INTRODUCTION TO MARKETING

Background

What is marketing? Almost every marketing textbook has a different definition of the term “marketing.” The American Marketing Association (AMA) uses the following: “The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.” From this definition, we see that:

* Marketing involves an ongoing process. The environment is “dynamic.” This means that the market tends to change—what customers want today is not necessarily what they want tomorrow. For example, sales of beef are declining in the United States because consumers have become health oriented. Similarly, Tupperware parties are less popular today than they once were because there are fewer housewives who do not work outside the home.
* This process involves both planning and implementing (executing) the plan.
* Some of the main issues involved include:
o Marketers help design products, finding out what customers want and what can practically be made available given technology and price constraints.
o Marketers distribute products—there must be some efficient way to get the products from the factory to the end-consumer.
o Marketers also promote products, and this is perhaps what we tend to think of first when we think of marketing. Promotion involves advertising—and much more. Other tools to promote products include trade promotion (store sales, coupons, and rebates), obtaining favorable and visible shelf-space, and obtaining favorable press coverage.
o Marketers also price products to “move” them. We know from economics that, in most cases, sales correlate negatively with price—the higher the price, the lower the quantity demanded. In some cases, however, price may provide the customer with a “signal” of quality. Thus, the marketer needs to price the product to (1) maximize profit and (2) communicate a desired image of the product.
o Marketing is applicable to services and ideas as well as to tangible products. For example, accountants may need to market their tax preparation services to consumers.

Reasons for studying marketing. There are several good reasons for studying marketing. First of all, marketing issues are important in all areas of the organization—customers are the reasons why businesses exist! In fact, marketing efforts (including such services as promotion and distribution) often account for more than half of the price of a product. As an added benefit, studying marketing often helps us become more savvy consumers. We will learn, for instance, that the per unit price of a bigger package is frequently higher than that of a smaller one, and that more expensive products are frequently not better in quality.

Criteria that must be met for marketing to occur. Several criteria must be met for marketing to occur:

* There must be two parties, each with unsatisfied needs or wants. This want, of course, could be money for the seller.
* Each must have something to offer. Marketing involves voluntary “exchange” relationships where both sides must be willing parties. Thus, a consumer who buys a soft drink in a vending machine for 60¢ must value the soft drink, available at that time and place, more than the money. Conversely, the vendor must value the money more. (It is interesting to note that money is, strictly speaking, not necessary for this exchange to take place. It is possible, albeit a bit cumbersome, to exchange two ducks for a pair of shoes.)
* The parties must be able to communicate. This could be through a display in a store, an infomercial, or a posting on eBay.

The marketing vs. the selling concept. Two approaches to marketing exist. The traditional selling concept emphasizes selling existing products. The philosophy here is that if a product is not selling, more aggressive measures must be taken to sell it—e.g., cutting price, advertising more, or hiring more aggressive (and obnoxious) sales-people. When the railroads started to lose business due to the advent of more effective trucks that could deliver goods right to the customer’s door, the railroads cut prices instead of recognizing that the customers ultimately wanted transportation of goods, not necessarily railroad transportation. Smith Corona, a manufacturer of typewriters, was too slow to realize that consumers wanted the ability to process documents and not typewriters per se. The marketing concept, in contrast, focuses on getting consumers what they seek, regardless of whether this entails coming up with entirely new products.

The 4 Ps—product, place (distribution), promotion, and price—represent the variables that are within the control of the firm (at least in the medium to long run). In contrast, the firm is faced with uncertainty from the environment.

The Marketing Environment

Elements of the environment. The marketing environment involves factors that, for the most part, are beyond the control of the company. Thus, the company must adapt to these factors. It is important to observe how the environment changes so that a firm can adapt its strategies appropriately. Consider these environmental forces:

* Competition: Competitors often “creep” in and threaten to take away markets from firms. For example, Japanese auto manufacturers became a serious threat to American car makers in the late 1970s and early 1980s. Similarly, the Lotus Corporation, maker of one of the first commercially successful spreadsheets, soon faced competition from other software firms. Note that while competition may be frustrating for the firm, it is good for consumers. (In fact, we will come back to this point when we consider the legal environment). Note that competition today is increasingly global in scope.
* Economics. Some firms in particular are extremely vulnerable to changes in the economy. Consumers tend to put off buying a new car, going out to eat, or building new homes in bad times. In contrast, in good times, firms serving those needs may have difficulty keeping up with demand.
* Political. Businesses are very vulnerable to changes in the political situation. For example, because consumer groups lobbied Congress, more stringent rules were made on the terms of car leases. The tobacco industry is currently the target of much negative attention from government and public interest groups. Currently, the desire to avoid aiding the enemy may result in laws that make it more difficult for American firms to export goods to other countries.
* Legal: Firms are very vulnerable to changing laws and changing interpretations by the courts. Firms in the U.S. are very vulnerable to lawsuits. McDonald’s, for example, is currently being sued by people who claim that eating the chain’s hamburgers caused them to get fat. Some impacts of the legal environment:
* Firms are significantly limited in what they can do by various laws—some laws, for example, require that disclosures be made to consumers on the effective interest rates they pay on products bought on installment. A particularly interesting group of laws relate to antitrust. These laws basically exist to promote fair competition among firms. Some principles involved here include:
o Collusion: Firms may not “conspire” to fix prices (agree that they will not sell below an agreed upon price) or reduce services.
o Predation: Firms may not sell their products below their cost of production for the purpose of driving competitors out of business so that they, themselves, can raise prices when competition is reduced.
o Market share: Firms which have an unacceptably large market share may be “broken” up by court order so that many smaller firms will be around to compete. (This is what happened to AT&T, and at times, IBM has been worried about this prospect). • Tying: A firm that controls a valuable product may not require the consumer to buy a more commonplace one to get the scarce product. For example, Intel controls many of the newest microprocessors (e.g., Pentium IV). Intel also makes motherboards for computers; however, motherboards are made by a lot of firms. Intel would be thought to abuse its effective monopoly power if it required consumers to buy a motherboard in order to get its newest chips.
* Technological. Changes in technology may significantly influence the demand for a product. For example, the advent of the fax machine was bad news for Federal Express. The Internet is a major threat to travel agents.
* Social: Changes in customs or demographics greatly influence firms. Fewer babies today are being born, resulting in a decreased demand for baby foods. More women work outside the home today, so there is a greater demand for prepared foods. There are more unmarried singles today. This provides opportunities for some firms (e.g., fast food restaurants) but creates problems for others (e.g., manufacturers of high quality furniture that many people put off buying until marriage). Today, there are more “blended” families that result as parents remarry after divorce. These families are often strapped for money but may require “duplicate” items for children at each parent’s residence.

Environmental scanning helps the firm understand developments in the market. Such developments may involve changes in the market place due to social trends (e.g., Gerber, a manufacturer of baby products, faces a serious challenge with declining U.S. birth rates), technology (e.g., VCR makers are threatened by DVD players), or new or potential competitors (e.g., Internet service providers are being threatened by increasing marketing efforts from MSN). Note that environmental scanning must be performed continuously, since environmental change does not cease.

Economic cycles. The economy goes through cycles. In the late 1990s, the U.S. economy was quite strong, and many luxury goods were sold. Currently, the economy is somewhat weak, and many firms are facing the results. Car makers, for example, have seen declining profit margins (and even losses) as they have had to cut prices and offer low interest rates on financing. Generally, in good economic times, there is a great deal of demand, but this introduces a fear of possible inflation. In the U.S., the Federal Reserve will then try to prevent the economy from “overheating.” This is usually done by raising interest rates. This makes businesses less willing to invest, and as a result, people tend to make less money. During a recession, unemployment tends to rise, causing consumers to spend less. This may result in a “bad circle,” with more people losing their jobs due to lowered demands. Some businesses, however, may take this opportunity to invest in growth now that things can be bought more cheaply.

Strategic Planning and the Marketing Process

Plans and planning. Plans are needed to clarify what kinds of strategic objectives an organization would like to achieve and how this is to be done. Such plans must consider the amount of resources available. One critical resource is capital. Microsoft keeps a great deal of cash on hand to be able to “jump” on opportunities that come about. Small startup software firms, on the other hand, may have limited cash on hand. This means that they may have to forego what would have been a good investment because they do not have the cash to invest and cannot find a way to raise the capital. Other resources that affect what a firm may be able to achieve include factors such as:  Trademarks/brand names: It would be very difficult to compete against Coke and Pepsi in the cola market.  Patents: It would be difficult to compete against Intel and AMD in the microprocessor market since both these firms have a number of patents that it is difficult to get around.  People: Even with all of Microsoft’s money available, it could not immediately hire the people needed to manufacture computer chips.  Distribution: Stores have space for only a fraction of the products they are offered, so they must turn many away. A firm that does not have an established relationship with stores will be at a disadvantage in trying to introduce a new product.

Plans are subject to the choices and policies that the organization has made. Some firms have goals of social responsibility, for example. Some firms are willing to take a greater risk, which may result in a very large payoff but also involve the risk of a large loss, than others.

Strategic marketing is best seen as an ongoing and never-ending process. Typically:

* The organization will identify the objectives it wishes to achieve. This could involve profitability directly, but often profitability is a long term goal that may require some intermediate steps. The firm may seek to increase market share, achieve distribution in more outlets, have sales grow by a certain percentage, or have consumers evaluate the product more favorably. Some organizations have objectives that are not focused on monetary profit—e.g., promoting literacy or preventing breast cancer.
* An analysis is made, taking into consideration issues such as organizational resources, competitors, the competitors’ strengths, different types of customers, changes in the market, or the impact of new technology.
* Based on this analysis, a plan is made based on tradeoffs between the advantages and disadvantages of different options available.
* This strategy is then carried out. The firm may design new products, revamp its advertising strategy, invest in getting more stores to carry the product, or decide to focus on a new customer segment.
* After implementation, the results or outcome are evaluated. If results are not as desired, a change may have to be made to the strategy. Even if results are satisfactory, the firm still needs to monitor the environment for changes.

Levels of planning and strategies. Plans for a firm can be made at several different levels. At the corporate level, the management considers the objectives of the firm as a whole. For example, Microsoft may want seek to grow by providing high quality software, hardware, and services to consumers. To achieve this goal, the firm may be willing to invest aggressively.

Plans can also be made at the business unit level. For example, although Microsoft is best known for its operating systems and applications software, the firm also provides Internet access and makes video games. Different managers will have responsibilities for different areas, and goals may best be made by those closest to the business area being considered. It is also more practical to hold managers accountable for performance if the plan is being made at a more specific level. Boeing has both commercial aircraft and defense divisions. Each is run by different managers, although there is some overlap in technology between the two. Therefore, plans are needed both at the corporate and at the business levels.

Occasionally, plans will be made at the functional level, to allow managers to specialize and to increase managerial accountability. Marketing, for example, may be charged with increasing awareness of Microsoft game consoles to 55% of the U.S. population or to increase the number of units of Microsoft Office sold. Finance may be charged with raising a given amount of capital at a given cost. Manufacturing may be charged with decreasing production costs by 5%.

The firm needs to identify the business it is in. Here, a balance must be made so that the firm’s scope is not defined too narrowly or too broadly. A firm may define its goal very narrowly and then miss opportunities in the market place. For example, if Dell were to define itself only as a computer company, it might miss an opportunity to branch into PDAs or Internet service. Thus, they might instead define themselves as a provider of “information solutions.” A company should not define itself too broadly, however, since this may result in loss of focus. For example, a manufacturer of baking soda should probably not see itself as a manufacturer of all types of chemicals. Sometimes, companies can define themselves in terms of a customer need. For example, 3M sees itself as being in the business of making products whose surfaces are bonded together. This accounts for both Post-It notes and computer disks.

A firm’s mission should generally include a discussion of the customers served (e.g., Wal-Mart and Nordstrom’s serve different groups), the kind of technology involved, and the markets served.

Several issues are involved in selecting target customers. We will consider these in more detail within the context of segmentation, but for now, the firm needs to consider issues such as:

* The size of various market segments;
* How well these segments are being served by existing firms;
* Changes in the market—e.g., growth of segments or change in technology;
* How the firm should be positioned, or seen by customers. For example, Wal-Mart positions itself as providing value in retailing, while Nordstrom’s defines itself more in terms of high levels of customer service.

The Boston Consulting Group (BCG) matrix provides a firm an opportunity to assess how well its business units work together. Each business unit is evaluated in terms of two factors: market share and the growth prospects in the market. Generally, the larger a firm’s share, the stronger its position, and the greater the growth in a market, the better future possibilities. Four combinations emerge:

* A star represents a business unit that has a high share in a growing market. For example, Motorola has a large share in the rapidly growing market for cellular phones.
* A question mark results when a unit has a small share in a rapidly growing market. The firm’s position, then, is not as strong as it would have been had its market share been greater, but there is an opportunity to grow. For example, Hewlett-Packard has a small share of the digital camera market, but this is a very rapidly growing market.
* A cash cow results when a firm has a large share in a market that is not growing, and may even be shrinking. Brother has a large share of the typewriter market.
* A dog results when a business unit has a small share in a market that is not growing. This is generally a somewhat unattractive situation, although dogs can still be profitable in the short run. For example, Smith Corona how has a small share of the typewriter market.

Firms are usually best of with a portfolio that has a balance of firms in each category. The cash cows tend to generate cash but require little future investment. On the other hand, stars generate some cash, but even more cash is needed to invest in the future—for research and development, marketing campaigns, and building new manufacturing facilities. Therefore, a firm may take excess cash from the cash cow and divert it to the star. For example, Brother could “harvest” its profits from typewriters and invest this in the unit making color laser printers, which will need the cash to grow. If a firm has cash cows that generate a lot of cash, this may be used to try to improve the market share of a question mark. A firm that has a number of promising stars in its portfolio may be in serious trouble if it does not have any cash cows to support it. If it is about to run out of cash—regardless of how profitable it is—is becomes vulnerable as a takeover target from a firm that has the cash to continue running it.

A SWOT (“Strengths, Opportunities, Weaknesses, and Threats”) analysis is used to help the firm identify effective strategies. Successful firms such as Microsoft have certain strengths. Microsoft, for example, has a great deal of technology, a huge staff of very talented engineers, a great deal of experience in designing software, a very large market share, a well respected brand name, and a great deal of cash. Microsoft also has some weaknesses, however: The game console and MSN units are currently running at a loss, and MSN has been unable to achieve desired levels of growth. Firms may face opportunities in the current market. Microsoft, for example, may have the opportunity to take advantage of its brand name to enter into the hardware market. Microsoft may also become a trusted source of consumer services. Microsoft currently faces several threats, including the weak economy. Because fewer new computers are bough during a recession, fewer operating systems and software packages.

Rather than merely listing strengths, weaknesses, opportunities, and threats, a SWOT analysis should suggest how the firm may use its strengths and opportunities to overcome weaknesses and threats. Decisions should also be made as to how resources should be allocated. For example, Microsoft could either decide to put more resources into MSN or to abandon this unit entirely. Microsoft has a great deal of cash ready to spend, so the option to put resources toward MSN is available. Microsoft will also need to see how threats can be addressed. The firm can earn political good will by engaging in charitable acts, which it has money available to fund. For example, Microsoft has donated software and computers to schools. It can forego temporary profits by reducing prices temporarily to increase demand, or can “hold out” by maintaining current prices while not selling as many units.

Criteria for effective marketing plans. Marketing plans should meet several criteria:

* The plan must be specific enough so that it can be implemented and communicated to people in the firm. “Improving profitability” is usually too vague, but increasing net profits by 5%, increasing market share by 10%, gaining distribution in 2,000 more stores, and reducing manufacturing costs by 2% are all specific.
* The plan must be measurable so that one can see if it has been achieved. The above plans involve specific numbers.
* The goal must be achievable or realistic. Plans that are unrealistic may result in poor use of resources or lowered morale within the firm.
* The goals must be consistent. For example, a firm cannot ordinarily simultaneously plan improve product features, increase profits, and reduce prices.



Consumer Behavior

Consumer behavior involves the psychological processes that consumers go through in recognizing needs, finding ways to solve these needs, making purchase decisions (e.g., whether or not to purchase a product and, if so, which brand and where), interpret information, make plans, and implement these plans (e.g., by engaging in comparison shopping or actually purchasing a product).

Sources of influence on the consumer. The consumer faces numerous sources of influence. Often, we take cultural influences for granted, but they are significant. An American will usually not bargain with a store owner. This, however, is a common practice in much of the World. Physical factors also influence our behavior. We are more likely to buy a soft drink when we are thirsty, for example, and food manufacturers have found that it is more effective to advertise their products on the radio in the late afternoon when people are getting hungry. A person’s self-image will also tend to influence what he or she will buy—an upwardly mobile manager may buy a flashy car to project an image of success. Social factors also influence what the consumers buy—often, consumers seek to imitate others whom they admire, and may buy the same brands. The social environment can include both the mainstream culture (e.g., Americans are more likely to have corn flakes or ham and eggs for breakfast than to have rice, which is preferred in many Asian countries) and a subculture (e.g., rap music often appeals to a segment within the population that seeks to distinguish itself from the mainstream population). Thus, sneaker manufacturers are eager to have their products worn by admired athletes. Finally, consumer behavior is influenced by learning—you try a hamburger and learn that it satisfies your hunger and tastes good, and the next time you are hungry, you may consider another hamburger.

Consumer choices are often influenced dramatically by values. Some consumers, for example, seek to “fit in with the crowd” and would like to own a car as similar as possible to that of the neighbor. Others, on the other hand, want to stand out. In the consumption context, then, a consumer may choose to spend a great deal of money on buying and maintaining neat and professional attire, not because he or she is particularly interested in that appearance for its own sake, but rather because this will help the consumer be successful in his or her career.

Subculture often significantly influences the consumer. There are several potential ways that a society can be divided up. Some consumers are highly influenced by their ethnic origin. In some areas in Los Angeles, shopkeepers may transact all their business in a language of the predominant immigration patterns into the neighborhood—e.g., Spanish or Korean in some parts of downtown and Chinese in parts of the San Gabriel Valley. Virtual pets at first spread in the U.S. through Asian-American teenagers. Only after a while did the product diffuse into other ethnic groups. Occasionally, religious groups will influence consumers’ behavior, usually because a religion may set certain standards—e.g., some religions do not allow the consumption of alcohol, while others may disapprove of charging interest. The fact that many Americans spend a great deal of time with members of their religious groups in churches, synagogues, and mosques implies that members have a great deal of influence on each other. People in similar age groups also tend to have more influence on each other. This is particularly evident in the spread of fashion. Social status may also have some influence, as people may tend to emulate others in similar occupations or neighborhoods.

One way to look at social influence is though “reference groups”—people against which one compares oneself. Thus, a consumer may notice that all his friends are wearing a special kind of jeans and may expect to be ostracized if he or she chooses to wear a different brand. Interestingly, however, one may also hold dissociative reference groups—people that one would not want to be compared to. For example, Cadillac has an image problem in being associated with older consumers, who are not considered “hip” enough by younger, upwardly mobile consumers that the firm would like to target. Thus, Cadillac ran the campaign “It’s not your father’s car.”

Family may influence the consumer’s choices a great deal. Research has shown, for example, that there is a tendency for adult children to use the same brands that their parents used over time. In many cases, these brand choices are made without much conscious thought.

In marketing jargon, a consumer problem refers to a “discrepancy” between the “ideal” situation and reality. Thus, problems can range greatly in severity. One problem, for example, is that you are hungry. The problem is easily solved by eating. Other problems can be significantly more severe—for example, a consumer is scared that he will be rejected by his wife because he is growing bald. Note that problems can be solved in more than one way. Baldness could be addressed by obtaining a wig, medical treatment, buying a fancy car (as an alternative way to achieve attractiveness), or some other creative way.

One model of consumer decision making involves several steps. The first one is problem recognition—you realize that something is not as it should be. Perhaps, for example, your car is getting more difficult to start and is not accelerating well. The second step is information search—what are some alternative ways of solving the problem? You might buy a new car, buy a used car, take your car in for repair, ride the bus, ride a taxi, or ride a skateboard to work. The third step involves evaluation of alternatives. A skateboard is inexpensive, but may be ill-suited for long distances and for rainy days. Finally, we have the purchase stage, and sometimes a post-purchase stage (e.g., you return a product to the store because you did not find it satisfactory). In reality, people may go back and forth between the stages. For example, a person may resume alternative identification during while evaluating already known alternatives.

Consumer involvement will tend to vary dramatically depending on the type of product. In general, consumer involvement will be higher for products that are very expensive (e.g., a home, a car) or are highly significant in the consumer’s life in some other way (e.g., a word processing program or acne medication).

It is important to consider the consumer’s motivation for buying products. To achieve this goal, we can use the Means-End chain, wherein we consider a logical progression of consequences of product use that eventually lead to desired end benefit. Thus, for example, a consumer may see that a car has a large engine, leading to fast acceleration, leading to a feeling of performance, leading to a feeling of power, which ultimately improves the consumer’s self-esteem. A handgun may aim bullets with precision, which enables the user to kill an intruder, which means that the intruder will not be able to harm the consumer’s family, which achieves the desired end-state of security. In advertising, it is important to portray the desired end-states. Focusing on the large motor will do less good than portraying a successful person driving the car.

Information search and decision making. Consumers engage in both internal and external information search. Internal search involves the consumer identifying alternatives from his or her memory. For certain low involvement products, it is very important that marketing programs achieve “top of mind” awareness. For example, few people will search the Yellow Pages for fast food restaurants; thus, the consumer must be able to retrieve one’s restaurant from memory before it will be considered. For high involvement products, consumers are more likely to use an external search. Before buying a car, for example, the consumer may ask friends’ opinions, read reviews in Consumer Reports, consult several web sites, and visit several dealerships. Thus, firms that make products that are selected predominantly through external search must invest in having information available to the consumer in need—e.g., through brochures, web sites, or news coverage.

A compensatory decision involves the consumer “trading off” good and bad attributes of a product. For example, a car may have a low price and good gas mileage but slow acceleration. If the price is sufficiently inexpensive and gas efficient, the consumer may then select it over a car with better acceleration that costs more and uses more gas. Occasionally, a decision will involve a non-compensatory strategy. For example, a parent may reject all soft drinks that contain artificial sweeteners. Here, other good features such as taste and low calories cannot overcome this one “non-negotiable” attribute.

The amount of effort a consumer puts into searching depends on a number of factors such as the market (how many competitors are there, and how great are differences between brands expected to be?), product characteristics (how important is this product? How complex is the product? How obvious are indications of quality?), consumer characteristics (how interested is a consumer, generally, in analyzing product characteristics and making the best possible deal?), and situational characteristics (as previously discussed).

Two interesting issues in decisions are:

* Variety seeking (where consumers seek to try new brands not because these brands are expected to be “better” in any way, but rather because the consumer wants a “change of pace,” and
* “Impulse” purchases—unplanned buys. This represents a somewhat “fuzzy” group. For example, a shopper may plan to buy vegetables but only decide in the store to actually buy broccoli and corn. Alternatively, a person may buy an item which is currently on sale, or one that he or she remembers that is needed only once inside the store.

A number of factors involve consumer choices. In some cases, consumers will be more motivated. For example, one may be more careful choosing a gift for an in-law than when buying the same thing for one self. Some consumers are also more motivated to comparison shop for the best prices, while others are more convenience oriented. Personality impacts decisions. Some like variety more than others, and some are more receptive to stimulation and excitement in trying new stores. Perception influences decisions. Some people, for example, can taste the difference between generic and name brand foods while many cannot. Selective perception occurs when a person is paying attention only to information of interest. For example, when looking for a new car, the consumer may pay more attention to car ads than when this is not in the horizon. Some consumers are put off by perceived risk. Thus, many marketers offer a money back guarantee. Consumers will tend to change their behavior through learning—e.g., they will avoid restaurants they have found to be crowded and will settle on brands that best meet their tastes. Consumers differ in the values they hold (e.g., some people are more committed to recycling than others who will not want to go through the hassle). We will consider the issue of lifestyle under segmentation.

Attitudes. Consumer attitudes are a composite of a consumer’s (1) beliefs about, (2) feelings about, (3) and behavioral intentions toward some “object”—within the context of marketing, usually a brand, product category, or retail store. These components are viewed together since they are highly interdependent and together represent forces that influence how the consumer will react to the object.

Beliefs. The first component is beliefs. A consumer may hold both positive beliefs toward an object (e.g., coffee tastes good) as well as negative beliefs (e.g., coffee is easily spilled and stains papers). In addition, some beliefs may be neutral (coffee is black), and some may be differ in valance depending on the person or the situation (e.g., coffee is hot and stimulates--good on a cold morning, but not good on a hot summer evening when one wants to sleep). Note also that the beliefs that consumers hold need not be accurate (e.g., that pork contains little fat), and some beliefs may, upon closer examination, be contradictory.

Affect. Consumers also hold certain feelings toward brands or other objects. Sometimes these feelings are based on the beliefs (e.g., a person feels nauseated when thinking about a hamburger because of the tremendous amount of fat it contains), but there may also be feelings which are relatively independent of beliefs. For example, an extreme environmentalist may believe that cutting down trees is morally wrong, but may have positive affect toward Christmas trees because he or she unconsciously associates these trees with the experience that he or she had at Christmas as a child.

Behavioral intention. The behavioral intention is what the consumer plans to do with respect to the object (e.g., buy or not buy the brand). As with affect, this is sometimes a logical consequence of beliefs (or affect), but may sometimes reflect other circumstances--e.g., although a consumer does not really like a restaurant, he or she will go there because it is a hangout for his or her friends.

Changing attitudes is generally very difficult, particularly when consumers suspect that the marketer has a self-serving “agenda” in bringing about this change (e.g., to get the consumer to buy more or to switch brands). Here are some possible methods:

* Changing affect. One approach is to try to change affect, which may or may not involve getting consumers to change their beliefs. One strategy uses the approach of classical conditioning try to “pair” the product with a liked stimulus. For example, we “pair” a car with a beautiful woman. Alternatively, we can try to get people to like the advertisement and hope that this liking will “spill over” into the purchase of a product. For example, the Pillsbury Doughboy does not really emphasize the conveyance of much information to the consumer; instead, it attempts to create a warm, “fuzzy” image. Although Energizer Bunny ads try to get people to believe that their batteries last longer, the main emphasis is on the likeable bunny. Finally, products which are better known, through the mere exposure effect, tend to be better liked—that is, the more a product is advertised and seen in stores, the more it will generally be liked, even if consumers to do not develop any specific beliefs about the product.
* Changing behavior. People like to believe that their behavior is rational; thus, once they use our products, chances are that they will continue unless someone is able to get them to switch. One way to get people to switch to our brand is to use temporary price discounts and coupons; however, when consumers buy a product on deal, they may justify the purchase based on that deal (i.e., the low price) and may then switch to other brands on deal later. A better way to get people to switch to our brand is to at least temporarily obtain better shelf space so that the product is more convenient. Consumers are less likely to use this availability as a rationale for their purchase and may continue to buy the product even when the product is less conveniently located.
* Changing beliefs. Although attempting to change beliefs is the obvious way to attempt attitude change, particularly when consumers hold unfavorable or inaccurate ones, this is often difficult to achieve because consumers tend to resist. Several approaches to belief change exist:
o Change currently held beliefs. It is generally very difficult to attempt to change beliefs that people hold, particularly those that are strongly held, even if they are inaccurate. For example, the petroleum industry advertised for a long time that its profits were lower than were commonly believed, and provided extensive factual evidence in its advertising to support this reality. Consumers were suspicious and rejected this information, however.
o Change the importance of beliefs. Although the sugar manufacturers would undoubtedly like to decrease the importance of healthy teeth, it is usually not feasible to make beliefs less important--consumers are likely to reason, why, then, would you bother bringing them up in the first place? However, it may be possible to strengthen beliefs that favor us--e.g., a vitamin supplement manufacturer may advertise that it is extremely important for women to replace iron lost through menstruation. Most consumers already agree with this, but the belief can be made stronger.  Add beliefs. Consumers are less likely to resist the addition of beliefs so long as they do not conflict with existing beliefs. Thus, the beef industry has added beliefs that beef (1) is convenient and (2) can be used to make a number of creative dishes. Vitamin manufacturers attempt to add the belief that stress causes vitamin depletion, which sounds quite plausible to most people.
* Change the ideal. It usually difficult, and very risky, to attempt to change ideals, and only few firms succeed. For example, Hard Candy may have attempted to change the ideal away from traditional beauty toward more unique self expression.

One-sided vs. two-sided appeals. Attitude research has shown that consumers often tend to react more favorably to advertisements which either (1) admit something negative about the sponsoring brand (e.g., the Volvo is a clumsy car, but very safe) or (2) admits something positive about a competing brand (e.g., a competing supermarket has slightly lower prices, but offers less service and selection). Two-sided appeals must, contain overriding arguments why the sponsoring brand is ultimately superior—that is, in the above examples, the “but” part must be emphasized. For more information, see http://www.consumerpsychologist.com/newsletter.htm .

Reference groups. A useful framework of analysis of group influence on the individual is the so called reference group—the term comes about because an individual uses a relevant group as a standard of “reference” against which oneself is compared. Reference groups come in several different forms. The aspirational reference group refers to those others against whom one would like to compare oneself. For example, many firms use athletes as spokespeople, and these represent what many people would ideally like to be. Associative reference groups include people who more realistically represent the individuals’ current equals or near-equals—e.g., coworkers, neighbors, or members of churches, clubs, and organizations. Finally, the dissociative reference group includes people that the individual would not like to be like. For example, the store literally named The Gap came about because many younger people wanted to actively dissociate from parents and other older and “uncool” people. The Quality Paperback Book specifically suggests in its advertising that its members are “a breed apart” from conventional readers of popular books.

The Family Life Cycle. Individuals and families tend to go through a “life cycle.” The simple life cycle goes from

child/teenager ---> young single ---> young couple ---> full nest ---> empty nest ---> widow(er).

In real life, this situation is, of course, a bit more complicated. For example, many couples undergo divorce. Then we have the scenario:

full nest ---> single parent

This situation can result either from divorce or from the death of one parent. Divorce usually entails a significant change in the relative wealth of spouses. In some cases, the non-custodial parent (usually the father) will not pay the required child support, and even if he or she does, that still may not leave the custodial parent and children as well off as they were during the marriage. On the other hand, in some cases, some non-custodial parents will be called on to pay a large part of their income in child support. This is particularly a problem when the non-custodial parent remarries and has additional children in the second (or subsequent marriages). In any event, divorce often results in a large demand for:

* low cost furniture and household items
* time-saving goods and services.

Divorced parents frequently remarry, or become involved in other non-marital relationships; thus, we may see

full nest ---> single parent ---> blended family

Another variation involves

young single ---> single parent

Here, the single parent who assumes responsibility for one or more children may not form a relationship with the other parent of the child.

Generally, there are two main themes in the Family Life Cycle, subject to significant exceptions:

* As a person gets older, he or she tends to advance in his or her career and tends to get greater income (exceptions: maternity leave, divorce, retirement).
* Unfortunately, obligations also tend to increase with time (at least until one’s mortgage has been paid off). Children and paying for one’s house are two of the greatest expenses.

Note that although a single person may have a lower income than a married couple, the single may be able to buy more discretionary items since he or she has fewer current obligations. This will change when a house is bought or children come along.

Family Decision Making. Individual members of families often serve different roles in decisions that ultimately draw on shared family resources. Some individuals are information gatherers/holders, who seek out information about products of relevance. These individuals often have a great deal of power because they may selectively pass on information that favors their chosen alternatives. Influencers do not ultimately have the power decide between alternatives, but they may make their wishes known by asking for specific products or causing embarrassing situations if their demands are not met. The decision maker(s) have the power to determine issues such as:

* Whether to buy;
* Which product to buy (pick-up or passenger car?);
* Which brand to buy;
* Where to buy it; and
* When to buy.

Note, however, that the role of the decision maker is separate from that of the purchaser. From the point of view of the marketer, this introduces some problems since the purchaser can be targeted by point-of-purchase (POP) marketing efforts that cannot be aimed at the decision maker. Also note that the distinction between the purchaser and decision maker may be somewhat blurred:

* The decision maker may specify what kind of product to buy, but not which brand;
* The purchaser may have to make a substitution if the desired brand is not in stock;
* The purchaser may disregard instructions (by error or deliberately).

It should be noted that family decisions are often subject to a great deal of conflict. The reality is that few families are wealthy enough to avoid a strong tension between demands on the family’s resources. Conflicting pressures are especially likely in families with children and/or when only one spouse works outside the home. Note that many decisions inherently come down to values, and that there is frequently no “objective” way to arbitrate differences. One spouse may believe that it is important to save for the children’s future; the other may value spending now (on private schools and computer equipment) to help prepare the children for the future. Who is right? There is no clear answer here. The situation becomes even more complex when more parties—such as children or other relatives—are involved.

Culture is part of the external influences that impact the consumer. That is, culture represents influences that are imposed on the consumer by other individuals.

The United States has undergone some changes in its predominant culture over the last several decades. Again, however, it should be kept in mind that there are great variations within the culture. For example, on the average, Americans have become less materialistic and have sought more leisure; on the other hand, the percentage of people working extremely long hours has also increased.

Significant changes have occurred in gender roles in American society. One of the reasons for this is that more women work outside the home than before. However, women still perform a disproportionate amount of housework, and men who participate in this activity tend to do so reluctantly. In general, commercials tend to lag somewhat behind reality—e.g., few men are seen doing housework, and few women are seen as buyers and decision makers on automobile purchases.

Regional influence, both in the United States and other areas, is significant. Many food manufacturers offer different product variations for different regions. Joel Girardeau, in his book The Nine Nations of North America, proposed nine distinct regional subcultures that cut across state lines. Although significant regional differences undoubtedly exist, research has failed to support Garreau’s specific characterizations/

Consumer behavior is frequently affected by the situation. For example, people may buy different products when shopping for others than they would for themselves. We tend to make quicker but less elaborate decisions when facing time pressure. There are also influences of mood. For example, people who are unhappy tend to make more rational and more critical decisions.

The Means-End chain. Consumers often buy products not because of their attributes per se but rather because of the ultimate benefits that these attributes provide, in turn leading to the satisfaction of ultimate values. For example, a consumer may not be particularly interested in the chemistry of plastic roses, but might reason as follows:

Highly reliable synthetic content of roses ---> Roses will stay in original condition for a long time ---> Significant other will appreciate the roses longer ---> Significant other will continue to love one ---> Self esteem.

The important thing in a means-end chain is to start with an attribute, a concrete characteristic of the product, and then logically progress to a series of consequences (which tend to become progressively more abstract) that end with a value being satisfied. Thus, each chain must start with an attribute and end with a value. An important implication of means-end chains is that it is usually most effective in advertising to focus on higher level items. For example, in the flower example above, an individual giving the flowers to the significant other might better be portrayed than the flowers alone.

Organizational buyers. A large portion of the market for goods and services is attributable to organizational, as opposed to individual, buyers. In general, organizational buyers, who make buying decisions for their companies for a living, tend to be somewhat more sophisticated than ordinary consumers. However, these organizational buyers are also often more risk averse. There is a risk in going with a new, possibly better (lower price or higher quality) supplier whose product is unproven and may turn out to be problematic. Often the fear of running this risk is greater than the potential rewards for getting a better deal. In the old days, it used to be said that “You can’t get fired for buying IBM.” This attitude is beginning to soften a bit today as firms face increasing pressures to cut costs.

Organizational buyers come in several forms. Resellers involve either wholesalers or retailers that buy from one organization and resell to some other entity. For example, large grocery chains sometimes buy products directly from the manufacturer and resell them to end-consumers. Wholesalers may sell to retailers who in turn sell to consumers. Producers also buy products from sub-manufacturers to create a finished product. For example, rather than manufacturing the parts themselves, computer manufacturers often buy hard drives, motherboards, cases, monitors, keyboards, and other components from manufacturers and put them together to create a finished product. Governments buy a great deal of things. For example, the military needs an incredible amount of supplies to feed and equip troops. Finally, large institutions buy products in huge quantities. For example, UCR probably buys thousands of reams of paper every month.

Organizational buying usually involves more people than individual buying. Often, many people are involved in making decisions as to (a) whether to buy, (b) what to buy, (c) at what quantity, and (d) from whom. An engineer may make a specification as to what is needed, which may be approved by a manager, with the final purchase being made by a purchase specialist who spends all his or her time finding the best deal on the goods that the organization needs. Often, such long purchase processes can cause long delays. In the government, rules are often especially stringent—e.g., vendors of fruit cake have to meet fourteen pages of specifications put out by the General Services Administration. In many cases, government buyers are also heavily bound to go with the lowest price. Even if it is obvious that a higher priced vendor will offer a superior product, it may be difficult to accept that bid.

International Marketing

Protectionism: Although trade generally benefits a country as a whole, powerful interests within countries frequently put obstacles—i.e., they seek to inhibit free trade. There are several ways this can be done:

* Tariff barriers: A duty, or tax or fee, is put on products imported. This is usually a percentage of the cost of the good.
* Quotas: A country can export only a certain number of goods to the importing country. For example, Mexico can export only a certain quantity of tomatoes to the United States, and Asian countries can send only a certain quota of textiles here.
* “Voluntary” export restraints: These are not official quotas, but involve agreements made by countries to limit the amount of goods they export to an importing country. Such restraints are typically motivated by the desire to avoid more stringent restrictions if the exporters do not agree to limit themselves. For example, Japanese car manufacturers have agreed to limit the number of automobiles they export to the United States.
* Subsidies to domestic products: If the government supports domestic producers of a product, these may end up with a cost advantage relative to foreign producers who do not get this subsidy. U.S. honey manufacturers receive such subsidies.
* Non-tariff barriers, such as differential standards in testing foreign and domestic products for safety, disclosure of less information to foreign manufacturers needed to get products approved, slow processing of imports at ports of entry, or arbitrary laws which favor domestic manufacturers.

Cultural lessons. We considered several cultural lessons in class; the important thing here is the big picture. For example, within the Muslim tradition, the dog is considered a “dirty” animal, so portraying it as “man’s best friend” in an advertisement is counter-productive. Packaging, seen as a reflection of the quality of the “real” product, is considerably more important in Asia than in the U.S., where there is a tendency to focus on the contents which “really count.” Many cultures observe significantly greater levels of formality than that typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a speaker’s point is considered.

Product Need Satisfaction. We often take for granted the “obvious” need that products seem to fill in our own culture; however, functions served may be very different in others—for example, while cars have a large transportation role in the U.S., they are impractical to drive in Japan, and thus cars there serve more of a role of being a status symbol or providing for individual indulgence. In the U.S., fast food and instant drinks such as Tang are intended for convenience; elsewhere, they may represent more of a treat. Thus, it is important to examine through marketing research consumers’ true motives, desires, and expectations in buying a product.

Approaches to Product Introduction. Firms face a choice of alternatives in marketing their products across markets. An extreme strategy involves customization, whereby the firm introduces a unique product in each country, usually with the belief tastes differ so much between countries that it is necessary more or less to start from “scratch” in creating a product for each market. On the other extreme, standardization involves making one global product in the belief the same product can be sold across markets without significant modification—e.g., Intel microprocessors are the same regardless of the country in which they are sold. Finally, in most cases firms will resort to some kind of adaptation, whereby a common product is modified to some extent when moved between some markets—e.g., in the United States, where fuel is relatively less expensive, many cars have larger engines than their comparable models in Europe and Asia; however, much of the design is similar or identical, so some economies are achieved. Similarly, while Kentucky Fried Chicken serves much the same chicken with the eleven herbs and spices in Japan, a lesser amount of sugar is used in the potato salad, and fries are substituted for mashed potatoes.

There are certain benefits to standardization. Firms that produce a global product can obtain economies of scale in manufacturing, and higher quantities produced also lead to a faster advancement along the experience curve. Further, it is more feasible to establish a global brand as less confusion will occur when consumers travel across countries and see the same product. On the down side, there may be significant differences in desires between cultures and physical environments—e.g., software sold in the U.S. and Europe will often utter a “beep” to alert the user when a mistake has been made; however, in Asia, where office workers are often seated closely together, this could cause embarrassment.

Adaptations come in several forms. Mandatory adaptations involve changes that have to be made before the product can be used—e.g., appliances made for the U.S. and Europe must run on different voltages, and a major problem was experienced in the European Union when hoses for restaurant frying machines could not simultaneously meet the legal requirements of different countries. “Discretionary” changes are changes that do not have to be made before a product can be introduced (e.g., there is nothing to prevent an American firm from introducing an overly sweet soft drink into the Japanese market), although products may face poor sales if such changes are not made. Discretionary changes may also involve cultural adaptations—e.g., in Sesame Street, the Big Bird became the Big Camel in Saudi Arabia.

Another distinction involves physical product vs. communication adaptations. In order for gasoline to be effective in high altitude regions, its octane must be higher, but it can be promoted much the same way. On the other hand, while the same bicycle might be sold in China and the U.S., it might be positioned as a serious means of transportation in the former and as a recreational tool in the latter. In some cases, products may not need to be adapted in either way (e.g., industrial equipment), while in other cases, it might have to be adapted in both (e.g., greeting cards, where the both occasions, language, and motivations for sending differ). Finally, a market may exist abroad for a product which has no analogue at home—e.g., hand-powered washing machines. Measuring country wealth.

Economics. There are two ways to measure the wealth of a country. The nominal per capita gross domestic product (GDP) refers to the value of goods and services produced per person in a country if this value in local currency were to be exchanged into dollars. Suppose, for example, that the per capita GDP of Japan is 3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita GDP is (3,500,000/100)=$35,000. However, that $35,000 will not buy as much in Japan—food and housing are much more expensive there. Therefore, we introduce the idea of purchase parity adjusted per capita GDP, which reflects what this money can buy in the country. This is typically based on the relative costs of a weighted “basket” of goods in a country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of other items). If it turns out that this measure of cost of living is 30% higher in Japan, the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD) and Gross National Product (GNP) are almost identical figures. The GNP, for example, includes income made by citizens working abroad, and does not include the income of foreigners working in the country. Traditionally, the GNP was more prevalent; today the GPD is more commonly used—in practice, the two measures fall within a few percent of each other.)

In general, the nominal per capita GPD is more useful for determining local consumers’ ability to buy imported goods, the cost of which are determined in large measure by the costs in the home market, while the purchase parity adjusted measure is more useful when products are produced, at local costs, in the country of purchase. For example, the ability of Argentineans to purchase micro computer chips, which are produced mostly in the U.S. and Japan, is better predicted by nominal income, while the ability to purchase toothpaste made by a U.S. firm in a factory in Argentina is better predicted by purchase parity adjusted income.

It should be noted that, in some countries, income is quite unevenly distributed so that these average measures may not be very meaningful. In Brazil, for example, there is a very large underclass making significantly less than the national average, and thus, the national figure is not a good indicator of the purchase power of the mass market. Similarly, great regional differences exist within some countries—income is much higher in northern Germany than it is in the former East Germany, and income in southern Italy is much lower than in northern Italy.

Methods of entry. With rare exceptions, products just don’t emerge in foreign markets overnight—a firm has to build up a market over time. Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available:

* Exporting is a relatively low risk strategy in which few investments are made in the new country. A drawback is that, because the firm makes few if any marketing investments in the new country, market share may be below potential. Further, the firm, by not operating in the country, learns less about the market (What do consumers really want? Which kinds of advertising campaigns are most successful? What are the most effective methods of distribution?) If an importer is willing to do a good job of marketing, this arrangement may represent a "win-win" situation, but it may be more difficult for the firm to enter on its own later if it decides that larger profits can be made within the country.
* Licensing and franchising are also low exposure methods of entry—you allow someone else to use your trademarks and accumulated expertise. Your partner puts up the money and assumes the risk. Problems here involve the fact that you are training a potential competitor and that you have little control over how the business is operated. For example, American fast food restaurants have found that foreign franchisers often fail to maintain American standards of cleanliness. Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country.
* Joint venture. Here, a firm partners up with a firm already in the country. Each partner contributes. Usually, the host country partner contributes expertise about the country and possibly some manufacturing facilities. The “guest” partner usually contributes technology and/or financial resources. This reduces risk and investment to some extent, but also reduces the control since agreements must now be made to satisfy the partner.
* Direct entry strategies, where the firm either acquires a firm or builds operations "from scratch" involve the highest exposure, but also the greatest opportunities for profits. The firm gains more knowledge about the local market and maintains greater control, but now has a huge investment. In some countries, the government may expropriate assets without compensation, so direct investment entails an additional risk. A variation involves a joint venture, where a local firm puts up some of the money and knowledge about the local market.

U.S. laws of particular interest to firms doing business abroad.

* Anti-trust. U.S. antitrust laws are generally enforced in U.S. courts even if the alleged transgression occurred outside U.S. jurisdiction. For example, if two Japanese firms collude to limit the World supply of VCRs, they may be sued by the U.S. government (or injured third parties) in U.S. courts, and may have their U.S. assets seized.
* The Foreign Corrupt Influences Act came about as Congress was upset with U.S. firms’ bribery of foreign officials. Although most if not all countries ban the payment of bribes, such laws are widely flaunted in many countries, and it is often useful to pay a bribe to get foreign government officials to act favorably. Firms engaging in this behavior, even if it takes place entirely outside the U.S., can be prosecuted in U.S. courts, and many executives have served long prison sentences for giving in to temptation. In contrast, in the past some European firms could actually deduct the cost of foreign bribes from their taxes! There are some gray areas here—it may be legal to pay certain “tips” –known as “facilitating payments”—to low level government workers in some countries who rely on such payments as part of their salary so long as these payments are intended only to speed up actions that would be taken anyway. For example, it may be acceptable to give a reasonable (not large) facilitating payment to get customs workers to process a shipment faster, but it would not be legal to pay these individuals to change the classification of a product into one that carries a lower tariff.
* Anti-boycott laws. Many Arab countries maintain a boycott of Israel, and foreigners that want to do business with them may be asked to join in this boycott by stopping any deals they do with Israel and certifying that they do not trade with that country. It is illegal for U.S. firms to make this certification even if they have not dropped any actual deals with Israel to get a deal with boycotters.
* Trading With the Enemy. It is illegal for U.S. firms to trade with certain countries that are viewed to be hostile to the U.S.—e.g., Libya and Iraq.



Marketing Research

Marketing research is often needed to ensure that we produce what customers really want and not what we think they want.

Primary vs. secondary research methods. There are two main approaches to marketing. Secondary research involves using information that others have already put together. For example, if you are thinking about starting a business making clothes for tall people, you don’t need to question people about how tall they are to find out how many tall people exist—that information has already been published by the U.S. Government. Primary research, in contrast, is research that you design and conduct yourself. For example, you may need to find out whether consumers would prefer that your soft drinks be sweater or tarter.

Research will often help us reduce risks associated with a new product, but it cannot take the risk away entirely. It is also important to ascertain whether the research has been complete. For example, Coca Cola did a great deal of research prior to releasing the New Coke, and consumers seemed to prefer the taste. However, consumers were not prepared to have this drink replace traditional Coke.

Several tools are available to the market researcher—e.g., mail questionnaires, phone surveys, observation, and focus groups. Please see the chart for advantages and disadvantages of each.

Surveys are useful for getting a great deal of specific information. Surveys can contain open-ended questions (e.g., “In which city and state were you born? ____________”) or closed-ended, where the respondent is asked to select answers from a brief list (e.g., “__Male ___ Female.” Open ended questions have the advantage that the respondent is not limited to the options listed, and that the respondent is not being influenced by seeing a list of responses. However, open-ended questions are often skipped by respondents, and coding them can be quite a challenge. In general, for surveys to yield meaningful responses, sample sizes of over 100 are usually required because precision is essential. For example, if a market share of twenty percent would result in a loss while thirty percent would be profitable, a confidence interval of 20-35% is too wide to be useful.

Surveys come in several different forms. Mail surveys are relatively inexpensive, but response rates are typically quite low—typically from 5-20%. Phone-surveys get somewhat higher response rates, but not many questions can be asked because many answer options have to be repeated and few people are willing to stay on the phone for more than five minutes. Mall intercepts are a convenient way to reach consumers, but respondents may be reluctant to discuss anything sensitive face-to-face with an interviewer.

Surveys, as any kind of research, are vulnerable to bias. The wording of a question can influence the outcome a great deal. For example, more people answered no to the question “Should speeches against democracy be allowed?” than answered yes to “Should speeches against democracy be forbidden?” For face-to-face interviews, interviewer bias is a danger, too. Interviewer bias occurs when the interviewer influences the way the respondent answers. For example, unconsciously an interviewer that works for the firm manufacturing the product in question may smile a little when something good is being said about the product and frown a little when something negative is being said. The respondent may catch on and say something more positive than his or her real opinion. Finally, a response bias may occur—if only part of the sample responds to a survey, the respondents’ answers may not be representative of the population.

Focus groups are useful when the marketer wants to launch a new product or modify an existing one. A focus group usually involves having some 8-12 people come together in a room to discuss their consumption preferences and experiences. The group is usually led by a moderator, who will start out talking broadly about topics related broadly to the product without mentioning the product itself. For example, a focus group aimed at sugar-free cookies might first address consumers’ snacking preferences, only gradually moving toward the specific product of sugar-free cookies. By not mentioning the product up front, we avoid biasing the participants into thinking only in terms of the specific product brought out. Thus, instead of having consumers think primarily in terms of what might be good or bad about the product, we can ask them to discuss more broadly the ultimate benefits they really seek. For example, instead of having consumers merely discuss what they think about some sugar-free cookies that we are considering releasing to the market, we can have consumers speak about their motivations for using snacks and what general kinds of benefits they seek. Such a discussion might reveal a concern about healthfulness and a desire for wholesome foods. Probing on the meaning of wholesomeness, consumers might indicate a desire to avoid artificial ingredients. This would be an important concern in the marketing of sugar-free cookies, but might not have come up if consumers were asked to comment directly on the product where the use of artificial ingredients is, by virtue of the nature of the product, necessary.

Focus groups are well suited for some purposes, but poorly suited for others. In general, focus groups are very good for getting breadth—i.e., finding out what kinds of issues are important for consumers in a given product category. Here, it is helpful that focus groups are completely “open-ended:” The consumer mentions his or her preferences and opinions, and the focus group moderator can ask the consumer to elaborate. In a questionnaire, if one did not think to ask about something, chances are that few consumers would take the time to write out an elaborate answer. Focus groups also have some drawbacks, for example: • They represent small sample sizes. Because of the cost of running focus groups, only a few groups can be run. Suppose you run four focus groups with ten members each. This will result in an n of 4(10)=40, which is too small to generalize from. Therefore, focus groups cannot give us a good idea of: • What proportion of the population is likely to buy the product. • What price consumers are willing to pay. • The groups are inherently social. This means that: • Consumers will often say things that may make them look good (i.e., they watch public television rather than soap operas or cook fresh meals for their families daily) even if that is not true. • Consumers may be reluctant to speak about embarrassing issues (e.g., weight control, birth control).

Personal interviews involve in-depth questioning of an individual about his or her interest in or experiences with a product. The benefit here is that we can get really into depth (when the respondent says something interesting, we can ask him or her to elaborate), but this method of research is costly and can be extremely vulnerable to interviewer bias.

Projective techniques are used when a consumer may feel embarrassed to admit to certain opinions, feelings, or preferences. For example, many older executives may not be comfortable admitting to being intimidated by computers. It has been found that in such cases, people will tend to respond more openly about “someone else.” Thus, we may ask them to explain reasons why a friend has not yet bought a computer, or to tell a story about a person in a picture who is or is not using a product. The main problem with this method is that it is difficult to analyze responses.

Observation of consumers is often a powerful tool. Looking at how consumers select products may yield insights into how they make decisions and what they look for. For example, some American manufacturers were concerned about low sales of their products in Japan. Observing Japanese consumers, it was found that many of these Japanese consumers scrutinized packages looking for a name of a major manufacturer—the product specific-brands that are common in the U.S. (e.g., Tide) were not impressive to the Japanese, who wanted a name of a major firm like Mitsubishi or Proctor & Gamble. Observation may help us determine how much time consumers spend comparing prices, or whether nutritional labels are being consulted.

Physiological measures are occasionally used to examine consumer response. For example, advertisers may want to measure a consumer’s level of arousal during various parts of an advertisement.

Some cautions should be heeded in marketing research. First, in general, research should only be commissioned when it is worth the cost. Thus, research should normally be useful in making specific decisions (what size should the product be? Should the product be launched? Should we charge $1.75 or $2.25?)

Secondly, marketing research can be, and often is, abused. Managers frequently have their own “agendas” (e.g., they either would like a product to be launched or would prefer that it not be launched so that the firm will have more resources left over to tackle their favorite products). Often, a way to get your way is to demonstrate through “objective” research that your opinions make economic sense. One example of misleading research, which was reported nationwide in the media, involved the case of “The Pentagon Declares War on Rush Limbaugh.” The Pentagon, within a year of the election of Democrat Bill Clinton, reported that only 4.2% of soldiers listening to the Armed Forces Network wanted to hear Rush Limbaugh. However, although this finding was reported without question in the media, it was later found that the conclusion was based on the question “What single thing can we do to improve programming?” If you did not write in something like “Carry Rush Limbaugh,” you were counted as not wanting to hear him.



Segmentation, Targeting, and Positioning

Segmentation, targeting, and positioning together comprise a three stage process. We first (1) determine which kinds of customers exist, then (2) select which ones we are best off trying to serve and, finally, (3) implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way.

Segmentation involves finding out what kinds of consumers with different needs exist. In the auto market, for example, some consumers demand speed and performance, while others are much more concerned about roominess and safety. In general, it holds true that “You can’t be all things to all people,” and experience has demonstrated that firms that specialize in meeting the needs of one group of consumers over another tend to be more profitable.

Generically, there are three approaches to marketing:

* In the undifferentiated strategy, all consumers are treated as the same, with firms not making any specific efforts to satisfy particular groups. This may work when the product is a standard one where one competitor really can’t offer much that another one can’t. Usually, this is the case only for commodities.
* In the concentrated strategy, one firm chooses to focus on one of several segments that exist while leaving other segments to competitors. For example, Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low prices.
* In contrast, most airlines follow the differentiated strategy: They offer high priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and find it impractical to stay over a Saturday. These travelers—usually business travelers—pay high fares but can only fill the planes up partially. The same airlines then sell some of the remaining seats to more price sensitive customers who can buy two weeks in advance and stay over.

Note that segmentation calls for some tough choices. There may be a large number of variables that can be used to differentiate consumers of a given product category; yet, in practice, it becomes impossibly cumbersome to work with more than a few at a time. Thus, we need to determine which variables will be most useful in distinguishing different groups of consumers. We might thus decide, for example, that the variables that are most relevant in separating different kinds of soft drink consumers are (1) preference for taste vs. low calories, (2) preference for Cola vs. non-cola taste, (3) price sensitivity—willingness to pay for brand names; and (4) heavy vs. light consumers. We now put these variables together to arrive at various combinations. Several different kinds of variables can be used for segmentation.

Demographic variables essentially refer to personal statistics such as income, gender, education, location (rural vs. urban, East vs. West), ethnicity, and family size. Campbell’s soup, for instance, has found that Western U.S. consumers on the average prefer spicier soups—thus, you get a different product in the same cans at the East and West coasts. Facing flat sales of guns in the traditional male dominated market, a manufacturer came out with the Lady Remmington, a more compact, handier gun more attractive to women.

Taking this a step farther, it is also possible to segment on lifestyle and values. Some consumers want to be seen as similar to others, while a different segment wants to stand apart from the crowd. Another basis for segmentation is behavior. Some consumers are “brand loyal”—i.e., they tend to stick with their preferred brands even when a competing one is on sale. Some consumers are “heavy” users while others are “light” users. For example, research conducted by the wine industry shows that some 80% of the product is consumed by 20% of the consumers—presumably a rather intoxicated group.

One can also segment on benefits sought, essentially bypassing demographic explanatory variables. Some consumers, for example, like scented soap (a segment likely to be attracted to brands such as Irish Spring), while others prefer the “clean” feeling of unscented soap (the “Ivory” segment). Some consumers use toothpaste primarily to promote oral health, while another segment is more interested in breath freshening. In the next step, we decide to target one or more segments. Our choice should generally depend on several factors. First, how well are existing segments served by other manufacturers? It will be more difficult to appeal to a segment that is already well served than to one whose needs are not currently being served well. Secondly, how large is the segment, and how can we expect it to grow? (Note that a downside to a large, rapidly growing segment is that it tends to attract competition). Thirdly, do we have strengths as a company that will help us appeal particularly to one group of consumers? Firms may already have an established reputation. While McDonald’s has a great reputation for fast, consistent quality, family friendly food, it would be difficult to convince consumers that McDonald’s now offers gourmet food. Thus, McD’s would probably be better off targeting families in search of consistent quality food in nice, clean restaurants.

Positioning involves implementing our targeting. For example, Apple Computer has chosen to position itself as a maker of user-friendly computers. Thus, Apple has done a lot through its advertising to promote itself, through its unintimidating icons, as a computer for “non-geeks.” The Visual C software programming language, in contrast, is aimed a “techies.”

Repositioning involves an attempt to change consumer perceptions of a brand, usually because the existing position that the brand holds has become less attractive. Sears, for example, attempted to reposition itself from a place that offered great sales but unattractive prices the rest of the time to a store that consistently offered “everyday low prices.” Repositioning in practice is very difficult to accomplish. A great deal of money is often needed for advertising and other promotional efforts, and in many cases, the repositioning fails.



Product

Products come in several forms. Consumer products can be categorized as convenience goods, for which consumers are willing to invest very limited shopping efforts. Thus, it is essential to have these products readily available and have the brand name well known. Shopping goods, in contrast, are goods in which the consumer is willing to invest a great deal of time and effort. For example, consumers will spend a great deal of time looking for a new car or a medical procedure. Speciality goods are those that are of interest only to a narrow segment of the population—e.g., drilling machines. Industrial goods can also be broken down into subgroups, depending on their uses. It should also be noted that, within the context of marketing decisions, the term product refers to more than tangible goods—a service can be a product, too.

A firm’s product line or lines refers to the assortment of similar things that the firm holds. Brother, for example, has both a line of laser printers and one of typewriters. In contrast, the firm’s product mix describes the combination of different product lines that the firm holds. Boeing, for example, has both a commercial aircraft and a defense line of products that each take advantage of some of the same core competencies and technologies of the firm. Some firms have one very focused or narrow product line (e.g., KFC does only chicken right) while others maintain numerous lines that hopefully all have some common theme. This represents a wide product mix 3M, for example, makes a large assortment of goods that are thought to be related in the sense that they use the firm’s ability to bond surfaces together. Depth refers to the variety that is offered within each product line. Maybeline offers a great deal of depth in lipsticks with subtle differences in shades while Morton Salt offers few varieties of its product.

Products may be differentiated in several ways. Some may be represented as being of superior quality (e.g., Maytag), or they may differ in more arbitrary ways in terms of styles—some people like one style better than another, while there is no real consensus on which one is the superior one. Finally, products can be differentiated in terms of offering different levels of service—for example, Volvo offers a guarantee of free, reliable towing anywhere should the vehicle break down. American Express offers services not offered by many other charge cards.

New product development tends to happen in stages. Although firms often go back and forth between these idealized stages, the following sequence is illustrative of the development of a new product:

* New product strategy development. Different firms will have different strategies on how to approach new products. Some firms have stockholders who want to minimize risk and avoid investing in too many new innovations. Some firms can only survive if they innovate frequently and have stockholders who are willing to take this risk. For example, Hewlett-Packard has to constantly invent new products since competitors learn to work around its patents and will be able to manufacture the products at a lower cost.
* Idea generation. Firms solicit ideas as to new products it can make. Ideas might come from customers, employees, consultants, or engineers. Many firms receive a large number of ideas each year and can only invest in some of them.
* Screening and evaluation: Some products that after some analysis are clearly not feasible or are not consistent with the core competencies of the firm are eliminated.
* Business analysis. Ideas are now exposed to more rigorous analysis. Profit projections, risks, market size, and competitive response are considered. If promising, market research may be done.
* Development: The product is designed and manufacturing facilities are planned.
* Market testing. Frequently, firms will try to “test” a product in one region to see if it will sell in reality before it is released nationally and internationally. There is a lesser risk if the firm only commits money to advertising and other marketing efforts in one region. Retailers will also be more receptive in other parts of the country and world if it has been demonstrated that the product sold well in one region. The firm may also experiment with different prices for the product.
* Commercialization. Facilities to manufacture the product on a larger scale are now put into operation and the firm starts a national marketing campaign and distribution effort.

Products often go through a life cycle. Initially, a product is introduced. Since the product is not well known and is usually expensive (e.g., as microwave ovens were in the late 1970s), sales are usually limited. Eventually, however, many products reach a growth phase—sales increase dramatically. More firms enter with their models of the product. Frequently, unfortunately, the product will reach a maturity stage where little growth will be seen. For example, in the United States, almost every household has at least one color TV set. Some products may also reach a decline stage, usually because the product category is being replaced by something better. For example, typewriters experienced declining sales as more consumers switched to computers or other word processing equipment. The product life cycle is tied to the phenomenon of diffusion of innovation. When a new product comes out, it is likely to first be adopted by consumers who are more innovative than others—they are willing to pay a premium price for the new product and take a risk on unproven technology. It is important to be on the good side of innovators since many other later adopters will tend to rely for advice on the innovators who are thought to be more knowledgeable about new products for advice.

At later phases of the PLC, the firm may need to modify its market strategy. For example, facing a saturated market for baking soda in its traditional use, Arm & Hammer launched a major campaign to get consumers to use the product to deodorize refrigerators. Deodorizing powders to be used before vacuuming were also created.

It is sometimes useful to think of products as being either new or existing. Many firms today rely increasingly on new products for a large part of their sales. New products can be new in several ways. They can be new to the market—no one else ever made a product like this before. For example, Chrysler invented the minivan. Products can also be new to the firm—another firm invented the product, but the firm is now making its own version. For example, IBM did not invent the personal computer, but entered after other firms showed the market to have a high potential. Products can be new to the segment—e.g., cellular phones and pagers were first aimed at physicians and other price-insensitive segments. Later, firms decided to target the more price-sensitive mass market. A product can be new for legal purposes. Because consumers tend to be attracted to “new and improved” products, the Federal Trade Commission (FTC) only allows firms to put that label on reformulated products for six months after a significant change has been made.

The diffusion of innovation refers to the tendency of new products, practices, or ideas to spread among people. Usually, when new products or ideas come about, they are initially only adopted by a small group of people. Later, many innovations spread to other people. The bell shaped curve frequently illustrates the rate of adoption of a new product. Cumulative adoptions are reflected by the S-shaped curve. The saturation point is the maximum proportion of consumers likely to adopt a product. In the case of refrigerators in the U.S., the saturation level is nearly one hundred percent of households. The figure will almost certainly be well below that for video games that, even when spread out to a large part of the population, will be of interest to far from everyone.

Several specific product categories have case histories that illustrate important issues in adoption. Until some time in the 1800s, few physicians bothered to scrub prior to surgery, even though new scientific theories predicted that small microbes not visible to the naked eye could cause infection. Younger and more progressive physicians began scrubbing early on, but they lacked the stature to make their older colleagues follow.

ATM cards spread relatively quickly. Since the cards were used in public, others who did not yet hold the cards could see how convenient they were. Although some people were concerned about security, the convenience factors seemed to be a decisive factor in the “tug-of-war” for and against adoption.

The case of credit cards was a bit more complicated and involved a “chicken-and-egg” paradox. Accepting credit cards was not a particularly attractive option for retailers until they were carried by a large enough number of consumers. Consumers, in contrast, were not particularly interested in cards that were not accepted by a large number of retailers. Thus, it was necessary to “jump start” the process, signing up large corporate accounts, under favorable terms, early in the cycle, after which the cards became worthwhile for retailers to accept.

Rap music initially spread quickly among urban youths in large part because of the low costs of recording. Later, rap music became popular among a very different segment, suburban youths, because of its apparently authentic depiction of an exotic urban lifestyle.

Hybrid corn was adopted only slowly among many farmers. Although hybrid corn provided yields of about 20% more than traditional corn, many farmers had difficulty believing that this smaller seed could provide a superior harvest. They were usually reluctant to try it because a failed harvest could have serious economic consequences, including a possible loss of the farm. Agricultural extension agents then sought out the most progressive farmers to try hybrid corn, also aiming for farmers who were most respected and most likely to be imitated by others. Few farmers switched to hybrid corn outright from year to year. Instead, many started out with a fraction of their land, and gradually switched to 100% hybrid corn when this innovation had proven itself useful.

Several forces often work against innovation. One is risk, which can be either social or financial. For example, early buyers of the CD player risked that few CDs would be recorded before the CD player went the way of the 8 track player. Another risk is being perceived by others as being weird for trying a “fringe” product or idea. For example, Barbara Mandrell sings the song “I Was Country When Country Wasn’t Cool.” Other sources of resistance include the initial effort needed to learn to use new products (e.g., it takes time to learn to meditate or to learn how to use a computer) and concerns about compatibility with the existing culture or technology. For example, birth control is incompatible with religious beliefs that predominate in some areas, and a computer database is incompatible with a large, established card file.

Innovations come in different degrees. A continuous innovation includes slight improvements over time. Very little usually changes from year to year in automobiles, and even automobiles of the 1990s are driven much the same way that automobiles of the 1950 were driven. A dynamically continuous innovation involves some change in technology, although the product is used much the same way that its predecessors were used—e.g., jet vs. propeller aircraft. A discontinous innovation involves a product that fundamentally changes the way that things are done—e.g., the fax and photocopiers. In general, discontinuous innovations are more difficult to market since greater changes are required in the way things are done, but the rewards are also often significant.

Several factors influence the speed with which an innovation spreads. One issue is relative advantage (i.e., the ratio of risk or cost to benefits). Some products, such as cellular phones, fax machines, and ATM cards, have a strong relative advantage. Other products, such as automobile satellite navigation systems, entail some advantages, but the cost ratio is high. Lower priced products often spread more quickly, and the extent to which the product is trialable (farmers did not have to plant all their land with hybrid corn at once, while one usually has to buy a cellular phone to try it out) influence the speed of diffusion. Finally, the extent of switching difficulties influences speed—many offices were slow to adopt computers because users had to learn how to use them.

Some cultures tend to adopt new products more quickly than others, based on several factors:  Modernity: The extent to which the culture is receptive to new things. In some countries, such as Britain and Saudi Arabia, tradition is greatly valued—thus, new products often don’t fare too well. The United States, in contrast, tends to value progress.  Homophily: The more similar to each other that members of a culture are, the more likely an innovation is to spread—people are more likely to imitate similar than different models. The two most rapidly adopting countries in the World are the U.S. and Japan. While the U.S. interestingly scores very low, Japan scores high.  Physical distance: The greater the distance between people, the less likely innovation is to spread.  Opinion leadership: The more opinion leaders are valued and respected, the more likely an innovation is to spread. The style of opinion leaders moderates this influence, however. In less innovative countries, opinion leaders tend to be more conservative, i.e., to reflect the local norms of resistance.

It should be noted that innovation is not always an unqualifiedly good thing. Some innovations, such as infant formula adopted in developing countries, may do more harm than good. Individuals may also become dependent on the innovations. For example, travel agents who get used to booking online may be unable to process manual reservations.

Sometimes innovations are disadopted. For example, many individuals disadopt cellular phones if they find out that they don’t end up using them much.

Branding. An essential issue in product management is branding. Different firms have different policies on the branding on their products. While 3M puts its brand name on a great diversity of products, Proctor & Gamble, on the opposite extreme, maintains a separate brand name for each product. In general, the use of brand extensions should be evaluated on the basis of the compatibility of various products—can the same brand name represent different products without conflict or confusion? Coca Cola for many years resisted putting its coveted brand name on a diet soft drink. In the old days, available sweeteners such as saccharin added an undesirable aftertaste, implying a clear sacrifice in taste for the reduction in calories. Thus, to avoid damaging the brand name Coca Cola, Coke instead named its diet cola Tab. Only after Nutrasweet was introduced was the brand extension allowed. Research shows that consumers are more receptive to brand extensions when (1) the company appears to have the expertise to make the product [McDonald’s was not thought as credible as a photo-finishing service], (2) the products are congruent (compatible), and (3) the brand extension is not seen as being exploitative of a high quality brand name [e.g., one should not use a premium brand name like Heineken to make a trivially easy product like popcorn].

Co-branding involves firms using two or more brands together to maximize appeal to consumers. Some ice cream makers, for example, use their own brand name in addition to naming the brands of ingredients contained. Sometimes, this strategy may help one brand at the expense of the other. It is widely believed, for example, that the “Intel inside” messages, which Intel paid computer makers to put on their products and packaging, reduced the value of the computer makers’ brand names because the emphasis was now put on the Intel component.

Certain “peripheral” characteristics of products may “signal” quality or other value to consumers. For some products, packaging accounts for a large part of the total product manufacturing cost. Long warranties often signal to consumers that the product is of good quality since the manufacturer is willing to take responsibility for its functioning.

There is no clear distinction between a “pure” tangible product and a service. Most products contain some of both. A computer, for example, is a tangible product, but it often comes with a warranty and software updates.



Distribution

Distribution (also known as the place variable in the marketing mix, or the 4 Ps) involves getting the product from the manufacturer to the ultimate consumer. Distribution is often a much underestimated factor in marketing. Many marketers fall for the trap that if you make a better product, consumers will buy it. The problem is that retailers may not be willing to devote shelf-space to new products. Retailers would often rather use that shelf-space for existing products have that proven records of selling.

Although many firms advertise that they save the consumer money by selling direct and “eliminating the middleman,” this is a dubious claim. The truth is that intermediaries, such as retailers and wholesalers, tend to add efficiency because they can do specialized tasks better than the consumer or the manufacturer. Because wholesalers and retailers exist, the consumer can buy one pen at a time in a store located conveniently rather than having to order it from a distant factory. Thus, distributors add efficiency by:

* Breaking bulk—the consumer can buy small quantities at a time. Modest scale retailers (e.g., a college bookstore) can buy modest quantities.
* Distributing. The consumers can buy at a neighborhood store, which in turn can buy from a regional warehouse.
* Carrying inventory
* Financing

Channel structures vary somewhat by the nature of the product. Jet aircraft are custom made and shipped directly to the airline. Automobiles, because they are difficult to move, are shipped directly to a dealer. Other products are shipped through a wholesaler who can more efficiently handle, and combine, products from many different suppliers. Several layers of wholesalers may exist, depending on the product. Occasionally, agents may also be involved. Agents usually do not handle products, but instead take care of the business aspect of negotiating with distributors, which manufacturers may feel uncomfortable or ill prepared for doing themselves.

Manufacturers of different kinds of products have different interests with respect to the availability of their products. For convenience products such as soft drinks, it is essential that your product be available widely. Chances are that if a store does not have a consumer’s preferred brand of soft drinks, the consumer will settle for another brand rather than taking the trouble to go to another store. Occasionally, however, manufacturers will prefer selective distribution since they prefer to have their products available only in upscale stores.

Parallel distribution structures refer to the fact that products may reach consumers in different ways. Most products flow through the traditional manufacturer --> retailer --> consumer channel. Certain large chains may, however, demand to buy directly from the manufacturer since they believe they can provide the distribution services at a lower cost themselves. In turn, of course, they want lower prices, which may anger the traditional retailers who feel that this represents unfair competition. Firms may also choose to utilize factory outlet stores. To allay concerns held by conventional stores, however, these factory outlet stores are usually located in areas where they are not easily accessible.

We must consider what is realistically available to each firm. A small manufacturer of potato chips would like to be available in grocery stores nationally, but this may not be realistic. We need to consider, then, both who will be willing to carry our products and whom we would actually like to carry them. In general, for convenience products, intense distribution is desirable, but only brands that have a certain amount of power—e.g., an established brand name—can hope to gain national intense distribution.

Note that for convenience goods, intense distribution is less likely to harm the brand image—it is not a problem, for example, for Haagen Dazs to be available in a convenience store along with bargain brands—it is expected that people will not travel much for these products, so they should be available anywhere the consumer demands them. However, in the category of shopping goods, having Rolex watches sold in discount stores would be undesirable—here, consumers do travel, and goods are evaluated by customers to some extent based on the surrounding merchandise.

In general, a brand can expect lesser distribution in its early stages—fewer retailers are motivated to carry it. Similarly, when a product category is new, it will be available in fewer stores—e.g., in the early days, computer disks were available only in specialty stores, but now they can be found in supermarkets and convenience stores as well. Certain products that are not well established may have to get their start on "infomercials," only slowly getting entry into other types out outlets. (Please see PowerPoint chart).

Different parties involved in the marketing of products tend to have different, and often conflicting, interests:

* Full service retailers tend dislike intensive distribution.
* Low service channel members can "free ride" on full service sellers.
* Manufacturers may be tempted toward intensive distribution—appropriate only for some; may be profitable in the short run.



Market balance suggests a need for diversity in product categories where intensive distribution is appropriate. Service requirements also differ by product category.

Diversion occurs when merchandise intended for one market is bought up by a distributor that then ships it to a different market. Sometimes, a manufacturer will run a promotion in one region but not in another, and speculators will then buy extra quantity in the promoted area and ship it another area. The speculator will then sell it to local retailers or distributors for a price slightly lower than what is being charged through the regular channel but at a price that still allows a nice profit. Certain products sell for different prices in different countries. As we discussed in the unit of international marketing, a gray market occurs when a product is bought in one country and exported to another where the price is generally higher. Both Luis Vuitton suitcases and golf clubs were imported to Japan, depressing prices there.



Integrated Marketing Communication and Promotion

Integrated Marketing Communication (IMC) involves the idea that a firm’s promotional efforts should be coordinated to achieve the best combined effects of the firm’s efforts. Resources are allocated to achieve those outcomes that the firm values the most. Promotion involves a number of tools we can use to increase demand for our products.

The most well known component of promotion is advertising, but we can also use tools such as the following:

* Public relations (the firm’s staff provides information to the media in the hopes of getting coverage). This strategy has benefits (it is often less expensive and media coverage is usually more credible than advertising) but it also entails a risk in that we can’t control what the media will say. Note that this is particularly a useful tool for small and growing businesses—especially those that make a product which is inherently interesting to the audience.
* Trade promotion. Here, the firm offers retailers and wholesalers temporary discounts, which may or may not be passed on to the consumer, to stimulate sales.
* Sales promotion. Consumers are given either price discounts, coupons, or rebates.
* Personal selling. Sales people either make “cold” calls on potential customers and/or respond to inquiries.
* In-store displays. Firms often pay a great deal of money to have their goods displayed prominently in the store. More desirable display spaces include: end of an aisle, free-standing displays, and near the check-out counter. Occasionally, a representative may display the product.
* Samples.

Generally, a sequence of events is needed before a consumer will buy a product. This is known as a “hierarchy of effects.” The consumer must first be aware that the product exists. He or she must then be motivated to give some attention to the product and what it may provide. In the next stage, the need is for the consumer to evaluate the merits of the product, hopefully giving the product a try. A good experience may lead to continued use. Note that the consumer must go through the earlier phases before the later ones can be accomplished.

Promotional objectives that are appropriate differ across the Product Life Cycle (PLC). Early in the PLC—during the introduction stage—the most important objective is creating awareness among consumers. For example, many consumers currently do not know the Garmin is making auto navigation devices based on the global position satellite (GPS) system and what this system can do for them. A second step is to induce trial—to get consumers to buy the product for the first time. During the growth stage, important needs are persuading the consumer to buy the product and prefer the brand over competing ones. Here, it is also important to persuade retailers to carry the brand, and thus, a large proportion of promotional resources may need to be devoted to retailer incentives. During the maturity stage, the firm may need to focus on maintaining shelf space, distribution channels, and sales.

Different promotional approaches will be appropriate depending on the stage of the consumer’s decision process that the marketer wishes to influence. Prior to the purchase, the marketer will want to establish a decision to purchase the product and the specific brand. Here, samples might be used to induce trial. During the purchase stage, when the consumer is in the retail store, efforts may be made to ensure that the consumer will choose one’s specific brands. Paying retailers for preferred shelf space as well as point of purchase (POP) displays and coupons may be appropriate. After the purchase, an appropriate objective may be to induce a repurchase or to influence the consumer to choose the same brand again. Thus, the package may contain a coupon for future purchase.

There are two main approaches to promoting products

* The “push” strategy is closely related to the “selling concept” and involves “hard” sell and aggressive price promotions to sell at this specific purchase occasion.
* In contrast, the “pull” strategy emphasizes creating demand for the brand so that consumers will come to the store with the intention of buying the product. Hallmark, for example, has invested a great deal in creating a preference for its greeting cards among consumers.

There are several ways that a firm can budget for advertising. The strategy used depends on the firm’s policy and internal politics. Some of the methods commonly used are:

* Percentage of sales. Here, the firm decides to base its advertising budget on how much has been sold. This appears to be an “objective” way to make the budget decision and to “reward” performing brands and products with resources. However, this method is quite arbitrary. A firm may find it worthwhile to invest heavily in advertising up-front—before the product has begun to sell significantly— so that a promising product can achieve its potential. When a product is performing well, staying with a fixed percentage may also result in spending more than is cost-effective.
* Percentage of profits. This is similar to the above, but takes into consideration that some products may have larger margins than others. Thus, a product with lesser sales but high margins may be a better investment than one with high sales but low margins. Still, however, this method is arbitrary and questionable because of the factors listed above.
* Competitive parity. This entails setting the budget to match competitors. Note, however, that different brands may have different needs. Coke and Pepsi may be competing “head-on,” and competitive parity may be appropriate. In contrast, some firms may be targeting customers who are relatively brand loyal while others target “switchers.” The firm that targets loyal customers may be better off spending money on product quality than on promotion.
* Affordability. This entails budgeting based on the resources that the firm has available. Smaller firms obviously do not have the same resources as larger ones. However, the firm should still evaluate how effective such a budget will be in meeting the brand’s needs. A firm may be able to afford to spend more than is appropriate. In contrast, other firms may not be able to spend what is needed to adequately influence consumers. In such cases, it may be more appropriate for the firm to try to sell of this brand rather than fighting a losing battle.
* Objective and task. This method sets the budget based on what is needed to achieve what the firm has set out to accomplish. The ultimate budget may then have little relation to the factors discussed above.

There are several types of advertising. In terms of product advertising, the “pioneering” ad seeks to create awareness of a product and brand and to instill an appreciation among consumers for its possibilities. The competitive or persuasive ad attempts to convince the consumer either of the performance of the product and/or how it is superior in some way to that of others. Comparative advertisements are a prime example of this. For instance, note the ads that show that some trash bags are more durable than others. Reminder advertising seeks to keep the consumer believing what other ads have already established. For example, Coca Cola ads tend not to provide new information but keep reinforcing what a great drink it is.

Developing an advertising program entails several steps:

* Identifying the target audience. Market reports can be bought that investigate the media habits of consumers of different products and/or the segments that the firm has chosen to target.
* Determining appropriate advertising objectives. As discussed, these objectives might include awareness, trial, repurchase, inducing consumers to switch from another brand, or developing a preference for the brand.
* Settling on an advertising budget.
* Designing the advertisements. Some commonly used approaches:
o Information/persuasion. Comparative ads attempt to get consumers to believe that the sponsoring product is better. Although these are frequently disliked by Americans, they tend to be among the most effective ads in the U.S. Comparative advertising is illegal in some countries and is considered very inappropriate culturally in some societies, especially in Asia.
o Fear appeals try to motivate consumers by telling them the consequences of not using a product. Mouthwash ads, for example, talk about the how gingivitis and tooth loss can result from poor oral hygiene. It is important, however, that a specific way to avoid the feared stimulus be suggested directly in the ad. Thus, simply by using the mouthwash advertised, these terrible things can be avoided.
o Sex appeals are more common—and more explicit—in some cultures than in others. Their effectiveness depends a great deal on how well such ads are designed for the specific product category. In many cases, sex appeal is used more to get the consumer’s attention than for actual persuasion. o Humor appeal. The use of humor in advertisements is quite common. This method tends not to be particularly useful in persuading the consumer. However, more and more advertisers find themselves using humor in order to compete for the consumer’s attention. Often, the humor actually draws attention away from the product—people will remember what was funny in the ad but not the product that was advertised. Thus, for ads to be effective, the product advertised should be an integral part of what is funny.

Numerous media are available for the advertiser to choose from. Each medium tends to have advantages and disadvantages.

It is essential to pretest advertisements to see how effective they actually are in influencing consumers. An ad may have to be redesigned if it is found not be to be as effective as targeted. Note that selecting advertisements is often a “numbers game” where a lot of advertisements are created and the ones that “test” best are selected.

The effectiveness of advertising is a highly controversial topic. Research suggests that in many cases advertising leads to a relatively modest increase in sales. One study suggests, for example, that when a firm increases its advertising spending by 1%, sales go up by 0.05%. (The same research found that, in contrast, if prices are lowered by 1%, sales tend to increase by 2%). In general, it appears that advertising is more effective in selling durable goods (e.g., stereo systems, cars, refrigerators, and furniture) than for non-durable goods (e.g., restaurant meals, candy bars, toilet paper, and bottled water). Also, advertising appears to be more effective for new products. This suggests that advertising is probably most effective for providing information (rather than persuading people). Note that many advertising agencies make a large part of their money on commissions on advertising sold. Thus, they have a vested interest in selling as much advertising as possible, and may strongly advise clients to spend excessive amounts on advertising.

Research suggests that advertising effectiveness follows a sort of “S-“ shaped curve. Very small amounts of advertising are too small to truly register with consumers. At the medium level, advertising may be effective. However, above a certain level (labeled “saturation point” on the chart), additional adverting appears to have a limited effect. (This is comparable to the notion of “diminishing returns to scale” encountered in economics).

There are several potential ways to measure advertising effectiveness. Two main categories include:

* “Field” based studies. These studies look at what happens with real consumers in real life. Thus, for example, we can examine what happens to sales of a company’s products when the firm increases advertising. Unfortunately, this is often a misleading way to measure advertising impact because we live in a “messy” world where other factors influence sales as well. For example, a soft drink firm could conclude that there is very little correlation between advertising and sales because another, much more powerful factor is at work: temperature. That is, the firm may find that although a great deal of advertising is done in the winter, sales are greater in summer months because people drink more soft drinks in hot weather. Note that the choice of brand of soft drink purchased in the summer may very well be influenced by advertising heard at other times.
* Laboratory studies. To get around the confounds imposed by nature, advertising reseachers often use artificial situations to evaluate advertising. This sacrifices the use of real consumers in real settings, but allows the marketer to control sources of influence. An advertising firm may hire people to come in and participate in research. The consumers may come in and be asked to view some television and respond to a questionnaire about the programming later. Half of the subjects can then see a version which includes an ad to be tested (the other half is known as the “control” group, which will serve as a basis for comparison). We can now compare the two groups on factors such as attitude toward the brand, purchase intention, and preference.

A significant objective of advertising is attitude change. A consumer’s attitude toward a product refers to his or her beliefs about, feeling toward, and purchase intentions for the product. Beliefs can be both positive (e.g., for McDonald’s food: tastes good, is convenient) and negative (is high in fat). In general, it is usually very difficult to change deeply held beliefs. Thus, in most cases, the advertiser may better off trying to add a belief (e.g., beef is convenient) rather than trying to change one (beef is really not very fatty). Consumer receptivity to messages aimed at altering their beliefs will tend to vary a great deal depending on the nature of the product. For unimportant products such as soft drinks, research suggests that consumers are often persuaded by having a large number of arguments with little merit presented (e.g., the soda comes in a neat bottle, the bottle contains five percent more soda than competing ones). In contrast, for high involvement, more important products, consumers tend to scrutinize arguments more closely, and will tend to be persuaded more by high quality arguments.

Celebrity endorsements are believed to follow a similar pattern of effectiveness. For trivial products, a popular endorser is often effective regardless of his or her qualifications to endorse (e.g, Bill Cosby endorses Coca Cola and Jell-O without having particular credentials to do so). On the other hand, for more important products, consumers will often scrutinize the endorser’s credentials. For example, a basket ball player may be perceived as knowledgeable about athletic shoes, but not particularly so about life insurance.



Pricing

Please see special section on pricing.



Direct Marketing

Direct marketing involves bypassing the retailer in reaching the consumer. Generally, this is not cost-effective, but exceptional situations may make it so. For example, certain customers may buy in very large quantities. Others may be spread over large geographic areas and require specialized products (e.g., beekeepers).

Direct marketing provides exceptional opportunities for segmentation. An excellent tool is the so called “merge-purge” technique. Marketers can buy lists of names and addresses of consumers from numerous sources (e.g., vehicle registrations, college enrollment, magazine subscriptions, catalog purchases). One can then combine different sources (e.g., surfers are likely to live in areas indicated by coastal zip codes, may subscribe to surfing magazines, and may have made purchases from surfing goods catalogs) and eliminate the overlaps (those people who appear on more than one list). Thus, we can target our potential buyers more closely than we could by advertising in newspapers (which are not read by many surfers and also reach a large number of non-surfers who are not interested in our products).

A great deal of interest has arisen in recent years on the potential for marketing on the Internet. While the jury is still out on this medium’s ultimate potential, sales so far have been limited, although a large potential may exist. It should be noted that a large segment of the population in the U.S. is still not “connected,” with numbers being even lower in even many developed countries. Many consumers are also reluctant to provide credit cards and other personal information on the Net, although attitudes in this area may change with. Note that the Internet may serve purposes other than direct sales. For example, the Internet is a good way to provide information to consumers, and this can be done at a relatively low cost.



Electronic Commerce

Online marketing can serve several purposes:



* Actual sales of products—e.g., Amazon.com.
* Promotion/advertising: Customers can be quite effectively targeted in many situations because of the context that they, themselves, have sought out. For example, when a consumer searches for a specific term in a search engine, a “banner” or link to a firm selling products in that area can be displayed. Print and television advertisements can also feature the firm’s web address, thus inexpensively drawing in those who would like additional information.
* Customer service: The site may contain information for those who no longer have their manuals handy and, for electronic products, provide updated drivers and software patches.
* Market research: Data can be collected relatively inexpensively on the Net. However, the response rates are likely to be very unrepresentative and recent research shows that it is very difficult to get consumers to read instructions. This is one of the reasons why the quality of data collected online is often suspect.

There are many obstacles to the growth of e-commerce:

* Reach: Although the majority of U.S. households now have computers connected to the Internet, a very large minority does not, and penetration rates are considerably lower in some countries. In foreign countries, even those households that have computers may be reluctant to spend time online due to the per minute charges, which discourage the more leisurely “browsing” American style.
* Concerns about privacy: A number of consumers are concerned about giving up information to marketers that can easily be collected electronically. Naturally, few consumers would like information about their medical status widely collected by firms, but many consumers are even reluctant to have marketers know the ages of their children and past book purchase records.
* Reputational issues: Although not as much of a problem as before, firms operating online or through direct mail have often been viewed with suspicion since consumers may question whether they will be around if they do not deliver satisfactorily.
* Costs. During the “boom,” Internet firms were not expected to be efficient and thus developed bad habits. Although shipping and handling charges can help cover costs of shipping and administration, these often take away the attractiveness of Internet shopping. The most successful e-commerce firms turn out to be the ones that have been successful doing other kinds of direct marketing (e.g., catalog sales) before and have developed the discipline and efficiency required there. For products that have relatively high absolute margins—e.g., computers—there is more money to cover administrative costs.
* Language. Since the Internet reaches around the world, it is often difficult to match viewers with their preferred languages. Because U.S. firms and individuals tended to predominate among those first to occupy the Web, most sites are in U.S. English. British speakers of English generally do not perceive American English as American—they tend to perceive spelling such as “color” rather than their “colour” as misspellings. French consumers do not like to have to click to get from an English language to a French language site. It is estimated that by the year 2007, the majority of web surfers will not be comfortable in English and will want sites in their own languages.
* Government regulations: In the U.S., the government has tried to keep its hands off the Net as much as possible to foster its growth as a trade area, and a recently expired moratorium on new sales taxes was even instituted to make Internet shopping more attractive. However, governments in many other countries are more forceful in their regulations. In countries such as China, where sites can be used to spread “subversive” ideas, there is a great deal of government scrutiny and suspicion.
* Cultural obstacles. The whole purpose of the web is to make information readily available. In countries where information is closely guarded, that is a frightening idea. There is often also a desire for personal interaction, which may be required to establish the trust needed to secure a deal.
* Payment issues. U.S. consumers exposed to credit card fraud have very limited liabilities, but these protections do not exist to the same extent in Europe or Asia. In China, much of the purpose of the Internet is defeated with some 80% of transactions being completed off-line, usually with funding instruments other than credit cards.

There are a number of problems in running and developing web sites. First of all, the desired domain name may not be available—e.g., American Airlines could not get “American.com” and had to settle for “AmericanAir.com.” There is also a question having your site identified to potential users. Research has found that most search engines have a great deal of “false hits” (sites irrelevant that are identified in a search—e.g., information about computer languages when the user searches for foreign language instruction) and “misses” (sites that would have been relevant but are not identified). It is crucial for a firm to have its site indexed favorably in major search engines such as Yahoo, AOLFind, and Google. However, there is often a constant struggle between web site operators and the search engines to outguess each other, with the web promoters trying to “spam” the search engines with repeated usage of terms and “meta tags.” The fact that many computer users employ different web browsers raises questions about compatibility. A major problem is that many of the more recent, fancier web sites rely on “java script” to provide animation and various other impressive features. These animations have proven very unreliable. Sites may “crash” on the user or prove unreliable, and many consumers have found themselves unable to complete their transactions.

There are a number of legal issues associated with the Internet:

* Reach across borders. Web sites transcend country lines and thus, a firm may be subjected to legal standards of different countries. It may be difficult to create advertising that simultaneously complies with rules for each country.
* Taxation. There is a great deal of ambiguity as to which state and local governments may collect taxes on merchandise sold on the Internet. There is also a question as to who has the responsibility for making the payment—the seller or the buyer?
* Privacy issues. Many foreign governments prohibit the collection of personal information of consumers (as Amazon.com does), which greatly reduces the customization opportunities online.

Web site design: The web designer must make various issues into consideration:

* Speed vs. aesthetics. As we saw, some of the fancier sites have serious problems functioning practically. Consumers may be impressed by a fancy site, or may lack confidence in a firm that offers a simple one. Yet, fancier sites with extensive graphics take time to download—particularly for users dialing in with a modem as opposed to being “hard” wired—and may result in site crashes.
* Keeping users on the site. A large number of “baskets” are abandoned online as consumers fail to complete the “check-out” process for the products they have selected. One problem here is that many consumers are drawn away from a site and then are unlikely to come back. A large number of links may be desirable to consumers, but they tend to draw people away. Taking banner advertisers on your site from other sites may be profitable, but it may result in customers lost.
* Information collection. An increasing number of consumers resist collection of information about them, and a number of consumers have set up their browsers to disallow “cookies,” files that contain information about their computers and shopping habits.

Cyber-consumer behavior. In principle, it is fairly easy to search and compare online, and it was feared that this might wipe out all margins online. More recent research suggests that consumers in fact do not tend to search very intently and that large price differences between sites persist. We saw above the problem of keeping consumers from prematurely departing from one’s site.