Marketing Management Fifteenth Edition Chapter 13 Setting Product Strategy Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Learning Objectives (1 of 2) 13.1 What are the characteristics of products, and how do marketers classify product? 13.2 How can companies differentiate products? 13.3 Why is product design important, and what are the different approaches taken? 13.4 How can marketers best manage luxury brands 13.5 What environmental issues must marketers consider in their product strategies? 13.6 How can a company build and manage its product mix and product lines? Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Learning Objectives (2 of 2) 13.7 How can companies combine products to create strong co-brands or ingredient brands? 13.8 How can companies use packaging, labeling, warranties, and guarantees as marketing tools? Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Characteristics and Classifications • Product – Anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Figure 13.1 Components of the Market Offering Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Levels: The Customer-Value Hierarchy Figure 13.2 Five Product Levels Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Classifications • Durability • Tangibility • Use Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Durability and Tangibility • Nondurable goods • Durable goods • Services Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Consumer-Goods Classification • Convenience • Shopping • Specialty • Unsought Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Industrial-Goods Classification • Materials and parts • Capital items • Supplies and business services Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Differentiation • Form • Reliability • Features • Repairability • Performance quality • Style • Conformance quality • Customization • Durability Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Services Differentiation • Ordering ease • Delivery • Installation • Customer training • Customer consulting • Maintenance and repair • Returns Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Design (1 of 2) • Design – The totality of features that affect the way a product looks, feels, and functions to a consumer Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Design (2 of 2) • Is emotionally powerful • Transmits brand meaning/positioning • Is important with durable goods • Makes brand experiences rewarding • Can transform an entire enterprise • Facilitates manufacturing/distribution • Can take on various approaches Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Luxury brands • Quality • Uniqueness • Craftsmanship • Heritage • Authenticity • History Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Marketing Luxury Brands Table 13.1 Guidelines for Marketing Luxury Brands 1 Maintaining a premium image for luxury brands is crucial; controlling that image is thus a priority. 2 Luxury branding typically includes the creation of many intangible brand associations and an aspirational image. 3 All aspects of the marketing program for luxury brands must be aligned to ensure high-quality products and services and pleasurable purchase and consumption experiences. 4 Besides brand names, other brand elements—logos, symbols, packaging, signage—can be important drivers of brand equity for luxury products. 5 Secondary associations from linked personalities, events, countries, and other entities can boost luxury-brand equity as well. 6 Luxury brands must carefully control distribution via a selective channel strategy. 7 Luxury brands must employ a premium pricing strategy, with strong quality cues and few discounts and markdowns. 8 Brand architecture for luxury brands must be managed carefully. 9 Competition for luxury brands must be defined broadly because it often comes from other categories. 10 Luxury brands must legally protect all trademarks and aggressively combat counterfeits. Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Environmental Issues • Environmental issues are also playing an increasingly important role in product design and manufacturing Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved The Product Hierarchy 1. Need family 2. Product family 3. Product class 4. Product line 5. Product type 6. Item Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Systems and Mixes • Product system • Product mix/assortment – – – – Width Length Depth Consistency Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Line Analysis (1 of 2) • Sales and profits Figure 13.3 Product-Item Contributions to a Product Line’s Total Sales and Profits Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Line Analysis (2 of 2) • Market profile and image Figure 13.4 Product Map for a Paper-Product Line Source: Benson P. Shapiro, Industrial Product Policy: Managing the Existing Product Line (Cambridge, MA: Marketing Science Institute Report No. 77–110). Copyright © 2003. Reprinted by permission of Marketing Science Institute and Benson P. Shapiro. Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Line Length • Line stretching – Down-market stretch – Up-market stretch – Two-way stretch • Line filling • Line modernization • Line featuring • Line pruning Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Product Mix Pricing • The firm searches for a set of prices that maximizes profits on the total mix – – – – – – Product line pricing Optional-feature pricing Product-bundling pricing Captive-product pricing By-product pricing Two-part pricing Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Co-Branding • Two or more well-known brands are combined into a joint product or marketed together in some fashion ‒ ‒ ‒ ‒ Same-company Joint-venture Multiple-sponsor Retail Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Ingredient Branding • Co-branding that creates brand equity for parts that are necessarily contained within other branded products Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Packaging (1 of 3) • All the activities of designing and producing the container for a product Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Packaging (2 of 3) Used as a marketing tool Packaging objectives • Self-service • Identify the brand • Consumer affluence • Convey descriptive and persuasive information • Company and brand image • Innovation opportunity • Facilitate product transportation and protection • Assist at-home storage • Aid product consumption Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Packaging (3 of 3) Table 13.3 The Color Wheel of Branding and Packaging Red symbolizes excitement, energy, passion, courage, and being bold. Orange connotes friendliness and fun. It combines the energy of red and the warmth of yellow. Yellow, as the color of the sun, is equated with warmth, joy, and happiness. Green, as the color of nature, connotes health, growth, freshness, and renewal. Blue, as the color of the sky and sea, is associated with dependability, trust, competence, and integrity. Purple has symbolized nobility, wealth, and wisdom. It combines the stability of blue and the energy of red. Pink is considered to have soft, peaceful, comforting qualities. Brown, as the color of the earth, connotes honesty and dependability. Black is seen as classic, strong, and balanced. White connotes purity, innocence, and cleanliness. Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Labeling, Warranties, and Guarantees • Labeling – Identifies, grades, describes, and promotes the product • Warranties – Formal statements of expected product performance by the manufacturer • Guarantees – Promise of general or complete satisfaction Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Copyright Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Marketing Management Fifteenth Edition Chapter 15 Introducing New Market Offerings Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Learning Objectives (1 of 2) 15.1 How can new products be categorized? 15.2 What challenges does a company face in developing new products and services? 15.3 What organizational structures and processes do managers use to oversee new-product development? 15.4 What are the main stages in developing new products and services? 15.5 What is the best way to manage the generation of new ideas? Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Learning Objectives (2 of 2) 15.6 What is the best way to manage concept and strategy development? 15.7 What is the best way to manage the commercialization of new products? 15.8 What factors affect the rate of diffusion and consumer adoption of newly launched products and services? Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved New-Product Options • Buy other companies • Buy patents from other companies • Buy a license or franchise from another company • New-to-the-world items • Improvine existing products Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Challenges in New-Product Development • The innovation imperative – Continuous innovation is a necessity • New-product success – Incremental innovation vs. disruptive technologies Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved New-Product Failure • Fragmented markets • Social, economic, and government constraints • Shorter development time • Poor launch timing • Development costs • Shorter PLCs • Capital shortages • Lack of organizational support Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Organizational Arrangements • Budgeting for New-Product Development Table 15.1 Cost of Finding One Successful New Product (Starting with 64 New Ideas) Stage Number of Ideas Pass Ratio Cost per Product Idea Total Cost 1. Idea screening 64 1:4 $1,000 $64,000 2. Concept testing 16 1:2 20,000 320,000 3. Product development 8 1:2 200,000 1,600,000 4. Test marketing 4 1:2 500,000 2,000,000 5. National launch 2 1:2 5,000,000 10,000,000 Blank Blank $5,721,000 $13,984,000 Blank Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Organizing New-Product Development • New-product development concepts – – – – – – New-product department Venture teams Stage-gate systems Skunkworks Crowdsourcing Communities of practice Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Figure 15.1 New-Product Development Process Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Generating Ideas • Interacting with employees • Interacting with outsiders • Studying competitors • Adopting creativity techniques Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Ways to Find New-Product Ideas • Informal customer sessions • Iterative rounds with customers • Time off for technical people to putter • Keyword search to scan trade publications • Customer brainstorming • Treat trade shows as intelligence missions • Survey your customers • “Fly on the wall” research • Have employees visit supplier labs • Set up an idea vault Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Ways to Draw New Ideas from Customers • Observe customers using product • Ask customers about product problems • Ask customers about dream products • Use customer advisory board • Use Web sites • Form brand community of enthusiasts • Challenge customers to improve product Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Adopting Creativity Techniques • Attribute listing • Forced relationships • Mind mapping • Morphological analysis • New contexts • Reverse-assumption analysis Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Figure 15.2 Forces Fighting New Ideas Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Using Idea Screening (1 of 2) Table 15.2 Product–Idea Rating Device Product Success Requirements Relative Weight (a) Product Score (b) Product Rating (c = a × b) Unique or superior product .40 .8 .32 High performance-to-cost ratio .30 .6 .18 High marketing dollar support .20 .7 .14 Lack of strong competition .10 .5 .05 Total 1.00 Blank .69 a Rating scale: .00–.30 poor; .31–.60 fair; .61–.80 good. Minimum acceptance rate: .61 Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Using Idea Screening (2 of 2) • The company can monitor and revise its estimate of the product’s overall probability of success, using the following formula: Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Concept to Strategy (1 of 6) • Concept development – Figure 15.3(a): product-positioning map – Figure 15.3(b): brand-positioning map Figure 15.3 Product and Brand Positioning Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Concept to Strategy (2 of 6) • Concept testing responses – – – – – – Communicability and believability Perceived value Need level Purchase intention Gap level User targets, purchase occasions and frequency Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Concept to Strategy (3 of 6) • Conjoint analysis – Deriving the utility values that consumers attach to varying levels of a product’s attributes Figure 15.4 Samples for Conjoint Analysis Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Figure 15.5 Utility Functions in Conjoint Analysis Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Concept to Strategy (4 of 6) • Marketing strategy development following a successful concept test 1. Target market’s size, structure, and behavior; the planned brand positioning; the sales, market share and profit goals in first few years 2. Planned price, distribution strategy, and marketing budget for the first year 3. Long-run sales and profit goals and marketing-mix strategy over time Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Concept to Strategy (5 of 6) • Business analysis – Estimating total sales Figure 15.6 Product Life-Cycle Sales for Three Types of Products Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Concept to Strategy (6 of 6) • Estimating costs and profits Table 15.3 Projected Five-Year Cash Flow Statement (in thousands of dollars) Blank Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $0 $11,889 $15,381 $19,654 $28,253 $32,491 2. Cost of goods sold 0 3,981 5,150 6,581 9,461 10,880 3. Gross margin 0 7,908 10,231 13,073 18,792 21,611 −3,500 0 0 0 0 0 5. Marketing costs 0 8,000 6,460 8,255 11,866 13,646 6. Allocated overhead 0 1,189 1,538 1,965 2,825 3,249 −3,500 −1,281 2,233 2,853 4,101 4,716 0 0 0 0 0 0 9. Net contribution −3,500 −1,281 2,233 2,853 4,101 4,716 10. Discounted contribution (15%) −3,500 −1,113 1,691 1,877 2,343 2,346 11. Cumulative discounted cash flow −3,500 −4,613 −2,922 −1,045 1,298 3,644 1. Sales revenue 4. Development costs 7. Gross contribution 8. Supplementary contribution Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Development to Commercialization (1 of 4) • Product development – Physical prototypes – Customer tests: alpha & beta testing Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Development to Commercialization (2 of 4) • Market testing – Consumer-goods market testing – Business-goods market testing Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Methods of Consumer-Goods Market Testing • Sales-wave research • Simulated test marketing • Controlled test marketing • Test markets Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Development to Commercialization (3 of 4) • Commercialization: When (Timing) • First entry • Parallel entry • Late entry Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Development to Commercialization (4 of 4) • Commercialization – Where (Geographic Strategy) – To Whom (Target-Market Prospects) – How (Introductory Market Strategy) Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved The Consumer-Adoption Process • Adoption – An individual’s decision to become a regular user of a product Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Stages in the Adoption Process • Awareness • Interest • Evaluation • Trial • Adoption Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Factors Influencing the Adoption Process (1 of 3) • Readiness to try new products and personal influence Figure 15.7 Adopter Categorization on the Basis of Relative Time of Adoption of Innovations Source: Tungsten, http://en.wikipedia.org/ wiki/Everett_Rogers. Based on E. Rogers, Diffusion of Innovations (London: Free Press, 1962) Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Factors Influencing the Adoption Process (2 of 3) • Characteristics of the innovation ‒ ‒ ‒ ‒ ‒ Relative advantage Compatibility Complexity Divisibility Communicability Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Factors Influencing the Adoption Process (3 of 3) • Organizations’ readiness to adopt innovations Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Copyright Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved Chapter 8 Tapping into Global Markets Copyright © 2016 Pearson Education, Inc. 7-1 Competing on a Global Basis • Global industry – Competitors’ strategic positions in major geographic or national markets are affected by their overall global positions • Global firm – Operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages not available to purely domestic competitors Copyright © 2016 Pearson Education, Inc. 7-2 Figure 8.1 Decisions In International Marketing Copyright © 2016 Pearson Education, Inc. 7-3 Deciding Whether to Go Abroad • Factors that draw companies into the international arena – Some international markets present better profit opportunities than domestic market – Firm needs larger customer base to achieve economies of scale – Firm wants to reduce dependence on any one market – Firm counterattacks global competitors in home markets – Customers going abroad require international service Copyright © 2016 Pearson Education, Inc. 7-4 Deciding Whether to Go Abroad • Before making a decision to go abroad, the company must also weigh several risks – Firm might not understand foreign preferences, failing to offer competitively attractive product – Firm might not understand foreign country’s culture – Firm might underestimate foreign regulations and incur unexpected costs – Firm might lack managers with international experience – Foreign country might change commercial laws, devalue currency, or expropriate foreign property Copyright © 2016 Pearson Education, Inc. 7-5 Internationalization Process Stage 1: No export activities Stage 2: Export via independent representatives Stage 3: Establishment of sales subsidiaries Stage 4: Establishment of production facilities abroad Copyright © 2016 Pearson Education, Inc. 7-6 Deciding Which Markets to Enter • How many markets to enter Waterfall Approach Sprinkler Approach Born Global Copyright © 2016 Pearson Education, Inc. 7-7 Evaluating Potential Markets • Neighboring countries • Psychic proximity/cultural distance • Fewer countries Copyright © 2016 Pearson Education, Inc. 7-8 Succeeding in Developing Markets • BRICS – Brazil, Russia, India, China, and South Africa • CIVETS – Columbia, Indonesia, Vietnam, Egypt, Turkey, and South Africa Copyright © 2016 Pearson Education, Inc. 7-9 Succeeding in Developing Markets • Brazil ✓ Biggest economy in Latin America ✓ Sixth largest economy in the world ✓ Fifth-largest country of digital users ✓ High cost of transporting products ✓ Crime and corruption exist Copyright © 2016 Pearson Education, Inc. 7-10 Succeeding in Developing Markets • Russia ✓ Largest exporter of natural gas ✓ Second-largest exporter of oil ✓ Third-largest exporter of steel/aluminum ✓ Make heavy use of social media ✓ Dwindling workforce/poor infrastructure Copyright © 2016 Pearson Education, Inc. 7-11 Succeeding in Developing Markets • India ✓ Lively democracy/youthful population ✓ World’s second most populous nation ✓ One of the youngest large economies ✓ Has fully embraced mobile technology ✓ Poor infrastructure/public services Copyright © 2016 Pearson Education, Inc. 7-12 Succeeding in Developing Markets • China ✓ Largest auto market in the world ✓ Emerging urban middle class ✓ World’s top consumer of luxury goods ✓ Fierce competition among foreign firms ✓ Opaque and arbitrary bureaucracy Copyright © 2016 Pearson Education, Inc. 7-13 Succeeding in Developing Markets • South Africa ✓ Access point to the African region ✓ Increasing discretionary income ✓ Consumers are brand conscious ✓ Increasing reliance on mobile phones ✓ Logistical/infrastructure problems Copyright © 2016 Pearson Education, Inc. 7-14 Succeeding in Developing Markets • Indonesia ✓ Increasing political stability ✓ Increasing economic growth ✓ Largest Muslim country ✓ Consumers are brand conscious ✓ Distribution/infrastructure limitations Copyright © 2016 Pearson Education, Inc. 7-15 Figure 8.2 Modes of Foreign Market Entry Copyright © 2016 Pearson Education, Inc. 7-16 Deciding How to Enter the Market • Indirect exporting – Working through independent intermediaries Domestic-based export merchants Domestic-based export agents Cooperative organizations Export-management companies Copyright © 2016 Pearson Education, Inc. 7-17 Deciding How to Enter the Market • Direct exporting – Handling one’s own exports Domestic-based export department Overseas sales branch Traveling export sales representatives Foreign-based distributors Copyright © 2016 Pearson Education, Inc. 7-18 Deciding How to Enter the Market • Licensing – Licensor issues a license to a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty Copyright © 2016 Pearson Education, Inc. 7-19 Deciding How to Enter the Market • Joint ventures – Foreign investors have often joined local investors in a joint venture company in which they share ownership and control • Direct Investment – The foreign company can buy part or full interest in a local company or build its own manufacturing or service facilities Copyright © 2016 Pearson Education, Inc. 7-20 Deciding How to Enter the Market • Acquisition – Acquiring local brands for their brand portfolio Copyright © 2016 Pearson Education, Inc. 7-21 Deciding on the Marketing Program Advantages • Economies of scale • Lower marketing costs • Power and scope • Consistency in brand image • Ability to leverage good ideas • Uniformity of marketing practices Disadvantages • Differences in consumer needs, wants, usage patterns • Differences in consumer response to marketing programs • Differences in brand development process • Differences in legal environment Copyright © 2016 Pearson Education, Inc. 7-22 Deciding on the Marketing Program Copyright © 2016 Pearson Education, Inc. 7-23 Deciding on the Marketing Program • Global similarities and differences – The Internet, cable and satellite TV, and global linking of telecommunications networks have led to a convergence of lifestyles • Hofstede four cultural dimensions – Individualism versus collectivism – High versus low power distance – Masculine versus feminine – Weak vs. strong uncertainty avoidance Copyright © 2016 Pearson Education, Inc. 7-24 Marketing Adaptation • • • • • • Product features Labeling Colors Materials Sales promotion Prices • • • • • Advertising media Brand name Packaging Advertising execution Advertising themes Copyright © 2016 Pearson Education, Inc. 7-25 Marketing adaptation Copyright © 2016 Pearson Education, Inc. 7-26 Global product strategies • Product standardization Copyright © 2016 Pearson Education, Inc. 7-27 Figure 8.3 Product & Communication Strategies Copyright © 2016 Pearson Education, Inc. 7-28 Global product strategies • Product invention – Backward invention: reintroduces earlier product forms well adapted to a foreign country’s needs – Forward invention: creates a new product to meet a need in another country Copyright © 2016 Pearson Education, Inc. 7-29 Global Pricing Strategies • Companies have three choices for setting prices in different countries Uniform price everywhere Market-based price Cost-based price Copyright © 2016 Pearson Education, Inc. 7-30 Global Pricing Strategies • • • • • Transfer price Dumping Arm’s-length price Gray markets Counterfeit products Copyright © 2016 Pearson Education, Inc. 7-31 GLOBAL DISTRIBUTION STRATEGIES • Channel entry – Figure 8.4: Whole-Channel Concept for International Marketing • Channel differences – Various distribution systems – Size and character of retail units Copyright © 2016 Pearson Education, Inc. 7-32 Country-of-Origin Effects • Mental associations and beliefs triggered by a country Copyright © 2016 Pearson Education, Inc. 7-33 Chapter 7 Analyzing Business Markets Copyright © 2016 Pearson Education, Inc. 7-1 Learning Objectives 1. What is organizational buying? 2. What buying situations do business buyers face? 3. 4. 5. 6. 7. Who participates in the business-to-business buying process? How do business buyers make their decisions? In what ways can business-to-business companies develop effective marketing programs? How can companies build strong loyalty relationships with business customers? How do institutional buyers and government agencies do their buying? Copyright © 2016 Pearson Education, Inc. 7-2 What is Organizational Buying? • Business market – Consists of 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 Copyright © 2016 Pearson Education, Inc. 7-3 Business markets • Fewer, larger buyers • Close supplier–customer relationships • Professional purchasing • Multiple buying influences • • • • • Multiple sales calls Derived demand Inelastic demand Fluctuating demand Geographically concentrated buyers • Direct purchasing Copyright © 2016 Pearson Education, Inc. 7-4 Buying situations Straight Rebuy Modified Rebuy New Task Copyright © 2016 Pearson Education, Inc. 7-5 The buying center ✓ Initiators ✓ Users ✓ Influencers ✓ Deciders ✓ Approvers ✓ Buyers ✓ Gatekeepers Copyright © 2016 Pearson Education, Inc. 7-6 Targeting within the Business Center • Who are the major decision participants? • What decisions do they influence, and how deeply? • What evaluation criteria do they use? Copyright © 2016 Pearson Education, Inc. 7-7 The Purchasing/ Procurement Process • Business buyers seek the highest benefit package (economic, technical, service, and social) in relationship to a market offering’s costs Copyright © 2016 Pearson Education, Inc. 7-8 Stages in the Buying Process Copyright © 2016 Pearson Education, Inc. 7-9 Stages in the Buying Process • Problem recognition – Someone in the company recognizes a problem or need that can be met by acquiring a good or service • General need description and product specification – Next, the buyer determines the needed item’s general characteristics, required quantity, and technical specifications Copyright © 2016 Pearson Education, Inc. 7-10 Stages in the Buying Process • Supplier search Catalog sites Vertical markets “Pure Play” auction Buying alliances Private exchanges Spot & barter markets Copyright © 2016 Pearson Education, Inc. 7-11 E-procurement • Vertical hubs • Functional hubs • Direct extranet links to major suppliers • Buying alliances • Company buying sites Copyright © 2016 Pearson Education, Inc. 7-12 Stages in the Buying Process • Proposal solicitation – The buyer next invites qualified suppliers to submit written proposals • Supplier selection – Before selecting a supplier, the buying center will specify and rank desired supplier attributes Copyright © 2016 Pearson Education, Inc. 7-13 A supplier-evaluation model Copyright © 2016 Pearson Education, Inc. 7-14 Supplier selection • Overcoming price pressures – Solution selling – Risk and gain sharing • Number of suppliers Copyright © 2016 Pearson Education, Inc. 7-15 Stages in the Buying Process • Order-routine specification – After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties, etc. • Performance review – The buyer periodically reviews the performance of the chosen supplier(s) Copyright © 2016 Pearson Education, Inc. 7-16 Developing Effective b2b Marketing Programs • Communication and branding activities • Systems buying and selling – Total problem solution from one seller (turnkey solution) • Role of services Copyright © 2016 Pearson Education, Inc. 7-17 Buyer–supplier relationships • Basic buying and selling • Bare bones • Contractual transaction • • • • • Customer supply Cooperative systems Collaborative Mutually adaptive Customer is king Copyright © 2016 Pearson Education, Inc. 7-18 Managing b2b Customer Relationships • Risks and Opportunism in Business Relationships Copyright © 2016 Pearson Education, Inc. 7-19 Institutional and Government Markets • Institutional market – Schools, hospitals, nursing homes, prisons, etc. that must provide goods and services to people in their care • Government organizations – Are a major buyer of goods and services in most countries Copyright © 2016 Pearson Education, Inc. 7-20 Copyright © 2016 Pearson Education, Inc. 7-21 Chapter 6 Analyzing Consumer Markets Copyright © 2016 Pearson Education, Inc. 6-1 Learning Objectives 1. 2. 3. 4. How do consumer characteristics influence buying behavior? What major psychological processes influence consumer responses to the marketing program? How do consumers make purchasing decisions? In what ways do consumers stray from a deliberative, rational decision process? Copyright © 2016 Pearson Education, Inc. 6-2 What Influences Consumer Behavior? • Consumer behavior – The study of how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants – Influenced by cultural, social, and personal factors Copyright © 2016 Pearson Education, Inc. 6-3 What Influences Consumer Behavior? • Cultural factors – Culture – Subcultures – Social classes Copyright © 2016 Pearson Education, Inc. 6-4 What Influences Consumer Behavior? • Social factors Reference groups Cliques Family Roles and status Copyright © 2016 Pearson Education, Inc. 6-5 Reference Groups • Membership groups – Primary vs. secondary • Aspirational groups • Dissociative groups • Opinion leader Copyright © 2016 Pearson Education, Inc. 6-6 Family • Family of orientation vs. family of procreation Copyright © 2016 Pearson Education, Inc. 6-7 What Influences Consumer Behavior? • Personal factors – Age/stage in life cycle – Occupation and economic circumstances – Personality and selfconcept – Lifestyle and values Copyright © 2016 Pearson Education, Inc. 6-8 Key Psychological Processes Motivation Memory Perception Emotions Learning Copyright © 2016 Pearson Education, Inc. 6-9 Figure 6.1 Model Of Consumer Behavior Copyright © 2016 Pearson Education, Inc. 6-10 Key Psychological Processes • Motivation – A need becomes a motive when it is aroused to a sufficient level of intensity to drive us to act Copyright © 2016 Pearson Education, Inc. 6-11 motivation Freud’s Theory Maslow’s Hierarchy of Needs Herzberg’s Two-Factor Theory Behavior is guided by subconscious motivations Behavior is driven by lowest, unmet need Behavior is guided by dissatisfiers and satisfiers Copyright © 2016 Pearson Education, Inc. 6-12 Figure 6.2 Maslow’s Hierarchy Of Needs Copyright © 2016 Pearson Education, Inc. 6-13 Key Psychological Processes • Perception – The process by which we select, organize, and interpret information inputs to create a meaningful picture of the world Copyright © 2016 Pearson Education, Inc. 6-14 perception Selective attention Selective distortion Selective retention Subliminal perception Copyright © 2016 Pearson Education, Inc. 6-15 Key Psychological Processes • Learning – Induces changes in our behavior arising from experience – Drive and cues – Generalization and discrimination Copyright © 2016 Pearson Education, Inc. 6-16 Key Psychological Processes • Emotions – Many different kinds of emotions can be linked to brands Copyright © 2016 Pearson Education, Inc. 6-17 Key Psychological Processes • Memory – Short-term vs. long-term memory – Associative network memory model – Brand associations – Memory encoding – Memory retrieval Copyright © 2016 Pearson Education, Inc. 6-18 The Buying Decision Process • The consumer typically passes through five stages – Problem recognition – Information search – Evaluation of alternatives – Purchase decision – Postpurchase behavior Copyright © 2016 Pearson Education, Inc. 6-19 The Buying Decision Process • Problem recognition – The buyer recognizes a problem/need triggered by internal/external stimuli Copyright © 2016 Pearson Education, Inc. 6-20 The Buying Decision Process • Information search ✓ Personal sources ✓ Commercial sources ✓ Public sources ✓ Experiential sources Copyright © 2016 Pearson Education, Inc. 6-21 Figure 6.5 Sets Involved In Decision Making Copyright © 2016 Pearson Education, Inc. 6-22 The Buying Decision Process • Evaluation of alternatives – Expectancy-value model Copyright © 2016 Pearson Education, Inc. 6-23 The Buying Decision Process • Purchase decision – Compensatory vs. noncompensatory models Conjunctive heuristic Lexicographic heuristic Elimination-by-aspects heuristic Copyright © 2016 Pearson Education, Inc. 6-24 Intervening factors Copyright © 2016 Pearson Education, Inc. 6-25 Types of perceived risk Functional risk Physical risk Financial risk Time risk Psychological risk Social risk Copyright © 2016 Pearson Education, Inc. 6-26 The Buying Decision Process • Postpurchase behavior – Postpurchase satisfaction – Postpurchase actions – Postpurchase uses and disposal Copyright © 2016 Pearson Education, Inc. 6-27 Figure 6.7 Customer Product Use/Disposal Copyright © 2016 Pearson Education, Inc. 6-28 Moderating Effects on Consumer Decision Making • Low-involvement Consumer Decision Making • Variety-Seeking Buying Behavior Copyright © 2016 Pearson Education, Inc. 6-29 Behavioral Economics • Decision Heuristics – Availability heuristic – Representativeness heuristic – Anchoring and adjustment heuristic • Framing – Mental accounting Copyright © 2016 Pearson Education, Inc. 6-30 Copyright © 2016 Pearson Education, Inc. 6-31
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