on climate.
- Consumer goods companies take a regional approach to marketing for four reasons.
- 1. First, many firms need to find new ways to generate sales because of sluggish and intensely competitive markets.
- 2. Second, computerized checkout stations with scanners give retailers an accurate assessment of which brands sell best in their region.
- 3. Third, many packaged-goods manufacturers are introducing new regional brands intended to appeal to local preferences.
- 4. Fourth, a more regional approach allows consumer goods companies to react more quickly to competition. For many years, all Macy's stores carried the same merchandise, regardless of location. Now, the chain's My Macy's program tailors each store's merchandise mix to reflect local tastes. For example, the stores in Columbus, Ohio, carry more golf clothing than a typical store because of the area's many golf courses. The strategy has paid off for Macy's; total sales increased by almost 5 percent between 2009 and 2010 in spite of the troubled economy during this time.
- Marketers often segment markets on the basis of demographic information because it is widely available and often related to consumers buying and consuming behavior.
- Some common bases of demographic segmentation are age, gender, income, ethnic background, and family life cycle.
- 1. Age Segmentation Marketers use a variety of terms to refer to different age groups. Examples include newborns, infants, young children, tweens, Generation Y (teens, young adults), Generation X, baby boomers, and seniors. Age segmentation can be an important tool, as a brief exploration of the market potential of several age segments illustrates. Through allowances, earnings, and gifts, children account for and influence a great deal of consumption. EX, young shoppers in the United States spend more than $200 billion of their own money and their parents money each year on purchases for themselves and also have considerable influence over major family purchase decisions.
- Teens in particular are technology savvy and very social consumers.
- Tweens desire to be kids but also want some of the fun of being a teenager. Many retailers serve this market with clothing that is similar in style to that worn by teenagers and young adults.
- The members of the Generation Y market, or the millennial generation, were born between 1982 and 2003 and make up almost one-third of the U.S. population. This group not only has formidable purchasing power but is also more civic-minded than the baby boom generation. Seventy-four percent of millennials say they are more likely to pay attention to a company's overall message if the company has a deep commitment to a cause. The teens in this group are interested in apparel that enhances personalization and self-expression because they want their look to reflect their personalities and style. College students (also part of the millennials) all have mobile phones and use them constantly to communicate and connect. Despite the potential marketing gold mine such a connected audience presents, a study showed many people in this group were highly negative toward ads on their phones. This age group engages in its own peer-to-peer marketing through YouTube videos of unboxing or hauls. Unboxing, popular with new technology, is a video or article describing and reviewing new products. Hauls are videos in which the shopper (usually a female) shows off and reviews her purchases from the day. These videos reap millions of views and promote enough sales that some companies send free samples to the haulers for review or offer gift cards for them to shop at their stores.
- Generation X is the group that was born after the baby boomers. Members of Generation X tend to be disloyal to brands and skeptical of big business. Many of them are parents, and they make purchasing decisions with thought for and input from their families. Xers desire an experience, not just a product. The desire to have an experience has led to an increase in multifunctional boutiques, particularly in Manhattan's Lower East Side, where the small shops vie for high-end shoppers. The Dressing Room, for example, is a bi-level store with a boutique upstairs, vintage clothing downstairs, and a full bar where customers can hang out.
- People born between 1946 and 1964 are often called baby boomers. Boomers spend $2.1 trillion a year and represent half of all spending in the United States. For the next 18 years, one baby boomer will turn 60 every seven seconds. Boomers make up 49 percent of affluent households, and they want attention and service when they shop. This group spends big money on goods and services such as travel, electronics, and automobiles. Baby boomers are not particularly brand loyal, and they are a very diverse group. Some are parents to infant children, and others are empty nesters.
- Consumers born before 1946 represent people who are part of the war generation (ages 61 to 66), the Great Depression generation (ages 67 to 76), and the G.I. generation (age 77 and up). Many in this group view retirement not as a passive time, but as an active time they use to explore new knowledge, travel, volunteer, and spend time with family and friends. They are living longer and are healthier than older consumers 20 years ago. As consumers age, the do require some shopping modifications. Tesco, a British grocery store chain, is considering designing a store specifically to meet the needs of older shoppers. Music, nonslip floors, extra-wide aisles, brighter than usual lighting, and steps to assist older consumers in reaching high shelves are some the features being examined for inclusion.
- In the United States, women make over 70 percent of purchases of consumer goods each year. They are an experienced purchasing group with the responsibility of purchasing the majority of household items. They also are increasingly part of what were once considered all-male markets, such as video games. In 2008, women made 48 percent of all video game purchases. The video game industry has been forced to respond by developing more games with female protagonists and changing its advertising strategy. Design, fashion, and weight-loss games such as Style Savvy or The Biggest Loser are increasingly popular among women.
- Marketers of products such as clothing, cosmetics, personal-care items, magazines, jewelry, and gifts still commonly segment markets by gender, and many of these marketers are going after the less-traditional male market. EX, L'Oreal and Procter & Gamble are focusing on the growing market of men's cosmetics with moisturizers, bronzers, hair dye, and shaving accessories. Men's grooming products sales reached $5.6 billion in 2009, up from $3.8 billion in 2004. Even weight-loss programs, which currently have 90 percent female consumption, are starting to target men. Weight Watchers is trying to increase the number of men using its program to lose weight by offering a men-only version of its Web site and mobile applications, which research shows men prefer over the traditional Weight Watchers meetings. Men's programs have higher point totals (reflecting the male tendency to have leaner body mass) and more cheat sheets telling them how many points various foods cost.
- Income is a popular demographic variable for segmenting markets because income level influences consumers wants and determines their buying power.
- Many markets are segmented by income, including the markets for housing, clothing, automobiles, and food. Wholesale clubs Costco and Sam's Club appeal to many income segments. Harrison Group researchers found that the favorite stores of affluent households (those that earn more than $100,000 annually) are Costco and Target. High-income customers looking for luxury want outstanding customer service.
- EX, fashion companies use computer technology to customize upscale products that are designed specifically for their wealthy customers needs. Other companies try to appeal to low-income customers. Walmart plans for more of its stores to offer financial services in Money Centers to its lower-income customers who do not have banks. These Money Centers will provide services such as cashing checks, paying bills and filling out tax forms.
- In the past, ethnic groups in the United States were expected to conform to a homogenized, Anglo-centric ideal. This was evident both in the marketing of mass-marketed products and in the selective way that films, television, advertisements, and popular music portrayed America's diverse population. Until the 1970s, ethnic foods were rarely sold except in specialty stores. The racial barrier in entertainment lasted nearly as long, except for supporting movie and television rolesoften based on stereotypes dating back to the 19th century.
- Increasing numbers of ethnic minorities and increased buying power have changed this. Hispanic Americans, African Americans, and Asian Americans are the three largest ethnic groups in the United States. In the American Southwest, Caucasian populations comprise less than half the population and have become the minority to other ethnic groups combined. To meet the needs and wants of expanding ethnic populations, some companies, such as McDonald's and Kmart, make products geared toward a specific group. Kmart has teamed up with Sofia Vergara, a popular Colombian actress, to develop a clothing line to appeal to Hispanics.
Family Life Cycle Segmentation
The demographic factors of gender, age, and income often do not sufficiently explain why consumer buying behavior varies.
- Frequently, consumption patterns among people of the same age and gender differ because they are in different stages of the family life cycle.
- The family life cycle (FLC) is a series of stages determined by a combination of age, marital status, and the presence or absence of children.The life cycle stage consisting of the married-couple household used to be considered the traditional family in the United States. Today, however, married couples make up less than half of households, down from nearly 80 percent in the 1950s.
- Single adults are increasingly in the majority. Already, unmarried Americans make up 42 percent of the workforce, 40 percent of home buyers, and one of the most potent consumer groups on record.
- Research has found that the overriding factor in describing baby boomer subsegments is the presence of children in the house.
- A Nielsen study discovered eight specific segments: four segments with children younger than 18 represented about 40 percent of the boomers, and four segments without children represented 60 percent. Consumers are especially receptive to marketing efforts at certain points in the life cycle.
- Age, gender, income, ethnicity,
- FLC stage, and other demographic variables are usually helpful in developing segmentation strategies, but often they don't paint the entire picture.
- Demographics provide the skeleton, but psychographics add meat to the bones.
- Psychographic segmentation is market segmentation on the basis of the following psychographic segmentation variables:
- Personality: Personality reflects a person's traits, attitudes, and habits. Clothing is the ultimate personality descriptor. Fashionistas wear high-end, trendy clothes, and hipsters enjoy jeans and T-shirts with tennis shoes. People buy clothes that they feel represent their personalities and give others an idea of who they are.
- Motives: Marketers of baby products and life insurance appeal to consumers emotional motivesnamely, to care for their loved ones. Using appeals to economy, reliability, and dependability, carmakers like Subaru and Suzuki target customers with rational motives. Carmakers like Mercedes-Benz, Jaguar, and Cadillac appeal to customers with status-related motives.
- Lifestyles: Lifestyle segmentation divides people into groups according to the way they spend their time, the importance of the things around them, their beliefs, and socioeconomic characteristics such as income and education. EX, record stores specializing in vinyl are targeting young people who are listening to independent labels and often pride themselves on being independent of big business. LEED-certified appliances appeal to environmentally conscious green consumers. PepsiCo is promoting its no-calorie, sugar-free, flavored water, Aquafina Sparkling, to consumers who are health conscious.
- Geodemographics: Geodemographic segmentation clusters potential customers into neighborhood lifestyle categories. It combines geographic, demographic, and lifestyle segmentations. Geodemographic segmentation helps marketers develop marketing programs tailored to prospective buyers who live in small geographic regions, such as neighborhoods, or who have very specific lifestyle and demographic characteristics. For example, companies looking to win government manufacturing or technology contracts post cryptic billboards and posters on Washington, D.C. buses and Metro trains, as well as advertising their capabilities on local radio stations. The average commuter doesn't understand the cryptic acronyms, but government decision makers who see or hear the ads understand them and will award federal projects based on the adsor so companies such as Northrop Grumman hope. Such a campaign could work only in an area where high levels of government decision makers commute regularly. Psychographic variables can be used individually to segment markets or be combined with other variables to provide more detailed descriptions of market segments. One approach is for marketers and advertisers to purchase information from a collector, such as eXelate Media, in order to reach the audience they want. eXelate, part of consumer research firm Nielsen, gathers information about Web-browsing habits through cookies placed on Web sites. Nielsen, using eXelate, organizes groups according to this information.
- One group, the young digerati, includes 24- to 44-year-olds whoare
- tech savvy,
- are affluent,
- live in trendy condos,
- read the Economist,
- have an annual income of $88,000.
- An automaker can purchase that list and the list of people who visit car blogs and then target ads to the young digerati interested in cars.
- Benefit segmentation is the process of grouping customers into market segments according to the benefits they seek from the product.
- Most types of market segmentation are based on the assumption that this variable and customers needs are related. Benefit segmentation is different because it groups potential customers on the basis of their needs or wants rather than some other characteristic, such as age or gender. The snack-food market, for example, can be divided into six benefit segments: nutritional snackers, weight watchers, guilty snackers, party snackers, indiscriminate snackers, and economical snackers.Customer profiles can be developed by examining demographic information associated with people seeking certain benefits. This information can be used to match marketing strategies with selected target markets. The many different types of performance energy bars with various combinations of nutrients are aimed at consumers looking for different benefits. For example, PowerBar is designed for athletes looking for long-lasting fuel, while PowerBar Protein Plus is aimed at those who want extra protein for replenishing muscles after strength training. Carb Solutions High Protein Bars are for those on low-carb diets; Luna Bars are targeted to women who want a bar with fewer calories, soy protein, and calcium; and Clif Bars are for people who want a natural bar with ingredients like rolled oats, soybeans, and organic soy flour.
- Usage-rate segmentation divides a market by the amount of product bought or consumed.
- Categories vary with the product, but they are likely to include some combination of the following:
- former users, potential users, first-time users, light or irregular users, medium users, and heavy users. Segmenting by usage rate enables marketers to focus their efforts on heavy users or to develop multiple marketing mixes aimed at different segments. Because heavy users often account for a sizable portion of all product sales, some marketers focus on the heavy-user segment.
- The 80/20 principle holds that 20 percent of all customers generate 80 percent of the demand. Although the percentages usually are not exact, the general idea often holds true. For example, in the fast-food industry, the heavy user accounts for only one of five fast-food patrons but makes about 60 percent of all visits to fast-food restaurants. The needs of heavy users differs from the needs of other usage-rate groups. They have intense needs for product and service selection and a variety of types of information, as well as an emotional attachment to the product category. Developing customers into heavy users is the goal behind many frequency/loyalty programs like the airlines frequent flyer programs. Many supermarkets and other retailers have also designed loyalty programs that reward the heavy-user segment with deals available only to them, such as in-store coupon dispensing systems, loyalty card programs, and special price deals on selected merchandise.
Bases for Segmenting Business Markets
- Company Characteristics
- Buying Processes
- The business market consists of four broad segments: producers, resellers, government, and institutions.
- Whether marketers focus on only one or on all four of these segments, they are likely to find diversity among potential customers. Thus, further market segmentation offers just as many benefits to business marketers as it does to consumer product marketers.
- Company characteristics, such as geographic location, type of company, company size, and product use, can be important segmentation variables.
- Some markets tend to be regional because buyers prefer to purchase from local suppliers, and distant suppliers may have difficulty competing in terms of price and service. Therefore, firms that sell to geographically concentrated industries benefit by locating close to their markets.
- Segmenting by customer type allows business marketers to tailor their marketing mixes to the unique needs of particular types of organizations or industries. For example, Round-Table Companies teamed with SmarterComics to produce 50-page illustrated versions of the most popular business books such as The Long Tail by Chris Anderson and How to Master the Art of Selling by Tom Hopkins. Corey Michael Blake, founder of Round-Table, wanted to make the most-read business books available to time-pressed businesspeople. By condensing and illustrating popular business texts, Blake found a new market for comic books and extended the business book market.
- Volume of purchase (heavy, moderate, light) is a commonly used basis for business segmentation.
- Another is the buying organization's size, which may affect its purchasing procedures, the types and quantities of products it needs, and its responses to different marketing mixes. Banks frequently offer different services, lines of credit, and overall attention to commercial customers based on their size. Many products, especially raw materials like steel, wood, and petroleum, have diverse applications. How customers use a product may influence the amount they buy, their buying criteria, and their selection of vendors. For example, a producer of springs may have customers who use the product in applications as diverse as making machine tools, bicycles, surgical devices, office equipment, telephones, and missile systems.
- Many business marketers find it helpful to segment customers and prospective customers on the basis of how they buy.
- For example, companies can segment some business markets by ranking key purchasing criteria, such as price, quality, technical support, and service. Atlas Corporation has developed a commanding position in the industrial door market by providing customized products in just 4 weeks, which is much faster than the industry average of 12 to 15 weeks. Atlas's primary market is companies with an immediate need for customized doors.The purchasing strategies of buyers may provide useful segments.
- Two purchasing profiles that have been identified are satisficers and optimizers.
- 1. Satisficers contact familiar suppliers and place the order with the first one to satisfy product and delivery requirements.
- 2. Optimizers consider numerous suppliers (both familiar and unfamiliar), solicit bids, and study all proposals carefully before selecting one.
- The personal characteristics of the buyers themselves (their demographic characteristics, decision style, tolerance for risk, confidence level, job responsibilities, and so on) influence their buying behavior and thus offer a viable basis for segmenting some business markets. IBM computer buyers, for example, are sometimes characterized as being more risk averse than buyers of less expensive computers that perform essentially the same functions. In advertising, therefore, IBM stresses its reputation for high quality and reliability.
Steps in Segmenting a Market
The purpose of market segmentation, in both consumer and business markets, is to identify marketing opportunities
- 1 Select a market or product category for study: Define the overall market or product category to be studied. It may be a market in which the firm already competes, a new but related market or product category, or a totally new market.
- 2 Choose a basis or bases for segmenting the market: This step requires managerial insight, creativity, and market knowledge. There are no scientific procedures for selecting segmentation variables. However, a successful segmentation scheme must produce segments that meet the four basic criteria discussed earlier in this chapter.
- 3 Select segmentation descriptors: After choosing one or more bases, the marketer must select the segmentation descriptors. Descriptors identify the specific segmentation variables to use. For example, if a company selects demographics as a basis of segmentation, it may use age, occupation, and income as descriptors. A company that selects usage segmentation needs to decide whether to go after heavy users, nonusers, or light users.
- 4 Profile and analyze segments: The profile should include the segments size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential. This information can then be used to rank potential market segments by profit opportunity, risk, consistency with organizational mission and objectives, and other factors important to the firm.
- 5 Select target markets: Selecting target markets is not a part of but a natural outcome of the segmentation process. It is a major decision that influences and often directly determines the firm's marketing mix. This topic is examined in greater detail later in this chapter.
- 6 Design, implement, and maintain appropriate marketing mixes: The marketing mix has been described as product, place (distribution), promotion, and pricing strategies intended to bring about mutually satisfying exchange relationships with target markets. These topics are explored in detail in Chapters 10 through 20.Markets are dynamic, so it is important that companies proactively monitor their segmentation strategies over time. Often, once customers or prospects have been assigned to a segment, marketers think their task is done. Once customers are assigned to an age segment, for example, they stay there until they reach the next age bracket or category, which could be ten years in the future. Thus, the segmentation classifications are static, but the customers and prospects are changing. Dynamic segmentation approaches adjust to fit the changes that occur in customers lives. BCBG uses BCBGeneration to target a younger crowd, and Aéropostale owns P.S., which sells clothing for children ages 7 to 12. However, some segments have too many players, and choosing to enter those kinds of segments can be particularly challenging. High-end denim has so many boutiques and brands that customers are tired of the volume.
7 Strategies for Selecting Target Markets
So far, this chapter has focused on the market segmentation process, which is only the first step in deciding whom to approach about buying a product. The next task is to choose one or more target markets. A target market is a group of people or organizations for which an organization designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges. Because most markets will include customers with different characteristics, lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market. Thus, if a marketer wishes to appeal to more than one segment of the market, it must develop different marketing mixes. For example, Subaru's customer base consists of eco-conscious individuals who value freedom and buy experiences, not things. To attract younger, sportier consumers with similar values, Subaru is developing a small car, as well as a hybrid.27 The three general strategies for selecting target marketsundifferentiated, concentrated, and multi-segment targetingare illustrated on the next page in Exhibit 8.2, which also illustrates the advantages and disadvantages of each targeting strategy.
Advantages: Potential savings on production/marketing costs
Disadvantages: Unimaginative product offeringsCompany more susceptible to competition
A firm using an undifferentiated targeting strategy essentially adopts a mass-market philosophy, viewing the market as one big market with no individual segments. The firm uses one marketing mix for the entire market. A firm that adopts an undifferentiated targeting strategy assumes that individual customers have similar needs that can be met with a common marketing mix.The first firm in an industry sometimes uses an undifferentiated targeting strategy. With no competition, the firm may not need to tailor marketing mixes to the preferences of market segments. Henry Ford's famous comment about the Model T is a classic example of an undifferentiated targeting strategy: They can have their car in any color they want, as long as it's black. At one time, Coca-Cola used this strategy with a single product and a single size of its familiar green bottle. Marketers of commodity products, such as flour and sugar, are also likely to use an undifferentiated targeting strategy.One advantage of undifferentiated marketing is the potential for saving on production and marketing. Because only one item is produced, the firm should be able to achieve economies of mass production. Also, marketing costs may be lower when there is only one product to promote and a single channel of distribution. Too often, however, an undifferentiated strategy emerges by default rather than by design, reflecting a failure to consider the advantages of a segmented approach. The result is often sterile, unimaginative product offerings that have little appeal to anyone.Another problem associated with undifferentiated targeting is that it makes the company more susceptible to competitive inroads. Hershey lost a big share of the candy market to Mars and other candy companies before it changed to a multisegment targeting strategy. Coca-Cola forfeited its position as the leading seller of cola drinks in supermarkets to PepsiCo in the late 1950s, when Pepsi began offering several sizes of containers.You might think a firm producing a standard product such as toilet tissue would adopt an undifferentiated strategy. However, this market has industrial segments and consumer segments. Industrial buyers want an economical, single-ply product sold in boxes of a hundred rolls. The consumer market demands a more versatile product in smaller quantities. Within the consumer market, the product is differentiated with designer print or no print, cushioned or non-cushioned, and economy priced or luxury priced. Fort Howard Corporation, the market share leader in industrial toilet paper, does not even sell to the consumer market.Undifferentiated marketing can succeed in certain situations, though. A small grocery store in a small, isolated town may define all of the people who live in the town as its target market. It may offer one marketing mix and generally satisfy everyone in town. This strategy is not likely to be as effective if there are three or four grocery stores in town.
Advantages: Concentration of resources, Can better meet the needs of a narrowly defined segment, Allows some small firms to better compete with larger firms, Strong positioning
Disadvantages: Segments too small or changing, Large competitors may more effectively market to niche segment
With a concentrated targeting strategy , a firm selects a market niche (one segment of a market) for targeting its marketing efforts. Because the firm is appealing to a single segment, it can concentrate on understanding the needs, motives, and satisfactions of that segment's members and on developing and maintaining a highly specialized marketing mix. Some firms find that concentrating resources and meeting the needs of a narrowly defined market segment is more profitable than spreading resources over several different segments.Intelligentsia, a Chicago-based coffee roaster/retailer, targets serious coffee drinkers with hand-roasted, ground, and poured super-gourmet coffee or tea served by seriously educated baristas. The company also offers training classes for the at-home or out-of-town coffee aficionado. Starting price$200 per class. America Online became one of the world's leading Internet providers by targeting Internet newcomers.Small firms often adopt a concentrated targeting strategy to compete effectively with much larger firms. For example, Enterprise Rent-A-Car rose to number one in the car rental industry by catering to people with cars in the shop. It then expanded into the airport rental market. Some other firms use a concentrated strategy to establish a strong position in a desirable market segment. Porsche, for instance, targets an upscale automobile market through class appeal, not mass appeal.Concentrated targeting violates the old adage Don't put all your eggs in one basket. If the chosen segment is too small or if it shrinks because of environmental changes, the firm may suffer negative consequences. For instance, OshKosh B'gosh was highly successful selling children's wear in the 1980s. It was so successful, however, that the children's line came to define OshKosh's image to the extent that the company could not sell clothes to anyone else. Attempts at marketing older children's clothing, women's casual clothes, and maternity wear were all abandoned. Recognizing it was in the children's wear business, the company expanded into products such as kids shoes, children's eyewear, and plush toys.A concentrated strategy can also be disastrous for a firm that is not successful in its narrowly defined target market. Before Procter & Gamble introduced Head & Shoulders shampoo, several small firms were already selling antidandruff shampoos. Head & Shoulders was introduced with a large promotional campaign, and the new brand captured over half the market immediately. Within a year, several of the firms that had been concentrating on this market segment went out of business.
Advantages: Greater financial success, Economies of scale in producing/marketing
Disadvantages: High costs, Cannibalization
A firm that chooses to serve two or more well-defined market segments and develops a distinct marketing mix for each has a multisegment targeting strategy . Walmart has historically followed a concentrated strategy that targeted lower-income segments. Recently, however, the company has segmented its customers into three core groups based on the type of value they seek at the stores. Brand Aspirationals are low-income customers who like to buy brand names such as KitchenAid, Price-Sensitive Affluents are wealthier shoppers who love deals, and Value-Price Shoppers like low prices and can't afford much more.28 Multisegment targeting offers many potential benefits to firms, including greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing. Yet it may also involve greater product design, production, promotion, inventory, marketing research, and management costs. Before deciding to use this strategy, firms should compare the benefits and costs of multisegment targeting to those of undifferentiated and concentrated targeting.Another potential cost of multisegment targeting is cannibalization , which occurs when sales of a new product cut into sales of a firm's existing products. For example, Apple's iPhone and iPad may be causing sales of the iPod to drop, and there is some fear that the iPad will take away Mac sales, Apple's cash cow. The only evidence of those fears being realized is the 17 percent drop in sales of iPods since the release of the iPad.29 In many cases, however, companies prefer to steal sales from their own brands rather than lose sales to a competitor. Also, in today's fast-paced world of Internet business, some companies are willing to cannibalize existing business to build new business.
Most businesses today use a mass-marketing approach designed to increase market share by selling their products to the greatest number of people. For many businesses, however, it is more efficient and profitable to use one-to-one marketing to increase share of customerin other words, to sell more products to each customer. One-to-one marketing is an individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. The goal is to reduce costs through customer retention and increase revenue through customer loyalty.The difference between one-to-one marketing and the traditional mass-marketing approach can be compared to the difference between a rifle and a shotgun. If you have good aim, a rifle is the more efficient weapon to use. A shotgun, on the other hand, increases your odds of hitting the target when it is more difficult to focus. Instead of scattering messages far and wide across the spectrum of mass media (the shotgun approach), one-to-one marketers look for opportunities to communicate with each individual customer (the rifle approach).A Dog's Life, a California company that makes organic pet treats, holds a monthly competition in which users upload photos of their pets and vote on their favorites. The winning photo is featured for a month on bags of the dog treats. Customers can also pay $3 to $4 for customized treats, which include a photo of their choice on the package. Winners of the contest buy several bags, and the contests keep the brand in the social media news circuit.30 Customers who customize have been found to be more loyal. Several factors suggest that personalized communications and product customization will continue to expand as more companies understand why and how their customers make and execute purchase decisions. At least four trends will lead to the continuing growth of one-to-one marketing: personalization, time savings, loyalty, and technology.Personalization: One-size-fits-all marketing is no longer relevant. Consumers want to be treated as the individuals they are, with their own unique sets of needs and wants. By its personalized nature, one-to-one marketing can fulfill this desire.Time savings: Direct and personal marketing efforts will continue to grow to meet the needs of consumers who no longer have the time to spend shopping and making purchase decisions. With the personal and targeted nature of one-to-one marketing, consumers can spend less time making purchase decisions and more time doing the things that are important.Loyalty: Consumers will be loyal only to those companies and brands that have earned their loyalty and reinforced it at every purchase occasion. One-to-one marketing techniques focus on finding a firm's best customers, rewarding them for their loyalty, and thanking them for their business.Technology: Mass-media approaches will decline in importance as advances in market research and database technology allow marketers to collect detailed information on their customers. New technology offers one-to-one marketers a more cost-effective way to reach customers and enables businesses to personalize their messages. For example, MyYahoo.com greets each user by name and offers information in which the user has expressed interest. Similarly, RedEnvelope.com helps customers keep track of special occasions and offers personalized gift recommendations. With the help of database technology, one-to-one marketers can track their customers as individuals, even if they number in the millions.One-to-one marketing is a huge commitment and often requires a 180-degree turnaround for marketers who spent the last half of the 20th century developing and implementing mass-marketing efforts. Although mass marketing will probably continue to be used, especially to create brand awareness or to remind consumers of a product, the advantages of one-to-one marketing cannot be ignored.
The development of any marketing mix depends on positioning , a process that influences potential customers overall perception of a brand, product line, or organization in general. Position is the place a product, brand, or group of products occupies in consumers minds relative to competing offerings. Consumer goods marketers are particularly concerned with positioning. Procter & Gamble, for example, markets 11 different laundry detergents, each with a unique position, such as allergen-free, softening, or ultra-concentrated.Positioning assumes that consumers compare products on the basis of important features. Marketing efforts that emphasize irrelevant features are therefore likely to misfire. For example, Crystal Pepsi and a clear version of Coca-Cola's Tab failed because consumers perceived the clear positioning as more of a marketing gimmick than a benefit.Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the organization's marketing efforts will have the greatest impact. SuperJam positions itself as superior to other jams because it is 100 percent fruit, has no sugar added, and is made with super fruits such as blueberries and cranberries, which boast added health benefits. The recipe also comes from the creator's grandmother, adding a homespun element that separates it from other jams.31 As the previous example illustrates, product differentiation is a positioning strategy that many firms use to distinguish their products from those of competitors. The distinctions can be either real or perceived. Tandem Computer designed machines with two central processing units and two memories for users who cannot afford for their computer systems to be down or databases to be lost (e.g., an airline reservation system). In this case, Tandem used product differentiation to create a product with very real advantages for the target market. However, many everyday products, such as bleaches, aspirin, unleaded regular gasoline, and some soaps, are differentiated by such trivial means as brand names, packaging, color, smell, or secret additives. The marketer attempts to convince consumers that a particular brand is distinctive and that they should demand it over competing brands.Some firms, instead of using product differentiation, position their products as being similar to competing products or brands. Two examples of this positioning are artificial sweeteners advertised as tasting like sugar and margarine tasting like butter.
Perceptual mapping is a means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers minds. For example, Saks Incorporated, the department store chain, stumbled in sales when it tried to attract a younger core customer. To recover, Saks invested in research to determine its core customers in its 54 stores across the country. The perceptual map in Exhibit 8.3 on the next page shows how Saks uses customer demographics, such as age, spending habits, and shopping patterns, to build a matrix that charts the best mix of clothes and accessories to stock in each store.
Firms use a variety of bases for positioning, including the following:Attribute: A product is associated with an attribute, product feature, or customer benefit. In engineering its products, Seventh Generation focuses on removing common toxins and chemicals from household products to make them safe for everyone in the household.Price and quality: This positioning base may stress high price as a signal of quality or emphasize low price as an indication of value. Neiman Marcus uses the high-price strategy; Walmart has successfully followed the low-price and value strategy. The mass merchandiser Target has developed an interesting position based on price and quality. It is an upscale discounter, sticking to low prices but offering higher quality and design than most discount chains.Use or application: Stressing uses or applications can be an effective means of positioning a product with buyers. Danone introduced its Kahlúa liqueur using advertising to point out 228 ways to consume the product. Snapple introduced a new drink called Snapple a Day that is intended for use as a meal replacement.Product user: This positioning base focuses on a personality or type of user. Gap Inc. has several different brands: Gap stores offer basic casual pieces, such as jeans and T-shirts to middle-of-the-road consumers at mid-level prices; Old Navy offers low-priced, trendy casual wear geared to youth and college-age groups; and Banana Republic is a luxury brand offering fashionable, luxurious business and casual wear to 25- to 35-year-olds.32 Product class: The objective here is to position the product as being associated with a particular category of productsfor example, positioning a margarine brand with butter. Alternatively, products can be disassociated with a category.Competitor: Positioning against competitors is part of any positioning strategy. Avis Rent A Car's positioning as number two compared to Hertz exemplifies positioning against specific competitors.Emotion: Positioning using emotion focuses on how the product makes customers feel. A number of companies use this approach. For example, Nike's Just Do It campaign didn't tell consumers what it is, but most got the emotional message of achievement and courage. The creators of iPhone game Bumpy Road not only created a new way to play a game (by manipulating the world around a car, rather than manipulating the car), but they relied on a simple story about a precious little couple to differentiate Bumpy Road from other games.
Sometimes products or companies are repositioned in order to sustain growth in slow markets or to correct positioning mistakes. Repositioning is changing consumers’ perceptions of a brand in relation to competing brands. Post Foods, in an effort to revive its Grape Nuts cereal, repositioned it from a cereal for families and women to a cereal for men. Advertising in Sports Illustrated magazine featured men doing “tough things” such as walking a poodle with a pink collar and setting up a VCR followed by the new slogan “That Takes Grape Nuts.”
Marketing Decision Support Systems
(DSS) Marketing decision support system
Characteristics: Interactive, Flexible, Discovery oriented.
- Accurate and timely information is the lifeblood of marketing decision making. Good information can help an organization maximize sales and efficiently use scarce company resources. To prepare and adjust marketing plans, managers need a system for gathering everyday information about developments in the marketing environment—that is, for gathering marketing information . The system most commonly used these days for gathering marketing information is called a marketing decision support system.
- A marketing decision support system (DSS) is an interactive, flexible, computerized information system that enables managers to obtain and manipulate information as they are making decisions. A DSS bypasses the information-processing specialist and gives managers access to useful data from their own desks.
- These are the characteristics of a true DSS:
- Interactive: Managers give simple instructions and see immediate results. The process is under their direct control. Managers don't have to wait for scheduled reports.
- Flexible: A DSS can sort, regroup, total, average, and manipulate the data in various ways. It will shift gears as the user changes topics, matching information to the problem at hand.
- Discovery oriented: Managers can probe for trends, isolate problems, and ask “what if” questions.Accessible: Managers who aren't skilled with computers can easily learn how to use a DSS. Novice users should be able to choose a standard, or default, method of using the system. They can bypass optional features so they can work with the basic system right away while gradually learning to apply its advanced features.Perhaps the fastest-growing use of a DSS is for database marketing , which is the creation of a large computerized file of customers’ and potential customers’ profiles and purchase patterns. It is usually the key tool for successful one-to-one marketing, which relies on very specific information about a market.
The Role of Marketing Research
- 1. Identify and formulate the problem/oppurtunity
- 2. Plan the research design and gather secondary data
- 3. specify the sampling procedures
- 4. Collect primary data
- 5. Analyze the data
- 6. prepare and present the report
- 7. Follow up
Marketing research is the process of planning, collecting, and analyzing data relevant to a marketing decision. The results of this analysis are then communicated to management. Thus, marketing research is the function that links the consumer, customer, and public to the marketer through information. Marketing research plays a key role in the marketing system. It provides decision makers with data on the effectiveness of the current marketing mix and insights for necessary changes. Furthermore, marketing research is a main data source for both management information systems and DSS. In other words, the findings of a marketing research project become data in a DSS.Marketing research has three roles: descriptive, diagnostic, and predictive. Its descriptive role includes gathering and presenting factual statements. For example, what is the historic sales trend in the industry? What are consumers’ attitudes toward a product and its advertising? Its diagnostic role includes explaining data, such as determining the impact on sales of a change in the design of the package. Its predictive function is to address “what if” questions. For example, how can the researcher use the descriptive and diagnostic research to predict the results of a planned marketing decision?
Steps in a Marketing Research Project
Virtually all firms that have adopted the marketing concept engage in some marketing research because it offers decision makers many benefits. Some companies spend millions on marketing research; others, particularly smaller firms, conduct informal, limited-scale research studies.Whether a research project costs $200 or $2 million, the same general process should be followed. The marketing research process is a scientific approach to decision making that maximizes the chance of getting accurate and meaningful results. Exhibit 9.1 traces the seven steps in the research process, which begins with the recognition of a marketing problem or opportunity. As changes occur in the firm's external environment, marketing managers are faced with the questions, “Should we change the existing marketing mix?” and, if so, “How?” Marketing research may be used to evaluate product, promotion, distribution, or pricing alternatives.After years of research, Procter & Gamble relaunched its ubiquitous hair care line Pantene in 2010. In 2009, Pantene's U.S. sales dropped 9 percent, more than the 3 percent decline for the shampoo market as a whole. P&G had already been working on ways to differentiate Pantene from other hair care lines but needed a specific place to focus its research.Pantene researchers delved into women's reactions to “bad hair days,” a challenging, subjective area that is lightly touched on by only a few other hair care companies. But P&G faced the problem head on, surveying women about their feelings when using certain hair products. The ultimate goal for Pantene was to help women have “good hair days.” After one week using Pantene products, women using the new formula reported more joy than the control group. The company is still collecting sales figures, but with brighter packaging and slimmer product lines to ease consumer confusion, managers remain optimistic that their hallmark line will bounce back from the recession stronger than before.1 The Pantene story illustrates an important point about problem/opportunity definition. The marketing research problem is information oriented. It involves determining what information is needed and how that information can be obtained efficiently and effectively. The marketing research objective , then, is to provide insightful decision-making information. This requires specific pieces of information needed to solve the marketing research problem. Managers must combine this information with their own experience and other information to make proper decisions. Procter & Gamble's marketing research problem was to gather specific information about how a woman's hair affects her feelings and mood. The marketing research objectives were to reformulate Pantene to affect women's hair more positively and reposition the brand as an antidote to bad hair days.In contrast, the management decision problem is action oriented. Management problems tend to be much broader in scope and far more general than marketing research problems, which must be narrowly defined and specific if the research effort is to be successful. Sometimes several research studies must be conducted to solve a broad management problem. For Pantene, the management decision problem was deciding how to win women back after the recession.
A valuable tool throughout the research process but particularly in the problem/opportunity identification stage is secondary data —data previously collected for any purpose other than the one at hand. Secondary information originating within the company includes documents such as annual reports, reports to stockholders, product testing results perhaps made available to the news media, and house periodicals composed by the company's personnel for communication to employees, customers, or others. Often this information is incorporated into a company's internal database.Innumerable outside sources of secondary information also exist, principally in the forms of government departments and agencies (federal, state, and local) that compile and publish summaries of business data. Trade and industry associations also publish secondary data. Still more data are available in business periodicals and other news media that regularly publish studies and articles on the economy, specific industries, and even individual companies. The unpublished summarized secondary information from these sources corresponds to internal reports, memos, or special-purpose analyses with limited circulation. Economic considerations or priorities in the organization may preclude publication of these summaries. Most of the sources listed above can be found on the Internet.Secondary data save time and money if they help solve the researcher's problem. Even if the problem is not solved, secondary data have other advantages. They can aid in formulating the problem statement and suggest research methods and other types of data needed for solving the problem. In addition, secondary data can pinpoint the kinds of people to approach and their locations and serve as a basis of comparison for other data. The disadvantages of secondary data stem mainly from a mismatch between the researcher's unique problem and the purpose for which the secondary data were originally gathered, which are typically different. For example, a company wanted to determine the market potential for a fireplace log made of coal rather than compressed wood by-products. The researcher found plenty of secondary data about total wood consumed as fuel, quantities consumed in each state, and types of wood burned. Secondary data were also available about consumer attitudes and purchase patterns of wood by-product fireplace logs. The wealth of secondary data provided the researcher with many insights into the artificial log market. Yet nowhere was there any information that would tell the firm whether consumers would buy artificial logs made of coal.The quality of secondary data may also pose a problem. Often secondary data sources do not give detailed information that would enable a researcher to assess their quality or relevance. Whenever possible, a researcher needs to address these important questions: Who gathered the data? Why were the data obtained? What methodology was used? How were classifications (such as heavy users versus light users) developed and defined? When was the information gathered?
The New Age of Secondary Information: The Internet
Although necessary in almost any research project, gathering secondary data has traditionally been a tedious and boring job. The researcher often had to write to government agencies, trade associations, or other secondary data providers and then wait days or weeks for a reply that might never come. Often, one or more trips to the library were required and the researcher might have found that needed reports were checked out or missing. Now, however, the rapid development of the Internet has eliminated much of the drudgery associated with the collection of secondary data.
Marketing Research Aggregators
The marketing research aggregator industry is a $120 million business that is growing about 6 percent a year. Companies in this field acquire, catalog, reformat, segment, and resell reports already published by large and small marketing research firms. Even Amazon.com has added a marketing research aggregation area to its high-profile e-commerce site.The role of aggregator firms is growing because their databases of research reports are getting bigger and more comprehensive—and more useful—as marketing research firms get more comfortable using resellers as a sales channel. Meanwhile, advances in Web technology are making the databases easier to search and deliveries speedier. By slicing and repackaging research reports into narrower, more specialized sections for resale to small- and medium-sized clients who often cannot afford to commission their own studies or buy full reports, the aggregators are essentially nurturing a new target market for the information. Some major aggregators are mindbranch.com , aarkstore.com , and usadata.com .
Planning the Research Design and Gathering Primary Data
Good secondary data can help researchers conduct a thorough situation analysis. With that information, researchers can list their unanswered questions and rank them. Researchers must then decide the exact information required to answer the questions. The research design specifies which research questions must be answered, how and when the data will be gathered, and how the data will be analyzed. Typically, the project budget is finalized after the research design has been approved.Sometimes research questions can be answered by gathering more secondary data; otherwise, primary data may be needed. Primary data , or information collected for the first time, are used for solving the particular problem under investigation. The main advantage of primary data is that they will answer a specific research question that secondary data cannot answer. In Procter & Gamble's research for Pantene, managers used a psychological questionnaire to determine how hair products affected women's daily attitudes. For one week, one group of women used the old Pantene formula, and the other group used the new formula. This primary data revealed that women using the new Pantene felt more excited, proud, interested, and attentive than the other group—positive emotions that the Pantene research group could not have discovered through secondary research.2 Moreover, primary data are current, and researchers know the source. Sometimes researchers gather the data themselves rather than assign projects to outside companies. Researchers also specify the methodology of the research. Secrecy can be maintained because the information is proprietary. In contrast, much secondary data is available to all interested parties for relatively small fees or free.Gathering primary data is expensive; costs can range from a few thousand dollars for a limited survey to several million for a nationwide study. For instance, a nationwide, 15-minute telephone interview with 1,000 adult males can cost $50,000 for everything, including a data analysis and report. Because primary data gathering is so expensive, firms may cut back on the number of in-person interviews to save money and use an Internet study instead. Larger companies that conduct many research projects use another cost-saving technique. They piggyback studies, or gather data on two different projects using one questionnaire. Nevertheless, the disadvantages of primary data gathering are usually offset by the advantages. It is often the only way of solving a research problem. And with a variety of techniques available for research—including surveys, observations, and experiments—primary research can address almost any marketing question.
The most popular technique for gathering primary data is survey research , in which a researcher interacts with people to obtain facts, opinions, and attitudes. Exhibit 9.2 summarizes the characteristics of traditional forms of survey research.
In-Home Personal Interviews
Although in-home personal interviews often provide high-quality information, they tend to be very expensive because of the interviewers’ travel time and mileage costs. Therefore, they are rapidly disappearing from the American and European researchers’ survey toolbox. They are, however, still popular in many countries around the globe.
Mall Intercept Interviews
The mall intercept interview is conducted in the common area of a shopping mall or in a market research office within the mall. To conduct this type of interview, the research firm rents office space in the mall or pays a significant daily fee. One drawback is that it is hard to get a representative sample of the population. One advantage is the ability of the interviewer to probe when necessary—a technique used to clarify a person's response and ask for more detailed information.Mall intercept interviews must be brief. Only the shortest ones are conducted while respondents are standing. Usually, researchers invite respondents into the office for interviews, which are still generally less than 15 minutes long. The overall quality of mall intercept interviews is about the same as telephone interviews.Marketing researchers are applying computer technology in mall interviewing. The first technique is computer-assisted personal interviewing . The researcher conducts in-person interviews, reads questions to the respondent off a computer screen, and directly keys the respondent's answers into the computer. A second approach is computer-assisted self-interviewing . A mall interviewer intercepts and directs willing respondents to nearby computers. Each respondent reads questions off a computer screen and directly keys his or her answers into a computer. The third use of technology is fully automated self-interviewing. Respondents are guided by interviewers or independently approach a centrally located computer station or kiosk, read questions off a screen, and directly key their answers into the station's computer.
Telephone interviews costs less than personal interviews, but cost is rapidly increasing due to respondent refusals to participate. Most telephone interviewing is conducted from a specially designed phone room called a central-location telephone (CLT) facility . A CLT facility has many phone lines, individual interviewing stations, headsets, and sometimes monitoring equipment. The research firm typically will interview people nationwide from a single location. The federal “Do Not Call” law does not apply to survey research.Most CLT facilities offer computer-assisted interviewing. The interviewer reads the questions from a computer screen and enters the respondent's data directly into the computer, saving time. Hallmark Cards found that an interviewer administered a printed questionnaire for its Shoebox greeting cards in 28 minutes. The same questionnaire administered with computer assistance took only 18 minutes. The researcher can stop the survey at any point and immediately print out the survey results, allowing the research design to be refined as necessary.
Mail surveys have several benefits: relatively low cost, elimination of interviewers and field supervisors, centralized control, and actual or promised anonymity for respondents (which may draw more candid responses). A disadvantage is that mail questionnaires usually produce low response rates because certain elements of the population tend to respond more than others. The resulting sample may therefore not represent the surveyed population. Another serious problem with mail surveys is that no one probes respondents to clarify or elaborate on their answers.Mail panels offer an alternative to the one-shot mail survey. A mail panel consists of a sample of households recruited to participate by mail for a given period. Panel members often receive gifts in return for their participation. Essentially, the panel is a sample used several times. In contrast to one-time mail surveys, the response rates from mail panels are high. Rates of 70 percent (of those who agree to participate) are not uncommon.
An executive interview involves interviewing businesspeople at their offices concerning industrial products or services, a process that is very expensive. First, individuals involved in the purchase decision for the product in question must be identified and located, which can itself be expensive and time-consuming. Once a qualified person is located, the next step is to get that person to agree to be interviewed and to set a time for the interview.Finally, an interviewer must go to the particular place at the appointed time. Long waits are frequently encountered; cancellations are not uncommon. This type of survey requires the very best interviewers because they are frequently interviewing on topics that they know very little about.
A focus group is a type of personal interviewing. Often recruited by random telephone screening, seven to ten people with certain desired characteristics form a focus group. These qualified consumers are usually offered an incentive (typically $30 to $50) to participate in a group discussion. The meeting place (sometimes resembling a living room, sometimes featuring a conference table) has audiotaping and perhaps videotaping equipment. It also likely has a viewing room with a one-way mirror so that clients (manufacturers or retailers) can watch the session. During the session, a moderator, hired by the research company, leads the group discussion. Focus groups can be used to gauge consumer response to a product or promotion and are occasionally used to brainstorm new product ideas or to screen concepts for new products. Focus groups also represent an efficient way of learning how products are actually used in the home. Panelists’ descriptions of how they perform tasks highlight need gaps, which can improve an existing product or demonstrate how a new product might be received. It is estimated that over 600,000 focus groups are conducted around the world each year.
- All forms of survey research require a questionnaire. Questionnaires ensure that all respondents will be asked the same series of questions. Questionnaires include three basic types of questions: open-ended, closed-ended, and scaled-response.
- An open-ended question encourages an answer phrased in the respondent's own words. Researchers get a rich array of information based on the respondent's frame of reference (What do you think about the new flavor?). In contrast, a closed-ended question asks the respondent to make a selection from a limited list of responses. Closed-ended questions can either be what marketing researchers call dichotomous (Do you like the new flavor? Yes or No.) or multiple choice.
- A scaled-response question is a closed-ended question designed to measure the intensity of a respondent's answer. The “What do you think?” question that opened the chapter is a scaled-response question.Closed-ended and scaled-response questions are easier to tabulate than open-ended questions because response choices are fixed. On the other hand, unless the researcher designs the closed-ended question very carefully, an important choice may be omitted.A good question must be clear and concise and avoid ambiguous language. The answer to the question “Do you live within ten minutes of here?” depends on the mode of transportation (maybe the person walks), driving speed, perceived time, and other factors. Language should also be clear. As such, jargon should be avoided, and wording should be geared to the target audience. A question such as “What is the level of efficacy of your preponderant dishwasher powder?” would probably be greeted by a lot of blank stares. It would be much simpler to say “Are you (1) very satisfied, (2) somewhat satisfied, or (3) not satisfied with your current brand of dishwasher powder?”Stating the survey's purpose at the beginning of the interview may improve clarity, but it may also increase the chances of receiving biased responses. Many times, respondents will try to provide answers that they believe are “correct” or that the interviewer wants to hear. To avoid bias at the question level, researchers should avoid leading questions and adjectives that cause respondents to think of the topic in a certain way.Finally, to ensure clarity, the interviewer should avoid asking two questions in one—for example, “How did you like the taste and texture of the Pepperidge Farm coffee cake?” This should be divided into two questions, one concerning taste and the other texture.
In contrast to survey research, observation research depends on watching what people do. Specifically, it can be defined as the systematic process of recording the behavioral patterns of people, objects, and occurrences without questioning them. A market researcher using the observation technique witnesses and records information as events occur or compiles evidence from records of past events. Carried a step further, observation may involve watching people or phenomena and may be conducted by human observers or machines. Examples of these various observational situations are shown in Exhibit 9.3.Two common forms of people-watching-people research are one-way mirror observations and mystery shoppers. A one-way mirror allows the researchers to see the participants, but the participants cannot see the researchers.
Mystery shoppers are researchers posing as customers who gather observational data about a store (e.g., are the shelves neatly stocked?) and collect data about customer/employee interactions. The interaction is not an interview, and communication occurs only so that the mystery shopper can observe the actions and comments of the employee. Mystery shopping is, therefore, classified as an observational marketing research method even though communication is often involved.
Behavioral targeting (BT) began as a simple process by placing cookies on users’ browsers to track which Web sites they visited and ultimately match the user with ads they would most likely investigate. Today, BT combines a consumer's online activity with psychographic and demographic profiles compiled in databases (discussed in Chapters 4 and 8). Because of the potential effectiveness of BT advertising, its popularity is skyrocketing. Social networking, which is discussed in depth in Chapter 22, is the fastest-growing area of BT. The information that a member of Google+ or Facebook shares, in combination with his or her demographic and psychographic information, becomes a very powerful tool for ad placement. Critics call this form of BT conversational eavesdropping analysis, but advocates call it user-declared information targeting.5 It is an apt description because the information is posted by members in their profiles. Say Alex posts kayaking as an interest on his profile. Because he declared his interest, it is more concrete marketing knowledge. A note that someone from that computer's address visited a kayaking Web site is less concrete because anyone could have been using that computer. Both Facebook and MySpace allow marketers to target ads to members based upon profile information. Many large companies use BT. When PepsiCo wanted to promote Aquafina Alive on the Web, the company placed ads only on sites visited by people interested in healthy lifestyles.
Ethnographic research comes to marketing from the field of anthropology. The technique is becoming increasingly popular in commercial marketing research. Ethnographic research , or the study of human behavior in its natural context, involves observation of behavior and physical setting. Ethnographers directly observe the population they are studying. As “participant observers,” ethnographers can use their intimacy with the people they are studying to gain richer, deeper insights into culture and behavior—in short, what makes people do what they do.The at-home consumption market is one that eludes much research. Anthropologists and other observational researchers can't sit in people's homes and monitor which electronic devices they are using and how they use them. Questionnaires rely on onetime truthful responses and the respondent's memory. However, some of the nation's biggest media companies are hoping to get a look into people's homes by using iPhones to monitor media consumption. The Coalition for Innovative Media Measurement, a collaboration between media and ad industries to determine how consumers view media and which devices they use, is sponsoring the study. The company would give 1,000 participants iPhones with a special app that they would log into every 30 minutes and answer questions about their media activities. Respondents give frequent updates on what and how they are consuming music and television, whether it is through streaming or downloading, on computers or television, or from subscription services or free. This type of research may be the closest researchers have come to living with research participants and to understanding how Americans consume media. Knowing how Americans watch programs would allow the media and ad industries to tailor delivery to the consumer and use the Internet to their advantage, rather than be left behind with outdated business models.
Advances in computer technology have enabled researchers to simulate an actual retail store environment on a computer screen. Depending on the type of simulation, a shopper can “pick up” a package by touching its image on the monitor and rotate it to examine all sides. Like buying on most online retailers, the shopper touches the shopping cart to add an item to the basket. During the shopping process, the computer unobtrusively records the amount of time the consumer spends shopping in each product category, the time the consumer spends examining each side of a product, the quantity of the product the consumer purchases, and the order in which items are purchased.Computer-simulated environments like this one offer a number of advantages over older research methods. First, the virtual store duplicates the distracting clutter of an actual market. Layouts can even be modified to reflect various types of retailers, such as drugstores or supermarkets, meaning that consumers can shop in an environment with a realistic level of complexity and variety. Second, researchers can set up and alter the tests very quickly. Data collection is also fast and error free because the information generated by the purchase is automatically tabulated and stored by the computer. Third, production costs are low because displays are created electronically. Once the hardware and software are in place, the cost of a test is largely a function of the number of respondents, who generally are given a small incentive to participate. Fourth, the simulation has a high degree of flexibility. It can be used to test entirely new marketing concepts or to fine-tune existing programs.7 Virtual shopping research is growing rapidly as companies such as Cadbury, Nestlé, PepsiCo, and Clorox realize the benefits from this type of observation research.8 About 150,000 new consumer packaged goods were introduced in the United States in 2010.9 All are vying for very limited retail shelf space. Any process, such as virtual shopping, that can speed product development time and lower costs is always welcomed by manufacturers.
An experiment is a method a researcher can use to gather primary data. The researcher alters one or more variables—price, package design, shelf space, advertising theme, advertising expenditures—while observing the effects of those alterations on another variable (usually sales). The best experiments are those in which all factors are held constant except the ones being manipulated. The researcher can then observe what changes in sales, for example, result from changes in the amount of money spent on advertising.
Specifying the Sampling Procedures
- Once the researchers decide how they will collect primary data, their next step is to select the sampling procedures they will use. A firm can seldom take a census of all possible users of a new product, nor can they all be interviewed. Therefore, a firm must select a sample of the group to be interviewed. A sample is a subset from a larger population.Several questions must be answered before a sampling plan is chosen.
- First, the population, or universe , of interest must be defined. This is the group from which the sample will be drawn. It should include all the people whose opinions, behavior, preferences, attitudes, and so on, are of interest to the marketer. For example, in a study whose purpose is to determine the market for a new canned dog food, the universe might be defined to include all current buyers of canned dog food.After the universe has been defined, the next question is whether the sample must be representative of the population. If the answer is yes, a probability sample is needed. Otherwise, a nonprobability sample might be considered.
A probability sample is a sample in which every element in the population has a known statistical likelihood of being selected. Its most desirable feature is that scientific rules can be used to ensure that the sample represents the population.One type of probability sample is a random sample —a sample arranged in such a way that every element of the population has an equal chance of being selected as part of the sample. For example, suppose a university is interested in getting a cross section of student opinions on a proposed sports complex to be built using student activity fees. If the university can acquire an up-to-date list of all the enrolled students, it can draw a random sample by using random numbers from a table (found in most statistics books) to select students from the list. Common forms of probability and nonprobability samples are shown in Exhibit 9.4.
- Any sample in which little or no attempt is made to get a representative cross section of the population can be considered a nonprobability sample . Therefore the
- probability of selection of each sampling unit is not known. A common form of a
- nonprobability sample is the convenience sample , which uses respondents who are convenient or readily accessible to the researcher—for instance, employees, friends, or relatives.Nonprobability samples are acceptable as long as the researcher understands their nonrepresentative nature. Because of their lower cost, nonprobability samples are the basis of much marketing research.
Types of Errors
Whenever a sample is used in marketing research, two major types of errors may occur: measurement error and sampling error. Measurement error occurs when there is a difference between the information desired by the researcher and the information provided by the measurement process. For example, people may tell an interviewer that they purchase Crest toothpaste when they do not.
occurs when a sample somehow does not represent the target population. Sampling error can be one of several types. Nonresponse error occurs when the sample actually interviewed differs from the sample drawn. This error happens because the original people selected to be interviewed either refused to cooperate or were inaccessible.
another type of sampling error, arises if the sample drawn from a population differs from the target population. For instance, suppose a telephone survey is conducted to find out Chicago beer drinkers’ attitudes toward Coors. If a Chicago telephone directory is used as the frame (the device or list from which the respondents are selected), the survey will contain a frame error. Not all Chicago beer drinkers have phones, and many phone numbers are unlisted. An ideal sample (e.g., a sample with no frame error) matches all important characteristics of the target population to be surveyed. Could you find a perfect frame for Chicago beer drinkers?
occurs when the selected sample is an imperfect representation of the overall population. Random error represents how accurately the chosen sample's true average (mean) value reflects the population's true average (mean) value. For example, we might take a random sample of beer drinkers in Chicago and find that 16 percent regularly drink Coors beer. The next day we might repeat the same sampling procedure and discover that 14 percent regularly drink Coors beer. The difference is due to random error. Error is common to all surveys, yet it is often not reported or is underreported. Typically, the only error mentioned in a written report is sampling error.
Collecting the Data
Marketing research field service firms collect most primary data. A field service firm specializes in interviewing respondents on a subcontracted basis. Many have offices, often in malls, throughout the country. A typical marketing research study involves data collection in several cities, which requires the marketer to work with a comparable number of field service firms. Besides conducting interviews, field service firms provide focus group facilities, mall intercept locations, test product storage, and kitchen facilities to prepare test food products.
Analyzing the Data
After collecting the data, the marketing researcher proceeds to the next step in the research process: data analysis. The purpose of this analysis is to interpret and draw conclusions from the mass of collected data. The marketing researcher tries to organize and analyze those data by using one or more techniques common to marketing research: one-way frequency counts, cross-tabulations, and more sophisticated statistical analysis. Of these three techniques, one-way frequency counts are the simplest. One-way frequency tables simply record the responses to a question. For example, the answers to the question “What brand of microwave popcorn do you buy most often?” would provide a one-way frequency distribution. One-way frequency tables are always done in data analysis, at least as a first step, because they provide the researcher with a general picture of the study's results. A cross-tabulation lets the analyst look at the responses to one question in relation to the responses to one or more other questions. For example, what is the association between gender and the brand of microwave popcorn bought most frequently?Researchers can use many other more powerful and sophisticated statistical techniques, such as hypothesis testing, measures of association, and regression analysis. A description of these techniques goes beyond the scope of this book but can be found in any good marketing research textbook. The use of sophisticated statistical techniques depends on the researchers' objectives and the nature of the data gathered.
Preparing and Presenting the Report
After data analysis has been completed, the researcher must prepare the report and communicate the conclusions and recommendations to management. This is a key step in the process. If the marketing researcher wants managers to carry out the recommendations, he or she must convince them that the results are credible and justified by the data collected.Researchers are usually required to present both written and oral reports on the project. Today, the written report is no more than a copy of the Power-Point slides used in the oral presentation. Both reports should be tailored to the audience. They should begin with a clear, concise statement of the research objectives, followed by a complete, but brief and simple, explanation of the research design or methodology employed. A summary of major findings should come next. The conclusion of the report should also present recommendations to management.Most people who enter marketing will become research users rather than research suppliers. Thus, they must know what to notice in a report. As with many other items we purchase, quality is not always readily apparent. Nor does a high price guarantee superior quality. The basis for measuring the quality of a marketing research report is the research proposal. Did the report meet the objectives established in the proposal? Was the methodology outlined in the proposal followed? Are the conclusions based on logical deductions from the data analysis? Do the recommendations seem prudent, given the conclusions?
The final step in the marketing research process is to follow up. The researcher should determine why management did or did not carry out the recommendations in the report. Was sufficient decision-making information included? What could have been done to make the report more useful to management? A good rapport between the product manager, or whoever authorized the project, and the market researcher is essential. Often they must work together on many studies throughout the year.Typically, the research process flows rather smoothly from one step to the next in the United States. However, conducting research in international markets can create a whole host of problems and challenges.
The Profound Impact of the Internet on Marketing Research
Today, about one-fifth of the world's population is online. In the United States, 71 percent of the population is online, spanning every ethnic, socioeconomic, and educational divide.10 Most managers accept that online research can, under appropriate conditions, accurately represent U.S. consumers as a whole. Non-adopters of the Internet tend to be older, low-income consumers (aged 65+ with household income less than $30,000), who do not tend to be the target market for many goods and services.11 More than 90 percent of America's marketing research companies conduct some form of online research. Online survey research has replaced computer-assisted telephone interviewing (CATI) as the most popular mode of data collection, though there is no evidence of this or other traditional survey methods being completely replaced by online surveys.12 Internet data collection is also rated as having the greatest potential for further growth.
Advantages of Internet Surveys
- The huge growth in the popularity of Internet surveys is the result of the many advantages offered by the Internet. The specific advantages of Internet surveys are related to many factors:
- Rapid development, real-time reporting: Internet surveys can be broadcast to thousands of potential respondents simultaneously. Respondents complete surveys simultaneously; then results are tabulated and posted for corporate clients to view as the returns arrive. The result: survey results can be in a client's hands in significantly less time than would be required for traditional surveys.
- Dramatically reduced costs: The Internet can cut costs by 25 to 40 percent and provide results in half the time it takes to do traditional telephone surveys. Traditional survey methods are labor-intensive efforts incurring training, telecommunications, and management costs. Electronic methods eliminate these completely. While costs for traditional survey techniques rise proportionally with the number of interviews desired, electronic solicitations can grow in volume with little increase in project costs.
- Personalized questions and data: Internet surveys can be highly personalized for greater relevance to each respondent's own situation, thus speeding the response process.
- Improved respondent participation: Internet surveys take half as much time to complete as phone interviews, can be accomplished at the respondent's convenience (after work hours), and are much more stimulating and engaging. As a result, Internet surveys enjoy much higher response rates.
- Contact with the hard-to-reach: Certain groups—doctors, high-income professionals, top management in Global 2000 firms—are among the most surveyed on the planet and the most difficult to reach. Many of these groups are well represented online. Internet surveys provide convenient anytime/anywhere access that makes it easy for busy professionals to participate.
Uses of the Internet by Marketing Researchers
Marketing researchers are using the Internet to administer surveys, conduct focus groups, and perform a variety of other types of marketing research.
Methods of Conducting Online Surveys
There are several basic methods for conducting online surveys: Web survey systems, survey design and Web hosting sites, and online panel providers.
Web Survey Systems
Web survey systems are software systems specifically designed for Web questionnaire construction and delivery. They consist of an integrated questionnaire designer, Web server, database, and data delivery program, designed for use by non-programmers. The Web server distributes the questionnaire and files responses in a database. The user can query the server at any time via the Web for completion statistics, descriptive statistics on responses, and graphical displays of data. Some popular online survey research software packages are Sawtooth CiW, Infopoll, SurveyMonkey, and SurveyPro.
Survey Design and Web Hosting Sites
Several Web sites allow the researcher to design a survey online without loading design software. The survey is then administered on the design site's server. Some offer tabulation and analysis packages as well. One popular site that offers Web hosting services is Vovici.
Online Panel Providers
Often researchers use online panel providers for a ready-made sample population. Online panel providers such as Survey Sampling International and e-Rewards pre-recruit people who agree to participate in online market research surveys.Some online panels are created for specific industries and may have a few thousand panel members, while the large commercial online panels have millions of people waiting to be surveyed. When people join online panels, they answer an extensive profiling questionnaire that enables the panel provider to target research efforts to panel members who meet specific criteria.
Online Focus Groups
A relatively recent development in qualitative research is the online or cyber focus group. A number of organizations are currently offering this new means of conducting focus groups. The process is fairly simple. The research firm builds a database of respondents via a screening questionnaire on its Web site. When a client comes to a firm with a need for a particular focus group, the firm goes to its database and identifies individuals who appear to qualify. It sends an e-mail message to these individuals, asking them to log on to a particular site at a particular time scheduled for the group. The firm pays them an incentive for their participation.The firm develops a discussion guide similar to the one used for a conventional focus group, and a moderator runs the group by typing in questions online for all to see. The group operates in an environment similar to that of a chat room so that all participants see all questions and all responses. The firm captures the complete text of the focus group and makes it available for review after the group has finished.Online focus groups also allow respondents to view things such as a concept statement, a mockup of a print ad, or a short product demonstration video. The moderator simply provides a URL reference for the respondents to go to in another browser window. One of the risks of doing this, however, is that once respondents open another browser, they have “left the room” and the moderator may lose their attention; researchers must hope that respondents will return within the specified amount of time.More advanced virtual focus group software reserves a frame (section) of the screen for stimuli to be shown. Here, the moderator has control over what is shown in the stimulus area. The advantage of this approach is that the respondent does not have to do any work to see the stimuli.
Advantages of Online Focus Groups
- Many advantages are claimed for cyber groups:
- Better participation rates: Typically, online focus groups can be conducted over the course of days; once participants are recruited, they are less likely to pull out due to time conflicts.
- Cost-effectiveness: Face-to-face focus groups incur costs for facility rental, airfare, hotel, and food. None of these costs is incurred with online focus groups. 9
- Broad geographic scope: Time is flexible online; respondents can be gathered from all over the world.
- Accessibility: Online focus groups give you access to individuals who otherwise might be difficult to recruit (e.g., business travelers, senior executives, mothers with infants).
- Honesty: From behind their screen names, respondents are anonymous to other respondents and tend to talk more freely about issues that might create inhibitions in a face-to-face group.
Web Community Research, Text-Message-Based Research, and Blogging Assignments
- A Web community is a carefully selected group of consumers who agree to participate in an ongoing dialogue with a particular corporation. All community interaction takes place on a custom-designed Web site. During the life of the community—which may last anywhere from six months to a year or more—community members respond to questions posed by the corporation on a regular basis. In addition to responding to the corporation's questions, community members talk to one another about topics that are of interest to them.The popularity and power of Web communities initially came from several key benefits. They:
- engage customers in a space where they are comfortable, allowing clients to interact with them on a deeper level,
- achieve customer-derived innovations,
- establish brand advocates who are emotionally invested in a company's success, and
- offer real-time results, enabling clients to explore ideas that normal time constraints prohibit. Additionally, Web communities help companies create a customer-focused organization by putting employees into direct contact with consumers from the comfort of their own desks, as well as providing cost-effective, flexible research.Two other relatively recent developments in Internet marketing research are text-message-based research and blogging assignments. Text-message-based research allows marketers to text a basic question (What are you drinking with lunch today?) and a follow-up to respondents (On a scale of 1 to 9, how much do you like your drink?). Because mobile phones are so prevalent, this type of research can reach most demographics, and it is very quick, resulting in higher feedback rates. For blogging assignments, which are different from consumer-generated blogs (covered below), marketers assign respondents to write a brief blog entry each time they use the product being reviewed. These blogs can span any amount of time and offer marketers a closer look at how consumers interact with products. Additionally, because the technology is relatively inexpensive, assignments can be given to larger numbers of respondents. These blogs are not public and are viewable only by the respondent and the marketer.
The Role of Consumer-Generated Media in Marketing Research
Consumer-generated media (CGM) are media that consumers generate themselves and share among themselves. CGM comes from various sources, such as blogs, message boards, review sites, and podcasts. Because it is consumer based, CGM is trusted more than traditional forms of advertising and promotion.15 CGM can be influenced but not controlled by marketers. Nielsen BuzzMetrics is the leading marketing research firm tracking CGM. BrandPulse is BuzzMetrics' most popular product. BrandPulse can tell a company how much “buzz” exists, where online discussion is taking place, the tone of the discussion, and which issues are most important. BrandPulse provides timely understanding of the opinions and trends affecting a company or brand. Depending on the information the customer needs, other BuzzMetrics products can go into further detail, such as detecting who would be a good candidate for relationship marketing programs.16
is a system for gathering information from a single group of respondents by continuously monitoring the advertising, promotion, and pricing they are exposed to and the things they buy. The variables measured are advertising campaigns, coupons, displays, and product prices. The result is a huge database of marketing efforts and consumer behavior.The two major scanner-based suppliers are Information Resources, Inc. (IRI) and the A. C. Nielsen Company. Each has about half of the market. However, IRI is the founder of scanner-based research. IRI's first product is called BehaviorScan . A household panel (a group of 3,000 long-term participants in the research project) has been recruited and maintained in each BehaviorScan town. Each panel member shops with an ID card, which is presented at the checkout in scanner-equipped grocery stores and drugstores, allowing IRI to track electronically each household's purchases, item by item, over time. It uses microcomputers to measure television viewing in each panel household and can send special commercials to panel member television sets. With such a measure of household purchasing, it is possible to manipulate marketing variables, such as television advertising or consumer promotions, or to introduce a new product and analyze real changes in consumer buying behavior.IRI's most successful product is InfoScan , a scanner-based sales-tracking service for the consumer packaged-goods industry. Retail sales, detailed consumer purchasing information (including measurement of store loyalty and total grocery basket expenditures), and promotional activity by manufacturers and retailers are monitored and evaluated for all bar-coded products. Data are collected weekly from more than 70,000 supermarkets, drugstores, and mass merchandisers.17 Some companies have begun studying microscopic changes in skin moisture, heart rate, brain waves, and other biometrics to see how consumers react to things such as package designs and ads. This neuromarketing approach is a fresh attempt to better understand consumers’ responses to promotion and purchase motivations.
When Should Marketing Research Be Conducted?
When managers have several possible solutions to a problem, they should not instinctively call for marketing research. In fact, the first decision to make is whether to conduct marketing research at all.Some companies have been conducting research in certain markets for many years. Such firms understand the characteristics of target customers and their likes and dislikes about existing products. Under these circumstances, further research would be repetitive and waste money. Procter & Gamble, for example, has extensive knowledge of the coffee market. After it conducted initial taste tests with Folgers Instant Coffee, P&G went into national distribution without further research. Sara Lee followed the same strategy with its frozen croissants, as did Quaker Oats with Chewy Granola Bars. This tactic, however, can backfire. Marketers may think they understand a particular market thoroughly and so bypass market research for a product, only to have the product fail and be withdrawn from the market.If information were available and free, managers would rarely refuse more, but because marketing information can require a great deal of time and expense to accumulate, they might decide to forgo additional information. Ultimately, the willingness to acquire additional decision-making information depends on managers’ perceptions of its quality, price, and timing. Research should be undertaken only when the expected value of the information is greater than the cost of obtaining it.
Derived from military intelligence, competitive intelligence is an important tool for helping a firm overcome a competitor's advantage. Specifically, competitive intelligence can help identify the advantage and play a major role in determining how it was achieved.
Competitive intelligence (CI)
helps managers assess their competitors and their vendors in order to become more efficient and effective competitors. Intelligence is analyzed information. It becomes decision-making intelligence when it has implications for the organization. For example, a primary competitor may have plans to introduce a product with performance standards equal to those of the company gathering the information but with a 15 percent cost advantage. The new product will reach the market in eight months. This intelligence has important decision-making and policy consequences for management. CI and environmental scanning (see Chapter 2) combine to create marketing intelligence. Marketing intelligence is then used as input into a marketing decision support system.The Internet is an important resource for gathering CI, but noncomputer sources can be equally valuable. Some examples include company salespeople, industry experts, CI consultants, government agencies, Uniform Commercial Code filings, suppliers, periodicals, the Yellow Pages, and industry trade shows.
Explain the concept and purpose of a marketing decision support system.
A decision support system (DSS) makes data instantly available to marketing managers and allows them to manipulate the data themselves to make marketing decisions. Four characteristics make a DSS especially useful to marketing managers: They are interactive, flexible, discovery oriented, and accessible. Decision support systems give managers access to information immediately and without outside assistance. They allow users to manipulate data in a variety of ways and to answer “what if” questions. And, finally, they are accessible to novice computer users.
Define marketing research and explain its importance to marketing decision making.
Marketing research is a process of collecting and analyzing data for the purpose of solving specific marketing problems. Marketers use marketing research to explore the profitability of marketing strategies. They can examine why particular strategies failed and analyze characteristics of specific market segments. Managers can use research findings to help keep current customers. Moreover, marketing research allows management to behave proactively, rather than reactively, by identifying newly emerging patterns in society and the economy.
Describe the steps involved in conducting a marketing research project.
The marketing research process involves several basic steps. First, the researcher and the decision maker must agree on a problem statement or set of research objectives. The researcher then creates an overall research design to specify how primary data will be gathered and analyzed. Before collecting data, the researcher decides whether the group to be interviewed will be a probability or nonprobability sample. Field service firms are often hired to carry out data collection. Once data have been collected, the researcher analyzes them using statistical analysis. The researcher then prepares and presents oral and written reports, with conclusions and recommendations, to management. As a final step, the researcher determines whether the recommendations were implemented and what could have been done to make the project more successful.
Discuss the profound impact of the Internet on marketing research.
The Internet has simplified the secondary data search process. Internet survey research is surging in popularity. Internet surveys can be created rapidly, are reported in real time, are relatively inexpensive, and are easily personalized. Often researchers use the Internet to contact respondents who are difficult to reach by other means. The Internet can also be used to conduct focus groups, to distribute research proposals and reports, and to facilitate collaboration between the client and the research supplier. Text-message-based research and giving consumers blogging assignments are new trends that give marketers quick feedback (text-messaging) or in-depth information over time (blogging).
Discuss the growing importance of scanner-based research.
A scanner-based research system enables marketers to monitor a market panel's exposure and reaction to such variables as advertising, coupons, store displays, packaging, and price. By analyzing these variables in relation to the panel's subsequent buying behavior, marketers gain useful insight into sales and marketing strategies.