Professional Documents
Culture Documents
Business Studies
4th. Secondary School
M Dolores Ibarlucea
01/01/2015
Chapter 6
In This Chapter
> The structure of the economy
> Understanding GNP and GDP
> The causes of recessions and recoveries
V The effects of inflation and unemployment
V The difference between fiscal policy and monetary policy
The national economy is the total of all of the financial transactions that go on in the
nation. This includes everything: a kid buying candy with the quarter in his sweaty hand,
one megacorporation acquiring another in an international transaction, the government
opening (or closing) a military base. An economy includes every exchange of money that
takes place in a city, state, nation, or region.
Business operates in an economy the way a fish swims in water. That's why business
people follow the economic news. To be sure, businesses can affect the economy; for
example, when some large corporations moved their headquarters out of New York in the
iy70s, it hurt the city's economy. However, as we will see, the economy has an even
greater affect on business.
Parti
>
This chapter gives you an overview of the economy and a summary of economic concepts
you should know. More important, it will help you understand the economic news and
the effect the economy has on your business. You may notice that this chapter uses the
U.S. economy as a specific example from time to time. Please understand that these
economic concepts are universal and apply to all countries.
MBA Lingo
Gross domestic
product, or GDP, is
the total value of
all goods and
services produced
within a nation's
borders. That includes goods
and services produced by
foreign-owned companies in
that nation. (In contrast, gross
national product includes the
value of all goods and services
produced by a nation's
companies, including those
companies and facilities
located outside the country.}
The U.S. economy is now over $7 trillion. That means that the United States produces
more than $7,000,000,000,000 worth of goods and services within its borders every year.
The U.S. economy is the world's largest national economy.
MBA Lingo
Exports are goods
shipped oat of the
country in which
they are made to be
consumed in another
nation. Imports are goods
shipped into the country that
will consume them. The goods
were made by the exporting
nation. One country's exports
are another country's imports.
Net exports are a nation's total
exports minus total imports
during a certain period, for
example a calendar year. Net
imports are a nation's total
imports minus its total exports
during a period.
By the same token, if any one component of the GDI' decreases, then the total GDP
decreases.
You'll look at the dynamics of the economy in a bit, but first let's examine exports and
imports.
Parti
>
If net exports are positive, the nation has a positive balance of trade. If they are negative,
the nation has a negative trade balance. Virtually every nation in the world wants its
economy to be bigger rather than smaller, and to be growing (we'll see why in a minute).
That means that no nation wants a negative trade balance.
Case in Point
A nation's balance of trade is calculated for a country in relation to the
rest of the world, and in relation to other individual nations. It can
even be calculated for a specific industry.
For example, the U.S. usually has a negative balance of trade with the
rest of the world. That means the U.S. imports more than it exports.
The U.S. also has a negative balance of trade with Japan. The U.S. imports more
from Japan than it exports to Japan. However, the U.S. exports more fruits, grain,
and vegetables to Japan than it imports from Japan. So the U.S. has a positive
agricultural trade balance with Japan.
Because no nation wants a negative trade balance, some countries try to protect their own
markets. This policy, called (logically enough) protectionism, uses barriers to keep out
imports, fhese barriers include high tariffs (taxes or surcharges on imported goods) and
strict rules about what products can be imported.
Despite some nations' attempts at protectionism, free tradetrade unencumbered by
barriershas been the dominant trend for most countries for most of this century.
Economists usually favor free trade because it tends to give
consumers the greatest choice of products at the lowest
prices. That occurs because some nations are better at
MBA Lingo
producing certain products than others.
Protectionism refers
to government
policies designed
Can Exports Move an Economy?
to restrict imports
from coming into
In most economies, exports and imports are less important
the nation. A tariff,
in the business cycle than the other three sectors. But there
also called a duty, is a tax on
are exceptions.
imports as they come into the
country. Free trade means
Suppose a nation that exports a lot of oil experiences a
international trade that is
sudden fall-off in foreign demand for its oil. that nation
unrestricted by tariffs or other
could quickly skid into recession. Similarly, if that nation
forms of protectionism.
saw a sudden surge in demand for its oil, it could well move
into recovery. (I'll talk more about recession and recovery
later in the chapter.)
Growth Is Good
What's the importance of economics? Why should anyone care about this stuff? What
does it have to do with anyone's job or business?
Plenty!
An economy is a dynamic system for supplying
people's wants and needs. Like any dynamic system, it
doesn't stand still. It is either growing or contracting.
If the economy is growing, that's good. It's good for
two reasons: first, in most economies the population is
growing and new people have needs that must be met.
If the population gets larger, the economy has to get
larger to meet those needs.
Second, even if the population were not growing,
people always want and need more goods and services.
They want a rising standard of living. Only an economy
that grows most of the time can give people a rising
standard of living.
MBA Lingo
The standard of
living is the total
quality of life
supplied by an
J economy. It includes
\ the availability and
1 quality of jobs, housing, food,
\ education, transportation,
sanitation, recreation, and
health care in a city, nation,
or region.
MBA Lingo
Conversely, if the state closes down an agency, it reduces G. Those ex-workers without
paychecks will then decrease their spending; for example, they'll postpone buying a new
Ford, thus reducing C. When Ford sees its business decrease, it will cancel factory expansion plans, thus reducing I, investment. And so on.
MBA Lingo
Income equals
spending. Because
the economy is
interconnected,
what one person or
business spends,
another collects as income.
Total spending, total income,
and GDP are essentially the
same thing.
Parti
>
spending, and thus consumer and business income, decrease. Since federal (and many
state) taxes are based on income, tax receipts also decrease. Similarly, during a recovery,
consumer and business spending, and thus income, increase and so do tax receipts.
Now all of this is what happens if the government does nothing to try to affect the
business cycle. But in fact the government plays an active role in most modern economies, including ours. Let's spend some time examining that role.
Chapter 6
In This Chapter
> The structure of the economy
> Understanding GNP and GDP
> The causes of recessions and recoveries
V The effects of inflation and unemployment
V The difference between fiscal policy and monetary policy
The national economy is the total of all of the financial transactions that go on in the
nation. This includes everything: a kid buying candy with the quarter in his sweaty hand,
one megacorporation acquiring another in an international transaction, the government
opening (or closing) a military base. An economy includes every exchange of money that
takes place in a city, state, nation, or region.
Business operates in an economy the way a fish swims in water. That's why business
people follow the economic news. To be sure, businesses can affect the economy; for
example, when some large corporations moved their headquarters out of New York in the
iy70s, it hurt the city's economy. However, as we will see, the economy has an even
greater affect on business.
Parti
>
This chapter gives you an overview of the economy and a summary of economic concepts
you should know. More important, it will help you understand the economic news and
the effect the economy has on your business. You may notice that this chapter uses the
U.S. economy as a specific example from time to time. Please understand that these
economic concepts are universal and apply to all countries.
MBA Lingo
Gross domestic
product, or GDP, is
the total value of
all goods and
services produced
within a nation's
borders. That includes goods
and services produced by
foreign-owned companies in
that nation. (In contrast, gross
national product includes the
value of all goods and services
produced by a nation's
companies, including those
companies and facilities
located outside the country.}
The U.S. economy is now over $7 trillion. That means that the United States produces
more than $7,000,000,000,000 worth of goods and services within its borders every year.
The U.S. economy is the world's largest national economy.
MBA Lingo
Exports are goods
shipped oat of the
country in which
they are made to be
consumed in another
nation. Imports are goods
shipped into the country that
will consume them. The goods
were made by the exporting
nation. One country's exports
are another country's imports.
Net exports are a nation's total
exports minus total imports
during a certain period, for
example a calendar year. Net
imports are a nation's total
imports minus its total exports
during a period.
By the same token, if any one component of the GDI' decreases, then the total GDP
decreases.
You'll look at the dynamics of the economy in a bit, but first let's examine exports and
imports.
Parti
>
If net exports are positive, the nation has a positive balance of trade. If they are negative,
the nation has a negative trade balance. Virtually every nation in the world wants its
economy to be bigger rather than smaller, and to be growing (we'll see why in a minute).
That means that no nation wants a negative trade balance.
Case in Point
A nation's balance of trade is calculated for a country in relation to the
rest of the world, and in relation to other individual nations. It can
even be calculated for a specific industry.
For example, the U.S. usually has a negative balance of trade with the
rest of the world. That means the U.S. imports more than it exports.
The U.S. also has a negative balance of trade with Japan. The U.S. imports more
from Japan than it exports to Japan. However, the U.S. exports more fruits, grain,
and vegetables to Japan than it imports from Japan. So the U.S. has a positive
agricultural trade balance with Japan.
Because no nation wants a negative trade balance, some countries try to protect their own
markets. This policy, called (logically enough) protectionism, uses barriers to keep out
imports, fhese barriers include high tariffs (taxes or surcharges on imported goods) and
strict rules about what products can be imported.
Despite some nations' attempts at protectionism, free tradetrade unencumbered by
barriershas been the dominant trend for most countries for most of this century.
Economists usually favor free trade because it tends to give
consumers the greatest choice of products at the lowest
prices. That occurs because some nations are better at
MBA Lingo
producing certain products than others.
Protectionism refers
to government
policies designed
Can Exports Move an Economy?
to restrict imports
from coming into
In most economies, exports and imports are less important
the nation. A tariff,
in the business cycle than the other three sectors. But there
also called a duty, is a tax on
are exceptions.
imports as they come into the
country. Free trade means
Suppose a nation that exports a lot of oil experiences a
international trade that is
sudden fall-off in foreign demand for its oil. that nation
unrestricted by tariffs or other
could quickly skid into recession. Similarly, if that nation
forms of protectionism.
saw a sudden surge in demand for its oil, it could well move
into recovery. (I'll talk more about recession and recovery
later in the chapter.)
Growth Is Good
What's the importance of economics? Why should anyone care about this stuff? What
does it have to do with anyone's job or business?
Plenty!
An economy is a dynamic system for supplying
people's wants and needs. Like any dynamic system, it
doesn't stand still. It is either growing or contracting.
If the economy is growing, that's good. It's good for
two reasons: first, in most economies the population is
growing and new people have needs that must be met.
If the population gets larger, the economy has to get
larger to meet those needs.
Second, even if the population were not growing,
people always want and need more goods and services.
They want a rising standard of living. Only an economy
that grows most of the time can give people a rising
standard of living.
MBA Lingo
The standard of
living is the total
quality of life
supplied by an
J economy. It includes
\ the availability and
1 quality of jobs, housing, food,
\ education, transportation,
sanitation, recreation, and
health care in a city, nation,
or region.
MBA Lingo
Conversely, if the state closes down an agency, it reduces G. Those ex-workers without
paychecks will then decrease their spending; for example, they'll postpone buying a new
Ford, thus reducing C. When Ford sees its business decrease, it will cancel factory expansion plans, thus reducing I, investment. And so on.
MBA Lingo
Income equals
spending. Because
the economy is
interconnected,
what one person or
business spends,
another collects as income.
Total spending, total income,
and GDP are essentially the
same thing.
Parti
>
spending, and thus consumer and business income, decrease. Since federal (and many
state) taxes are based on income, tax receipts also decrease. Similarly, during a recovery,
consumer and business spending, and thus income, increase and so do tax receipts.
Now all of this is what happens if the government does nothing to try to affect the
business cycle. But in fact the government plays an active role in most modern economies, including ours. Let's spend some time examining that role.
Chapter 1
The Meaning of
Management
In This Chapter
> A (very) brief history of management
> A manager's responsibility and role
> The "Big Five" principles every manager must know
Imagine an army with no general, a team with no coach, or a nation with no government. How could the army beat the enemy? How could the team win games? How could
the nation avoid complete anarchy?
They couldn't. And an organization can't succeed without a manager. In fact, any sizable
organization needs a lot more than one manager. Managers make sure that an organization stays, well...organized. Organizing and directing the work of others is the work of
the manager. 1'eople need organization and direction if they are to work effectively and
managers provide that.
Management is generally defined as the art and science of getting things done through
others. This definition emphasizes that a manager plans and guides the work of other
people. Some (cynical) individuals think that this means managers don't have any work
to do themselves. As you'll learn in this book (if you don't already know it), managers
have an awful lot of work to do.
Part 1
>
MBA Lingo
Management is the
art and science of
getting things done
through others,
generally by
organizing and
directing their activities on the
job. A manager is therefore
someone who defines, plans,
guides, assists, and assesses the
work of others, usually people
for whom the manager is
responsible in an organization.
MBA Lingo
Business admin titration means organizing and directing
the activities of a
business. An MBA,
or Master of Business Administration degree, is
a post-undergraduate degree
from a college or university
with a graduate program that
teaches people how to manage a
business. Essentially, the program covers the structure and
purpose of a business and its
various functions, and the tools
needed to manage these
functionsjust as this book
does.
Nonetheless, despite these "musts" some managers try to avoid stepping up to the real
work of managing. There are managers who fail to plan realistically, who don't develop
their interpersonal skills, and who lose sight of financial considerations and customer
needs. Such managers not only make it tough for their employees, superiors, and customers, they also give the entire discipline of management a bad name and give people the
idea that a manager is someone "paid to do nothing" or who "watches while we work."
Managers who are worthy of the name take their responsibilities and roles seriously.
Part 1
>
Scientific Management." (It's on his gravestone.) Taylor believed that managers could
improve the productivity of factory workers if they understood workers' tasks and then
properly planned each task for each worker.
MBA Lingo
Scientific management applies
scientific tools
(such as research,
analysis, and
objectivity) to
business to improve productivity. A time-and-motion study
breaks work down into subtasks to discover how long
each task takes. The goal is to
understand the job and
improve the way it is done in
order to improve efficiency.
MBA Lingo
Efficiency expert is
an outdated term
for someone who
uses scientific
management
principles to
improve business processes.
Today this work usually falls to
management consultants, who
work either as hired independent professionals or as
employees within the company (as internal consultants).
> Business will always need managers because no business can manage itself.
> Economic and competitive conditions will always present challenges (a business
must always do better no matter how well it's doing).
> Those who understand the job of the professional manager and dedicate themselves
to doing it well will always have a business to manage and will be prepared to deal
with the challenges.
Case in Point
Professional management principles made the U.S. auto industry a
productivity machine. Ford Motor Company's assembly line, in
which a car moves along a conveyor belt so workers can perform
individual tasks in a certain sequence, grew directly out of scientific
management.
The professional manager, like any other professional, understands certain principles,
performs certain tasks, and upholds certain standards. These elements are what makes a
manager a professional.
Part 1
>
A businessand its managersmust create value for customers. This can be done in
almost limitless ways because human desires are limitless. But a single business cannot
serve limitless desires. Instead, it must create a specific kind of value in a specific way. In
other words, management must decide what the business will do, and then organize itself
accordingly.
Part 1
>
Case in Point
In the late 1970s, the Cadillac division of General Motors introduced
a relatively low-priced, "sporty" Cadillac called the Cimarron. The
product failed miserably. Why? Because it departed from what had
always been Cadillac's competitive advantage: big, plush, luxury cars
with status-symbol appeal. This is a good example of a company that
temporarily forgot the source of its competitive advantage.
MBA Lingo
A company may
go bankrupt when
it is continually
unable to pay its
bills for an extended time. After
a company declares bankruptcy, it goes through a legal
process either to reorganize
itself so it can become
profitable or to close down
completely.
As you probably know, managers vary widely in their ability to do these things. The most
successful managers can do at least some of them most of the time. The few managers
who can be called great can do all of them consistently. They do this by applying the
knowledge, skills, and tools that you will get from this book.
Case Study
SOUTHWEST AIRLINES: PROFILE OF A LEADER
Airlines have faced economic difficulties with rising fuel costs and increased
security standards. Whereas many airlines have faced bankruptcy and corporate restructuring, Southwest Airlines has consistently maintained a high
level of success.
The mission of Southwest Airlines is dedication to the highest quality
of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. The airlines mission statement has always
governed the way the corporation conducts business. It highlights the
companys desire to serve customers and gives direction for service-related
decisions. Southwest Airlines wants customers and investors to have confidence in the airline and its employees. The airline has a strong commitment
to providing customers with safe, affordable, reliable, timely, courteous,
and efficient air transportation and baggage handling on every flight it
operates. Southwest is equally concerned with providing a fair return on its
shareholders investments. Southwests mission statement has led the way
to the best cumulative consumer satisfaction record in the airline industry.
Southwest Airlines is also committed to providing employees a stable
work environment with equal opportunity for learning and personal
growth. Since 1971, the airline has developed a culture that encourages
an entrepreneurial spirit in its employees. It emphasizes personal responsibility, initiative, creativity, innovation, and the use of independent judgment. Southwest Airlines is firmly committed to providing employees the
same concern, respect, and caring attitude within the organization that
they are expected to share externally with every Southwest customer.
Southwest is widely recognized as an outstanding corporate citizen. It
has been included on the List of the Worlds Most Socially Responsible
Companies by Global Finance magazine. Fortune magazine has named
it one of the most admired companies in the United States and the world.
T H I N K C R I T I C A L LY
1. Which groups of people are addressed by the Southwest mission
statement?
2. Why is it important for a company to have a sound reputation for
community service?
3. Why does Southwest Airlines pay so much attention to its employees?
4. What aspects do consumers rank when considering the value of an
airline?
384
As you probably know, managers vary widely in their ability to do these things. The most
successful managers can do at least some of them most of the time. The few managers
who can be called great can do all of them consistently. They do this by applying the
knowledge, skills, and tools that you will get from this book.
Case Study
SOUTHWEST AIRLINES: PROFILE OF A LEADER
Airlines have faced economic difficulties with rising fuel costs and increased
security standards. Whereas many airlines have faced bankruptcy and corporate restructuring, Southwest Airlines has consistently maintained a high
level of success.
The mission of Southwest Airlines is dedication to the highest quality
of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. The airlines mission statement has always
governed the way the corporation conducts business. It highlights the
companys desire to serve customers and gives direction for service-related
decisions. Southwest Airlines wants customers and investors to have confidence in the airline and its employees. The airline has a strong commitment
to providing customers with safe, affordable, reliable, timely, courteous,
and efficient air transportation and baggage handling on every flight it
operates. Southwest is equally concerned with providing a fair return on its
shareholders investments. Southwests mission statement has led the way
to the best cumulative consumer satisfaction record in the airline industry.
Southwest Airlines is also committed to providing employees a stable
work environment with equal opportunity for learning and personal
growth. Since 1971, the airline has developed a culture that encourages
an entrepreneurial spirit in its employees. It emphasizes personal responsibility, initiative, creativity, innovation, and the use of independent judgment. Southwest Airlines is firmly committed to providing employees the
same concern, respect, and caring attitude within the organization that
they are expected to share externally with every Southwest customer.
Southwest is widely recognized as an outstanding corporate citizen. It
has been included on the List of the Worlds Most Socially Responsible
Companies by Global Finance magazine. Fortune magazine has named
it one of the most admired companies in the United States and the world.
T H I N K C R I T I C A L LY
1. Which groups of people are addressed by the Southwest mission
statement?
2. Why is it important for a company to have a sound reputation for
community service?
3. Why does Southwest Airlines pay so much attention to its employees?
4. What aspects do consumers rank when considering the value of an
airline?
384
Part One
Confirming Pages
INTRODUCTION
External
Inuences
ien
Exper
ces and
ns
Acquisitio
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Marketing Activities
Self-Concept
and
Lifestyle
Internal
Inuences
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Experi
ences a
nd A
cquisitions
haw30042_ch01_002-033.indd 2
21/10/11 10:50 PM
Confirming Pages
Needs
Desires
Situations
Problem
Recognition
Information
Search
Alternative Evaluation
and Selection
Outlet Selection
and Purchase
Postpurchase
Processes
haw30042_ch01_002-033.indd 3
21/10/11 10:50 PM
Chapter
p One
Confirming Pages
Consumer Behavior
andMarketing Strategy
haw30042_ch01_002-033.indd 4
21/10/11 10:50 PM
Confirming Pages
LEARNING OBJECTIVES
LO1
LO4
LO2
LO5
LO3
haw30042_ch01_002-033.indd 5
21/10/11 10:50 PM
Confirming Pages
Part One
Introduction
Successful advertising for youth brands carefully navigates the respect young consumers feel for their family, peer groups and country with their cautious desire
to express individuality.
same time.
LO1
Promotional activities include efforts aimed at gaining donations so that OLPC can provide the computers for free. OLPCs website is one tool, which uses
facts and emotions to persuade. It even provides a
direct benefit by giving each donor one years free
access to T-Mobile HotSpot. Finally, social influence
is used, including testimonials and viral marketing.3
The field of consumer behavior is the study of individuals, groups, or organizations and the
processes they use to select, secure, use, and dispose of products, services, experiences, or
ideas to satisfy needs and the impacts that these processes have on the consumer and society.
This view of consumer behavior is broader than the traditional one, which focused more narrowly on the buyer and the immediate antecedents and consequences of the purchasing process.
Our broader view will lead us to examine more indirect influences on consumption decisions
as well as far-reaching consequences that involve more than just the purchaser and the seller.
The opening examples above summarize some attempts to apply an understanding of
consumer behavior to develop an effective marketing strategy or to influence socially desirable behavior. Throughout this text, we explore the factors and trends shaping consumer
behavior and the ways marketers and regulators can use this information. The examples
cited above reveal four key aspects regarding consumer behavior.
haw30042_ch01_002-033.indd 6
often involve numerous steps and are influenced by a host of factors including demographics, lifestyle, and cultural values. Consumer decisions are further complicated
when the needs and wants of multiple individuals or groups are considered, as when
families must make decisions about where to eat dinner or where to go on vacation.
Successful marketing decisions by firms, nonprofit organizations, and regulatory agencies require an understanding of the processes underlying consumer behavior. This
relates to understanding theories about when and why consumers act in certain ways.
21/10/11 10:50 PM
Confirming Pages
Chapter One
Whether they realize it or not, organizations are making decisions every day based on
explicit or implicit assumptions about what processes drive consumer behavior. Examine Illustration 11. What assumptions about consumer behavior underlie each ad?
Which approach is best? Why?
Successful marketing decisions require organizations to collect information about the
specific consumers involved in the marketing decision at hand. Consumer decisions are
heavily influenced by situation and product category. Thus, consumer research is necessary to understand how specific consumers will behave in a specific situation for a
given product category. Appendix A examines various consumer research approaches.
Marketing practices designed to influence consumer behavior involve ethical issues
that affect the firm, the individual, and society. The issues are not always obvious and
many times involve trade-offs at different levels. The fast-food industry is currently
dealing with such issues. While the products of fast-food businesses are highly desirable to many consumers in terms of taste and affordability, they also tend to be high
in calories, fat, and sodium. These health-related issues have gotten the attention of
government and consumer groups.
ILLUSTRATION 11
Sufficient knowledge of consumer behavior exists to provide usable guidelines. However, applying these guidelines effectively requires monitoring the environment for
changes and factoring those changes into marketing decisions. It also requires practice. We
provide a variety of such opportunities in the form of (a) questions and exercises at the end
of each chapter, (b) short cases at the end of each main part of the text, and (c) a consumer
behavior audit for developing marketing strategy (Appendix B) at the end of the text.
haw30042_ch01_002-033.indd 7
21/10/11 10:50 PM
Confirming Pages
Part One
Introduction
Thus, a primary goal of this book is to help you obtain a usable managerial understanding of consumer behavior to help you become a more effective marketing manager. Before
we take a look at marketing strategy and consumer behavior, lets examine regulatory
policy, social marketing, and the importance of being an informed individual.
Regulatory Policy
Various regulatory bodies exist to develop, interpret, and/or implement policies designed
to protect and aid consumers. For example, the Food and Drug Administration (FDA)
administers the Nutrition Labeling and Education Act (NLEA). Among other things,
NLEA requires that packaged foods prominently display nutrition information in the form
of the Nutrition Facts panel.
Has NLEA succeeded? A recent study suggests that it depends. For example, the Nutrition Facts panel is of most benefit to highly motivated consumers who are low in nutritional
knowledge. Demonstrating such benefits is important in light of the estimated $2billion in
compliance costs. However, such cost-benefit comparisons are complicated since placing
a dollar value on individual and societal benefits is often difficult.5
Clearly, effective regulation of many marketing practices requires an extensive knowledge of consumer behavior. We discuss this issue throughout the text and provide a
detailed treatment in Chapter 20.
Social Marketing
Social marketing is the application of marketing strategies and tactics to alter or create
behaviors that have a positive effect on the targeted individuals or society as a whole.6 Social
marketing has been used in attempts to reduce smoking; to increase the percentage of children receiving their vaccinations in a timely manner; to encourage environmentally sound
behaviors such as recycling; to reduce behaviors potentially leading to AIDS; to enhance
support of charities; to reduce drug use; and to support many other important causes.
Just as for commercial marketing strategy, successful social marketing strategy requires
a sound understanding of consumer behavior. For example, the Partnership for a Drug-Free
America uses a fear-based campaign in its efforts to educate parents about the alarming
increase in teen abuse of prescription drugs. Illustration 12 shows one such ad. In Chapter
11, we will analyze the conditions under which such campaigns are likely to succeed.
haw30042_ch01_002-033.indd 8
21/10/11 10:50 PM
Confirming Pages
Chapter One
ILLUSTRATION 12
Nonprofits as well
as commercial firms
attempt to influence
consumption patterns. Both types of
organizations must
base their efforts
on knowledge of
consumer behavior
to maximize their
chances of success.
Informed Individuals
Most economically developed societies are legitimately referred to as consumption societies. Most individuals in these societies spend more time engaged in consumption than in
any other activity, including work or sleep (both of which also involve consumption). In
addition, marketers spend billions to influence consumer decisions. These attempts occur
in ads, in websites, on packages, as product features, in sales pitches, and in store environments. They also occur in the content of many TV shows, in the brands that are used in
movies, and in the materials presented to children in schools.
It is important that consumers accurately understand the strategies and tactics being
used so they can be more effective consumers. It is equally important that, as citizens, we
understand the consumer behavior basis of these strategies so we can set appropriate limits
when required. That is, an understanding of consumer behavior can establish a foundation
for reasoned business ethics.
MARKETING STRATEGY
AND CONSUMER BEHAVIOR
The applications of consumer behavior involve the development, regulation, and effects of
marketing strategy. We now examine marketing strategy in more depth.
Marketing strategy, as described in Figure 11, is conceptually very simple. It begins with
an analysis of the market the organization is considering. On the basis of the consumer analysis undertaken in this step, the organization identifies groups of individuals, households, or
haw30042_ch01_002-033.indd 9
LO3
21/10/11 10:50 PM
Confirming Pages
10
FIGURE
Part One
1-1
Introduction
Marketing strategy
Product, Price, Distribution,
Promotion, Service
Market segmentation
Identify product-related need sets
Group customers with similar need sets
Describe each group
Select attractive segment(s) to target
Market analysis
Company
Competitors
Conditions
Consumers
firms with similar needs. These market segments are described in terms of demographics,
media preferences, geographic location, and so forth. Management then selects one or more
of these segments as target markets on the basis of the firms capabilities relative to those of
its competition (given current and forecasted economic and technological conditions).
Next, marketing strategy is formulated. To survive in a competitive environment, an organization must provide its target customers more value than is provided to them by its competitors. Customer value is the difference between all the benefits derived from a total product
and all the costs of acquiring those benefits. It is critical that a firm consider value from the
customers perspective. Ziplocs TableTops failed because consumers felt the benefit of the
products being semidisposable did not outweigh the cost of the product itself or the guilt
they felt about eventually throwing it away. Thus, marketing strategy seeks to provide the
customer with more value than the competition while still producing a profit for the firm.
Marketing strategy is formulated in terms of the marketing mix; that is, it involves
determining the product features, price, communications, distribution, and services that
will provide customers with superior value. This entire set of characteristics is often
referred to as the total product. The total product is presented to the target market, which
haw30042_ch01_002-033.indd 10
21/10/11 10:50 PM
Confirming Pages
Chapter One
11
ILLUSTRATION 13
is consistently engaged in processing information and making decisions designed to maintain or enhance its lifestyle (individuals and households) or performance (businesses and
other organizations).
Look at Illustration 13. What is the total product? Clearly, it is much more than food and
beverages. It also involves an experience. Increasingly, marketers sell experiences as much as or
more than actual products and services. An experience occurs when a company intentionally
creates a memorable event for customers. While products and services are to a large extent external to the customer, an experience is largely internal to each customer. The experience exists in
the mind of an individual who has been engaged on an emotional, physical, intellectual, or even
spiritual level.
Outcomes based on the execution of a marketing strategy occur for the firm, the individual, and society. Firms expect to establish an image or position in the marketplace
among target customers, generate sales, and ultimately create satisfied customers who are
the key to long-term profits. For the individual, the process results in some level of need
satisfaction, financial expenditure, attitude creation or change, and/or behavioral changes.
Note that some of these behaviors may involve injurious consumption. For society, the
cumulative effect of the marketing process affects economic growth, pollution, and social
welfare, the latter of which create many ethical implications.
We detail each phase of Figure 11 next.
haw30042_ch01_002-033.indd 11
21/10/11 10:50 PM
Confirming Pages
12
Part One
Introduction
The Consumers
It is not possible to anticipate and react to customers needs and desires without a
complete understanding of consumer behavior. Discovering customers needs is a
complex process, but it can often be accomplished by marketing research. For example, Target wanted to tap into the $210 billion college market. In particular, Target was looking at the furnishings and accessories market and was interested in the
specific needs and motivations of students making the transition from home to college dorm life. Jump Associates conducted the research for Target and took a unique
approach:
[Jump Associates] sponsored a series of game nights at high school grads homes, inviting
incoming college freshmen as well as students with a year of dorm living under their belts. To get
teens talking about dorm life, Jump devised a board game that involved issues associated with
going to college. The game naturally led to informal conversationsand questionsabout college life. Jump researchers were on the sidelines to observe, while a video camera recorded the
proceedings.
On the basis of this research (which is a variation of focus groupssee Appendix A),
Target successfully launched the Todd Oldham Dorm Room line, which included such
products as Kitchen in a Box and Bath in a Boxall-in-one assortments of the types of
products needed by college freshmen.7 Target continues to appeal to the college market
with logo merchandise and other dorm products.
Knowing the consumer requires understanding the behavioral principles that guide consumption behaviors. These principles are covered in depth in the remainder of this text.
The Company
A firm must fully understand its own ability to meet customer needs. This involves
evaluating all aspects of the firm, including its financial condition, general managerial skills, production capabilities, research and development capabilities, technological sophistication, reputation, and marketing skills. Marketing skills would include
new-product development capabilities, channel strength, advertising abilities, service
capabilities, marketing research abilities, market and consumer knowledge, and so forth.
Failure to fully understand strengths and weaknesses can cause serious problems.
IBMs first attempt to enter the home computer market, with the PC Jr., was a failure in
part for that reason. Although IBM had an excellent reputation with large business customers and a very strong direct sales force for serving them, these strengths were not relevant
to the household consumer market. Its more recent move into high-end business consulting, through IBM Global Business Services, has been a major success and, interestingly,
moves IBM back to a focus on its earlier core strengths.
The Competitors
It is not possible to consistently do a better job than the competition of meeting customer
needs without a thorough understanding of the competitions capabilities and strategies.
This understanding requires the same level of knowledge of a firms key competitors
haw30042_ch01_002-033.indd 12
21/10/11 10:50 PM
Confirming Pages
Chapter One
13
that is required of ones own firm. In addition, for any significant marketing action, the
following questions must be answered:
1
2
3
4
If we are successful, which firms will be hurt (lose sales or sales opportunities)?
Of those firms that are injured, which have the capability (financial resources, marketing strengths) to respond?
How are they likely to respond (reduce prices, increase advertising, introduce a new
product)?
Is our strategy (planned action) robust enough to withstand the likely actions of our
competitors, or do we need additional contingency plans?
The Conditions
The state of the economy, the physical environment, government regulations, and technological developments affect consumer needs and expectations as well as company and
competitor capabilities. The deterioration of the physical environment has produced not
only consumer demand for environmentally sound products but also government regulations affecting product design and manufacturing.
International agreements such as NAFTA (North American Free Trade Agreement)
have greatly reduced international trade barriers and raised the level of both competition
and consumer expectations for many products. And technology is changing the way people
live, work, deal with disease, and so on. Corporate websites, social media such as Twitter
and Facebook, and mobile apps are just some of the ways technology is changing the way
consumers communicate and access media.
Clearly, a firm cannot develop a sound marketing strategy without anticipating the conditions under which that strategy will be implemented.
MARKET SEGMENTATION
Perhaps the most important marketing decision a firm makes is the selection of one or
more market segments on which to focus. A market segment is a portion of a larger
market whose needs differ somewhat from the larger market. Since a market segment has
unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segments desires better than a firm whose product or service
attempts to meet the needs of multiple segments.
To be viable, a segment must be large enough to be served profitably. However, it
should be noted that technology advances such as flexible manufacturing and customized media are allowing for mass customization such that firms can target smaller segments and even individuals profitably. Behavioral targeting, in which consumers online
activity is tracked and specific banner ads are delivered based on that activity, is another
example of how technology is making individualized communication increasingly cost
effective.
Market segmentation involves four steps:
1.
2.
3.
4.
haw30042_ch01_002-033.indd 13
21/10/11 10:50 PM
Confirming Pages
14
ILLUSTRATION 14
haw30042_ch01_002-033.indd 14
Part One
Introduction
21/10/11 10:50 PM
Confirming Pages
CONSUMER INSIGHT
1-1
2.
3.
4.
New products
More stores
haw30042_ch01_002-033.indd 15
21/10/11 10:50 PM
Confirming Pages
16
Part One
Introduction
TABLE
1-1
Score
Segment size
____________
____________
Competitor strength
____________
____________
____________
____________
____________
Distribution available
____________
Investment required
____________
Stability/predictability
____________
Cost to serve
____________
____________
____________
Risk
____________
Segment profitability
____________
Other (___________)
____________
haw30042_ch01_002-033.indd 16
21/10/11 10:50 PM
Confirming Pages
Chapter One
17
unprofitable. Finding profitable segments means identifying a maximal fit between customer needs and the firms offerings. This means that some customers and segments will be
unprofitable to serve and may need to be fired. While firing customers may be difficult, it can
lead to greater profits, as ING Direct has found. ING Direct is a bare-bones bank. It has limited
offerings (no checking) and does most of its transactions online. ING Direct wants lowmaintenance customers who are attracted by its higher interest rates. As their CEO notes:
The difference between ING Direct and the rest of the financial industry is like the difference
between take-out food and a sit-down restaurant. The business isnt based on relationships; its
based on a commodity product thats high-volume and low-margin. We need to keep expenses
down, which doesnt work when customers want a lot of empathetic contact.9
ING Direct keeps costs lower and profits higher by identifying high-cost customers and
(nicely) letting them go by suggesting they might be better served by a high-touch community bank. Can you think of any potential risks of firing customers?
It is important to remember that each market segment requires its own marketing strategy. Each element of the marketing mix should be examined to determine if changes are
required from one segment to another. Sometimes each segment will require a completely
different marketing mix, including the product. At other times, only the advertising message or retail outlets may need to differ.
MARKETING STRATEGY
It is not possible to select target markets without simultaneously formulating a general
marketing strategy for each segment. A decisive criterion in selecting target markets is the
ability to provide superior value to those market segments. Since customer value is delivered by the marketing strategy, the firm must develop its general marketing strategy as it
evaluates potential target markets.
Marketing strategy is basically the answer to the question, How will we provide superior
customer value to our target market? The answer to this question requires the formulation
of a consistent marketing mix. The marketing mix is the product, price, communications,
distribution, and services provided to the target market. It is the combination of these elements that meets customer needs and provides customer value. For example, in the opening
illustration, Papa Johns promises superior value in terms of quality and ingredients.
The Product
A product is anything a consumer acquires or might acquire to meet a perceived need.
Consumers are generally buying need satisfaction, not physical product attributes.10 As the
former head of Revlon said, in the factory we make cosmetics, in the store we sell hope.
Thus, consumers dont purchase quarter-inch drill bits but the ability to create quarter-inch
holes. Federal Express lost much of its overnight letter delivery business not to UPS or
Airborne but to fax machines and the Internet because these technologies could meet the
same consumer needs faster, cheaper, or more conveniently.
We use the term product to refer to physical products and primary or core services. Thus,
an automobile is a product, as is a transmission overhaul or a ride in a taxi. Packaged goods
alone (food, beverages, pet products, household products) account for over 30,000 new product introductions each year.11 Obviously, many of these will not succeed. To be successful, a
product must meet the needs of the target market better than the competitions product does.
Product-related decisions also include issues of packaging, branding, and logos,
which have functional and symbolic dimensions. Starbucks recently changed its logo by
haw30042_ch01_002-033.indd 17
21/10/11 10:50 PM
Confirming Pages
18
Part One
Introduction
eliminating the words Starbucks Coffee and the circle around their emblematic Siren.
There was some consumer backlash on social media against this new logo. Do you think
Starbucks new logo is effective? What factors underlie your judgment?
Communications
Marketing communications include advertising, the sales force, public relations, packaging, and any other signal that the firm provides about itself and its products. An effective communications strategy requires answers to the following questions:
1.
2.
3.
4.
With whom, exactly, do we want to communicate? While most messages are aimed
at the target-market members, others are focused on channel members, or those who
influence the target-market members. For example, pediatric nurses are often asked
for advice concerning diapers and other nonmedical infant care items. A firm marketing such items would be wise to communicate directly with the nurses.
Often it is necessary to determine who within the target market should receive the
marketing message. For a childrens breakfast cereal, should the communications be
aimed at the children or the parents or both? The answer depends on the target market
and varies by country.
What effect do we want our communications to have on the target audience? Often a
manager will state that the purpose of advertising and other marketing communications is to increase sales. While this may be the ultimate objective, the behavioral
objective for most marketing communications is often much more immediate. That
is, it may seek to have the audience learn something about the product, seek more
information about the product, like the product, recommend the product to others, feel
good about having bought the product, or a host of other communications effects.
What message will achieve the desired effect on our audience? What words, pictures, and
symbols should we use to capture attention and produce the desired effect? Marketing messages can range from purely factual statements to pure symbolism. The best approach depends
on the situation at hand. Developing an effective message requires a thorough understanding
of the meanings the target audience attaches to words and symbols, as well as knowledge of
the perception process. Consider Illustration 15. Many older consumers may not relate to
the approach of this ad. However, it communicates clearly to its intended youth market.
What means and media should we use to reach the target audience? Should we use
personal sales to provide information? Can we rely on the package to provide needed
information? Should we advertise in mass media, use direct mail, or rely on consumers to find us on the Internet? If we advertise in mass media, which media (television, radio, magazines, newspapers, Internet) and which specific vehicles (television
programs, specific magazines, websites, banner ads, and so forth) should we use? Is
it necessary or desirable to adjust the language used? With respect to the media and
language issues, MasterCards approach is instructive. They indicate that:
Hispanics are the largest and fastest growing ethnic group in the U.S. ... As we continue to
bring value to Hispanic consumers, it is important for MasterCard to be speaking their language in the channels that are relevant to them.12
5.
haw30042_ch01_002-033.indd 18
When should we communicate with the target audience? Should we concentrate our
communications near the time that purchases tend to be made or evenly throughout
the week, month, or year? Do consumers seek information shortly before purchasing
our product? If so, where? Answering these questions requires knowledge of the decision process used by the target market for this product.
21/10/11 10:50 PM
Confirming Pages
Chapter One
19
ILLUSTRATION 15
Price
Price is the amount of money one must pay to obtain the right to use the product. One can
buy ownership of a product or, for many products, limited usage rights (i.e., one can rent or
lease the product, as with a video). Economists often assume that lower prices for the same
product will result in more sales than higher prices. However, price sometimes serves as
a signal of quality. A product priced too low might be perceived as having low quality.
Owning expensive items also provides information about the owner. If nothing else, it
indicates that the owner can afford the expensive item. This is a desirable feature to some
consumers. Starbucks charges relatively high prices for its coffee. Yet it understands that
the Starbucks brand allows consumers to trade up to a desired image and lifestyle without breaking the bank. Therefore, setting a price requires a thorough understanding of the
symbolic role that price plays for the product and target market in question.
It is important to note that the price of a product is not the same as the cost of the product to
the customer. Consumer cost is everything the consumer must surrender in order to receive
the benefits of owning/using the product. The cost of owning/using an automobile includes
insurance, gasoline, maintenance, finance charges, license fees, parking fees, time and discomfort while shopping for the car, and perhaps even discomfort about increasing pollution,
in addition to the purchase price. One of the ways firms seek to provide customer value is to
reduce the nonprice costs of owning or operating a product. If successful, the total cost to the
customer decreases while the revenue to the marketer stays the same or even increases.
haw30042_ch01_002-033.indd 19
21/10/11 10:50 PM
Confirming Pages
20
Part One
Introduction
Distribution
Distribution, having the product available where target customers can buy it, is essential to success. Only in rare cases will customers go to much trouble to secure a particular
brand. Obviously, good channel decisions require a sound knowledge of where target
customers shop for the product in question. Todays distribution decisions also require
an understanding of cross-channel options. Savvy retailers are figuring out ways to let
each distribution channel (e.g., online versus offline) do what it does best. For example,
Coldwater Creek keeps retail inventories low by having in-store Internet kiosks where
consumers can shop and get free shipping. Barnes and Noble bookstores use a similar
approach. Obviously, retailers who adopt this approach have to choose an appropriate
merchandising strategy where fast-moving, high-profit, seasonal items are in-store to
attract customers while other merchandise is available online.13 Finally, retailer characteristics such as those examined in Consumer Insight 11 need to be understood and
delivered upon. Disney is in the process of renovating its stores to be more interactive, and this has driven increased store visits and sales. The remodel seems to focus on
entertainment, which is especially appropriate in light of Disneys brand and customer.
Specifically,
The new [Disney] retail format sports more features to entertain shoppers, such as a table where
kids can assemble cars from the popular Disney-Pixar Cars movie to a two-story princess castle
that kids can enter.14
Service
Earlier, we defined product to include primary or core services such as haircuts, car
repairs, and medical treatments. Here, service refers to auxiliary or peripheral activities that are performed to enhance the primary product or primary service. Thus, we
would consider car repair to be a product (primary service), while free pickup and
delivery of the car would be an auxiliary service. Although many texts do not treat
service as a separate component of the marketing mix, we do because of the critical role it plays in determining market share and relative price in competitive markets. A firm that does not explicitly manage its auxiliary services is at a competitive
disadvantage.
Auxiliary services cost money to provide. Therefore, it is essential that the firm furnish only those services that provide value to the target customers. Providing services that
customers do not value can result in high costs and high prices without a corresponding
increase in customer value.
CONSUMER DECISIONS
As Figure 11 illustrated, the consumer decision process intervenes between the marketing strategy (as implemented in the marketing mix) and the outcomes. That is,
the outcomes of the firms marketing strategy are determined by its interaction with
the consumer decision process. The firm can succeed only if consumers see a need that
its product can solve, become aware of the product and its capabilities, decide that it is
the best available solution, proceed to buy it, and become satisfied with the results of the
purchase. A significant part of this text is devoted to the understanding of the consumer
decision process.
haw30042_ch01_002-033.indd 20
21/10/11 10:50 PM
Confirming Pages
Chapter One
21
ILLUSTRATION 16
OUTCOMES
Firm Outcomes
Product Position The most basic outcome of a firms marketing strategy is its product
positionan image of the product or brand in the consumers mind relative to competing
products and brands. This image consists of a set of beliefs, pictorial representations, and
feelings about the product or brand. It does not require purchase or use for it to develop.
It is determined by communications about the brand from the firm and other sources, as
well as by direct experience with it. Most marketing firms specify the product position they
want their brands to have and measure these positions on an ongoing basis. This is because
a brand whose position matches the desired position of a target market is likely to be purchased when a need for that product arises.
The ad in Illustration 16 is positioning the brand as a fun brand. This image and personality is facilitated and enhanced by the color and imagery used.
Sales and Profits Sales and profits are critical outcomes, as they are necessary for
the firm to continue in business. Therefore, virtually all firms evaluate the success of
their marketing programs in terms of sales revenues and profits. As we have seen, sales
and profits are likely to occur only if the initial consumer analysis was correct and if the
marketing mix matches the consumer decision process.
Customer Satisfaction Marketers have discovered that it is generally more profitable
to maintain existing customers than to replace them with new customers. Retaining current
haw30042_ch01_002-033.indd 21
21/10/11 10:50 PM
Confirming Pages
22
Part One
FIGURE
1-2
Our total
product
Competitors
total productss
Introduction
Consumerr
C
Co
de
d
decision
pr
p
process
Superior
S
Su
vvalue
ex
e
expected
d
S
Sales
Perceived
P
Pe
d
vvalue
de
d
delivered
Cu
C
Customer
sa
satisfaction
ati
customers requires that they be satisfied with their purchase and use of the product. Thus,
customer satisfaction is a major concern of marketers.
As Figure 12 indicates, convincing consumers that your brand offers superior value
is necessary in order to make the initial sale. Obviously, one must have a thorough understanding of the potential consumers needs and of their information acquisition processes to
succeed at this task. However, creating satisfied customers, and thus future sales, requires
that customers continue to believe that your brand meets their needs and offers superior
value after they have used it. You must deliver as much or more value than your customers
initially expected, and it must be enough to satisfy their needs. Doing so requires an even
greater understanding of consumer behavior.
Individual Outcomes
Need Satisfaction The most obvious outcome of the consumption process for an individual, whether or not a purchase is made, is some level of satisfaction of the need that
initiated the consumption process. This can range from no satisfaction (or even a negative
level if a purchase increases the need rather than reduces it) to complete satisfaction. Two
key processes are involvedthe actual need fulfillment and the perceived need fulfillment.
These two processes are closely related and are often identical. However, at times they
differ. For example, people might take food supplements because they believe the supplements are enhancing their health while in reality they could have no direct health effects
or even negative effects. One objective of government regulation and a frequent goal of
consumer groups is to ensure that consumers can adequately judge the extent to which
products are meeting their needs.
Injurious Consumption Although we tend to focus on the benefits of consumption, we must remain aware that consumer behavior has a dark side. Injurious
consumption occurs when individuals or groups make consumption decisions that have
negative consequences for their long-run well-being. Examples can include (a) overspending due to aggressive marketing efforts and cheap credit, (b) consumption of products that
are not healthy including fast foods, cigarettes, alcohol, and so on, and (c) engaging in
activities such as gambling that can have devastating financial consequences for some.
One product that has recently caught the attention of the FDA is caffeinated alcohol
beverages. They tend to be large in volume and also contain high levels of alcohol and
caffeine. It is estimated that one can of these new caffeinated alcohol beverages has
the same impact on people as drinking five or six beers. These beverages also increase
the chances that people engage in dangerous behaviors such as driving under the influence, in part because the caffeine causes them to misgauge how intoxicated they are.15
haw30042_ch01_002-033.indd 22
21/10/11 10:51 PM
Confirming Pages
Chapter One
23
Although these are issues we should be concerned with, and we address them
throughout this text, we should also note that alcohol consumption seems to have arisen
simultaneously with civilization, and evidence of gambling is nearly as old. Consumers smoked and chewed tobacco long before mass media or advertising as we know it
existed, and illegal drug consumption continues to grow worldwide despite the absence
of large-scale marketing, or at least advertising. Thus, though marketing activities based
on knowledge of consumer behavior undoubtedly exacerbate some forms of injurious
consumption, they are not the sole cause and, as we will see shortly, such activities may
be part of the cure.
Society Outcomes
Economic Outcomes The cumulative impact of consumers purchase decisions,
including the decision to forgo consumption, is a major determinant of the state of a given
countrys economy. Consumers decisions on whether to buy or to save affect economic
growth, the availability and cost of capital, employment levels, and so forth. The types of
products and brands purchased influence the balance of payments, industry growth rates,
and wage levels. Decisions made in one society, particularly large, wealthy societies such
as those of the United States, Western Europe, and Japan, have a major impact on the economic health of many other countries.
Physical Environment Outcomes Consumers make decisions that have a major
impact on the physical environments of both their own and other societies. The cumulative effect of U.S. consumers decisions to rely on relatively large private cars rather
than mass transit results in significant air pollution in American cities as well as the
consumption of nonrenewable resources from other countries. The decisions of people
in most developed and in many developing economies to consume meat as a primary
source of protein result in the clearing of rain forests for grazing land, the pollution
of many watersheds due to large-scale feedlots, and an inefficient use of grain, water,
and energy to produce protein. It also appears to produce health problems for many
consumers. Similar effects are being seen as ethanol (made from corn, sugar cane, or
rice) becomes a more popular alternative to oil as a source of fuel for automobiles.
The high cost of fuel, along with the diversion of grain from food to fuel, is driving up
food costs and threatens to increase poverty levels around the world.16 Such outcomes
attract substantial negative publicity. However, these resources are being used because
of consumer demand, and consumer demand consists of the decisions you and I and our
families and our friends make!
As we will see in Chapter 3, many consumers now recognize the indirect effects of
consumption on the environment and are altering their behavior to minimize environmental harm.
Social Welfare Consumer decisions affect the general social welfare of a society.
Decisions concerning how much to spend for private goods (personal purchases) rather
than public goods (support for public education, parks, health care, and the like) are generally made indirectly by consumers elected representatives. These decisions have a major
impact on the overall quality of life in a society.
Injurious consumption, as described above, affects society as well as the individuals
involved. The social costs of smoking-induced illnesses, alcoholism, and drug abuse are
staggering. To the extent that marketing activities increase or decrease injurious consumption, they have a major impact on the social welfare of a society. Consider the following:
haw30042_ch01_002-033.indd 23
21/10/11 10:51 PM
Confirming Pages
24
Part One
Introduction
According to the U.S. Public Health Service, of the 10 leading causes of death in the United
States, at least 7 could be reduced substantially if people at risk would change just 5 behaviors:
compliance (e.g., use of antihypertensive medication), diet, smoking, lack of exercise, and alcohol and drug abuse. Each of these behaviors is inextricably linked with marketing efforts and the
reactions of consumers to marketing campaigns. The link between consumer choices and social
problems is clear.17
However, the same authors conclude: Although these problems appear daunting, they
are all problems that are solvable through altruistic [social] marketing. Thus, marketing
and consumer behavior can both aggravate and reduce serious social problems.
Figure 13 is the model that we use to capture the general structure and process of consumer
behavior and to organize this text. It is a conceptual model. It does not contain sufficient
detail to predict particular behaviors; however, it does reflect our beliefs about the general
nature of consumer behavior. Individuals develop self-concepts (their view of themselves)
and subsequent lifestyles (how they live) based on a variety of internal (mainly psychological
and physical) and external (mainly sociological and demographic) influences. These selfconcepts and lifestyles produce needs and desires, many of which require consumption decisions to satisfy. As individuals encounter relevant situations, the consumer decision process is
activated. This process and the experiences and acquisitions it produces in turn influence the
consumers self-concept and lifestyle by affecting their internal and external characteristics.
Of course life is rarely as structured as Figure 13 and our discussion of it so far may
seem to suggest. Consumer behavior is hardly ever so simple, structured, conscious,
mechanical, or linear. A quick analysis of your own behavior and that of your friends
will reveal that on the contrary, consumer behavior is frequently complex, disorganized,
nonconscious, organic, and circular. RememberFigure 13 is only a model, a starting
point for our analysis. It is meant to aid you in thinking about consumer behavior. As you
look at the model and read the following chapters based on this model, continually relate
the descriptions in the text to the rich world of consumer behavior that is all around you.
The factors shown in Figure 13 are given detailed treatment in the subsequent chapters of this book. Here we provide a brief overview so that you can initially see how they
work and fit together. Our discussion here and in the following chapters moves through the
model from left to right.
haw30042_ch01_002-033.indd 24
21/10/11 10:51 PM
Confirming Pages
Chapter One
FIGURE
External
Inuences
25
erien
Ex p
1-3
Decision
Process
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Marketing Activities
Situations
Problem
Recognition
Self-Concept
and
Lifestyle
Needs
Desires
Internal
nternal
Inuences
Information
Search
Alternative Evaluation
and Selection
Outlet Selection
and Purchase
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Postpurchase
Processes
Exp
erienc
es and Acquisitions
change in this society that create both marketing opportunities and unique social energy.
Illustration 17 shows how marketers are embracing this diversity in their advertisements.
Chapter 4 continues our examination of American society by analyzing its demographics
(the number, education, age, income, occupation, and location of individuals in a society)
and social stratification. Chapter 5 considers ethnic, religious, and regional subcultures.
Chapter 6 analyzes families, households, and household decision making. Finally, in Chapter 7, we look at the processes by which groups influence consumer behavior and group
communication, including the role of groups in the acceptance of new products and technologies. Taken together, Chapters 2 through 7 provide a means of comparing and contrasting the various external factors that influence consumer behavior in Americaand around
the world. Cross-cultural variations are highlighted when possible throughout the text.
haw30042_ch01_002-033.indd 25
21/10/11 10:51 PM
Confirming Pages
26
ILLUSTRATION 17
Part One
Introduction
haw30042_ch01_002-033.indd 26
21/10/11 10:51 PM
Confirming Pages
Chapter One
27
situation influences the resulting consumer behavior. Therefore, we provide a detailed discussion of situational influences on the consumer decision process in Chapter 13.
As Figure 13 indicates, a consumers needs/desires may trigger one or more levels of
the consumer decision process. It is important to note that for most purchases, consumers
devote very little effort to this process, and emotions and feelings often have as much or
more influence on the outcome as do facts and product features. Despite the limited effort
that consumers often devote to the decision process, the results have important effects on
the individual consumer, the firm, and the larger society. Therefore, we provide detailed
coverage of each stage of the process: problem recognition (Chapter 14), information
search (Chapter 15), alternative evaluation and selection (Chapter 16), outlet selection and
purchase (Chapter 17), and use, disposition, and purchase evaluation (Chapter 18). The
increasing role of technology, particularly the Internet, in consumer decision making is
highlighted throughout these chapters.
haw30042_ch01_002-033.indd 27
LO5
21/10/11 10:51 PM
Confirming Pages
CONSUMER INSIGHT
1-2
I asked Juan what were his major economic concerns. He answered very quickly, food and
clothes, he said. How about housing? I asked. That is never a problem, he said, for I can
always make a house. For Juan and the others, a house is not a prestige symbol but simply a
place to sleep, a place to keep dry in, a place for family privacy, and a place in which to store
things. It is not a place to live, as the word is so meaningfully used in the United States. It seems
difficult to overestimate the importance of clothing. A clean set of clothes is for a pass into town
or a fiesta. Clothes are the mark of a mans self-respect, and the ability of a man to clothe his family is in many ways the measure of a man.20
Thus, as you read the chapters that follow, keep in mind that we are dealing with real
people with real lives, not mere abstractions.
28
haw30042_ch01_002-033.indd 28
21/10/11 10:51 PM
Confirming Pages
Chapter One
29
SUMMARY
haw30042_ch01_002-033.indd 29
21/10/11 10:51 PM
Confirming Pages
30
Part One
Introduction
KEY TERMS
Conceptual model 24
Consumer behavior 6
Consumer cost 19
Customer satisfaction 22
Customer value 10
Distribution 20
Injurious consumption 22
Lifestyle 26
Marketing communications 18
Marketing mix 17
Marketing strategy 17
Market segment 13
Need set 14
Price 19
Product 17
Product position 21
Self-concept 26
Service 20
Social marketing 8
Target market 16
Total product 11
INTERNET EXERCISES
1. Market segmentation is one of the most important
parts of developing a marketing strategy. Many
commercial firms provide information and services
to help define and/or describe market segments.
One is Yankelovich. Visit its website (www
.yankelovich.com). Prepare a report on the various
tools the company has available to segment
consumers. How valuable do you think this service
would be to a marketer?
2. Visit the Global Media Monitor at (lass.calumet
.purdue.edu/cca/gmm). What information can you
find that is relevant to understanding consumer
behavior?
3. Marketers are increasingly looking at the
opportunities offered by older consumers. How will
the number of adults 65 and over change between
2015 and 2020? What about 2015 and 2025? (Hint:
visit www.census.gov and look under statistical
abstract.)
4. Examine magazine ads for a product category that
interests you. Visit two websites identified in the
ads. Which is most effective? Why? What beliefs
about consumer behavior are reflected in the ads?
haw30042_ch01_002-033.indd 30
21/10/11 10:51 PM
Confirming Pages
Chapter One
31
REVIEW QUESTIONS
1. How is the field of consumer behavior defined?
2. What conclusions can be drawn from the examples
at the beginning of this chapter?
3. What are the four major uses or applications of an
understanding of consumer behavior?
4. What is social marketing?
5. What is customer value, and why is it important to
marketers?
6. What is required to provide superior customer
value?
7. What is a total product?
8. What is involved in the consumer analysis phase
of market analysis in Figure 11?
9. What is involved in the company analysis phase of
market analysis in Figure 11?
10. What is involved in the competitor analysis phase
of market analysis in Figure 11?
11. What is involved in the conditions analysis phase
of market analysis in Figure 11?
12. Describe the process of market segmentation.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
DISCUSSION QUESTIONS
27. Why would someone shop on the Internet? Buy an
iPod? Eat at TGI Fridays frequently?
a. Why would someone else not make those
purchases?
b. How would you choose one outlet, brand, or
model over the others? Would others make the
same choice in the same way?
28. Respond to the questions in Consumer Insight 11.
haw30042_ch01_002-033.indd 31
21/10/11 10:51 PM
Confirming Pages
32
33.
34.
35.
36.
Part One
Introduction
APPLICATION ACTIVITIES
42. Interview the manager or marketing manager
of a retail firm. Determine how this individual
develops the marketing strategy. Compare this
persons process with the approach described in
the text.
43. Interview the managers of a local charity.
Determine what their assumptions about the
consumer behavior of their supporters are. To
what extent do they use marketing strategy
to increase support for the organization or
compliance with its objectives?
44. Interview five students. Have them describe the
last three restaurant meals they consumed and the
situations in which they were consumed. What
can you conclude about the impact of the situation
on consumer behavior? What can you conclude
about the impact of the individual on consumer
behavior?
45. Visit one or more stores that sell the following
items. Report on the sales techniques used (pointof-purchase displays, store design, salesperson
comments, and so forth). What beliefs concerning
consumer behavior appear to underlie these
techniques? It is often worthwhile for a male and
haw30042_ch01_002-033.indd 32
21/10/11 10:51 PM
Confirming Pages
Chapter One
33
REFERENCES
1. Sources for Online marketing section: Whos Online, Pew
Internet & American Life Project, 2010, www.pewinternet.org;
Online Ordering Leader Papa Johns First to Surpass $2 Billion
in Online Sales, Business Wire, May 3, 2010; and The Rise of
Apps Culture (Washington, DC: Pew Internet & American Life
Project, September 2010).
2. Source for Global marketing section: N. Madden, Report
from China, AdAge.com, May 31, 2005, www.adage.com.
3. Sources for Social marketing section: Excerpts from OLPCs
website (www.laptopgiving.org), accessed May 20, 2008, as well
as J. Markoff, For $150, Third-World Laptop Stirs Big Debate,
The New York Times, November 30, 2006, www.nytimes.com,
accessed May 20, 2008; B. Einhorn, Intel Inside the Third
World, BusinessWeek, July 9 and 16, 2007, pp. 3840; and
D.Talbot, $100 Laptop Programs New President, Technology
Review, May 2, 2008, www.technologyreview.com, accessed May
20, 2008.
4. J. Neff, S. C. Johnson Likely to Bag Ziploc TableTops, Advertising
Age, November 25, 2002, p. 3; and J. Neff, S.C.Johnson Faces a
Clean-up Job, Advertising Age, November 29, 2004, p. 8.
5. See W. I. Ghani and N. M. Childs, Wealth Effects of the Passage
of the Nutrition Labeling and Education Act of 1990 for Large U.S.
Multinational Food Corporations, Journal of Public Policy and
Marketing, Fall 1999, pp. 14758; and S.K.Balasubramanian and
C. Cole, Consumers Search and Use of Nutrition Information,
Journal of Marketing, July 2002, pp. 11227.
6. See A. R. Andreasen, Social Marketing, Journal of Public
Policy & Marketing, Spring 1994, pp. 10814; and P. Kotler,
N. Roberto, and N. Lee, Social Marketing (Thousand Oaks, CA:
Sage, 2002).
7. A. S. Wellner, The New Science of Focus Groups, American
Demographics, March 2003, pp. 2933.
8. Insight based on K. E. Reynolds, J. Ganesh, and M. Luckett,
Traditional Malls vs. Factory Outlets, Journal of Business
Research 55 (2002), pp. 687696.
haw30042_ch01_002-033.indd 33
21/10/11 10:51 PM
Part One
Confirming Pages
INTRODUCTION
External
Inuences
ien
Exper
ces and
ns
Acquisitio
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Marketing Activities
Self-Concept
and
Lifestyle
Internal
Inuences
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Experi
ences a
nd A
cquisitions
haw30042_ch01_002-033.indd 2
21/10/11 10:50 PM
Confirming Pages
Needs
Desires
Situations
Problem
Recognition
Information
Search
Alternative Evaluation
and Selection
Outlet Selection
and Purchase
Postpurchase
Processes
haw30042_ch01_002-033.indd 3
21/10/11 10:50 PM
Chapter
p One
Confirming Pages
Consumer Behavior
andMarketing Strategy
haw30042_ch01_002-033.indd 4
21/10/11 10:50 PM
Confirming Pages
LEARNING OBJECTIVES
LO1
LO4
LO2
LO5
LO3
haw30042_ch01_002-033.indd 5
21/10/11 10:50 PM
Confirming Pages
Part One
Introduction
Successful advertising for youth brands carefully navigates the respect young consumers feel for their family, peer groups and country with their cautious desire
to express individuality.
same time.
LO1
Promotional activities include efforts aimed at gaining donations so that OLPC can provide the computers for free. OLPCs website is one tool, which uses
facts and emotions to persuade. It even provides a
direct benefit by giving each donor one years free
access to T-Mobile HotSpot. Finally, social influence
is used, including testimonials and viral marketing.3
The field of consumer behavior is the study of individuals, groups, or organizations and the
processes they use to select, secure, use, and dispose of products, services, experiences, or
ideas to satisfy needs and the impacts that these processes have on the consumer and society.
This view of consumer behavior is broader than the traditional one, which focused more narrowly on the buyer and the immediate antecedents and consequences of the purchasing process.
Our broader view will lead us to examine more indirect influences on consumption decisions
as well as far-reaching consequences that involve more than just the purchaser and the seller.
The opening examples above summarize some attempts to apply an understanding of
consumer behavior to develop an effective marketing strategy or to influence socially desirable behavior. Throughout this text, we explore the factors and trends shaping consumer
behavior and the ways marketers and regulators can use this information. The examples
cited above reveal four key aspects regarding consumer behavior.
haw30042_ch01_002-033.indd 6
often involve numerous steps and are influenced by a host of factors including demographics, lifestyle, and cultural values. Consumer decisions are further complicated
when the needs and wants of multiple individuals or groups are considered, as when
families must make decisions about where to eat dinner or where to go on vacation.
Successful marketing decisions by firms, nonprofit organizations, and regulatory agencies require an understanding of the processes underlying consumer behavior. This
relates to understanding theories about when and why consumers act in certain ways.
21/10/11 10:50 PM
Confirming Pages
Chapter One
Whether they realize it or not, organizations are making decisions every day based on
explicit or implicit assumptions about what processes drive consumer behavior. Examine Illustration 11. What assumptions about consumer behavior underlie each ad?
Which approach is best? Why?
Successful marketing decisions require organizations to collect information about the
specific consumers involved in the marketing decision at hand. Consumer decisions are
heavily influenced by situation and product category. Thus, consumer research is necessary to understand how specific consumers will behave in a specific situation for a
given product category. Appendix A examines various consumer research approaches.
Marketing practices designed to influence consumer behavior involve ethical issues
that affect the firm, the individual, and society. The issues are not always obvious and
many times involve trade-offs at different levels. The fast-food industry is currently
dealing with such issues. While the products of fast-food businesses are highly desirable to many consumers in terms of taste and affordability, they also tend to be high
in calories, fat, and sodium. These health-related issues have gotten the attention of
government and consumer groups.
ILLUSTRATION 11
Sufficient knowledge of consumer behavior exists to provide usable guidelines. However, applying these guidelines effectively requires monitoring the environment for
changes and factoring those changes into marketing decisions. It also requires practice. We
provide a variety of such opportunities in the form of (a) questions and exercises at the end
of each chapter, (b) short cases at the end of each main part of the text, and (c) a consumer
behavior audit for developing marketing strategy (Appendix B) at the end of the text.
haw30042_ch01_002-033.indd 7
21/10/11 10:50 PM
Confirming Pages
Part One
Introduction
Thus, a primary goal of this book is to help you obtain a usable managerial understanding of consumer behavior to help you become a more effective marketing manager. Before
we take a look at marketing strategy and consumer behavior, lets examine regulatory
policy, social marketing, and the importance of being an informed individual.
Regulatory Policy
Various regulatory bodies exist to develop, interpret, and/or implement policies designed
to protect and aid consumers. For example, the Food and Drug Administration (FDA)
administers the Nutrition Labeling and Education Act (NLEA). Among other things,
NLEA requires that packaged foods prominently display nutrition information in the form
of the Nutrition Facts panel.
Has NLEA succeeded? A recent study suggests that it depends. For example, the Nutrition Facts panel is of most benefit to highly motivated consumers who are low in nutritional
knowledge. Demonstrating such benefits is important in light of the estimated $2billion in
compliance costs. However, such cost-benefit comparisons are complicated since placing
a dollar value on individual and societal benefits is often difficult.5
Clearly, effective regulation of many marketing practices requires an extensive knowledge of consumer behavior. We discuss this issue throughout the text and provide a
detailed treatment in Chapter 20.
Social Marketing
Social marketing is the application of marketing strategies and tactics to alter or create
behaviors that have a positive effect on the targeted individuals or society as a whole.6 Social
marketing has been used in attempts to reduce smoking; to increase the percentage of children receiving their vaccinations in a timely manner; to encourage environmentally sound
behaviors such as recycling; to reduce behaviors potentially leading to AIDS; to enhance
support of charities; to reduce drug use; and to support many other important causes.
Just as for commercial marketing strategy, successful social marketing strategy requires
a sound understanding of consumer behavior. For example, the Partnership for a Drug-Free
America uses a fear-based campaign in its efforts to educate parents about the alarming
increase in teen abuse of prescription drugs. Illustration 12 shows one such ad. In Chapter
11, we will analyze the conditions under which such campaigns are likely to succeed.
haw30042_ch01_002-033.indd 8
21/10/11 10:50 PM
Confirming Pages
Chapter One
ILLUSTRATION 12
Nonprofits as well
as commercial firms
attempt to influence
consumption patterns. Both types of
organizations must
base their efforts
on knowledge of
consumer behavior
to maximize their
chances of success.
Informed Individuals
Most economically developed societies are legitimately referred to as consumption societies. Most individuals in these societies spend more time engaged in consumption than in
any other activity, including work or sleep (both of which also involve consumption). In
addition, marketers spend billions to influence consumer decisions. These attempts occur
in ads, in websites, on packages, as product features, in sales pitches, and in store environments. They also occur in the content of many TV shows, in the brands that are used in
movies, and in the materials presented to children in schools.
It is important that consumers accurately understand the strategies and tactics being
used so they can be more effective consumers. It is equally important that, as citizens, we
understand the consumer behavior basis of these strategies so we can set appropriate limits
when required. That is, an understanding of consumer behavior can establish a foundation
for reasoned business ethics.
MARKETING STRATEGY
AND CONSUMER BEHAVIOR
The applications of consumer behavior involve the development, regulation, and effects of
marketing strategy. We now examine marketing strategy in more depth.
Marketing strategy, as described in Figure 11, is conceptually very simple. It begins with
an analysis of the market the organization is considering. On the basis of the consumer analysis undertaken in this step, the organization identifies groups of individuals, households, or
haw30042_ch01_002-033.indd 9
LO3
21/10/11 10:50 PM
Confirming Pages
10
FIGURE
Part One
1-1
Introduction
Marketing strategy
Product, Price, Distribution,
Promotion, Service
Market segmentation
Identify product-related need sets
Group customers with similar need sets
Describe each group
Select attractive segment(s) to target
Market analysis
Company
Competitors
Conditions
Consumers
firms with similar needs. These market segments are described in terms of demographics,
media preferences, geographic location, and so forth. Management then selects one or more
of these segments as target markets on the basis of the firms capabilities relative to those of
its competition (given current and forecasted economic and technological conditions).
Next, marketing strategy is formulated. To survive in a competitive environment, an organization must provide its target customers more value than is provided to them by its competitors. Customer value is the difference between all the benefits derived from a total product
and all the costs of acquiring those benefits. It is critical that a firm consider value from the
customers perspective. Ziplocs TableTops failed because consumers felt the benefit of the
products being semidisposable did not outweigh the cost of the product itself or the guilt
they felt about eventually throwing it away. Thus, marketing strategy seeks to provide the
customer with more value than the competition while still producing a profit for the firm.
Marketing strategy is formulated in terms of the marketing mix; that is, it involves
determining the product features, price, communications, distribution, and services that
will provide customers with superior value. This entire set of characteristics is often
referred to as the total product. The total product is presented to the target market, which
haw30042_ch01_002-033.indd 10
21/10/11 10:50 PM
Confirming Pages
Chapter One
11
ILLUSTRATION 13
is consistently engaged in processing information and making decisions designed to maintain or enhance its lifestyle (individuals and households) or performance (businesses and
other organizations).
Look at Illustration 13. What is the total product? Clearly, it is much more than food and
beverages. It also involves an experience. Increasingly, marketers sell experiences as much as or
more than actual products and services. An experience occurs when a company intentionally
creates a memorable event for customers. While products and services are to a large extent external to the customer, an experience is largely internal to each customer. The experience exists in
the mind of an individual who has been engaged on an emotional, physical, intellectual, or even
spiritual level.
Outcomes based on the execution of a marketing strategy occur for the firm, the individual, and society. Firms expect to establish an image or position in the marketplace
among target customers, generate sales, and ultimately create satisfied customers who are
the key to long-term profits. For the individual, the process results in some level of need
satisfaction, financial expenditure, attitude creation or change, and/or behavioral changes.
Note that some of these behaviors may involve injurious consumption. For society, the
cumulative effect of the marketing process affects economic growth, pollution, and social
welfare, the latter of which create many ethical implications.
We detail each phase of Figure 11 next.
haw30042_ch01_002-033.indd 11
21/10/11 10:50 PM
Confirming Pages
12
Part One
Introduction
The Consumers
It is not possible to anticipate and react to customers needs and desires without a
complete understanding of consumer behavior. Discovering customers needs is a
complex process, but it can often be accomplished by marketing research. For example, Target wanted to tap into the $210 billion college market. In particular, Target was looking at the furnishings and accessories market and was interested in the
specific needs and motivations of students making the transition from home to college dorm life. Jump Associates conducted the research for Target and took a unique
approach:
[Jump Associates] sponsored a series of game nights at high school grads homes, inviting
incoming college freshmen as well as students with a year of dorm living under their belts. To get
teens talking about dorm life, Jump devised a board game that involved issues associated with
going to college. The game naturally led to informal conversationsand questionsabout college life. Jump researchers were on the sidelines to observe, while a video camera recorded the
proceedings.
On the basis of this research (which is a variation of focus groupssee Appendix A),
Target successfully launched the Todd Oldham Dorm Room line, which included such
products as Kitchen in a Box and Bath in a Boxall-in-one assortments of the types of
products needed by college freshmen.7 Target continues to appeal to the college market
with logo merchandise and other dorm products.
Knowing the consumer requires understanding the behavioral principles that guide consumption behaviors. These principles are covered in depth in the remainder of this text.
The Company
A firm must fully understand its own ability to meet customer needs. This involves
evaluating all aspects of the firm, including its financial condition, general managerial skills, production capabilities, research and development capabilities, technological sophistication, reputation, and marketing skills. Marketing skills would include
new-product development capabilities, channel strength, advertising abilities, service
capabilities, marketing research abilities, market and consumer knowledge, and so forth.
Failure to fully understand strengths and weaknesses can cause serious problems.
IBMs first attempt to enter the home computer market, with the PC Jr., was a failure in
part for that reason. Although IBM had an excellent reputation with large business customers and a very strong direct sales force for serving them, these strengths were not relevant
to the household consumer market. Its more recent move into high-end business consulting, through IBM Global Business Services, has been a major success and, interestingly,
moves IBM back to a focus on its earlier core strengths.
The Competitors
It is not possible to consistently do a better job than the competition of meeting customer
needs without a thorough understanding of the competitions capabilities and strategies.
This understanding requires the same level of knowledge of a firms key competitors
haw30042_ch01_002-033.indd 12
21/10/11 10:50 PM
Confirming Pages
Chapter One
13
that is required of ones own firm. In addition, for any significant marketing action, the
following questions must be answered:
1
2
3
4
If we are successful, which firms will be hurt (lose sales or sales opportunities)?
Of those firms that are injured, which have the capability (financial resources, marketing strengths) to respond?
How are they likely to respond (reduce prices, increase advertising, introduce a new
product)?
Is our strategy (planned action) robust enough to withstand the likely actions of our
competitors, or do we need additional contingency plans?
The Conditions
The state of the economy, the physical environment, government regulations, and technological developments affect consumer needs and expectations as well as company and
competitor capabilities. The deterioration of the physical environment has produced not
only consumer demand for environmentally sound products but also government regulations affecting product design and manufacturing.
International agreements such as NAFTA (North American Free Trade Agreement)
have greatly reduced international trade barriers and raised the level of both competition
and consumer expectations for many products. And technology is changing the way people
live, work, deal with disease, and so on. Corporate websites, social media such as Twitter
and Facebook, and mobile apps are just some of the ways technology is changing the way
consumers communicate and access media.
Clearly, a firm cannot develop a sound marketing strategy without anticipating the conditions under which that strategy will be implemented.
MARKET SEGMENTATION
Perhaps the most important marketing decision a firm makes is the selection of one or
more market segments on which to focus. A market segment is a portion of a larger
market whose needs differ somewhat from the larger market. Since a market segment has
unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segments desires better than a firm whose product or service
attempts to meet the needs of multiple segments.
To be viable, a segment must be large enough to be served profitably. However, it
should be noted that technology advances such as flexible manufacturing and customized media are allowing for mass customization such that firms can target smaller segments and even individuals profitably. Behavioral targeting, in which consumers online
activity is tracked and specific banner ads are delivered based on that activity, is another
example of how technology is making individualized communication increasingly cost
effective.
Market segmentation involves four steps:
1.
2.
3.
4.
haw30042_ch01_002-033.indd 13
21/10/11 10:50 PM
CHAPTER 20 ASSESSMENT
CASE IN POINT
CASE 20-1: Computer Life Cycle
The personal-computer market has become very competitive, and it is
more and more difficult for computer manufacturers to make a profit.
Technology changes rapidly, so if a company has not sold its inventory of
one model when a competitor introduces a newer, faster, more powerful
model, it often has to sell its older model at a loss. Many computer purchasers are not brand-loyal and either look for a lower price or expect
the manufacturer to include related products, such as a monitor, printer,
scanner, or several types of software with the new computer.
Online computer sellers have created considerable competition for
traditional store outlets. Many consumers today do not feel they need
much technical help with computers. Businesses are also buying online
because they can configure computers to meet their needs.
Newer computer products are entering the market. These include
wireless portable computers and personal digital assistants. Even cellular
telephones are gaining computer functionality.
One computer manufacturer began a new marketing program that
offered customers a free computer. The computer was not the manufacturers latest model, however. The offer also did not include a large
monitor or additional equipment or software. Instead, the manufacturer
required the customer to sign a contract to use the manufacturers Internet service for at least three years, at a cost of $24.95 a month. Typically,
consumers could buy the same service for as little as $14.95 a month
from other companies.
T H I N K C R I T I C A L LY
1. Which stage of the product life cycle do you believe computers are
in, based on the case information? Why?
2. Explain how this stage affects the price of computers.
3. Are computers industrial or consumer products? Explain your
answer.
4. In which consumer product category do you believe consumers
classify computers, based on the case information? Why?
5. How does your product category choice in question #4 fit with
companies ability to sell computers on the Internet? Explain your
answer.
6. Describe the target market that you believe might be attracted to the
manufacturers offer of a free computer.
7. Explain why a consumer may or may not find the Internet/computer
package an appealing offer.
8. What are the advantages and disadvantages of offering consumers a
computer that is not the companys latest model?
556
CHECKPOINT
List and define the three levels of product design.
561
Unit 6
Product Selection
After designing the product, companies must make another set of decisions to
plan the product mix element. The first decision is whether to offer a product
line. A product line is a group of similar products with obvious variations in the
design and quality to meet the needs of distinct customer groups. New and small companies may begin by offering only one category of product to its
customers. That product may have choices of features, options, and enhancements, but the basic
product is the same for all customers. With more
It is often difficult to identify the total number
experience and resources, the company may decide
of product lines a store carries by walking through
to expand its product line.
the store. But product lines are often used to
One of the obvious ways to expand a product
organize a customers online shopping experiline is to offer different sizes of the product. That
ence. Point your browser to www.thomsonedu.
can be done with the serving sizes of food items, as
comschoolbpmxtra. Look at the tabs in the Web
well as with the sizes of automobiles. As an
site. How do these indicate product lines? Click
example, when sports utility vehicles (SUVs) were
on the See All tab. Describe how this shows
first introduced, most manufacturers produced
Wal-Marts online product assortment. Based on
one midsize model, such as the Chevy Blazer or
your research, how does the online site differ
Ford Explorer. As the popularity of SUVs grew,
from Wal-Marts you have visited?
manufacturers began to appeal to other market
segments with smaller models, such as the Toyota
www.thomsonedu.com/school/bpmxtra
RAV4, and then very large models, including the
Mercury Mountaineer and Cadillac Escalade. Rising
gas prices opened a market for fuel-efficient SUVs,
such as Hondas CR-V. Some companies offer only one model size, but others
have a model in each size category for a full product line.
Another way to develop a product line is to offer variations in quality and
price. If you visit an appliance store, you will usually find low-, mid-, and highpriced choices for each type of appliance, such as refrigerators, dishwashers, and
microwaves. The price differences are based on the construction, quality of materials, and available features and options. A person buying a microwave for a
college dorm room probably does not want the most expensive, full-featured
choice, and so will be drawn to the lower-priced end of the product line. On the
other hand, a gourmet chef making a purchase for a new kitchen may want only
the highest quality and latest features.
Once a company has made decisions about a product line, it continues planning by determining the product assortment. A product assortment is the complete set of all products a business offers to a market. A product assortment can
have depth, breadth, or both. A company offering a deep product assortment
carries a large number of choices of features for each product category it handles.
Walk into a Bath and Body Works store and look at the variety of fragrances,
colors, bottle sizes, and packages for any of the major products sold there. That
is an example of a deep assortment. Compare that to the choices of bath lotions
that you might find in a small drugstore, where the assortment would be limited.
With a broad product assortment, a business offers a large number of different but often related products to its customers. If you visit a garden center, you
may find many different types of products for lawns and gardens, ranging from
plants, shrubs, and trees to lawn mowers, hoses, and patio furniture. There may
not be a wide range of choices within every product category, but customers
should be able to satisfy most of their outdoor home needs at one location.
As shown in Figure 21-1, businesses can choose any combination of depth and
breadth for their product assortment. Some will be very small and specialized,
562
PACKAGING
PRODUCT BREADTH
Less
More
More
A LARGE VARIETY IN
PRODUCT DEPTH
Less
AND VARIETY
Can you name the brands of clothing, pizza, and toothpaste you prefer? Do you
and your friends regularly shop at certain stores but not others? Product and store
brands play a major role in buying decisions. A brand is a name, symbol, word, or
design that identifies a product, service, or company.
Why are brands so important to consumers? Have you ever shopped in a store
that had generic (nonbranded) products or that sold only unfamiliar brands? With
no information to guide you, it is difficult to make a product selection with which
you are comfortable. You and people you trust have had experiences with various
brands. If a particular companys products consistently meet your needs, you will
likely buy from that company again. If you have a negative experience, however,
you are likely to avoid similar purchases in the future. If you are satisfied with one
product from a company, you are likely to have confidence in a different product
sold under the same brand. Businesses recognize that brand recognition is an
important influence in increasing sales. The levels of consumer brand awareness
are shown in Figure 21-2 (see p. 564).
BRANDING
563
Unit 6
facts
&figures
Consumers can identify the brand but it has little influence on their
purchase decision.
Consumers can identify the brand but will not purchase it because
of its brand.
Consumers view the brand as the most satisfying and will not purchase
a different brand.
CHECKPOINT
Name four purposes of packaging.
21.1
Assessment
THINK CRITICALLY
Answer the following questions as completely as possible.
3. Describe the different perceptions of a product that are usually
held by businesspeople and consumers.
4. Explain how a business can expand its product line.
thomsonedu.com/school/bpmxtra
564
Confirming Pages
14
ILLUSTRATION 14
haw30042_ch01_002-033.indd 14
Part One
Introduction
21/10/11 10:50 PM
Confirming Pages
CONSUMER INSIGHT
1-1
2.
3.
4.
New products
More stores
haw30042_ch01_002-033.indd 15
21/10/11 10:50 PM
Confirming Pages
16
Part One
Introduction
TABLE
1-1
Score
Segment size
____________
____________
Competitor strength
____________
____________
____________
____________
____________
Distribution available
____________
Investment required
____________
Stability/predictability
____________
Cost to serve
____________
____________
____________
Risk
____________
Segment profitability
____________
Other (___________)
____________
haw30042_ch01_002-033.indd 16
21/10/11 10:50 PM
Confirming Pages
Chapter One
17
unprofitable. Finding profitable segments means identifying a maximal fit between customer needs and the firms offerings. This means that some customers and segments will be
unprofitable to serve and may need to be fired. While firing customers may be difficult, it can
lead to greater profits, as ING Direct has found. ING Direct is a bare-bones bank. It has limited
offerings (no checking) and does most of its transactions online. ING Direct wants lowmaintenance customers who are attracted by its higher interest rates. As their CEO notes:
The difference between ING Direct and the rest of the financial industry is like the difference
between take-out food and a sit-down restaurant. The business isnt based on relationships; its
based on a commodity product thats high-volume and low-margin. We need to keep expenses
down, which doesnt work when customers want a lot of empathetic contact.9
ING Direct keeps costs lower and profits higher by identifying high-cost customers and
(nicely) letting them go by suggesting they might be better served by a high-touch community bank. Can you think of any potential risks of firing customers?
It is important to remember that each market segment requires its own marketing strategy. Each element of the marketing mix should be examined to determine if changes are
required from one segment to another. Sometimes each segment will require a completely
different marketing mix, including the product. At other times, only the advertising message or retail outlets may need to differ.
MARKETING STRATEGY
It is not possible to select target markets without simultaneously formulating a general
marketing strategy for each segment. A decisive criterion in selecting target markets is the
ability to provide superior value to those market segments. Since customer value is delivered by the marketing strategy, the firm must develop its general marketing strategy as it
evaluates potential target markets.
Marketing strategy is basically the answer to the question, How will we provide superior
customer value to our target market? The answer to this question requires the formulation
of a consistent marketing mix. The marketing mix is the product, price, communications,
distribution, and services provided to the target market. It is the combination of these elements that meets customer needs and provides customer value. For example, in the opening
illustration, Papa Johns promises superior value in terms of quality and ingredients.
The Product
A product is anything a consumer acquires or might acquire to meet a perceived need.
Consumers are generally buying need satisfaction, not physical product attributes.10 As the
former head of Revlon said, in the factory we make cosmetics, in the store we sell hope.
Thus, consumers dont purchase quarter-inch drill bits but the ability to create quarter-inch
holes. Federal Express lost much of its overnight letter delivery business not to UPS or
Airborne but to fax machines and the Internet because these technologies could meet the
same consumer needs faster, cheaper, or more conveniently.
We use the term product to refer to physical products and primary or core services. Thus,
an automobile is a product, as is a transmission overhaul or a ride in a taxi. Packaged goods
alone (food, beverages, pet products, household products) account for over 30,000 new product introductions each year.11 Obviously, many of these will not succeed. To be successful, a
product must meet the needs of the target market better than the competitions product does.
Product-related decisions also include issues of packaging, branding, and logos,
which have functional and symbolic dimensions. Starbucks recently changed its logo by
haw30042_ch01_002-033.indd 17
21/10/11 10:50 PM
Confirming Pages
18
Part One
Introduction
eliminating the words Starbucks Coffee and the circle around their emblematic Siren.
There was some consumer backlash on social media against this new logo. Do you think
Starbucks new logo is effective? What factors underlie your judgment?
Communications
Marketing communications include advertising, the sales force, public relations, packaging, and any other signal that the firm provides about itself and its products. An effective communications strategy requires answers to the following questions:
1.
2.
3.
4.
With whom, exactly, do we want to communicate? While most messages are aimed
at the target-market members, others are focused on channel members, or those who
influence the target-market members. For example, pediatric nurses are often asked
for advice concerning diapers and other nonmedical infant care items. A firm marketing such items would be wise to communicate directly with the nurses.
Often it is necessary to determine who within the target market should receive the
marketing message. For a childrens breakfast cereal, should the communications be
aimed at the children or the parents or both? The answer depends on the target market
and varies by country.
What effect do we want our communications to have on the target audience? Often a
manager will state that the purpose of advertising and other marketing communications is to increase sales. While this may be the ultimate objective, the behavioral
objective for most marketing communications is often much more immediate. That
is, it may seek to have the audience learn something about the product, seek more
information about the product, like the product, recommend the product to others, feel
good about having bought the product, or a host of other communications effects.
What message will achieve the desired effect on our audience? What words, pictures, and
symbols should we use to capture attention and produce the desired effect? Marketing messages can range from purely factual statements to pure symbolism. The best approach depends
on the situation at hand. Developing an effective message requires a thorough understanding
of the meanings the target audience attaches to words and symbols, as well as knowledge of
the perception process. Consider Illustration 15. Many older consumers may not relate to
the approach of this ad. However, it communicates clearly to its intended youth market.
What means and media should we use to reach the target audience? Should we use
personal sales to provide information? Can we rely on the package to provide needed
information? Should we advertise in mass media, use direct mail, or rely on consumers to find us on the Internet? If we advertise in mass media, which media (television, radio, magazines, newspapers, Internet) and which specific vehicles (television
programs, specific magazines, websites, banner ads, and so forth) should we use? Is
it necessary or desirable to adjust the language used? With respect to the media and
language issues, MasterCards approach is instructive. They indicate that:
Hispanics are the largest and fastest growing ethnic group in the U.S. ... As we continue to
bring value to Hispanic consumers, it is important for MasterCard to be speaking their language in the channels that are relevant to them.12
5.
haw30042_ch01_002-033.indd 18
When should we communicate with the target audience? Should we concentrate our
communications near the time that purchases tend to be made or evenly throughout
the week, month, or year? Do consumers seek information shortly before purchasing
our product? If so, where? Answering these questions requires knowledge of the decision process used by the target market for this product.
21/10/11 10:50 PM
Confirming Pages
Chapter One
19
ILLUSTRATION 15
Price
Price is the amount of money one must pay to obtain the right to use the product. One can
buy ownership of a product or, for many products, limited usage rights (i.e., one can rent or
lease the product, as with a video). Economists often assume that lower prices for the same
product will result in more sales than higher prices. However, price sometimes serves as
a signal of quality. A product priced too low might be perceived as having low quality.
Owning expensive items also provides information about the owner. If nothing else, it
indicates that the owner can afford the expensive item. This is a desirable feature to some
consumers. Starbucks charges relatively high prices for its coffee. Yet it understands that
the Starbucks brand allows consumers to trade up to a desired image and lifestyle without breaking the bank. Therefore, setting a price requires a thorough understanding of the
symbolic role that price plays for the product and target market in question.
It is important to note that the price of a product is not the same as the cost of the product to
the customer. Consumer cost is everything the consumer must surrender in order to receive
the benefits of owning/using the product. The cost of owning/using an automobile includes
insurance, gasoline, maintenance, finance charges, license fees, parking fees, time and discomfort while shopping for the car, and perhaps even discomfort about increasing pollution,
in addition to the purchase price. One of the ways firms seek to provide customer value is to
reduce the nonprice costs of owning or operating a product. If successful, the total cost to the
customer decreases while the revenue to the marketer stays the same or even increases.
haw30042_ch01_002-033.indd 19
21/10/11 10:50 PM
Confirming Pages
20
Part One
Introduction
Distribution
Distribution, having the product available where target customers can buy it, is essential to success. Only in rare cases will customers go to much trouble to secure a particular
brand. Obviously, good channel decisions require a sound knowledge of where target
customers shop for the product in question. Todays distribution decisions also require
an understanding of cross-channel options. Savvy retailers are figuring out ways to let
each distribution channel (e.g., online versus offline) do what it does best. For example,
Coldwater Creek keeps retail inventories low by having in-store Internet kiosks where
consumers can shop and get free shipping. Barnes and Noble bookstores use a similar
approach. Obviously, retailers who adopt this approach have to choose an appropriate
merchandising strategy where fast-moving, high-profit, seasonal items are in-store to
attract customers while other merchandise is available online.13 Finally, retailer characteristics such as those examined in Consumer Insight 11 need to be understood and
delivered upon. Disney is in the process of renovating its stores to be more interactive, and this has driven increased store visits and sales. The remodel seems to focus on
entertainment, which is especially appropriate in light of Disneys brand and customer.
Specifically,
The new [Disney] retail format sports more features to entertain shoppers, such as a table where
kids can assemble cars from the popular Disney-Pixar Cars movie to a two-story princess castle
that kids can enter.14
Service
Earlier, we defined product to include primary or core services such as haircuts, car
repairs, and medical treatments. Here, service refers to auxiliary or peripheral activities that are performed to enhance the primary product or primary service. Thus, we
would consider car repair to be a product (primary service), while free pickup and
delivery of the car would be an auxiliary service. Although many texts do not treat
service as a separate component of the marketing mix, we do because of the critical role it plays in determining market share and relative price in competitive markets. A firm that does not explicitly manage its auxiliary services is at a competitive
disadvantage.
Auxiliary services cost money to provide. Therefore, it is essential that the firm furnish only those services that provide value to the target customers. Providing services that
customers do not value can result in high costs and high prices without a corresponding
increase in customer value.
CONSUMER DECISIONS
As Figure 11 illustrated, the consumer decision process intervenes between the marketing strategy (as implemented in the marketing mix) and the outcomes. That is,
the outcomes of the firms marketing strategy are determined by its interaction with
the consumer decision process. The firm can succeed only if consumers see a need that
its product can solve, become aware of the product and its capabilities, decide that it is
the best available solution, proceed to buy it, and become satisfied with the results of the
purchase. A significant part of this text is devoted to the understanding of the consumer
decision process.
haw30042_ch01_002-033.indd 20
21/10/11 10:50 PM
Confirming Pages
Chapter One
21
ILLUSTRATION 16
OUTCOMES
Firm Outcomes
Product Position The most basic outcome of a firms marketing strategy is its product
positionan image of the product or brand in the consumers mind relative to competing
products and brands. This image consists of a set of beliefs, pictorial representations, and
feelings about the product or brand. It does not require purchase or use for it to develop.
It is determined by communications about the brand from the firm and other sources, as
well as by direct experience with it. Most marketing firms specify the product position they
want their brands to have and measure these positions on an ongoing basis. This is because
a brand whose position matches the desired position of a target market is likely to be purchased when a need for that product arises.
The ad in Illustration 16 is positioning the brand as a fun brand. This image and personality is facilitated and enhanced by the color and imagery used.
Sales and Profits Sales and profits are critical outcomes, as they are necessary for
the firm to continue in business. Therefore, virtually all firms evaluate the success of
their marketing programs in terms of sales revenues and profits. As we have seen, sales
and profits are likely to occur only if the initial consumer analysis was correct and if the
marketing mix matches the consumer decision process.
Customer Satisfaction Marketers have discovered that it is generally more profitable
to maintain existing customers than to replace them with new customers. Retaining current
haw30042_ch01_002-033.indd 21
21/10/11 10:50 PM
Confirming Pages
22
Part One
FIGURE
1-2
Our total
product
Competitors
total productss
Introduction
Consumerr
C
Co
de
d
decision
pr
p
process
Superior
S
Su
vvalue
ex
e
expected
d
S
Sales
Perceived
P
Pe
d
vvalue
de
d
delivered
Cu
C
Customer
sa
satisfaction
ati
customers requires that they be satisfied with their purchase and use of the product. Thus,
customer satisfaction is a major concern of marketers.
As Figure 12 indicates, convincing consumers that your brand offers superior value
is necessary in order to make the initial sale. Obviously, one must have a thorough understanding of the potential consumers needs and of their information acquisition processes to
succeed at this task. However, creating satisfied customers, and thus future sales, requires
that customers continue to believe that your brand meets their needs and offers superior
value after they have used it. You must deliver as much or more value than your customers
initially expected, and it must be enough to satisfy their needs. Doing so requires an even
greater understanding of consumer behavior.
Individual Outcomes
Need Satisfaction The most obvious outcome of the consumption process for an individual, whether or not a purchase is made, is some level of satisfaction of the need that
initiated the consumption process. This can range from no satisfaction (or even a negative
level if a purchase increases the need rather than reduces it) to complete satisfaction. Two
key processes are involvedthe actual need fulfillment and the perceived need fulfillment.
These two processes are closely related and are often identical. However, at times they
differ. For example, people might take food supplements because they believe the supplements are enhancing their health while in reality they could have no direct health effects
or even negative effects. One objective of government regulation and a frequent goal of
consumer groups is to ensure that consumers can adequately judge the extent to which
products are meeting their needs.
Injurious Consumption Although we tend to focus on the benefits of consumption, we must remain aware that consumer behavior has a dark side. Injurious
consumption occurs when individuals or groups make consumption decisions that have
negative consequences for their long-run well-being. Examples can include (a) overspending due to aggressive marketing efforts and cheap credit, (b) consumption of products that
are not healthy including fast foods, cigarettes, alcohol, and so on, and (c) engaging in
activities such as gambling that can have devastating financial consequences for some.
One product that has recently caught the attention of the FDA is caffeinated alcohol
beverages. They tend to be large in volume and also contain high levels of alcohol and
caffeine. It is estimated that one can of these new caffeinated alcohol beverages has
the same impact on people as drinking five or six beers. These beverages also increase
the chances that people engage in dangerous behaviors such as driving under the influence, in part because the caffeine causes them to misgauge how intoxicated they are.15
haw30042_ch01_002-033.indd 22
21/10/11 10:51 PM
Confirming Pages
Chapter One
23
Although these are issues we should be concerned with, and we address them
throughout this text, we should also note that alcohol consumption seems to have arisen
simultaneously with civilization, and evidence of gambling is nearly as old. Consumers smoked and chewed tobacco long before mass media or advertising as we know it
existed, and illegal drug consumption continues to grow worldwide despite the absence
of large-scale marketing, or at least advertising. Thus, though marketing activities based
on knowledge of consumer behavior undoubtedly exacerbate some forms of injurious
consumption, they are not the sole cause and, as we will see shortly, such activities may
be part of the cure.
Society Outcomes
Economic Outcomes The cumulative impact of consumers purchase decisions,
including the decision to forgo consumption, is a major determinant of the state of a given
countrys economy. Consumers decisions on whether to buy or to save affect economic
growth, the availability and cost of capital, employment levels, and so forth. The types of
products and brands purchased influence the balance of payments, industry growth rates,
and wage levels. Decisions made in one society, particularly large, wealthy societies such
as those of the United States, Western Europe, and Japan, have a major impact on the economic health of many other countries.
Physical Environment Outcomes Consumers make decisions that have a major
impact on the physical environments of both their own and other societies. The cumulative effect of U.S. consumers decisions to rely on relatively large private cars rather
than mass transit results in significant air pollution in American cities as well as the
consumption of nonrenewable resources from other countries. The decisions of people
in most developed and in many developing economies to consume meat as a primary
source of protein result in the clearing of rain forests for grazing land, the pollution
of many watersheds due to large-scale feedlots, and an inefficient use of grain, water,
and energy to produce protein. It also appears to produce health problems for many
consumers. Similar effects are being seen as ethanol (made from corn, sugar cane, or
rice) becomes a more popular alternative to oil as a source of fuel for automobiles.
The high cost of fuel, along with the diversion of grain from food to fuel, is driving up
food costs and threatens to increase poverty levels around the world.16 Such outcomes
attract substantial negative publicity. However, these resources are being used because
of consumer demand, and consumer demand consists of the decisions you and I and our
families and our friends make!
As we will see in Chapter 3, many consumers now recognize the indirect effects of
consumption on the environment and are altering their behavior to minimize environmental harm.
Social Welfare Consumer decisions affect the general social welfare of a society.
Decisions concerning how much to spend for private goods (personal purchases) rather
than public goods (support for public education, parks, health care, and the like) are generally made indirectly by consumers elected representatives. These decisions have a major
impact on the overall quality of life in a society.
Injurious consumption, as described above, affects society as well as the individuals
involved. The social costs of smoking-induced illnesses, alcoholism, and drug abuse are
staggering. To the extent that marketing activities increase or decrease injurious consumption, they have a major impact on the social welfare of a society. Consider the following:
haw30042_ch01_002-033.indd 23
21/10/11 10:51 PM
Confirming Pages
24
Part One
Introduction
According to the U.S. Public Health Service, of the 10 leading causes of death in the United
States, at least 7 could be reduced substantially if people at risk would change just 5 behaviors:
compliance (e.g., use of antihypertensive medication), diet, smoking, lack of exercise, and alcohol and drug abuse. Each of these behaviors is inextricably linked with marketing efforts and the
reactions of consumers to marketing campaigns. The link between consumer choices and social
problems is clear.17
However, the same authors conclude: Although these problems appear daunting, they
are all problems that are solvable through altruistic [social] marketing. Thus, marketing
and consumer behavior can both aggravate and reduce serious social problems.
Figure 13 is the model that we use to capture the general structure and process of consumer
behavior and to organize this text. It is a conceptual model. It does not contain sufficient
detail to predict particular behaviors; however, it does reflect our beliefs about the general
nature of consumer behavior. Individuals develop self-concepts (their view of themselves)
and subsequent lifestyles (how they live) based on a variety of internal (mainly psychological
and physical) and external (mainly sociological and demographic) influences. These selfconcepts and lifestyles produce needs and desires, many of which require consumption decisions to satisfy. As individuals encounter relevant situations, the consumer decision process is
activated. This process and the experiences and acquisitions it produces in turn influence the
consumers self-concept and lifestyle by affecting their internal and external characteristics.
Of course life is rarely as structured as Figure 13 and our discussion of it so far may
seem to suggest. Consumer behavior is hardly ever so simple, structured, conscious,
mechanical, or linear. A quick analysis of your own behavior and that of your friends
will reveal that on the contrary, consumer behavior is frequently complex, disorganized,
nonconscious, organic, and circular. RememberFigure 13 is only a model, a starting
point for our analysis. It is meant to aid you in thinking about consumer behavior. As you
look at the model and read the following chapters based on this model, continually relate
the descriptions in the text to the rich world of consumer behavior that is all around you.
The factors shown in Figure 13 are given detailed treatment in the subsequent chapters of this book. Here we provide a brief overview so that you can initially see how they
work and fit together. Our discussion here and in the following chapters moves through the
model from left to right.
haw30042_ch01_002-033.indd 24
21/10/11 10:51 PM
Confirming Pages
Chapter One
FIGURE
External
Inuences
25
erien
Ex p
1-3
Decision
Process
Culture
Subculture
Demographics
Social Status
Reference Groups
Family
Marketing Activities
Situations
Problem
Recognition
Self-Concept
and
Lifestyle
Needs
Desires
Internal
nternal
Inuences
Information
Search
Alternative Evaluation
and Selection
Outlet Selection
and Purchase
Perception
Learning
Memory
Motives
Personality
Emotions
Attitudes
Postpurchase
Processes
Exp
erienc
es and Acquisitions
change in this society that create both marketing opportunities and unique social energy.
Illustration 17 shows how marketers are embracing this diversity in their advertisements.
Chapter 4 continues our examination of American society by analyzing its demographics
(the number, education, age, income, occupation, and location of individuals in a society)
and social stratification. Chapter 5 considers ethnic, religious, and regional subcultures.
Chapter 6 analyzes families, households, and household decision making. Finally, in Chapter 7, we look at the processes by which groups influence consumer behavior and group
communication, including the role of groups in the acceptance of new products and technologies. Taken together, Chapters 2 through 7 provide a means of comparing and contrasting the various external factors that influence consumer behavior in Americaand around
the world. Cross-cultural variations are highlighted when possible throughout the text.
haw30042_ch01_002-033.indd 25
21/10/11 10:51 PM
Confirming Pages
26
ILLUSTRATION 17
Part One
Introduction
haw30042_ch01_002-033.indd 26
21/10/11 10:51 PM
Confirming Pages
Chapter One
27
situation influences the resulting consumer behavior. Therefore, we provide a detailed discussion of situational influences on the consumer decision process in Chapter 13.
As Figure 13 indicates, a consumers needs/desires may trigger one or more levels of
the consumer decision process. It is important to note that for most purchases, consumers
devote very little effort to this process, and emotions and feelings often have as much or
more influence on the outcome as do facts and product features. Despite the limited effort
that consumers often devote to the decision process, the results have important effects on
the individual consumer, the firm, and the larger society. Therefore, we provide detailed
coverage of each stage of the process: problem recognition (Chapter 14), information
search (Chapter 15), alternative evaluation and selection (Chapter 16), outlet selection and
purchase (Chapter 17), and use, disposition, and purchase evaluation (Chapter 18). The
increasing role of technology, particularly the Internet, in consumer decision making is
highlighted throughout these chapters.
haw30042_ch01_002-033.indd 27
LO5
21/10/11 10:51 PM
Confirming Pages
CONSUMER INSIGHT
1-2
I asked Juan what were his major economic concerns. He answered very quickly, food and
clothes, he said. How about housing? I asked. That is never a problem, he said, for I can
always make a house. For Juan and the others, a house is not a prestige symbol but simply a
place to sleep, a place to keep dry in, a place for family privacy, and a place in which to store
things. It is not a place to live, as the word is so meaningfully used in the United States. It seems
difficult to overestimate the importance of clothing. A clean set of clothes is for a pass into town
or a fiesta. Clothes are the mark of a mans self-respect, and the ability of a man to clothe his family is in many ways the measure of a man.20
Thus, as you read the chapters that follow, keep in mind that we are dealing with real
people with real lives, not mere abstractions.
28
haw30042_ch01_002-033.indd 28
21/10/11 10:51 PM
Confirming Pages
Chapter One
29
SUMMARY
haw30042_ch01_002-033.indd 29
21/10/11 10:51 PM
96
Table 5-2
Brand
Style
Coloring
Coca-Cola
Red
IBM
Microsoft
Black
General
Electric
Nokia
Blue
Toyota
Intel
Blue
McDonalds
Curving, archlike M
Yellow
Disney
Unusual lettering
The goal of this formula (which combines simple, word-based designs and
simple, strong, conservative colors) is to create a design thats highly readable and clear to anyone, anywhere, whether shown large or small, in print,
on a product, or on the Web. Although exceptions exist to every good formula, I suggest you start forming your brand identity by following this formula and seeing how it works for you.
Although great brands usually stick to simple, clear lettering and a conservative color palate, they build their value through creative advertising, creative
product designs, and creative distribution to make sure consumers are excited
about them. Keep your creativity on a fairly short leash when designing your
brand identity, but let your imagination have a good run when it comes to
designing other elements of your marketing program.
97
98
Brainstorming
The goal of brainstorming is to generate a long list of crazy ideas, some of
which may be surprisingly helpful. Brainstorming gets people to do out-ofthe-box thinking in which they generate unusual ideas beyond their normal
99
100
Question brainstorming
Question brainstorming involves generating novel questions that can provoke
your group into thinking more creatively. This technique follows the same
rules as brainstorming, but you instruct the group to think of questions
rather than ideas.
So if you need to develop a new trade show booth that draws more prospects, then the group may think of the following kinds of questions:
Do bigger booths draw much better than smaller ones?
Which booths drew the most people at the last trade show?
Are all visitors equal, or do we want to draw only certain types of
visitors?
Will the offer of a resting place and free coffee do the trick?
Wishful thinking
Wishful thinking is a technique suggested by Hanley Norins of ad agency
Young & Rubicam and one that he has used to train employees in his
Traveling Creative Workshop. The technique follows the basic rules of brainstorming, but with the requirement that all statements start with the words I
wish.
The sorts of statements you get from this activity often prove useful for developing advertising or other marketing communications. If you need to bring
some focus to the list to make it more relevant to your marketing, just state a
topic for people to make wishes about. For example, you can say, Imagine that
the Web Site Fairy told you that all your wishes can come true as long as
they have to do with the companys Web site.
Analogies
Analogies are a great creativity-inspiring device. You dont think Im serious, I
know, because the idea sounds so trivial. But many experts define creativity
as making unobvious combinations of ideas. A good analogy is just that.
I once saw a great example of an analogy in a drug companys print ad. The ad
showed a painting of a person about to put a huge, old-fashioned key into a
keyhole in the wall. The caption next to this illustration read: Imagine intelligent drugs that could tell sick cells from healthy ones, and then selectively
destroy the targeted ones. Illustrations often use metaphors or analogies
when trying to communicate a complex topic such as selective drug therapies.
To put analogies to work for you, ask your group to think of things similar to
the subject or problem youre thinking about. At first, group members come
up with conventional ideas. But they soon run out of these obvious answers
and must create fresh analogies to continue. For example, you may ask a
group to brainstorm analogies for your product as a source of inspiration for
creating new advertisements about that product.
In ads and Web site copy describing its FreeMotion line of highly padded
exercise treadmills, NordicTrack compares using its treadmills to riding a
snowboard an effective analogy that helps convey the idea that the product is fun to use.
101
102
103
104
105
106
Chapter 3
f you have a very simple business that makes more sales than it needs to
and is already growing as fast as it can, then you dont need a marketing
plan. However, most businesses are a tad more complex and therefore do
require a marketing plan. A marketing plan is basically just a description, in
words and numbers, of how you plan to run your marketing program. Having
this plan is important because it helps you identify, execute, and control the
marketing activities that will produce a successful year. You should write one
if you
Have a big enough business that organizing, controlling, and budgeting all your marketing activities is difficult without a formal structure:
Most businesses are too complex for the marketer to hold all the variables in his or her head. A plan helps you identify the best practices,
eliminate the unprofitable ones, and keep everything on schedule and
on budget.
Face any challenges or uncertainties that can affect sales or profits:
The planning process helps you think through what needs to be changed
in order to improve your results.
Dont already know exactly what the best way is to handle your businesss branding, pricing, communications, sales, and other marketing
matters: Planning helps clarify and control all the elements of your marketing plan.
44
45
46
Maximizing efficiencies
If your business has been around the marketing block before and your plan
builds on years of experience, you can more safely favor economies of scale
over flexibility. (Economies of scale are the cost savings from doing things on
a larger scale.) But always leave yourself at least a little wiggle room, because
reality never reflects your plans and projections 100 percent of the time.
Adjust your marketing plan to favor economies of scale if you feel confident
that you can make sound judgments in advance. Advertising is cheaper and
more efficient if you do it on a large scale, because you get deeper discounts
on the design of ads and purchasing of ad space or air time. If you know a
media investment is likely to produce leads or sales, go ahead and buy media
in larger chunks to get good rates. And dont be as cautious about testing mailing lists with small-scale mailings of a few hundred pieces. A good in-house list
supplemented by 20 percent or fewer newly purchased names probably warrants a major mailing without as much emphasis on advance testing.
47
48
49
50
Table 3-1
Common Threats
Common Opportunities
New products
51
52
104
105
106
8QGHUVWDQGLQJ
(QWUHSUHQHXULDO
7UHQGV
1.5
:KDW\RXZLOOOHDUQ
Current Entrepreneurial Trends
Learning to Recognize Opportunity
Thinking Creatively About
Opportunity
Challenges to Creativity
Creative Sources of Ideas
&XUUHQW(QWUHSUHQHXULDO
7UHQGV
One way to identify business
opportunities is to study current
trends that provide opportunities for
entrepreneurs.
&XUUHQW(QWUHSUHQHXULDO
7UHQGV
Internet businesses
corporate ventures
service businesses
strategic alliances
home-based businesses
technology
socially-responsible non-profit
businesses
outsourcing
Powerful Presentations
In a large organization, the opportunity to make a
presentation can represent an opportunity to help or
hurt your reputation. People who make good presentations get to make more presentations. Those who don't
"present well" often are not asked to present anything
again.
MBA Mastery
If you know
someone who
makes a good
living on the
telephone, such as a salesperson, agent, or headhunter, try
to observe them on the job
some time. There is a combination of courtesy and
persistence, and a way of
pacing the conversation,
asking questions, and allowing
for silences, that some of these
peopleand some skilled
executiveshave mastered.
Tisten for it, and you'll hear
what I mean.
Speaking before groups ranks among the most anxietyproducing events in adult life. That's because everyone
knows that something is at stake: You are either going
to knock 'em dead or go down in flames. (In reality,
most presentations fall somewhere in between, but that's not how you feel beforehand.)
So there are three things you must do: prepare, prepare, and prepare.
Part 1
>
MBA Mastery
Humor can
get the
audience on
your side, but
be careful. Not every speaker,
including some very good
ones, can handle humor. If
you have a knowing audience, "in" jokes about shared
problems, common enemies
(the IRS or a major competitor, for example), or the
difficulty in parking can
work. Witty observations
tend to work better than
long stories. Avoid making
fun of yourself, anyone else,
or the company. Forget offcolor or politically incorrect
humor. Even if you think it's
funny, it's not corporate.
MBA Mastery
Graphics
software,
such as
Microsoft
PowerPoint and Lotus 1-2-3,
enables you to create
chartssuch as bar, pie, and
line chartsfrom data in a
spreadsheet. If presentations
are an important part of your
job, you should learn how to
use such software.
Visual ffids
Many business presentations call for visual display of
information. Depending on the presentation, this can
include tables of numbers, financial highlights, organization
charts, graphs, and bullet points of information. The right
visual aids can enhance your presentation, maintain audience attention, and keep you on track.
The first major ruleand the one most often brokenfor
visual aids is: Keep them simple. Complex exhibits communicate very little, yet many presenters insist on using them.
Audiences refer to these complex exhibits as "eye charts"
because they feel as if their eyes are being tested in a doctor's
office.
Use simple illustrations, bar charts, pie charts, very brief
tables, and no more than five bullets (preferably fewer) on a
single exhibit. In this situation, less is definitely more.
58
Presentation Materials
Material
Pros
Cons
Handouts
Easy to construct.
No visuals up on a screen in
front for you to refer to.
Some audience members
will look ahead to later parts
of the presentation.
Overhead
transparencies
35mm slides
Very professional-looking.
Handle easily.
Computer-based
slides
Part 1
>
Prepare Yourself
Prepare yourself by realizing that once you know your material, you have expert power
over your audience. You know more about the subject than they do. Also (except for
those who want your job), the audience wants you to succeed. They're rooting for you
because nobody wants to attend a dull, boring presentation.
Before the presentation:
> Put your notes on index cards for ready reference, but don't plan to read the speech
(a sure-fire bore).
> Practice the presentation several times, but don't exhaust yourself.
'> Get plenty of rest the night before.
> Dress your best. Arrange your clothing and shine your shoes the night before.
> Plan to arrive at least one-half hour before your scheduled time.
In front of the audience, plan to:
> Project your voice to the back of the room, especially if your voice doesn't carry. If
your voice is too soft, get a microphone and use it, but not too close to your mouth.
> Hold your hands comfortably up in front of you. You'll automatically start using
them to gesture. Don't stuff them into your pockets and rattle your change around.
> Use a podium if you wish, but 1 think speakers relate to an audience better without
one. Also, you create visual interest if you walk around a bit (but not too much).
> Move your eyes around the room from person to person, alighting on one person at
a time. But don't stare.
> If people start annoying side conversations, politely say, "Excuse me," or ask, "Are
you with us?" or just be quiet until they realize what's going on.
> Announce that you will take questions at the end of your presentation. In most
situations, this works far better than taking them as they occur. Or you can say that
you will periodically ask if there are any questions before you move to new material.
MBA Alert
Although
most people
want fewer
meetings, there;
those who want to be at any
meeting where they may have
even a remote stake. This is
usually a personality issue, so
when you know someone like
that, invite them. Or don't
and have a good reason ready
when they ask, "Why wasn't 1
invited to...?"
MBA Mastery
Useful phrases
when chairing
a meeting
include: "Are
you with us?" or "We can't
have stereo conversations" (to
people talking among themselves); "We're not going to
settle that here today" (to
people who can't get off a
topic); and "I'm sorry, but
Mary has the floor" (to
someone interrupting). Don't
be afraid to assert your
authority as the chairperson.
At one time or another,
everyone will appreciate the
order that results.
> Chair the meeting (or have someone else chair it). The person who runs the meeting
should have the authority, either by rank or knowledge, to maintain order and
efficiency in the meeting.
Part 1
>
Ask someone to kike notes and compile the minutes of the meeting. Although nobody
enjoys taking notes and writing up the minutes, it creates a record and helps those
who did not get to attend. It's a secretary's or administrative assistant's job, so if you
have one, great. If not, rotate the task among the
eligible candidates, who will usually be junior
MBA Lingo
people.
The minutes of a
> Always try for a clear outcomea decision or next steps
meeting are the
before closing the meeting. The problem with so many
official record of
meetings is that they have no clear conclusion. Bring
the proceedings.
When a series of
the meeting to a close with a simple phrase such as,
meetings is being
"We're going to have to stop now," and add, "But 1
held, it is customary to read
just want to recap what we've accomplished this
the minutes of the previous
morning." If you don't know or don't remember what
meeting to bring everyone
was
accomplished (or nothing was), ask, "What have
up to date. You should review
the minutes before they
we accomplished here this morning?" or "What does
are distributed. Things that
the group believe makes sense for our next steps?"
are not for publication are
sometimes said in meetings,
Recapping what was decided or planned and laying
so make sure they don't
out next steps, and particularly who will be responappear in the minutes.
sible for what, is essential. It gets into the minutes
and helps move things along.
Some people, particularly those new to organizational life, feel that they are supposed to
put on some kind of performance or to somehow "shine" at a meeting. Rather than worry
about that, the best thing you can do is prepare for the meeting. You can do this by
reading past memos or reports on the topic or through informal conversations.
In the meeting itself, try to do your part to illuminate the issues and find workable
solutions to the problems at hand. Often the less you say, the better, as long as what you
say is lucid and worthwhile.
63
Unit 6
Product Selection
After designing the product, companies must make another set of decisions to
plan the product mix element. The first decision is whether to offer a product
line. A product line is a group of similar products with obvious variations in the
design and quality to meet the needs of distinct customer groups. New and small companies may begin by offering only one category of product to its
customers. That product may have choices of features, options, and enhancements, but the basic
product is the same for all customers. With more
It is often difficult to identify the total number
experience and resources, the company may decide
of product lines a store carries by walking through
to expand its product line.
the store. But product lines are often used to
One of the obvious ways to expand a product
organize a customers online shopping experiline is to offer different sizes of the product. That
ence. Point your browser to www.thomsonedu.
can be done with the serving sizes of food items, as
comschoolbpmxtra. Look at the tabs in the Web
well as with the sizes of automobiles. As an
site. How do these indicate product lines? Click
example, when sports utility vehicles (SUVs) were
on the See All tab. Describe how this shows
first introduced, most manufacturers produced
Wal-Marts online product assortment. Based on
one midsize model, such as the Chevy Blazer or
your research, how does the online site differ
Ford Explorer. As the popularity of SUVs grew,
from Wal-Marts you have visited?
manufacturers began to appeal to other market
segments with smaller models, such as the Toyota
www.thomsonedu.com/school/bpmxtra
RAV4, and then very large models, including the
Mercury Mountaineer and Cadillac Escalade. Rising
gas prices opened a market for fuel-efficient SUVs,
such as Hondas CR-V. Some companies offer only one model size, but others
have a model in each size category for a full product line.
Another way to develop a product line is to offer variations in quality and
price. If you visit an appliance store, you will usually find low-, mid-, and highpriced choices for each type of appliance, such as refrigerators, dishwashers, and
microwaves. The price differences are based on the construction, quality of materials, and available features and options. A person buying a microwave for a
college dorm room probably does not want the most expensive, full-featured
choice, and so will be drawn to the lower-priced end of the product line. On the
other hand, a gourmet chef making a purchase for a new kitchen may want only
the highest quality and latest features.
Once a company has made decisions about a product line, it continues planning by determining the product assortment. A product assortment is the complete set of all products a business offers to a market. A product assortment can
have depth, breadth, or both. A company offering a deep product assortment
carries a large number of choices of features for each product category it handles.
Walk into a Bath and Body Works store and look at the variety of fragrances,
colors, bottle sizes, and packages for any of the major products sold there. That
is an example of a deep assortment. Compare that to the choices of bath lotions
that you might find in a small drugstore, where the assortment would be limited.
With a broad product assortment, a business offers a large number of different but often related products to its customers. If you visit a garden center, you
may find many different types of products for lawns and gardens, ranging from
plants, shrubs, and trees to lawn mowers, hoses, and patio furniture. There may
not be a wide range of choices within every product category, but customers
should be able to satisfy most of their outdoor home needs at one location.
As shown in Figure 21-1, businesses can choose any combination of depth and
breadth for their product assortment. Some will be very small and specialized,
562
PACKAGING
PRODUCT BREADTH
Less
More
More
A LARGE VARIETY IN
PRODUCT DEPTH
Less
AND VARIETY
Can you name the brands of clothing, pizza, and toothpaste you prefer? Do you
and your friends regularly shop at certain stores but not others? Product and store
brands play a major role in buying decisions. A brand is a name, symbol, word, or
design that identifies a product, service, or company.
Why are brands so important to consumers? Have you ever shopped in a store
that had generic (nonbranded) products or that sold only unfamiliar brands? With
no information to guide you, it is difficult to make a product selection with which
you are comfortable. You and people you trust have had experiences with various
brands. If a particular companys products consistently meet your needs, you will
likely buy from that company again. If you have a negative experience, however,
you are likely to avoid similar purchases in the future. If you are satisfied with one
product from a company, you are likely to have confidence in a different product
sold under the same brand. Businesses recognize that brand recognition is an
important influence in increasing sales. The levels of consumer brand awareness
are shown in Figure 21-2 (see p. 564).
BRANDING
563
Unit 6
facts
&figures
Consumers can identify the brand but it has little influence on their
purchase decision.
Consumers can identify the brand but will not purchase it because
of its brand.
Consumers view the brand as the most satisfying and will not purchase
a different brand.
CHECKPOINT
Name four purposes of packaging.
21.1
Assessment
THINK CRITICALLY
Answer the following questions as completely as possible.
3. Describe the different perceptions of a product that are usually
held by businesspeople and consumers.
4. Explain how a business can expand its product line.
thomsonedu.com/school/bpmxtra
564
96
Table 5-2
Brand
Style
Coloring
Coca-Cola
Red
IBM
Microsoft
Black
General
Electric
Nokia
Blue
Toyota
Intel
Blue
McDonalds
Curving, archlike M
Yellow
Disney
Unusual lettering
The goal of this formula (which combines simple, word-based designs and
simple, strong, conservative colors) is to create a design thats highly readable and clear to anyone, anywhere, whether shown large or small, in print,
on a product, or on the Web. Although exceptions exist to every good formula, I suggest you start forming your brand identity by following this formula and seeing how it works for you.
Although great brands usually stick to simple, clear lettering and a conservative color palate, they build their value through creative advertising, creative
product designs, and creative distribution to make sure consumers are excited
about them. Keep your creativity on a fairly short leash when designing your
brand identity, but let your imagination have a good run when it comes to
designing other elements of your marketing program.
97
98
100
Question brainstorming
Question brainstorming involves generating novel questions that can provoke
your group into thinking more creatively. This technique follows the same
rules as brainstorming, but you instruct the group to think of questions
rather than ideas.
So if you need to develop a new trade show booth that draws more prospects, then the group may think of the following kinds of questions:
Do bigger booths draw much better than smaller ones?
Which booths drew the most people at the last trade show?
Are all visitors equal, or do we want to draw only certain types of
visitors?
Will the offer of a resting place and free coffee do the trick?
Wishful thinking
Wishful thinking is a technique suggested by Hanley Norins of ad agency
Young & Rubicam and one that he has used to train employees in his
Traveling Creative Workshop. The technique follows the basic rules of brainstorming, but with the requirement that all statements start with the words I
wish.
The sorts of statements you get from this activity often prove useful for developing advertising or other marketing communications. If you need to bring
some focus to the list to make it more relevant to your marketing, just state a
topic for people to make wishes about. For example, you can say, Imagine that
the Web Site Fairy told you that all your wishes can come true as long as
they have to do with the companys Web site.
Analogies
Analogies are a great creativity-inspiring device. You dont think Im serious, I
know, because the idea sounds so trivial. But many experts define creativity
as making unobvious combinations of ideas. A good analogy is just that.
I once saw a great example of an analogy in a drug companys print ad. The ad
showed a painting of a person about to put a huge, old-fashioned key into a
keyhole in the wall. The caption next to this illustration read: Imagine intelligent drugs that could tell sick cells from healthy ones, and then selectively
destroy the targeted ones. Illustrations often use metaphors or analogies
when trying to communicate a complex topic such as selective drug therapies.
To put analogies to work for you, ask your group to think of things similar to
the subject or problem youre thinking about. At first, group members come
up with conventional ideas. But they soon run out of these obvious answers
and must create fresh analogies to continue. For example, you may ask a
group to brainstorm analogies for your product as a source of inspiration for
creating new advertisements about that product.
In ads and Web site copy describing its FreeMotion line of highly padded
exercise treadmills, NordicTrack compares using its treadmills to riding a
snowboard an effective analogy that helps convey the idea that the product is fun to use.
101
102
103