MKTG MGMT – Kotler & Keller – Ch. 6, 7, 8, 11, 12

Chapter 6: Analyzing Consumer Markets

Chapter Questions:o How do consumer characteristics influence buying behavior?o What major psychological processes influence consumer responses to the marketing

programso How do consumers make purchasing decisions?o How do marketers analyze consumer decision making?

What influences Consumer Behavior? (p. 150)o Cultural Factors:

Culture: the fundamental determinant of a person’s wants and behavior. Through family and other key institutions, a child growing up in the US is

exposed to values such as achievement and success, activity, efficiency and practicality, progress, material comfort, individualism, freedom, external comfort, humanitarianism, and youthfulness.

Subcultures: each culture consists of subcultures that provide more specific identification and socialization for their members.

Includes nationalities, religions, racial groups, and geographic regions.o Social Factors:

Reference groups: all the groups that have a direct (face-to-face) or indirect influence on their attitudes or behavior

Membership groups: groups that have a direct influence Primary groups: where the person interacts fairly continuously and

informally1. Family, friends, neighbors and coworkers

Secondary Groups: tend to be more formal and require less continuous interaction

1. Religious, professional and trade-union groups Aspirational Groups: those groups a person hopes to join Dissociative Groups: those whose values or behavior an individual

rejects Opinion Leader: the person who offers informal advice or information

about a specific product or product category1. Such as which of several brands is best, or how a particular

product may be used Family: the most important consumer buying organization in society, and family

members constitute the most influential primary reference group Family of orientation: consists of parents and siblings

1. From parents a person acquires an orientation toward religion, politics, and economics and a sense of personal ambition, self-worth and love.

o Personal Factors: age, life cycle stage, occupation, wealth, personality, values, lifestyle, self-concept

Age and stage in the life cycle: our taste in food, clothes, furniture, and recreation is often related to age

Occupation and economic circumstances: occupation also influences consumption patterns.

Marketers try to identify the occupational groups that have above-average interest in their products and services and can tailor products for certain occupational groups

Personality and self-concept: each person has personality characteristics that influence his or her buying behavior:

Personality: a set of distinguishing human psychological traits that lead to relatively consistent and enduring responses to environmental stimuli (including buying behavior)

Brand Personality: the specific mix of human traits that we can attribute to a particular brand. Stanford’s list of traits:

1. Sincerity: down-to-earth, honest, wholesome and cheerful2. Excitement: daring, spirited, imaginative, and up-to-date3. Competence: reliable, intelligent and successful4. Sophistication: upper-class and charming5. Ruggedness: outdoorsy and tough

Lifestyle and values: people from the same subculture, social class and occupation may lead quite different lifestyles:

Lifestyle: a person’s pattern of living in the world as expressed in activities interests and opinions

Multi-tasking: doing two or more things (consumers who experience time famine are prone to this)

Core Values: the believe systems that underlie attitudes and behaviors (consumer decisions are influenced by this.

Figure 6.1: Model of Consumer Behavior:

Key Psychological Processes: (p. 160)o The starting point for understanding consumer behavior is the stimulus response model

(above)o The processes include: Motivation, Learning, Perception & Memoryo Motivation: we all have many needs at any given time

Biogenic: needs that arise from physiological states of tension such as hunger, thirst of discomfort

Psychogenic: needs that arise from psychological states of tension such as the need for recognition, esteem, or belonging.

o Motive: when a need is aroused to a sufficient level of intensity to drive us to act Motivation Theories:

o Freud’s Theory: behavior is guided by subconscious motivations Sigmund Freud assumed the psychological forces shaping people’s behavior are

largely unconscious, and that a person cannot fully understand his or her own motivations

Laddering: a technique that allows marketers to trace a person’s motivations from stated instrumental ones to the more terminal ones (allowing the marketer to decide at what level to develop the message and appeal)

Projective techniques: techniques researchers use to uncover deeper motives triggered by a product

Examples include: word association, sentence completion, picture interpretation, and role playing,

o Maslow’s Theory: Abraham Maslow sought to explain why people are driven by particular needs at particular times.

o Hierarchy of Needs: Maslow theorized that human needs are arranged in a hierarchy from most to least pressing – i.e. behavior is driven by lowest, unmet need:

Ranked needs: Physiological, Safety, Social, Esteem & Self-actualization

o Herzberg’s Theory: Frederick Herzberg developed a two-factor theory that distinguishes:

1. Dissatisfiers: factors that cause dissatisfaction

2. Satisfiers: factors that cause satisfaction

o Herzberg’s Two Factor Theory: behavior is guided by motivating and hygiene factors

The absence of dissatisfiers is not enough to motivate a purchase; satisfiers must be present

Perception: (p. 161)o Perception: the process by which we select, organize, and interpret information inputs

to create a meaningful picture of the world (more important than reality) and can consist of three perceptual processes:

o Selective Attention: the act of screening most stimuli out (but we are influenced by unexpected stimuli), which means that marketers work hard to attract consumers’ notice.

People are more likely to notice stimuli: that relate to a current need they anticipate whose deviations are large in relationship to the normal size of the

stimulio Selective Distortion: the tendency to interpret information in a way that fits our

preconceptionso Selective Retention: Most of us don’t remember much of the information to which

we’re exposed, but we do retain information that supports our attitudes and beliefso Subliminal Perception: The selective perception mechanisms require consumers’ active

engagement and thought The argument that says marketers embed covert, subliminal messages in ads or

packaging. (No evidence for this, though) Consumer Buying Process: The Five-Stage Model (p. 166)

o Problem Recognition: buyer recognizes a problem or need triggered by internal (hunger, thirst, sex) or external stimuli

An internal stimulus, one of the person’s normal needs, rises to a threshold level and becomes a drive

o Information Search: consumers often search for limited amounts of information. There are two levels of engagement in the search:

Heightened attention: the milder search state where a person simply becomes more receptive to information about a product

Active information search: the next level where searching includes looking for reading material, phoning friends, going online, and visiting stores to learn about the product.

Information Sources: Major information sources to which consumers will turn fall into four groups:

Personal: Family, friends, neighbors, acquaintances Commercial: Advertising, Web sites, sales persons, dealers, packaging,

displays Experimental: Handling examining, using the product

Search Dynamics: by gathering information, the consumer learns about competing brands and their features.

total set: total set of brands available awareness set: the subset of brands that the individual consumer will

come to know consideration set: the brands that meet initial buying criteria

Market Partitioning: the process of identifying the hierarchy of attributes that guide consumer decision making (e.g. brand-dominant hierarchy, nation dominated hierarchy)

In order to understand different competitive forces and how these various sets get formed.

o Evaluation of Alternatives: understanding the consumer evaluation process:1. The consumer is trying to satisfy a need2. The consumer is looking for certain benefits from the product solution3. The consumer sees each product as a bundle of attributes with varying abilities

to deliver the benefits Beliefs & Attitudes:

belief: a descriptive thought that a person holds about something

attitudes: a person’s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea

o Expectancy-value Model: a model of attitude formation posits that consumers evaluate products and services by combining their brand beliefs – the positives and negatives – according to importance

A compensatory model, in that perceived good things about a product can help to overcome perceived bad things

Example of consumer choosing a laptop:

Strategies to stimulate greater interest in brand: Real positioning: redesigning the product Psychological repositioning: altering the beliefs about the brand Competitive depositioning: alter beliefs about competitors’ brands Alter the importance of the weights: the marketer could try to

persuade buyers to attach more importance to the attributes which the brand excels

Call attention to neglected attributes: The marketer could draw buyers’ attention to neglected attributes

Shift the buyer’s ideals: the marketer could try to persuade buyers to change their ideal levels for one or more attributes

o Purchase Decision: in this phase, the consumer may make up to five subdecisions: brand, dealer, quantity, timing, and payment method

Stage between Evaluation of Alternatives and a Purchase decision: Noncompensatory Models of Consumer Choice: when consumers do not sit

simultaneously consider all positive and negative attribute considerations in making a decision

Heuristics: a rule of thumb or mental shortcuts in the decision process. There are three choice heuristics here:

1. Conjunctive heuristic: the consumer sets a minimum acceptable cutoff level for each attribute and chooses the first alternative that meets the minimum standard for all attributes

2. Lexicographic heuristic: a consumer choosing the best brand on the basis of its perceived most important attribute

3. Elimination-by-aspects heuristic: situation in which the consumer compares brands on an attribute selected probabilistically, and brands are eliminated if they do not meet minimum acceptable cutoff levels

Intervening Factors: Even if consumers form brand evaluations, two general factors can intervene between the purchase intention and the purchase decision (See Figure):

Attitudes of others: the influence of another person’s attitude depends on:

1. The intensity of the other person’s negative attitude toward our preferred alternative

2. Our motivation to comply with the other person’s wishes

Unanticipated situational factors: loss of job, or another purchases take priority. Heavily influenced by one or more types of perceived risk (the degree of perceived risk varies with the amount of money at stake, the amount of attribute uncertainty, and the level of consumer self-confidence):

1. Functional risk: the product does not perform to expectations

2. Physical Risk: The product poses a threat to the physical well-being or health of the user or others

3. Financial Risk: The product is not worth the price paid4. Social Risk: The product results in embarrassment in front of

others5. Psychological Risk: The product affects the mental well-being of

the user6. Time Risk: The failure of the product results in an opportunity

cost o Post purchase Behavior: After the purchase, the consumer might experience

dissonance from noticing certain disquieting features or hearing favorable things about other brands and will be alert to information that supports his or her decision. Marketers must monitor:

Stages between evaluation of alternatives and Purchase

Postpurchase satisfaction: a function of the closeness between expectations and the product’s perceived performance

Dissappointment: occurs if the product performance falls short of expectations

Satisfaction: occurs if the product meets expectations Delighted: occurs when the product exceeds expectations

Postpurchase actions: Satisfied consumers are more likely to purchase the product again and will also tend to say good things about the brand to others. Dissatisfied customers may abandon or return the product

Public actions: complaining to the company, going to a lawyer, or complaining to other groups (such as business, private, or government agencies)

Private Actions: include deciding to stop buying the product (exit option) or warning friends (voice option)

Postpurchase Uses & Disposal: Consumers may fail to replace some products soon enough because

they overestimate product life The marketer needs to know how consumers dispose of products

because it may damage the environment There may be product opportunities in disposed products

How Customers Use or Dispose of Products

Chapter 7: Analyzing Business Markets

Chapter Questions: (p. 152)o What is the business market, and how does it differ from the consumer market?o What buying situations do organizational buyers face?o Who participates in the business-to-business buying process?o How do business buyers make their decisions?o How can companies build strong relationships with business customers?o How do institutional buyers and government agencies do their buying?

Definitions:o Organizational Buying: the decision-making process by which formal organizations

establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers

o Business Market: all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others.

Characteristics of Business Markets: (p. 184)o Fewer, larger buyerso Close supplier-customer relationshipso Professional purchasingo Multiple buying influenceso Multiple sales callso Derived demando Inelastic demando Fluctuating demando Geographically concentrated buyerso Direct purchasing

Buying Situations: (p. 185)o Straight Re-buy: purchases are made on a routine basis and chooses from suppliers on

an approved listo Modified Re-buy: the buyer in a modified re-buy wants to change product

specifications, prices, delivery requirements, or other termso New Task: a new-task purchaser buys a product or service for the first time

Systems Buying and Selling (p. 187)o Systems buying: when business buyers buy a total problem solution from one sellero Turnkey solution desired: Bids Solicited Prime Contractors Second-Tier

Contractors System subcomponents assembled The Buying Center (p. 188)

o Includes all members of the organization who play any of the following seven roles in the purchase decision process:

1. Initiators: users or others in the organization who request that something be purchased

2. Users: Those who will use the product or service. 3. Influencers: People who decide on product requirements or on suppliers4. Deciders: people who decide on product requirements or on suppliers5. Approvers: people who authorize the proposed actions of deciders or buyers.6. Buyers: people who have formal authority to select the supplier and arrange the

purchase terms7. Gatekeepers: people who have the power to prevent sellers or information

from reaching members of the buying center Sales Strategies

o Small Sellers Key buying influencerso Large Sellers Multilevel In-depth selling

Stages in the Buying Process: (p. 195)o Buyphases: eight stages in the buying-decision process:

1. Problem Recognition: starts the buying process – when someone in the company recognizes a problem or need that can be met by acquiring a good or service

2. General need description: determination of the item’s general characteristics and required quantity

3. Product specification: determination of the item’s general characteristics and required quantity

4. Supplier search: the buyer tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, trade shows, and the Internet (See: Forms of Electronic Marketplaces)

5. Proposal solicitation: the buyer invites qualified suppliers to submit proposals, and after evaluation, the buyer will invite a few suppliers to make formal presentations.

6. Supplier selection: Before selecting a supplier, the buying center will specify and rank desired supplier attributes, often using a supplier evaluation model

7. Order-routine specification: the buyer negotiates the final order, listing: the technical specifications, quantity needed, the expected time of delivery, return policies, warranties and so on.

8. Performance review: may lead to the buyer to continue, modify, or end a supplier relationship. The buyer periodically reviews the performance of the chosen supplier(s) using one of three methods:

Receiving evaluations from end users Rate the supplier on several criteria using a weighted-score method Aggregate the cost of poor performance to come up with adjusted costs

of purchase, including price

The Buygrid Framework: (p. 195)

BuyclassesNew Task Modified Re-buy Straight Re-buy

Buyphases

1. Problem recognition Yes Maybe No2. General need description Yes Maybe No3. Product specification Yes Yes Yes4. Supplier search Yes Maybe No5. Proposal solicitation Yes Maybe No6. Supplier selection Yes Maybe No7. Order-routine specification Yes Maybe No8. Performance Review Yes Yes Yes

o Major Stages (Buyphases) of the Industrial Buying Process in Relation to Major Buying Situations (Buyclasses):

Forms of Electronic Marketplaces: (p. 196)o Catalog sites: companies can order thousands of items through electronic catalogs o Vertical Markets; specialized Web sites (e-hubs) that sell industrial productso “Pure Play” auction sites: buyers can buy products at auctionso Spot (or exchange) markets: on spot electronic markets, prices change by the minuteo Private exchanges: private exchanges can be operated to link with specially invited

groups of suppliers and partners over the Webo Barter markets: participants offer to trade goods or serviceso Buying alliances: several companies buying the same goods can join together to form

purchasing consortia to gain deeper discounts on volume purchases Methods of e-Procurement: (p. 197)

o Web sites are organized around two types of e-hubs:1. Vertical hubs: centered on industries (plastics, steel, chemicals, paper)2. Functional hubs: (logistics, media buying, advertising, energy management)

o Other forms of e-procurement: Set up direct extranet links to major suppliers Form buying alliances Set up company buying sites

Vendor Analysis:o The buying center can use a suppler-evaluation model like this:Attributes Rating Scale

Importance Weights Poor (1) Fair (2) Good (3) Excellent (4)Price .30 X

Supplier reputation .20 XProduct reliability .30 XService reliability .10 XSupplier flexibility .10 X

Total Score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5

Handling Price-Oriented Customers: (p. 199)o The buying center may attempt to negotiate with preferred suppliers for better prices

and terms before making the final selectiono Some companies handle price-oriented buyers by setting a lower price but establishing

restrictive conditions:1. Limit quantity purchased2. Prohibit refunds3. Make no adjustments4. Provide no services

Methods for Researching Customer Value:o Internal engineering assessmento Field value-in-use assessmento Focus-group value assessmento Direct survey questionso Conjoint analysiso Benchmarkso Compositional approacho Importance ratings

Order-Routine Specification: (p. 201)o Stockless Purchase plans: a blanket contract where a long-term relationship is

established, which the supplier promises to resupply the buyer as needed, at agreed-upon prices, over a specified period of time

o Vendor Managed Inventory (VMI): when the ordering responsibility is shifted to their suppliers in systems.

o Continuous replenishment programs: when suppliers are privy to the customer’s inventory levels and take responsibility for replenishing it automatically.

Establishing Corporate Trust and Credibility: o Expertise – Trustworthiness -- Likability

Trust Dimensions:Transparent Cooperating Design

Product / Service Quality Product ComparisonIncentive Supply Chain

Partnering Pervasive Advocacy

Factors Affecting Buyer-Supplier Relationships:o Availability of alternativeso Importance of supplyo Complexity of supplyo Supply market dynamism

Categories of Buyer-Seller Relationships: (p. 202)o Much research has advocated greater vertical coordination between buying partners

and sellers, so they can transcend merely transacting and instead engage in activities that create more value for both parties.

o Buyer-supplier relationships are classified into eight categories: Basic buying and selling: simple, routine exchanges with moderate levels of

cooperation and information exchange Bare bones: these relationships require more adaptation by the seller and less

cooperation and information exchange Contractual transaction: These exchanges are defined by formal contract and

generally have low levels of trust, cooperation and interaction Customer Supply: In this traditional custom supply situation, competition rather

than cooperation is the dominant form of governance Cooperative systems: the partners in cooperative systems are united in

operational ways, but neither demonstrates structural commitment through legal means or adaptation

Collaborative: In collaborative exchanges, much trust and commitment lead to true partnership

Mutually adaptive: Buyers and sellers make many relationship-specific adaptations, but without necessarily achieving strong trust or cooperation

Customer is King: In this close, cooperative relationship, the seller adapts to meet the customer’s needs without expecting much adaptation or change in exchange

Chapter 8: Identifying Market Segments and Targets

Chapter Questions: (p. 212)o What are the different levels of market segmentation?o How can a company divide a market into segments?o How should a company choose the most attractive target markets?o What are the requirements for effective segmentation?

Four levels of Micromarketingo Segments: consists of a group of customers who share a similar set of needs and wantso Niches: all efforts focus on a very narrow segment of an overall target marketo Local Areas: Geographic segmentation – regional marketing means marketing right

down to a specific zip codeo Individuals: an individual’s habits can be monitored to appeal to their buying habits

(company databases of previous purchases, online clicks) Segmenting Consumer Markets: (p. 214)

o Geographic: divides the market into geographical units such as nations, states, regions, counties, cities, or neighborhoods.

o Demographic (p. 216): when the market is divided on variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class.

o Psychographic (p. 225): when buyers are divided into different groups on the basis of their psychological/personality traits, lifestyle, or values.

Psychographics: the science of using psychology and demographics to better understand customers

o Behavioral: when marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. (See below)

The VALS Segmentation System (p. 226):o One of the most popular commercially available

classification systems based on psychographic measurements

The four groups with higher resources are: Innovators: successful, sophisticated,

active, “take-charge” people with high self-esteem

Thinkers: Mature, satisfied, and reflective people motivated by ideals and who value order, knowledge and responsibility.

Achievers: Successful, goal-oriented people who focus on career and family

Experiencers: Young, enthusiastic, impulsive people who seek variety and excitement.

The four groups with lower resources are: Believers: Conservative, conventional, and traditional people with

concrete beliefs Strivers: Trendy, and fun-loving people who are resource-constrained Makers: Practical, down-to-earth, self-sufficient people who like to work

with their hands Survivors: Elderly, passive people concerned about change and loyal to

their favorite brands. Behavioral Segmentation: (p. 227)

o Decision Roles: Initiator, Influencer, Decider, Buyer, and User.o Behavioral variables:

Occasions: mark a time of day, week, month, year or other well-defined temporal aspects of a consumer’s life

Benefits: [no info] User status: Every product has its nonusers, ex-users, potential users, first-time

users, and regular users. Usage rate: markets can be segmented into light, medium and heavy product

users Buyer-readiness: Some people are unaware of the product, some are aware,

some are informed, some are interested, some desire the product, and some intend to buy

Loyalty status: Marketers usually envision four groups based on brand loyalty status:

1. Hard-core Loyals: Consumers who buy only one brand all the time2. Split Loyals: Consumers who are loyal at two or three brands3. Shifting Loyals: Consumers who shift loyalty from one brand to another4. Switchers: Consumers who show no loyalty to any brand

Attitude: Five consumer attitudes about products are enthusiastic, positive, indifferent, negative and hostile

Multiple bases: combining different behavioral bases can provide a more comprehensive and cohesive view of a market and its segments

The Brand Funnel: (p. 229)o Marketing funnel: breaks the market down into different buyer-readiness stages:

Aware Ever tried Recent Trial Occasional user Regular User Most Often Used

Behavioral Segmentation Breakdown: (p. 229)

The Conversion Model:

Segmenting for Business Markets: (p, 230)o Demographic, Operating Variables, Purchasing approaches, situational factors, personal

characteristics Steps in Segmentation Process: (p. 231)

o Needs-Based Segmentation: group customers into segments based on similar needs and benefits sought by customers in solving a particular consumption problem.

o Segment Identification: for each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable)

o Segment attractiveness: Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment

o Segment profitability: determine segment profitabilityo Segment positioning: For each segment, create a “value proposition” and product-price

positioning strategy based on that segment’s unique customer needs and characteristics

o Segment acid test: Create “segment storyboard” to test the attractiveness of each segment’s positioning strategy

o Marketing-Mix Strategy: Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion, and place

Effective Segmentation Criteria: (p. 231)o Not all segmentation schemes are useful. In order to be useful, market segments must

rate favorably on key criteria: Measurable: The size, purchasing power, and characteristics of the segments

can be measured. Substantial: The segments are large and profitable enough to serve. A segment

should be the largest possible homogeneous group worth going after with a tailored marketing program.

Accessible: The segments can effectively be reached and served. Differentiable: The segments are conceptually distinguishable and respond

differently to different marketing-mix elements and programs. If married and unmarried women respond similarly to a sale on

perfume, they do not constitute separate segments. Actionable: Effective programs can be formulated for attracting and serving the

segments Patterns of Target Market Selection: Target Market Selection:

Segment-by-Segment Invasion plan:

Chapter 11: Competitive Dynamics (Dealing with Competition)

Chapter Questions: o How do marketers identify primary competitors?o How should we analyze competitors’ strategies, objectives, strengths, and weaknesses?o How can market leaders expand the total market and defend market share?o How should market challengers attack market leaders?o How can market followers or nichers compete effectively?

Five Forces Determining Segment Structural Attractiveness:

Industry Concept of Competition:o Number of sellers and degree of differentiationo Entry, mobility, and exit barrierso Cost structureo Degree of vertical integrationo Degree of globalization

Strategic Groups

Competitor’s Expansion Plans

Customer Ratings of Competitors on Key Success Factors

Strengths and Weaknesses:o Share of marketo Share of mindo Share of heart

Market Share, Mind Share, and Heart Share

Hypothetical Market Structure

Defensive Marketing: (p. 303)o The aim of defensive strategy is to reduce the probability of attack, divert attacks to

less-threatened areas, and lessen their intensity.o Speed of response can make an important difference to profit.o A dominant firm can use six defense strategies (See Figure):

Position defense: means occupying the most desirable market space in consumers’ minds, making the brand almost impregnable

Flank Defense: The market leader should erect outposts to protect a weak front or support a possible counterattack.

Preemptive Defense: A more aggressive maneuver is to attack first, perhaps with guerilla action across the market – hitting one competitor here, another there – and keeping everyone off balance.

Counteroffensive Defense: The market leader can meet the attacker frontally and hit its flank, or launch a pincer movement so it will have to pull back to defend itself

Mobile Defense: The leader stretches its domain over new territories through market broadening: shifts the company’s focus from the current

product to the underlying generic need market diversification: shifts the company’s focus to unrelated

industries

Contraction Defense: Sometimes large companies can no longer defend all their territory.

Planned Contraction/Strategic Withdrawals: companies give up weaker markets and resign sources to stronger ones

Six Types of Defense Strategies

Increasing Market Share: (p. 304)o The cost of buying higher market share through acquisition may far exceed its revenue

value, so a company should consider four factors first: The possibility of provoking antitrust action: frustrated competitors are likely

to cry “monopoly” and seek legal action if a dominant firm makes further inroads.

Economic Cost: profitability might fall with market share gains after some level. The cost of gaining further market share might exceed the value if holdout customers dislike the company, are loyal to competitors, have unique needs, or prefer dealing with smaller firms. (See Figure)

Optimal market share: 50% The danger of pursuing the wrong

marketing activities: Companies successfully gaining share typically outperform competitors in three areas: new-product activity, relative product quality, and marketing expenditures.

The effect of increased market share on actual and perceived quality: Too many customers can put a strain on the firm’s resources, hurting product value and service delivery

Other Competitive Strategies: (p. 305)o Market Challengers: companies that attack the leader and other competitors in an

aggressive bid for further market shareo Market followers: companies that choose not to “rock the boat”o Market Nichers: a company that leads in a small market

Market Challenger Strategies: (p. 305)o Defining the strategic objective and opponent(s): a market challenger must first define

its strategic objective, usually to increase market share. The challenger must decide whom to attack:

It can attack the market leader It can attack firms its own size that are not doing the job and are underfinanced It can attack small local and regional firms

o Choosing a General Attack Strategy: Given clear opponents and objectives, the following five types of attacks can be executed:

o Choosing a specific attack strategy: Any aspect of the marketing program can serve as the basis for attack (See below), such as lower-priced or discounted products, new or improved products and services, a wider variety of offerings, and innovative distribution strategies.

General Market Challenger Attack Strategies: (p. 306)o Frontal attack: the attacker matches its opponent’s product, advertising, price and

distributiono Flank Attack: another name for identifying shifts that are causing gaps to develop, then

rushing to fill the gapso Encirclement Attack: attempts to capture a wide slice of territory by launching a grand

offensive on several fronts.o Bypass Attack: Bypassing the enemy altogether to attack easier markets instead offers

three lines of approach: Diversifying into unrelated products Diversifying into new geographical markets Leapfrogging into new technologies

o Guerilla Attacks: consists of small, intermittent attacks, conventional and unconventional, including selective price cuts, intense promotional blintzes, and occasional legal action, to harass the opponent and eventually secure permanent footholds

Specific Market Challenger Attack Strategies: (p. 306)

Price discounts Prestige goodsLower-Priced goods Improved servicesValue-priced goods Distribution Innovation

Product Proliferation Manufacturing-cost ReductionProduct Innovation Intensive Advertising Promotion

Market Follower Strategies: (p. 307)o Many companies prefer to follow rather than challenge the market leader, but still need

to implement strategies: Counterfeiter: The counterfeiter duplicates the leader’s product and packages

and sells it on the black market or through disreputable dealers Cloner: The cloner emulates the leader’s products, name, and packaging, with

slight variations Imitator: The imitator copies some things from the leader but differentiates on

packaging, advertising, pricing, or location Adapter: The adapter takes the leader’s products and adapts or improves them.

The adapter may choose to sell to different markets, but often it grows into a future challenger

Niche Specialist Roles: (p. 308)o Firms entering a market should initially aim at a niche rather than the whole market.o Multiple niching is preferable to single niching: with strength in two or more niches,

the company increases its chances for survival.o Types of roles:

End-User Specialist Product-Line SpecialistVertical-Level Specialist Job-Shop SpecialistCustomer-Size Specialist Quality-Price Specialist

Specific-Customer Specialist Service-SpecialistGeographic Specialist Channel Specialist

Chapter 12:Setting Product Strategy

Chapter Questions: (p. 324)o What are the characteristics of products and how do marketers classify products?o How can companies differentiate products?o How can a company build and manage its product mix and product lines?o How can companies combine products to create strong co-brands or ingredient brands?o How can companies use packaging, labeling, warranties, and guarantees as marketing

tools? Components of the Market Offering (p. 326)

Product Levels: The Customer-Value Hierarchy (p. 326)o In planning its market offering, the marketer needs to address five product levels that

constitute a customer-value hierarchy: Core benefit: the service or benefit the customer is really buying Basic Product: the second level where the marketer must turn the core benefit

into the basic product Expected Product: a set of attributes and conditions buyers normally expect

when they purchase this product Augmented Product: a product

that exceeds customer expectations that is prepared by the marketer

Potential Product: encompasses all the possible augmentations and transformations the product or offering might undergo in the future (This is where companies search for new ways to satisfy customers and distinguish their offering)

Five Product Levels

Product Classification Schemes:o Marketers classify products on the basis of:

Durability Tangibility Use

Durability and Tangibility: (p. 327)o Nondurable Goods: tangible goods normally consumed in one or a few uses

Beer & shampooo Durable Goods: tangible goods that normally survive many uses

Refrigerators, machine tools, and clothingo Services: tangible, inseparable, variable, and perishable products that normally require

more quality control, supplier credibility, and adaptability Haircuts, legal advice, and appliance repairs

Consumer Goods Classification: (p. 327)o Convenience goods: products that the consumer usually purchases frequently,

immediately, and with minimal effort Staples: convenience goods consumers purchase on a regular basis (ketchup) Impulse goods: are purchased without any planning or search effort (candy) Emergency goods: purchased when the need is urgent (umbrellas)

o Shopping: goods that the consumer characteristically compares on such bases as suitability, quality, price, and style (Furniture, clothing, and major appliances)

Homogeneous shopping goods: goods similar in quality but different enough in price to justify shopping comparisons.

Heterogeneous shopping goods: differ in product features and services that may be more important than price.

o Specialty goods: goods that have unique characteristics or brand identification for which enough buyers are willing to make a special purchasing effort (cars)

o Unsought goods: goods that the consumer does not know about or would normally think of buying (smoke detectors)

Industrial Goods Classification: (p. 327)o Materials and parts: goods that enter the manufacturer’s product completely, and are

classified in two ways: Raw materials: fall into two major groups:

Farm Products: wheat, cotton, livestock, fruits and vegetables Natural Products: fish, lumber, crude petroleum, iron ore

Manufactured Materials and parts: fall into two categories: Component materials: materials that are usually fabricated further

(iron, yarn, cement, wires) Component Parts: enter the finished product with no further change in

form (small motors, tires, castings)

o Capital Items: are long-lasting goods that facilitate developing or managing the finished product. They include two groups:

Installations: major purchases that can consist of buildings (factories, offices) and heavy equipment (generators, drill presses, mainframe computers, elevators)

Equipment: includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (personal computers, desks) These types of equipment don’t become part of a finished product

o Supplies / business services: are short-term goods and services that facilitate developing or managing the finished product.

Maintenance, Repair and Operations (MRO) Goods: the classification of supplies (the equivalent of convenience goods) which come in two kinds:

Maintenance and repair items: paint, nails, brooms Operating supplies: lubricants, coal, writing paper, pencils

Business services: this includes: Maintenance and repair services: window cleaning, copier repair Business advisory services: legal, management consulting, advertising

Product Differentiation: (p. 329)o To be branded, products must be differentiated (made to stand out), and products can

be differentiated in the following ways: Product Form: the size, shape, or physical structure of a product Features: products can be offered with varying features that supplement their

basic function Calculate customer value versus company cost for each potential

feature Customization: marketers can differentiate products by customizing them

Mass customization: the ability of a company to meet each customer’s requirements – to prepare on a mass basis individually designed products, services, programs and communications

Performance quality: the level at which the product’s primary characteristics operate

Conformance quality: the degree to which all produced units are identical and meet promised specifications

Durability: a measure of the product’s expected operating life under natural or stressful conditions

Reliability: a measure of the probability that a product will not malfunction or fail within a specified time period

Repairability: measures the ease of fixing a product when it malfunctions or fails

Style: describes the product’s look and feel to the buyer.

Service Differentiation: (p. 330)

o When the physical product cannot easily be differentiated, the key to competitive success may lie in adding valued services and improving their quality. The main service differentiators are:

Ordering ease: refers to how easy it is for the customer to place an order with the company

Delivery: refers to how well the product or service is brought to the customer. Installation: refers to the work done to make a product operational in its

planned location. Ease of installation is a selling point for buyers of complex products like heavy equipment and for technology novices.

Customer training: helps the customer’s employees use the vendor’s equipment properly and efficiently

Customer consulting: includes data, information systems, and advice services the seller offers to buyers.

Maintenance and repair: these programs help keep purchased products in good working order.

Returns: a nuisance to customers, manufacturers, retailers, and distributors alike, product returns are also an unavoidable reality of doing business. Returns can be thought of in two ways:

Controllable returns: results from problems or errors by the seller or customer and can mostly be eliminated with improved handling or storage, better packaging, and improved transportation and forward logistics by the seller or its supply chain partners.

Uncontrollable returns: result from the need for customers to actually see, try, or experience products in person to determine suitability and can’t be eliminated by the company in the short run through any of these means.

Basic strategy: to eliminate the root causes of controllable returns while developing processes for handling uncontrollable returns.

Goal: to have fewer products returned and put a higher percentage back into the distribution pipeline to be sold again.

Product Hierarchy: (p. 336)o The product hierarchy stretches from basic needs to particular items that satisfy those

needs. Six levels exist (Example: life Insurance)o Need family: the core need that underlies the existence of a product family (security)o Product family: al the product classes that can satisfy a core need with reasonable

effectiveness (financial instruments)o Product line: a group of products within a product class that are closely related because

they perform a similar function, are sold to the same customer groups, are marketed through the same outlets or channels, or fall within given price ranges. A product line may consist of different brands, or a single family brand, or individual brand that has been line extended. (Life insurance)

o Product type: A group of items within a product line that share one of several possible forms of the product (Term Life Insurance)

o Item: (also called stock-keeping unit or product variant) – a distinct unit within a brand or product line distinguishable by size, price, appearance, or some other attribute (Prudential renewable term life insurance)

Product Systems and Mixes: (p. 336)o Product system: a group of diverse but related items that function in a compatible

manner Example: The extensive iPod product system that includes headphones and

headsets, cables and docks, armbands, cases, power and car accessories, and speakers

o Product Mix: (also called a product assortment) is the set of all products and items a particular seller offers for sale. Four product mix dimensions permit the company to expand its business::

Width: refers to how many different product lines the company carries. Length: refers to the total number of items in the mix. Depth: refers to how many variants are offered of each product in the line. Consistency: describes how closely related the various product lines are in end

use, production requirements, distribution channels, or some other way. Product Line Analysis: (p. 337)

o In offering a product line, companies normally develop a basic platform and modules that can be added to meet different customer requirements and lower production costs.

o Product line managers need to know the sales and profits of each item in their line to determine which items to build, maintain, harvest, or divest.

o They also need to understand each product line’s market profile:

Sales and profits: a company’s product portfolio contains products with different margins. Company’s should recognize that items can differ in their potential for being priced higher or advertised more as ways to increase their sales, their margins, or both.

Market profile: the product line manager must review how the line is positioned against competitors’ lines:

Product map: shows which competitors’ items are competing against company X’s items

Product-item Contributions to a product Line’s Total Sales and Profits

Product Map for a Paper – Product Line

Line Stretching: (p. 340)o Occurs when a company lengthens its product line beyond its current range. And can

happen in three ways: Down-market stretch:

A company positioned in the middle market may want to introduce a lower-priced line for any of three reasons:

1. The company may notice strong growth opportunities as mass retailers such as Walmart, Best Buy, and others attract a growing number of shoppers who want value-priced goods

2. The company may wish to tie up lower-end competitors who might otherwise try to move up-market. If the company has been attacked by a low-end competitor, it often decides to counterattack by entering the low end of the market

3. The company may find that the middle market is stagnating or declining

A company faces a number of naming choices in deciding to move a brand down-market:

1. Use the parent brand name on all its offerings (Sony)2. Introduce lower-priced offerings using a sub-brand name

(Bounty Basics)3. Introduce the lower priced offerings under a different name

(Gap’s Old Navy brand). This strategy is expensive to implement and means brand equity will have to be built from scratch, but the equity of the parent brand name is protected.

Up-market stretch: Companies may wish to enter the high end of the market to achieve more growth, realize higher margins, or simply position themselves as full-line manufacturers.

Two-way stretch: Companies serving the middle market might stretch their line in both directions.

Product Mix Pricing:o Product-mix pricing: when the firm searches for a set of prices that maximizes profits on

the total mix. There are six situations calling for product-mix pricing: Product-line pricing: Companies normally develop product lines rather than

single products and introduce price steps. Optional-feature pricing: Many companies offer optional products, features,

and services with their main product. Captive-product pricing: Some products require the use of ancillary or captive

products: Captive products: products that are necessary to the use of other

products, such as razor blades or film Two-part pricing: consists of a fixed fee plus a variable usage fee (cell phones)

By-product pricing: The production of certain goods – meats, petroleum products, and other chemicals, often results in by-products that should be priced on their value.

Any income earned on the by=products will make it easier for the company to charge a lower price on its main product if competition forces it to do so

Product-bundling pricing: sellers often bundle products and features Pure bundling: occurs when a firm offers its products only as a bundle (a

form of tied-in sales) Mixed bundling: when the seller offers goods both individually and in

bundles, normally charging less for the bundle than if the items were purchased separately

Factors Contributing to the Emphasis on Packaging:o Packaging: includes all the activities of designing and producing the container for a

product, and might have up to three layers (Example: cologne): Primary package: Cool Water cologne comes in a bottle Secondary package: The bottle comes in a package Shipping package: a corrugated box containing six dozen bottles in cardboard

boxeso Various factors contribute to the growing use of packaging as a marketing tool:

Self-service: An increasing number of products sold are on a self-serve basis. In an average super market, which may stock 15,000 items, the shopper

passes some 300 products per minute. Given that 50-70% of all purchases are made in the store, the effective package must perform many sales tasks: attract attention, describe the product’s features, create consumer confidence, and make a favorable overall impression

Consumer affluence: Rising affluence means consumers are willing to pay a little more for the convenience, appearance, dependability, and prestige of better packages.

Company and brand image: Packages contribute to instant recognition of the company or brand.

Innovation Opportunity: Unique or innovative packaging such as resealable spouts can bring big benefits to consumers and profits to producers

Packaging Objectives: (p. 347)o Identify the brando Convey descriptive and persuasive informationo Facilitate product transportation and protectiono Assist at-home storageo Aid product consumption

Chapter 13: Designing and Managing Services

Chapter Questions: (p. 354)o How do we define and classify services and how do they differ from goods?o How do we market services?o How can we improve service quality?o How do services marketers create strong brands?o How can goods marketers improve customer support services?

Service Sectors: (p. 356)o Service: any act or performance one party can offer to another that is essentially

intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.

o The following industries are considered service industries: Government sector: with its courts, employment services, hospitals, loan

agencies, military services, police and fire departments, postal service, regulatory agencies, and schools

Private nonprofit sector: museums, charities, churches, colleges, foundations and hospitals

Business sector: airlines, banks, hotels, insurance companies, management consulting firms, medical practices, motion picture companies, plumbing repair companies, and real estate firms

Manufacturing sector: computer operators, accountants, and legal staff (they make up a “service factory” – providing services to the “goods factory”

Retail sector: cashiers, clerks, salespeople, and customer service representatives

Categories of Service Mix: (p. 356)o The service component can be a minor or a major part of the total offering. Five

categories of offerings can be distinguished: Pure tangible good: a tangible good such as soup, toothpaste, or salt with no

accompanying services Tangible good with accompanying services: a tangible good, like a car,

computer or cell phone, accompanied by one or more series. Typically, the more technologically advanced the product, the greater the need for high-quality supporting services

Hybrid: an offering, like a restaurant meal, of equal parts goods and services. People patronize restaurants for both the food and its preparation.

Major service with accompanying minor goods and services: a major service, like air travel, with additional services or supporting goods such as snacks and drinks. This offering requires a capital-intensive good – an airplane – for its realization, but the primary item is a service

Pure service: primarily an intangible service such as babysitting, psychotherapy, or massage

o The range of service offerings makes it difficult to generalize without a few further distinctions:

Services vary as to whether they are: Equipment based: automated car washes, vending machines, Oil rigs People based: window washing, accounting services – and vary by

whether unskilled, skilled or professional workers provide them Service companies can choose among different processes to deliver their

service. Restaurants offer cafeteria-style, fast-food, and candlelight service

formats Some services need the client’s presence. (brain surgery, haircuts) Services may meet a personal need (personal services) or a business need

(business services). Service providers typically develop different marketing programs for these markets

Service providers differ in their objectives (profit or nonprofit) and ownership (private or public). These two characteristics, when crossed, produce four quite different types of organizations.

Continuum of Evaluation for Different Types of Products: (p. 357)o Customers typically cannot judge the technical quality of some services even after they

have received themo The figure below shows various products and services according to difficulty of

evaluation. At the left are goods high in search qualities – characteristics the buyer can

evaluate before purchase In the middle are goods and services high in experience qualities –

characteristics the buyer can evaluate after purchase At the right are goods and services high in credence qualities – characteristics

the buyer normally finds hard to evaluate even after consumption. (carrying a more risk in their purchase)

Distinctive Characteristics of Services: (p. 358)o Four distinctive service characteristics greatly affect the design of marketing programs:

Intangibility: Unlike physical products, services cannot be seen, tasted, felt, heard or smelled before they are bought.

Inseparability: Whereas physical goods are manufactured, then inventoried, then distributed, and later consumed, services are typically produced and consumed simultaneously.

Variability: Because the quality of services depends on who provides them, when and where, and to whom, services are highly variable.

Perishability: Services cannot be stored, so their perishability can be a problem when demand fluctuates.

Physical Evidence and Presentation: (p. 358)o Service companies try to demonstrate their service quality through physical evidence

and presentation, and can make this positioning strategy tangible through any number of marketing tools (Example: A bank):

Place: the exterior and interior should have clean lines. The layout of the desks and the traffic flow should be panned carefully. Waiting lines should not get overly long.

People: Employees should be busy, but there should be a sufficient number to manage the workload.

Equipment: Computers, copy machines, desks, and ATMs should look like, and be, state of the art.

Communication material: printed materials – text and photos – should suggest efficiency and speed.

Symbols: The bank’s name and symbol should suggest fast service Price: The bank could advertise that it will deposit $5 in the account of any

customer who waits in line more than five minutes. How to Increase Quality control: (p. 360)

o Because of variability, service firms can employ one of three steps to increase quality control:

Invest in good Hiring and training procedures Standardize the service-performance process throughout the organization Monitor customer satisfaction

Matching Demand and Supply: (p. 361)o Demand or yield management is critical – the right services must be available to the

right customers at the right places at the right times and right prices to maximize profitability. Several strategies can produce a better match between service demand and supply:

On the demand side: Differential pricing: this will shift some demand from peak to off-peak

periods. (Low matinee movies)

Nonpeak demand: this can be cultivated (McD’s pushes breakfast service)

Complementary services: can provide alternatives to waiting customers (cocktail lounges in restaurants & ATMS in banks)

Reservation systems: are a way to manage the demand level On the supply side:

Part-time employees: can serve peak demand (Extra clerks for the holidays)

Peak-time efficiency: routines can allow employees to perform only essential tasks during peak periods (Paramedics assist physicians during busy periods)

Increased consumer participation: free service providers’ time. (Consumers fill out their own medical records or bag their own groceries.)

Shared services: can improve offerings. (Several hospitals can share medical-equipment purchases)

Facilities for future expansion: can be a good investment. (An amusement park buys surrounding land for later development)

A Blueprint for Overnight Hotel Stay: (p. 360)o A service blueprint can map out the service process, the points of customer contact, and

the evidence of service from the customer’s point of view The figure below shows a service blueprint for a guest spending a night at a

hotel:

Improving Service Quality:

o Listening o Surprising Customerso Reliability o Fair playo Basic Service o Teamworko Service design o Employee researcho Recovery o Servant leadership

Root Causes of Customer Failure: (p. 364)o Unfortunately, although many firms have well-designed and executed procedures to

deal with their own failures, they find managing customer failures (when a service problem arises from a customer’s lack of understanding or ineptitude) much more difficult. The figure below displays the four broad causes of customer failures:

Solutions to Customer Failures: (p. 364)o Solutions come in all forms:

Redesign processes and redefine customer roles to simplify service encounters. Incorporate the right technology to aid employees and customers Create high-performance customers by enhancing their role clarity, motivation,

and ability Encourage “customer citizenship” so customers help customers (customers

encouraging other customers in performance) Three Types of Marketing in Service Industries: (p. 365)

o The increased importance of the service industry has sharpened the focus on what it takes to excel in the marketing of services. Marketing excellence with services requires excellence in three broad cases (see figure):

External Marketing: describes the normal work of preparing, pricing, distributing, and promoting the service to customers

Internal Marketing: describes the training and motivating employees to serve customers well. The most important contribution the marketing department

can make is arguable to be “exceptionally clever in getting everyone else in the organization to practice marketing.”

Interactive Marketing: describes employees’ skill in serving the client. Clients judge service not only by its technical quality but also by its functional quality.

The Service-Quality Model: (p. 373)o The service-quality model highlights the

main requirements for delivering high service quality (see figure).

Gaps that Cause Unsuccessful Service Delivery:1. Gap between consumer expectation and

management perception: Management does not always correctly perceive what customers want

2. Gap between management perception and service-quality specification: Management might correctly perceive customers’ wants but not set a performance standard

3. Gap between service-quality specifications and service delivery: Employees might be poorly trained, or incapable of or unwilling to meet the standard; they may be held to conflicting standards, such as taking time to listen to customers and serving them fast.

4. Gap between service delivery and external communications: Customer expectations are affected by statements made by company representatives and ads.

5. Gap between perceived service and expected service: This gap occurs when the consumer misperceives the service quality

Determinants of Service Quality: (p. 374)o Based on this service-quality model, researchers identified five determinants of service

quality, in this order of importance:1. Reliability: The ability to perform the promised service dependably and

accurately2. Responsiveness: Willingness to help customers and provide prompt service3. Assurance: The knowledge and courtesy of employees and their ability to

convey trust and confidence4. Empathy: The provision of caring, individualized attention to customers.5. Tangibles: The appearance of physical facilities, equipment, personnel, and

communication materials. Best Practices of Top Service Companies: (p. 366)

o In achieving marketing excellence with their customers, well-managed service companies share a strategic concept, a history of top-management commitment to quality, high standards, profit tiers, and systems for monitoring service performance and customer complaints.

Strategic Concept: Top companies have a clear sense of their target customers and their needs and have developed a distinctive strategy for satisfying these needs.

Top-management Commitment: Companies look monthly not only at financial performance, but also at service performance

High Standards: The best service providers set high quality standards Profit Tiers: Firms have decided to raise fees and lower services to those

customers who barely pay their way, and to coddle big spenders to retain their patronage as long as possible.

Monitoring Systems: Top firms audit service performance, both their own and competitors’, on a regular basis.

Services can be judged on customer importance and company performance.

Example of a monitoring system for an auto dealership with rating attributes – see figure and table:

Job done right the first time Perform only necessary workFast action on complaints Low prices on service

Prompt warranty work Clean up after service workAble to do any job needed Convenient to home

Service available when needed Convenient to workCourteous and friendly service Courtesy buses and cars

Car ready when promised Send out maintenance notices

Developing Brand Strategies for Services: o Choosing Brand Elementso Establishing Image Dimensionso Devising Branding Strategy

Customer worries: (p. 376)o Traditionally, customers have had three specific worries about product service:

Failure frequency: Customers worry about reliability and failure frequency. Downtime: The longer the downtime, the higher the cost. The customer counts

on the seller’s service dependability – the seller’s ability to fix the machine quickly or at least provide a loaner

Out-of-pocket costs: How much does the customer have to spend on regular maintenance and repair costs?