MKTG 428 Marketing Management

Chapter 1 Marketing Management Process

Why Are Marketing Decisions Important?
— Marketing attempts to measure and anticipate the needs and wants of a group of
customers and respond with a flow of need satisfying goods and services
— Firms should:
— Target those customer groups whose needs are most consistent with the firm’s
resources and capabilities
— Develop offerings that meet the needs of the target market better than
competitors
— Make its products and services readily available to potential customers
— Develop customer awareness and appreciation of the value provided by the company’s
offerings
— Obtain market feedback as a basis for continuing improvement in the firm’s offerings
— Work to build long-term relationships with satisfied and loyal customers
— The importance of the top line:
— In the long run, all firms must make a profit to survive
— There can never be a positive bottom line without the ability to build and sustain
a healthy top line: sales revenue

Marketing Creates Value by Facilitating Exchange Relationships

— Marketing: A social process involving the activities necessary to enable individuals and
organizations to obtain what they need and want through exchanges with others and to
develop ongoing exchange relationships

What Factors Are Necessary for a Successful Exchange Relationship?

— Many exchanges are necessary for people and organizations to reap the benefits of the
increased specialization and productivity that accompany economic development
— The conditions for a successful exchange transaction can be met only after the parties
themselves have performed several tasks, such as:
— Identifying potential exchange partners
— Developing offerings
— Communicating information
— Delivering products, and collecting payments

Who Markets and Who Buys? The Parties in an Exchange

— Both individuals and organizations seek goods and services obtained through exchange
transactions
— Ultimate customers: They buy goods and services for their own personal use or the use
of others in their immediate household
— These are called consumer goods and services
— Organizational customers: They buy goods and services—known as industrial goods and
services
— For resale
— As inputs to the production of other goods or services
— For use in the day-to-day operations of the organization

Customer Needs and Wants

— Need: A gap between a person’s actual and desired states on some physical or
psychological dimension
— Basic physical needs and social and emotional needs
— Wants: Reflect a person’s desires or preferences for specific ways of satisfying a basic
need
— Wants are shaped by:
— Social influences
— Past history
— Consumption experiences

What Gets Exchanged? Products and Services

— Products and services help satisfy a customer’s need when they are acquired, used, or
consumed
— Products: Essentially tangible physical objects that provide a benefit
— For example, such as cars, watches, and computers
— Services: Less tangible—in addition to being provided by people, institutions,
places, and activities

How Exchanges Create Value

— Customers buy benefits, not products
— Value is a function of intrinsic product features, service, and price, and it means
different things to different people

Customers Buy Benefits, Not Products

How Exchanges Create Value
— Lifetime customer value: The present value of a stream of revenue that can be
produced by a customer over time
— Brand equity: The assets linked to a brand’s name and symbol constitute the brand’s
equity
— Reflects a brand’s value to the company depends on how much value customers
think the brand provides for them; value creation cuts both ways

Defining a Market
— Market
— Consists of individuals and organizations who:
— Are interested and willing to buy a particular product to obtain benefits
that will satisfy a specific need or want
— Who have the resources to engage in such a transaction
— Market segment
— Distinct segments that the total market for a given product category is often
fragmented into:
— Each segment contains people who are relatively homogeneous in their
needs, their wants, and the product benefits they seek
— Each segment seeks a different set of benefits from the same product
category

Marketing Management—A Definition

— The process of analyzing, planning, implementing, coordinating, and controlling
programs
— Involves the conception, pricing, promotion, and distribution of products,
services, and ideas designed to create and maintain beneficial exchanges with
target markets for the purpose of achieving organizational objectives
— Basic focus of and the sequence of events within marketing management
— A decision-making focus
— Analyzing the 4Cs

Integrating Marketing Plans with the Company’s Strategies and Resources

— Corporate strategy: Reflects the company’s mission and provides direction for decisions
about what businesses it should pursue, how it should allocate its available resources,
and its growth policies
— Business-level strategy: Addresses how the business intends to compete in its industry
— Marketing strategy: Reflect a firm’s interrelated decisions about market segments,
product line, advertising appeals and media, prices, and partnerships with suppliers,
distributors, retailers, and other agencies

Market Opportunity Analysis

— Understanding market opportunities
— Customer analysis
 — Marketing research and forecasting
— Market segmentation, targeting, and positioning decisions
— Market segments: Distinct subsets of people with similar needs, circumstances,
and characteristics that lead them to respond in a similar way to a particular
product or service offering or to a particular strategic marketing program

Formulating Strategic Marketing Programs

— Specifying marketing objectives and strategies
— Marketing program components
— 4 Ps: Product offering, price, promotion, place
— Marketing mix: The combination of controllable marketing variables that a
manager uses to carry out a marketing strategy in pursuit of the firm’s objectives
in a given target market

Decisions within the Four Elements of the Marketing Mix

Formulating Strategic Marketing Programs for Specific Situations

— The strategic marketing program for a product should reflect market demand and the
competitive situation within the target market
— Different marketing strategies are typically more appropriate and successful for
different market conditions and at different life-cycle stages

Implementation and Control of the Marketing Program

— A final critical determinant of a strategy’s success is the firm’s ability to implement it
effectively
— This depends on whether the strategy is consistent with the resources, the
organizational structure, the coordination and control systems, and the skills and
experience of company personnel
The Marketing Plan—A Blueprint for Action
— A written document detailing the current situation with respect to customers,
competitors, and the external environment and providing guidelines for objectives,
marketing actions, and resource allocations over the planning period for either an
existing or a proposed product or service

Contents of a Marketing Plan

Who Does What?

— Marketing institutions
— Vertical integration: Internal control of the full range of marketing functions and
activities
— Marketing channels: Networks through which a majority of goods and services in
most developed economies are marketed

What Must Change Hands to Complete an Exchange between a Buyer and a Seller?
Who Does What?
— Categories of marketing institutions
— Merchant wholesalers
— Agent middlemen: bring product knowledge & business connections (typically
manufacturers)
— Retailers
— Facilitating agencies

Who Pays the Cost of Marketing Activities—And Are They Worth It?
— The final selling price of the product reflects the costs of performing the activities
necessary for exchange transactions
— Though both individual and organizational customers pay for the marketing activities of
manufacturers and their middlemen, they are still usually better off than if they were to
undertake all the functions themselves
— Benefits of the marketing system
— Allows customers to buy a wide variety of goods from a single source in one
transaction, thereby increasing transactional efficiency
— Specialization of labor and economies of scale lead to functional efficiency
— Possession utility: A product has greater utility for a potential customer when it can be
purchased with a minimum of risk and shopping time
— Place utility: A product has greater utility for a potential customer when it can be
purchased with a minimum of risk and shopping time at a convenient location
— Time utility: A product has greater utility for a potential customer when it can be
purchased with a minimum of risk and shopping time, at a convenient location, and at
the time the customer is ready to use the product

Room for Improvement in Marketing Efficiency

— Focus is on ways marketers are attempting to improve operational efficiency through:
— More effective use of telecommunications and information technologies
— The development of cooperative alliances with suppliers, middlemen, and
ultimate customers
— The search for new measurement and budgeting methods that are more clearly
focused on improving cash flows and adding economic value

The Role of the Marketing Decision Maker

— The title marketing manager is necessarily and intentionally vague because many people
are directly involved with an organization’s marketing activities
— This can include people not formally located in a marketing or sales department
or even within the company

Some Recent Developments Affecting Marketing Management

— Globalization
— Increased importance of service
— Information technology
 — Relationships across functions and firms

Chapter 2 Marketing Implications of Corporate and Business Strategies

What Is Marketing’s Role in Formulating and Implementing Strategies?
— The primary strategic responsibility of any manager is to look outward continuously to
keep the firm or business in step with changes in the environment
— Marketing managers are primary participants and contributors to the planning process
at the business and corporate level

Market-Oriented Management
— Marketing concept: Holds that the planning and coordination of all company activities
around the primary goal of satisfying customer needs is the most effective means to
attain and sustain a competitive advantage and achieve company objectives over time
— Essence of strategic planning: identifying threats to avoid and opportunities to pursue

Guidelines for Market-Oriented Management Does Being Market-Oriented Pay?

Does Being Market-Oriented Pay?

— An organization’s success over time hinges on its ability to provide benefits of value to
its customers and to do that better than its competitors
— Organizations should be able to enhance, accelerate, and reduce the volatility and
vulnerability of their cash flows:
— By paying careful attention to customer needs and competitive threats
— By focusing activities across all functional departments on meeting those needs
and threats effectively

Factors That Mediate Marketing’s Strategic Role

— Competitive conditions may enable a company to be successful in the short run without
being particularly sensitive to customer desires
— Different levels of economic development across industries or countries may favor
different business philosophies
— Firms can suffer from strategic inertia
Differences between Production-Oriented and Market-Oriented Organizations

Three Levels of Strategy: Similar Components, but Different Issues

— Strategy: A fundamental pattern of present and planned objectives, resource
deployments, and interactions of an organization with markets, competitors, and other
environmental factors
— The components of strategy
— Scope
— Goals and objectives
— Resource deployments
— Identification of a sustainable competitive advantage
— Synergy
— The hierarchy of strategies
— Corporate strategy
— Business-level strategy
— Functional strategies
Key Components of Corporate, Business, and Marketing Strategies
Corporate Scope—Defining the Firm’s Mission
— A good mission statement guides an organization’s managers as to which market
opportunities to pursue and which fall outside the firm’s strategic domain
— Market influences on the corporate mission
— Criteria for defining the corporate mission
— Social values and ethical principles
— Ethics: Concerned with the development of moral standards by which
actions and situations can be judged

Characteristics of Effective Corporate Mission Statements

Corporate Objectives
— A performance dimension or attribute sought
— A measure or index for evaluating progress
— A target or hurdle level to be achieved
— A time frame within which the target is to be accomplished
Common Performance Criteria and Measures That Specify Corporate, Business-Unit, and
Marketing Objectives

Corporate Objectives
— The marketing implications of corporate objectives: Most organizations pursue multiple
objectives
— Trying to achieve many objectives at once leads to conflicts and trade-offs
— Managers can reconcile conflicting goals by prioritizing them
— Another approach is to state one of the conflicting goals as a constraint or hurdle
Corporate Sources of Competitive Advantage
— A sustainable competitive advantage at the corporate level is based on company
resources - resources that other firms do not have, that take a long time to develop, and
that are hard to acquire

Corporate Growth Strategies

— A firm can go in two major directions in seeking future growth
— Expansion of its current businesses and activities
— Diversification into new businesses, either through internal business
development or acquisition

Alternative Corporate Growth Strategies

Corporate Growth Strategies

— Expansion by increasing penetration of current product-markets
— Expansion by developing new products for current customers
— Expansion by selling existing products to new segments or countries
— Expansion by diversifying:
— Vertical integration
— Forward vertical integration occurs when a firm moves downstream in
terms of the product flow
— Backward integration occurs when a firm moves upstream by acquiring a
supplier
— Related (or concentric) diversification
— Unrelated (or conglomerate) diversification
Allocating Corporate Resources
— To exploit the advantages of diversification
— Corporate managers must make intelligent decisions about how to allocate
financial and human resources across the firm’s various businesses and product-
markets
— Two sets of analytical tools have proven useful in making such decisions
— Portfolio models
— Value-based planning

Portfolio Models
— Enable managers to classify and review their current and prospective businesses by
viewing them as portfolios of investment opportunities and then evaluating each
business’s competitive strength and the attractiveness of the markets it serves
— The Boston Consulting Group’s (BCG) growth-share matrix

BCG’s Market Growth Relative Share Matrix

Cash Flows across Businesses in The BCG Portfolio Model

Limitations of the Growth-Share Matrix
— Market growth rate is an inadequate descriptor of overall industry attractiveness
— Relative market share is inadequate as a description of overall competitive strength
— The outcomes are highly sensitive to variations in how growth and share are measured
— It provides little guidance on how best to implement investment strategies for each
business
— It assumes that all business units are independent of one another except for the flow of
cash

Value-Based Planning
— A resource allocation tool that attempts to address such questions by assessing the
shareholder value a given strategy is likely to create
— Economic value added: The amount of return a strategy or operating program
generates in excess of the cost of capital
— Discounted cash flow model

Factors Affecting the Creation of Shareholder Value

Value-Based Planning
— Some limitations of value-based planning
— It is not a substitute for strategic planning
— Good forecasts that are critical to the validity of value-based planning are
difficult to make
— There are natural human tendencies to overvalue the financial
projections associated with some strategy alternatives and to undervalue
others
— Value-based planning can only evaluate alternatives, but it cannot create them
Sources of Synergy
— Knowledge-based synergies
— Performance enhancement through transfer of competencies, knowledge, or
customer-related intangibles from other units within the firm
— Corporate identity and the corporate brand
— Corporate identity flows from the communications, impressions, and personality
projected by an organization

The Marketing Implications of Business-unit Strategy Decisions

— Strategic business units: Components of a firm engaged in multiple industries or
businesses
— Steps in developing business-level strategies
— Deciding how to divide into SBUs
— Managers must recommend:
— The unit’s objectives
— The scope of its target customers and offerings
— Which broad competitive strategy to pursue
— How resources should be allocated

How Should Strategic Business Units Be Designed?

— Characteristics of strategic business units
— A homogeneous set of markets to serve with a limited number of related
technologies
— A unique set of product-markets
— Control over those factors necessary for successful performance
— Responsibility for their own profitability
— Dimensions that define the scope and mission of the entire corporation also define
individual SBUs
— Technical compatibility
— Similarity in the customer needs
— Similarity in the personal characteristics

The Business Unit’s Objectives

— Corporate objectives typically broken down into subobjectives for each SBU
— Breaking down an SBU’s objectives into subobjectives for each of its productmarket
entries is often a major part of developing business-level strategy

The Business Unit’s Competitive Strategy

— Decisions about an SBU’s scope
— Allocating resources within the business unit
— Gaining a competitive advantage
— Marketing resources and competitive advantage
Three Competitive Strategies and the Traits and Competencies of Businesses That Implement
Them Effectively

Chapter 3 Understanding Market Opportunities

Markets and Industries: What’s The Difference?
— A market is composed of individuals and organizations who:
— Are interested in and willing to buy a good or service to obtain benefits that will
satisfy a particular need or
— Who want and have the resources to engage in such a transaction
— Market - Individuals or organizations who are interested in and willing to buy a good or
service to obtain benefits that will satisfy a particular want or need and have the
resources to engage in such a transaction (willing and able)
— Industry - A group of firms that offer a product or class of products that are similar and
are close substitutes for one another

The Seven Domains of Attractive Opportunities

Assessing Market and Industry Attractiveness
— Macro-level - The analyses are based on environmental conditions that affect the
market or industry, respectively, as a whole
— Micro level - The analyses do not look at the market or the industry overall but at
individuals in that market or industry

Macro Trend Analysis: A Framework for Assessing Market Attractiveness, Macro Level
— The demographic environment - While the number of specific demographic trends that
might influence one marketer or another is without limit, the following major global
demographic trends currently influence the fortunes of many companies, for better or
worse:
— Aging
— AIDS
— Imbalanced population growth
— Increased Immigration
— Declining Marriage Rates
— The sociocultural environment - Those that have to do with the values, attitudes, and
behavior of individuals in a given society
— Business ethics
— Fitness and nutrition
— The economic environment - Among the most far-reaching of the six macro trend
components
— Economic trends often work, to pronounced effect, in concert with other macro
trends
— The regulatory environment:
— In every country and across some countries there is a regulatory environment
within which local and multinational firms operate
— Political and legal trends, especially those that result in regulation or
deregulation, can have powerful impact on market attractiveness
— The technological environment: Technological progress is unlikely to abate
— Developments in telecommunications and computing have led to the rapid
convergence of the telecommunications, computing, and entertainment
industries
— The natural environment:
— Turning problems into opportunities
— Finding ways to save energy
— Finding new energy sources
— Opportunities in developing green products
— Impact of depletion of natural resources
The Major Forces that Determine Industry Attractiveness

Challenges In Macro-level Market And Industry Analysis

— In order to analyze the attractiveness of one’s market or industry, one must first identify
exactly which market or industry is to be analyzed
— On the market side, the challenge often lies in sizing the relevant market
— On the industry side, there’s the question of how narrowly or broadly to define
one’s industry
— Information sources for macro-level analyses:
— Trade associations and trade magazines
— Websites of local, state, and federal governments
— The key outputs of a competent macro trend analysis should include both quantitative
and qualitative data

Understanding Markets at the Micro Level

— Some tests to be met for the market offering to be attractive:
— There’s a clearly identified source of customer pain, for some clearly identifiable
set of target customers, which the offering resolves
— The offering provides customer benefits that other solutions do not
— The target segment is likely to grow
— There are other segments for which the currently targeted segment may provide
a springboard for subsequent entry

Understanding Industries at the Micro Level

— Opportunities are attractive when the company itself meets most or all of the following
tests:
— It possesses something proprietary that other companies cannot easily duplicate
or imitate
— The business has or can develop superior organizational processes, capabilities,
or resources that others would find it difficult to imitate or duplicate
— It’s business model is economically viable

The Team Domains: The Key to the Pursuit of Attractive Opportunities

— Opportunities are only as good as the people who will pursue them
 — Some crucial questions
— Does the opportunity fit what we want to do?
— Do we have the people who can execute on whatever it takes to be successful in
this particular industry?
— Do we have the right connections?

Mission, Aspirations, and Risk Propensity

— Everyone and every company has views on how much risk is acceptable
— A particular opportunity must also measure up to the expectations of the people who
will pursue it
— Whatever the tests for a given individual or company, they must be met if an
opportunity is to be deemed attractive

Ability to Execute on the Industry’s Critical Success Factors

— Two key questions to ask in identifying one’s critical success factors (CSFs):
— Which few decisions or activities are the ones that, if gotten wrong, will almost
always have severely negative effects on company performance?
— Which decisions or activities, done right, will almost always deliver
disproportionately positive effects on performance?

It’s Who You Know, Not What You Know

— The people who are the best connected will be the ones who are best placed to change
strategy before others know the winds have changed
— Having a well-connected team in place enhances the attractiveness of the opportunity
itself
— The team is more likely to be able to ride out the inevitable winds of change

Putting the Seven Domains to Work

— If you or your company chooses to pursue unattractive opportunities, you’ll face tough
sledding
— The seven domains are not additive
— Opportunities don’t just sit there
— They change and may be further developed

Anticipating and Responding to Environmental Change

— Impact and timing of event
— Opportunity/threat matrix: Enables the examination of a large number of events
in such a way that management can focus on the most important ones
Opportunity/Threat Matrix for a Telecommunications Company in the UK in 2011

Swimming Upstream or Downstream: An Important Strategic Choice

— Trends will always be present, whether marketing managers like them or not
— The question is what managers can do about them

Chapter 4 Understanding Consumer Buying Behavior

The Psychological Importance of the Purchase Affects the Decision-Making Process
— High-involvement purchases
— Involve goods or services that are psychologically important to the buyer
because they address social or ego needs and therefore carry social and
psychological risks
— May also involve financial risk
— A high-involvement product for one buyer may be a low-involvement one for
another
Types Of Consumer Decision Making
Steps in the High-Involvement, Complex Decision-Making Process

Factors That Are Likely to Increase Prepurchase Search

Low-Involvement Purchase Decisions

— Most purchase decisions are low in consumer involvement
— Extensive information search is absent
— Two low-involvement buying decisions
— Inertia: Consumers either buy brands at random or buy the same brand
repetitively to avoid making a choice
 — Impulse purchasing and variety seeking: Occurs when consumers impulsively
decide to buy a different brand from their customary choice or some new variety
of a product

High-Involvement versus Low-Involvement Consumer Behavior

Understanding the Target Consumer’s Level of Involvement Enables Better Marketing

Decisions
— Product design and positioning decisions
— Pricing decisions
— Advertising and promotion decisions
— Distribution decisions
— Strategies to increase consumer involvement

Marketing Decisions for High-Involvement versus Low-Involvement Products or Services

Perception and Memory
— Perception: The process by which a person selects, organizes, and interprets
information
— Exposure to a piece of information, such as a new product, an ad, or a friend’s
recommendation, leads to attention, then to comprehension, and finally to retention in
memory
— Selectivity: Even though the environment is full of product information, consumers pick
and choose only selected pieces of information and ignore the rest
— Perceptual vigilance: Helps guarantee that consumers have the information needed to
make a good choice
— Perceptual defense: Helps them avoid the psychological discomfort of reassessing or
changing attitudes, beliefs, or behaviors central to their self-images
— Memory limitations: Even though consumers are selective in perceiving information,
they remember only a small portion of it
— Human memory works in two stages
— Information from the environment is first processed by the short-term memory,
which forgets most of it within 30 seconds or less
— Some information is transferred to long-term memory
— For information to be transferred to long-term memory for later recall, it
must be actively rehearsed and internalized
— Perceptual organization
— Categorization: Helps consumers process known information quickly and
efficiently
— Integration: A process where consumers perceive separate pieces of related
information as an organized whole
— Effects of stimulus characteristics on perception:
— Personal characteristics influence the information consumers pay attention to,
comprehend, and remember
— Message characteristics and the way it is communicated influence consumers’
perceptions

Needs and Attitudes

— Attitude: A positive or negative feeling about an object (say, a brand) that predisposes a
person to behave in a particular way toward that object
— Derives from a consumer’s evaluation that a given brand provides the benefits
necessary to help satisfy a particular need
— Fishbein Model: Martin Fishbein pioneered a model that specified how
consumers combine evaluations of a brand across multiple attributes to arrive at
a single overall attitude toward that brand
— Noncompensatory attitude models:
— The mental processes involved in forming an attitude are quite complex
— Consumers may evaluate alternative brands on only one attribute at a time
particularly with low-involvement products
 — Such an approach is noncompensatory because a poor evaluation of a brand on
one attribute cannot be offset by a strong evaluation on another
— Marketing implications of attitude models:
— Marketers must have information about:
— The attributes or decision criteria used to evaluate a particular product
category
— The relative importance of those attributes to different consumers
— How consumers rate their brand relative to competitors’ offerings on
important attributes
— Multiattribute models show the consumer’s ideal combination of
product/service attributes, each of which is weighted as to its relative
importance
— Attitude change:
— Changing attitudes toward the product class or type
— Changing the importance attached to attributes
— Adding a salient attribute to the existing set
— Improving ratings of the brand on one or more salient attributes
— Lowering the ratings of the salient product characteristics of competing brands

Demographics, Personality, and Lifestyle

— Demographics influence:
— The nature of consumers’ needs and wants
— Their ability to buy products or services to satisfy those needs
— The perceived importance of various attributes or choice criteria used to
evaluate alternative brands
— Consumers’ attitudes toward and preferences for different products and brands
— Personality and self-concept:
— A consumer’s buying behavior is also influenced by his or her personality
— Personality: The set of enduring psychological traits that lead a person to
make distinctive and consistent responses to factors in his or her
environment
— Consumers tend to choose brands with personalities that match either their own
self-concept or their ideal self-concept
— Lifestyles: Broad patterns of activities, interests, and opinions—and the behaviors that
result
— To obtain lifestyle data, consumers are asked to indicate the extent to which
they agree/disagree with a series of statements involving price consciousness,
family activities, spectator sports, traditional values, adverturesomeness, and
fashion

Why People Buy Different Things: Part 2— The Marketing Implications of Social Influences
— Five categories represent a hierarchy of social influences, ranging from broad, general
effects on consumption behavior to more specific influences that directly affect a
consumer’s choice of a particular product or brand
Simplified Hierarchy of Social Forces Affecting Consumer Behavior

Culture
— A set of beliefs, attitudes, and behavior patterns shared by members of a society and
transmitted from one generation to the next through socialization
— Subcultures: Many groups of people in nearly every country who share common
geographic, ethnic, racial, or religious backgrounds - hold values that are
uniquely their own

Social Class
— Every society has its status groupings largely based on similarities in income, education,
and occupation
— It is possible to infer certain behavior concerning some products and services, including
class members’ reactions to advertising

Reference Groups
— This includes a variety of groups that affect consumer behavior through:
— Normative compliance
— Value-expressed influence
— Informational influence

The Family
— It serves as the primary socialization agent
— It has a great and lasting influence on its younger members’ attitudes toward various
brands and stores
 — The influence of various family members varies substantially across countries
— Family life cycle: Distinct phases people go through when they leave home and
start their own households

Chapter 5 Understanding Organizational Markets and Buying Behavior

A Comparison of Organizational versus Consumer Markets
— The crucial differences from a marketing viewpoint:
— The motivations of the buyer: what the organization will do with the product and
the benefits it seeks to obtain
— The demographics of the market
— The nature of the purchasing process and the relationship between buyer and
seller
— Purchase motives—Derived demand: Organizational buyers purchase things for one of
three reasons
— To facilitate the production of another product or service
— For use by the organization’s employees in carrying out its operations
— For resale to other customers
— Market demographics - Another major difference between consumer and organizational
markets is the number, size, and geographic dispersion of customers
— Purchasing processes and relationships – Because of the complexity of many of the
goods and services and of the large volumes typically involved, organizational purchase
decisions often involve evaluation processes focused on detailed, formally specified
criteria

What Do the Unique Characteristics of Organizational Markets Imply for Marketing

Programs?
— The complexity of many of the goods and services organizations buy, the extensive
decision process involved, and the demographics of organizational markets have
marketing implications
— Direct selling: Emphasis on personal communications through company salespeople and
vertically integrated distribution channels

The Organizational Customer Is Usually a Group of Individuals

— Participants in the organizational purchasing process:
— Users
— Influencers (typically tech experts)
— Gatekeepers (control flow of information)
— Buyers
— Deciders
— The organizational buying center: For most high-value organizational purchases, several
people from different departments participate in the decision process
 — The individuals in this group share knowledge and information relevant to the
purchase of a particular product or service
— Marketing implications: An important part of planning a marketing program aimed at
organizational customers involves
— Which individuals to target
— How and when each should be contacted
— What kinds of information and appeals each is likely to find most useful and
persuasive

Types of Buying Situations

— Straight rebuy: Involves purchasing a common product or service the organization has
bought many times before
— Modified rebuy: Occurs when the organization’s needs remain unchanged, but buying
center members are not satisfied with the current product or the supplier
— New-task buying: Occurs when an organization faces a new and unique need or
problem

The Organizational Decision-Making Process for New-Task Purchases

The Marketing Implications of Different Organizational Purchasing Situations

— Extensive purchasing process applies primarily to new-task purchases, where an
organization is buying a relatively complex product or service for the first time
— At the other extreme is the straight rebuy
— “In” suppliers have a major competitive advantage
— “Out” suppliers must attempt to interest the buyer in modifying the purchase
criteria (typically with price)
— Developing long-term buyer–supplier relationships
 — Trust between supplier and customer develops person-to-person
— Conditions favoring trust and commitment:
— A firm is more likely to trust and develop a long-term commitment to a supplier
when that supplier makes dedicated, customer-specific investments

Purchasing Processes in Government Markets

— Federal, state, and local governments are major buyers of many goods and services
— Government organizations:
— Tend to require more documentation and paperwork
— Require suppliers to submit bids, and contracts are usually awarded to the
lowest bidder
— Purchase on a negotiated or “cost-plus” contract basis

Categories, Characteristics, and Marketing Implications of Goods and Services Bought by

Organizations
Chapter 6 Measuring Market Opportunities: Forecasting and Market Knowledge
Every forecast Is wrong!
— The future is inherently uncertain, especially in today’s rapidly changing markets
— An evidence-based forecast, instead of a wild guess, is almost always called for, even if
time and money are scarce

A Forecaster’s Toolkit: A Tool for Every Forecasting Setting

— An estimate of market potential often serves as a starting point for preparing a sales
forecast
— Such estimates are particularly crucial for aspiring entrepreneurs, where levels of
risk and uncertainty are especially high
— The size of the currently penetrated market should be ascertained
— Investors will need a sales forecast
— Two broad approaches for preparing a sales forecast
— Top-down approach - A central person or persons take the responsibility for
forecasting and prepare an overall forecast (more common)
— Bottom-up approach - Each part of the firm prepares its own sales forecast, and
the parts are aggregated to create the forecast for the firm as a whole

Statistical and Other Quantitative Methods

— Statistical methods: These use past history and various statistical techniques, such as
multiple regression or time series analysis, to forecast the future
— These generally assume that the future will look very much like the past
— If product or market characteristics change, statistical models used without
adequate judgment may not keep pace
— Observation-based forecasting: Based on what people actually do
— Surveys or focus groups: Can be done with various kinds of respondents
— Survey of buyers’ intentions
— Survey of salesforce opinion
— Analogy: Often used for new product forecasting where neither statistical methods nor
observations are possible
— Requires to forecast the sales or market potential for a new product or product
class by analogy
— Judgment: Sometimes forecasts are made solely on the basis of experienced judgment,
or intuition
— Market tests: Used largely for new consumer products
— Experimental test markets: May be done under controlled experimental
conditions in research laboratories or in live test markets with real advertising
and promotion and distribution in stores
— Psychological biases in forecasting: To a varying degree, the effectiveness of all of the
forecasting methods is often undermined by excessive optimism on the forecaster’s
part, especially in new product or new venture settings
 — Planning fallacy: A tendency to make decisions based on delusional optimism
rather than on a rational weighting of possible gains and losses and the
probabilities thereof
— Mathematics entailed in forecasting: The ultimate purpose of the forecasting exercise is
to end up with numbers that reflect what the forecaster believes is the most likely
outcome
— The combination of judgment and other methods often leads to the use of either of two
mathematical approaches to determine the ultimate numbers
— The chain ratio calculation
— The use of indices

Rate of Diffusion of Innovations: Another Perspective on Forecasting

— Diffusion of innovation: Seeks to explain the adoption of an innovative product or
service over time among a group of potential buyers
— Lack of awareness and limited distribution typically limit early adoption

The Adoption Process and Rate of Adoption

— Adoption process: Involves the attitudinal changes experienced by individuals from the
time they first hear about a new product, service, or idea until they adopt it
— Speed of adoption depends on:
— The risk
— The relative advantage over other products
— The relative simplicity of the new product
— Its compatibility with previously adopted ideas and behavior
— The extent to which its trial can be accomplished on a small-scale basis
— The ease with which the central idea of the new product can be communicated

Diffusion of Innovation Curve

Size and Characteristics of Individual Adopter Group

Implications of Diffusion of Innovation Theory for Forecasting Sales of New Products and New
Firms
— A good way to estimate how quickly an innovation is likely to move through the
diffusion process is to construct a chart that rates the adoption on the six key factors
influencing adoption speed
— Introducing a new product that delivers no real benefits or lacks competitive advantage
is likely to face tough sledding

Keys to Good Forecasting

— Identify the full range of possibilities about the future, not some illusory set of
certainties that are, in fact, not certain at all
— Two important keys to improve the credibility and accuracy
— Making explicit the assumptions on which the forecast is based
— Using multiple methods

Common Sources of Error in Forecasting

— Forecasters are subject to anchoring bias
— Capacity constraints are sometimes misinterpreted as forecasts
— Incentive pay
— Instated but implicit assumptions can overstate a well-intentioned forecast

Why Data? Why Marketing Research?

— Market knowledge: A better understanding of market and competitive conditions and
of what buyers in a given market want and need
— Without adequate market knowledge, marketing decisions are likely to be misguided
— Thoughtfully designed, competently executed marketing research can mitigate the
chances of unpleasant outcomes
Customer Relationship Management: Charting a Path toward Competitive Advantage
— Four market knowledge systems
— Internal records regarding marketing performance
— Marketing databases
— Competitive intelligence systems
— Systems to organize client contact
— Taken together, these lie at the heart of the systematic practice of customer
relationship management (CRM)

Internal Records Systems

— Help track what is selling, how fast, in which locations, to which customers, and so on
— Providing input on the design of such systems so that the right data are provided to the
right people at the right time is a critical marketing responsibility in any company

Designing an Internal Records System for Marketing Decision Makers

Marketing Databases Make CRM Possible

— The purpose of CRM is to develop a unified and cohesive view of the customer from
every touch point within the company
— Databases created for CRM purposes typically capture information about:
— Transactions
— Instances of customer contact
— Customer demographics
— Customer responses
— Database design considerations:
— The cost of collecting the data
— The economic benefits of using the data
 — The ability of the company to keep the data current in today’s mobile society
— The rapid advances in technology
— Implementing an effective CRM effort requires four key steps:
— Gaining broad-based organizational support for creating and adopting a CRM
strategy
— Forming a cross-functional CRM team with membership from all functions that
have customer contact
— Conducting a needs analysis that identifies both customer and business needs
— Developing a CRM strategy to guide implementation
— Customer lifetime value: Margins that a customer generates over a lifetime less the cost
of serving the customer

Why CRM Efforts Fail

— Major pitfalls to watch out for:
— Implementing CRM without first developing a strategy
— Putting CRM in place without changing organizational structure and/or processes
— Assuming that more CRM is better
— Failure to prioritize which customer relationships are most worth investing in

Client Contact Systems

— Salesforce automation software helps companies disseminate real-time product
information to salespeople
— It allows companies to:
— Effectively capture customer intelligence from salespeople
— Keep track of it for use on later sales calls
— Even transfer it to other salespeople in the event of a salesperson leaving the
company

Competitive Intelligence Systems

— A systematic and ethical approach for gathering and analyzing information about
competitors’ activities and related business trends
— Based on the idea that more than 80 percent of all information is public
knowledge
— Critical questions that managers setting up a CI system should ask
— How rapidly does the competitive climate in our industry change? How
important is it that we keep abreast of such changes?
— What are the objectives for CI in our company?
— Who are the best internal clients for CI? To whom should the CI effort report?
— What budget should be allocated to CI? Will it be staffed full- or part-time?

Marketing Research: A Foundation for Marketing Decision Making

— Marketing research: The design, collection, analysis, and reporting of research intended
to gather data pertinent to a particular marketing challenge or situation
Steps in the Marketing Research Process: What Can Go Wrong?
What Users of Marketing Research Should Ask?
— What are the objectives of the research? Will the data to be collected meet those
objectives?
— Are the data sources appropriate? Is cheaper, faster secondary data used where
possible? Is qualitative research planned to ensure that quantitative research, if any, is
on target?
— Are the planned approaches suited to the objectives of the research?
— Is the research designed well?
— Are the planned analyses appropriate?