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Market Research 4.1 Explain the role of a marketing

information system and a marketing decision support system in marketing decision making pp. 94–99

KNOWLEDGE IS POWER p. 94

4.2 Understand the concept of customer insights and the role it plays in making good marketing decisions p. 100

CUSTOMER INSIGHTS AND MARKETING p. 100

4.3 List and explain the steps and key elements of the market research process pp. 100–118

STEPS IN THE MARKET RESEARCH PROCESS p. 100

Check out the Chapter 4 Study Map ��

What I do when I’m not working: When I’m not spending time with my husband and two kids, I’m practicing yoga, reading a book, or trying out a new recipe.

First job out of school: Financial Analyst at The Vanguard Group

A job-related mistake I wish I hadn’t made: Taking too long to launch a new product. Perfection does not exist, but it’s easier to get closer to what the consumer wants by seeing them interact with it in real time and tweaking as we go.

Business book I’m reading now: Thinking, Fast and Slow by Daniel Kahneman

My motto to live by: Worry only about what you can control

What drives me: Besides being a positive role model for my kids, I have a constant need to understand people to the point of knowing how to make their lives better.

My management style: Highly collaborative and action-oriented

Don’t do this when interviewing with me: Tell vague stories about your past when I’m looking for clear examples of your actions

My pet peeve: People not being accountable for their actions

PART TWO: Determine the Value Propositions Different Customers Want

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Meet Cindy Bean A Decision Maker at Campbell Soup Company

Cindy Bean is manager of Consumer Insights at Campbell Soup Company. Since joining Campbell in 2010, Cindy has spent most of her time leading Consumer Insights on one of two New Ventures teams responsible for shaping and driving an enterprise-wide, innovation pipeline against identified areas of consumer need. Cindy’s team is made up of cross-functional leaders who iteratively identify areas of exploration, and rapidly prototype and validate ideas that result in solutions or new product opportunities. Cindy has been a part of launching the successful Dinner Sauce line of products that includes Skillet Sauces, Slow Cooker Sauces, Oven Sauces, and most recently Grill Sauces.

Prior to Campbell, Cindy worked in a variety of industries, managing a variety of businesses. Cindy worked as a Qualitative Research Consultant, achieving her moderating certification. She synthesized and interpreted sales and market share data, competitive intelligence, syndicated research, current industry conditions, and other relevant information to deliver the monthly state of the vision care business to Johnson & Johnson’s Vistakon executives (J&J’s Vision Care Division). She improved marketing effectiveness for Wyeth Pharmaceutical’s (now Pfizer) Women’s Health Care products by planning, designing, and managing a portfolio-wide consumer segmentation study and led the insights for the anti-depressant drug, Pristiq. She led research activities for McNeil Consumer Healthcare’s Tylenol pediatrics, upper respiratory, and the Sleep franchise (Tylenol PM and Simply Sleep). And, she managed research functions within The Vanguard Group’s Institutional business, including company 401(k) and 403(b) plans.

Cindy holds a bachelor’s degree from Drexel University and an MBA from Pennsylvania State University.

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Real People, Real Choices

Here’s my problem…

A few years ago, Campbell set out on a mission to grow an otherwise stagnant soup business. Canned soup still

is popular among Baby Boomers. However, younger consumers just aren’t as interested. They turn to alternatives like microwaveable and mini meals (such as pizza and tacos). Campbell realized its core business is at risk if the com- pany can’t come up with products to entice the emerging group of millennial consumers who are between the ages of 18 and 34. These customers are 25 percent of the U.S. population, or approximately 80 million people. They spend a lot of money on food, but very little of it on soup.

To understand what makes millennials tick, Campbell went through a deep immersion. We scrutinized millennials’ culture and habits to learn what kind of soups appeal to them. I lead a cross-functional innovation team that conducted dozens of extensive face-to-face in-depth interactions with young consumers, both one-on-one and in groups. We ate meals with young people in their homes, checked out their pantries, and tagged along with them on shopping trips to the supermarket.

After that immersion, the team listed all the pain points millennials associated with canned soup. For example, they told us they think these products are too “processed” and they taste bland, homogeneous, and unex- citing. Another common complaint was the lack of healthy ingredients these consumers look for, such as quinoa and on-trend veggies like kale. We found this group includes “flexitarians,” that is, they eat vegetarian for a few days and then eat meat on the weekends, special occasions, to satisfy a craving, etc. They tend to care about sustainability, local sourcing, and company practices.

As a result of these insights, we then created concepts and prototypes to test our potential solutions for the pain points we identified. We continued to put these ideas in front of a series of focus groups as we fine-tuned our solu- tions based on the feedback we got from actual millennials.

This process gave us some great insights about what we could do to boost our appeal to millennials. One no-brainer was to change the packaging from a can to a pouch; our respondents told us that a pouch communicates a “fresher ingredients” message. And, we knew the flavor profile of the soup had to be bolder than the varieties that Baby Boomers are used to. We ultimately aligned on the following as our guardrails to create this new product platform:

$� Young adults looking for satisfying, easy meals for one $� Satisfies demanding tastes for a more flavorful life $� Always delivers of-the-moment flavors and packaging from a trusted

brand

However, given Campbell’s current portfolio of soups, we needed to posi- tion this millennial-focused platform differently from existing products we al- ready sold under the Campbell’s name. Specifically, most of the ideas we tested overlapped with Campbell’s Slow Kettle brand. The Slow Kettle brand was cre- ated to bring Campbell’s into the packaged premium soup category. Because consumers were becoming more interested in the rich, complex flavors they enjoy from restaurant soups, we saw an opportunity to bring that experience home. Our culinary team created Slow Kettle to bring a “prepared with care” feeling even though it still comes from the supermarket soup aisle. The flavors are familiar, they are hearty and filling, the quality is better than other canned soups, and the package is meant to convey homemade (it comes in a tub, like

Tupperware). The brand skews toward higher-income millennials. Because the price point is at a premium for the category, $3.25, it represents a small but interesting opportunity for Campbell.

Clearly we would need to do more work to figure out the best way to create a new offering that would grab millennials’ attention, make it clear that this is “not your father’s soup,” but at the same time avoid confusion with the Slow Kettle brand.

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See what option Cindy chose in MyMarketingLab™

You Choose Which Option would you choose, and why?

Option 1 Option 2 Option 3

Campbell’s Slow Kettle and Go brands.

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94 PART TWO | DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Cindy considered her Options 1 � 2 � 3

Option

Carve out a new space within the soup portfolio for this millennial-driven soup offering. We would have to demonstrate that the new offering serves a unique need for prepared soup that is not already available in Campbell’s other brands. This strategy would give us an opportunity to build a new brand from scratch entirely based on millennials’ needs. The brand could include soups but also possibly other food products such as mini-meals and

hearty on-the-go snacks, positioned to meet the needs of the millennial. This new product line would be so distinct that we wouldn’t have to worry about cannibalizing sales from other parts of our portfolio, especially Slow Kettle. However, it’s expensive and risky to build a brand. We would have to commit to at least a three- year investment to build awareness and encourage trial. Because we do offer somewhat similar products like Slow Kettle, if we fail to create a really tight message to set apart the new brand we might shoot ourselves in the foot by injecting some confusion into the marketplace.

Option

Reposition an existing brand to be the face of the millennial portfolio. Our Slow Kettle Brand already has many elements that could meet the needs of these young consumers. With a few tweaks, we could probably transform it into the kind of product that would resonate with this target market. This approach would involve less investment than building an entirely new brand, and we already have the internal manufacturing capability to

turn out these soups. On the other hand, we could commit the cardinal sin when marketing to millennials: offer a product they perceive as inauthentic. Because the Slow Kettle brand has already been on the mar- ket, these savvy young consumers might decide that a few tweaks to an existing offering doesn’t really speak to them. Millennials run from products they view as “fake” faster than soup boils on a hot stove.

Option

Don’t take the risk, and stick with our existing solutions. Investing in a unique millennial product might be just too costly and time-consuming, and it’s possible that a new solution wouldn’t deliver enough return on investment to justify our efforts. This conservative solution would allow us to focus our resources on maintaining our solid (though stagnant) base business. We could ramp up our advertising to appeal to the nostalgia of the familiar

Campbell brand, because millennials sometimes do respond well to this kind of appeal. On the other hand, if this stay-the-course strategy backfires we risk becoming irrelevant to an entire generation of new con- sumers. In that event we would continue to experience a decline in our bottom line as an aging group of loyal consumers eventually died off. And, if competitors eventually enter the millennial space we might be forced to sit on the sidelines as they capture this valuable target. We know that most consumer packaged goods (CPG) companies are taking similar steps to satisfy this new generation. Many traditional brands are transitioning to natural colors, removing artificial sweeteners and high fructose corn syrup, and in some cases moving toward a non-GMO label to address consumers’ concerns about genetically modified food. There’s no doubt that changes are coming.

Now, put yourself in Cindy’s shoes. Which option would you choose, and why?

Chapter 4

Knowledge Is Power By now we know that successful market planning means that managers make informed decisions to guide the organization. But how do mar- keters actually make these choices? Specifically, how do they find out what they need to know to develop marketing objectives, select a target market, position (or reposition) their product, and develop product, price, promotion, and place strategies?

The answer is (drumroll . . . ): information. Information is the fuel that runs the marketing engine. There’s a famous acronym in the marketing information systems field: GIGO, which stands for Garbage In, Garbage Out. To make good decisions, marketers must have infor- mation that is not “garbage”—rather, it must be accurate, up to date,

and relevant. To understand these needs, marketers first must engage in various forms of research and data collection to identify them.

4.1 OBJECTIVE Explain the role of a marketing informa- tion system and a marketing decision support system in marketing decision making.

(pp. 94–99)

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In this chapter, we will discuss some of the tools that marketers use to get that in- formation. Then in Chapter 5, we’ll drill down further on applying market research for decision making via marketing analytics. In the chapters that follow, we will look closely at how and why both consumers and organizations buy, and then how marketers sharpen their focus via target marketing.

Before we jump into the topic of market research, here’s a question for you. A marketer who conducts research to learn more about his customers shouldn’t encounter any ethical challenges, right? Well, maybe in a perfect world. In reality though, several aspects of mar- ket research are fraught with the potential for ethics breaches. Market research ethics refers to taking an ethical and aboveboard approach to conducting market research that does no harm to the participant in the process of conducting the research.

When the organization collects data, important issues of privacy and confidential- ity come into play. Marketers must be clear when they work with research respondents about how they will use the data and give respondents full disclosure on their options for confidentiality and anonymity. For example, it is unethical to collect data under the guise of market research when your real intent is to develop a database of potential cus- tomers for direct marketing. A database is an organized collection (often electronic) of data that can be searched and queried to provide information about contacts, products, customers, inventory, and more. Firms that abuse the trust of respondents run a serious risk of damaging their reputation when word gets out that they are engaged in unethical research practices. This makes it difficult to attract participants in future research proj- ects—and it “poisons the well” for other companies when consumers believe that they can’t trust them.

The Marketing Information System Many firms use a marketing information system (MIS) to collect information. The MIS is a process that first determines what information marketing managers need. Then it gath- ers, sorts, analyzes, stores, and distributes relevant and timely marketing information to users. As shown in Figure 4.1, the MIS system includes three important components:

1. Four types of data (internal company data, market intelligence, market research, and acquired databases)

2. Computer hardware and software to analyze the data and to create reports

3. Output for marketing decision makers

Various sources “feed” the MIS with data, and then the system’s software “digests” it. MIS analysts use the output to generate a series of regular reports for various decision makers.

Let’s take a closer look at each of the four different data sources for the MIS.

Internal Company Data

The internal company data system uses information from within the organization to produce reports on the results of sales and marketing activities. Internal company data include a firm’s sales records—information such as which customers buy which products in what quantities and at what intervals, which items are in stock and which are back-ordered because they are out of stock, when items were shipped to the customer, and which items have been returned because they are defective.

market research ethics Taking an ethical and aboveboard approach to conducting market research that does no harm to the participant in the process of conducting the research.

database An organized collection (often electronic) of data that can be searched and queried to provide information about contacts, products, customers, inventory, and more.

marketing information system (MIS) A process that first determines what information marketing managers need and then gathers, sorts, analyzes, stores, and distributes relevant and timely marketing information to system users.

Information for Marketing Decisions

Marketing Intelligence

Marketing Research

Acquired Databases

Computer Hardware and Software

Internal Company

Data

Figure 4.1 Process | The Marketing Information System A firm’s marketing information system (MIS) stores and analyzes data from a variety of sources and turns the data into information for useful marketing decision making.

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Often, an MIS allows salespeople and sales managers in the field to access internal re- cords through a company intranet. This is an internal corporate communications network that uses Internet technology to link company departments, employees, and databases. Intranets are secured so that only authorized employees have access. When salespeople and sales managers in the field can use an intranet to access their company’s MIS, they can better serve their customers because they have immediate access to information on pricing, inven- tory levels, production schedules, shipping dates, and the customer’s sales history. Related to the company intranet concept is the concept of customer relationship management (CRM), which we’ll develop more fully in Chapter 5.

Marketing managers at company headquarters also can see daily or weekly sales data by brand or product line from the internal company data system. They can view monthly sales reports to measure progress toward sales goals and market share objectives. For ex- ample, buyers and managers at Walmart’s headquarters in Arkansas use up-to-the-minute sales information they obtain from store cash registers around the country so they can quickly detect problems with products, promotions, price competitiveness, and even the firm’s distribution system.

Market Intelligence

As we saw in Chapter 2, to make good decisions, marketers need to have information about the marketing environment. Thus, a second important element of the MIS is the market intelligence system, a method by which marketers get information about what’s going on in the world that is relevant to their business. Although the name intelligence may suggest cloak-and-dagger spy activities, in reality nearly all the information that compa- nies need about their environment—including the competitive environment—is available by monitoring everyday sources: company websites, industry trade publications, or direct field observations of the competitive marketplace.

And because salespeople are the ones “in the trenches” every day, talking with cus- tomers, distributors, and prospective customers, they are a key to sourcing this valuable information. Retailers often hire “mystery shoppers” to visit their stores and those of their competitors posing as customers to see how people are treated. (Imagine being paid to shop!) Other information may come from speaking with organizational buyers about competing products, attending trade shows, or simply purchasing, using, and even reverse engineering competitors’ products, which means physically deconstructing the product to determine how it’s put together.

Marketing managers may use market intelligence data to predict fluctuations in sales as a result of a variety of external environmental factors you read about in Chapter 2, including economic conditions, political issues, and events that heighten consumer awareness, or to forecast the future so that they will be on top of developing trends. Television networks have observed how consumers increasingly “binge-watch” shows through platforms such as Netflix, and as a result have begun to offer their shows in ways that appeal to the changing preferences and expectations of consumers when they watch. For instance, TBS premiered all of the episodes for its comedic series Angie Tribeca in a single 25-hour event that they labeled a “binge-a-thon.” The strategy worked to attract tons of young viewers; one-third of the audience was totally new to TBS!1

Market Research

Market research refers to the process of collecting, analyzing, and interpreting data about customers, competitors, and the business environment to improve marketing effectiveness. (Note that the term marketing research is often used interchangeably with market research, but to be precise marketing research is broader in scope and often refers to the type of research

intranet An internal corporate communication network that uses Internet technology to link company departments, employees, and databases.

market intelligence system A method by which marketers get information about what’s going on in the world that is relevant to their business.

reverse engineering The process of physically deconstructing a competitor’s product to determine how it’s put together.

market research The process of collecting, analyzing, and interpreting data about customers, competitors, and the business environment in order to improve marketing effectiveness.

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that academics in marketing conduct about the field, whereas market research refers to the type of research that marketing professionals conduct about markets and consum- ers.) Although companies collect market intelligence data continuously to keep managers abreast of happenings in the marketplace, market research also is called for when manag- ers need unique information to help them make specific decisions. Whether their business is selling cool fashion accessories to teens or industrial coolant to factories, firms succeed when they know what customers want, when they want it, where they want it—and what competing firms are doing about it. In other words, the better a firm is at obtaining valid market information, the more successful it will be. Therefore, virtually all companies rely on some form of market research, though the amount and type of research they conduct varies dramatically. In general, market research data available in an MIS come in two fla- vors: syndicated research reports and custom research reports.

Syndicated research is general information specialized firms collect on a regular basis and then sell to other firms. INC/The QScores Company, for instance, reports on consum- ers’ perceptions of more than 1,800 celebrity performers for companies that want to fea- ture a well-known person in their advertising. The company also rates consumer appeal of cartoon characters, sports stars, and even deceased celebrities.2 Comedian Bill Cosby holds the record for the highest QScore ever recorded. Unfortunately, in light of recent criminal allegations and the related onslaught of negative media attention, the previously beloved comedian’s QScore dropped into oblivion, possibly the greatest QScore change in history.3 Other examples of syndicated research reports include Nielsen’s TV ratings and Nielsen Audio’s (formerly Arbitron’s) radio ratings. Experian Simmons Market Research Bureau and GfK Mediamark Research & Intelligence are two syndicated research firms that combine information about consumers’ buying behavior and their media usage with geographic and demographic characteristics.

As valuable as it may be, syndicated research doesn’t provide all the answers to marketing questions because the information it collects typically is broad but shallow. For example, it gives good insights about general trends, such as who is watching what TV shows or what brand of perfume is hot this year. In contrast, a firm conducts custom research to provide answers to specific questions. This kind of research is especially help- ful for firms when they need to know more about why certain trends have surfaced.

Some firms maintain an in-house research department that conducts studies on its behalf. Many firms, however, hire outside research companies that specialize in de- signing and conducting projects based on the needs of the client. Hint: This is a great career path if you love solving puzzles and getting into the weeds about what makes consumers tick! These custom research reports are another kind of information an MIS includes. Marketers may use market research to identify opportunities for new products, to promote existing ones, or to provide data about the quality of their products, who uses them, and how.

Acquired Databases

A large amount of information that can be useful in marketing decision making is available in the form of external databases. Firms may acquire these databases from any number of sources. For example, some companies are willing to sell their cus- tomer database to noncompeting firms. Government databases, including the massive amounts of economic and demographic information the U.S. Census Bureau, Bureau of Labor Statistics, and other agencies collect, are available at little or no cost. State and local governments may make information such as automobile license data available for a fee.

In recent years, the use of databases for marketing purposes has come under in- creased government scrutiny because some consumer advocates are quite concerned

syndicated research Research by firms that collect data on a regular basis and sell the reports to multiple firms.

custom research Research conducted for a single firm to provide specific information its managers need.

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98 PART TWO | DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

about the potential invasion of privacy these may cause. Using the data to analyze overall consumer trends is one thing—using it for outbound direct mailings and unsolicited phone calls and e-mails has evoked a backlash resulting in a tidal wave of “do-not-call” lists and anti-spam laws. Maybe you have noticed that when you sign up for most anything online that requires your contact information, you receive an invitation to “opt out” of receiving promotional mailings from the company or from others who may acquire your contact information from the organi- zation later. By law, if you decide to opt out, companies cannot use your information for marketing purposes.

We’ll further develop the overall issue of database usage by mar- keters in the context of the popular phrase “Big Data” in Chapter 5. For now, just know that it’s a good bet that every website or mobile link you search—and maybe even every tweet or Facebook message you post to- day—will wind up in a marketer’s database.

Marketing Decision Support System

As we have seen, a firm’s MIS generates regular reports for decision makers on what is going on in the internal and external environment. But sometimes these reports alone are inadequate. Different managers may want different information, and in some cases the problem they must address is too vague or unusual for the MIS process to easily answer. As a result, many firms beef up their MIS with a marketing decision support system (MDSS). Figure 4.2 shows the elements of an MDSS. An MDSS includes analysis and inter- active software that allows marketing managers, even those who are not computer experts, to access MIS data and conduct their own analyses, often within the context of the company intranet.

A few years ago MasterCard developed an application of an MDSS it called the “Conversation Suite.” This product offered marketers

Information Needed for

Decision Making

Marketing Manager/ Decision Maker

Interactive Software

Statistical and Modeling Software

MIS Data

Figure 4.2 Process | The MDSS Although an MIS provides many reports managers need for decision making, it doesn’t answer !??��/�+=�+#%=]!�+%#�#��'"*� /��]!=‚��+#:�'��+"+%#�"Z��%=��"^"��]�“��@@”�+"�!#��#/!#��]�#�� to the MIS that makes it easy for marketing managers to access the MIS system and find answers to their questions.

marketing decision support system (MDSS) The data, analysis software, and interactive software that allow managers to conduct analyses and find the information they need.

Sophisticated companies like Harrah’s closely track what people do in venues like Las Vegas. If the data show that some of the company’s clientele favor one property over another, one form of gaming over another, or even one type of show over another, those customers will receive promotional materials tailored to their specific preferences. Slot players are notified of slot tournaments, while fans of magic shows get a heads up when Lance Burton is scheduled to appear.

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a single, intensive source of data and insights to further inform decisions about allocating a firm’s massive global advertising budget. The Conversation Suite includes features such as a 40- foot display showcasing various marketing met- rics and data visualizations grouped by market, as well as a number of touchscreen computers programmed to make digging into the various sources of information shown on the massive platform easy to perform.4

Typically, an MDSS includes sophisticated statistical and modeling software tools. Statistical software allows managers to examine complex re- lationships among factors in the marketplace. For example, a marketing manager who wants to know how consumers perceive his or her company’s brand in relation to the competition’s brand might use a sophisticated statistical technique called mul- tidimensional scaling to create a “perceptual map,” or a graphic presentation of the various brands in relationship to each other. You’ll see an example of a perceptual map in Chapter 7.

Modeling software allows decision makers to examine possible or preconceived ideas about relationships in the data—to ask “what-if” questions. For example, media modeling software allows marketers to see what would happen if they made certain decisions about where to place their advertising. A manager may be able to use sales data and a model to find out how many consumers stay with his brand and how many switch, thus developing projections of market share over time. Table 4.1 gives some examples of the different mar- keting questions an MIS and an MDSS might answer.

Table 4.1 | Examples of Questions an MIS and an MDSS Might Answer Questions an MIS Answers Questions an MDSS Answers

What were our company sales of each product during the past month and the past year?

Has our decline in sales simply reflected changes in overall industry sales, or is there some portion of the decline that industry changes cannot explain?

What changes are happening in sales in our industry, and what are the demographic characteristics of consumers whose purchase patterns are changing the most?

Do we see the same trends in our different product categories? Are the changes in consumer trends similar among all our prod- ucts? What are the demographic characteristics of consumers who seem to be the most and the least loyal?

What are the best media to reach a large proportion of heavy, medium, or light users of our product?

If we change our media schedule by adding or deleting certain media buys, will we reach fewer users of our product?

For MasterCard, the Conversation Suite provides a readily accessible way for marketing managers to see and interact with high-value data and insights without requiring the technical skills that are typically necessary to perform these activities.

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Steps in the Market Research Process The collection and interpretation of information is hardly a one- shot deal that managers engage in “just out of curiosity.” Ideally, market research is an ongoing process; a series of steps marketers take repeatedly to learn about the marketplace. Whether a company conducts the research itself or hires another firm to do it, the goal is the same: to help managers make informed marketing decisions.

4.3 OBJECTIVE List and explain the steps and key ele- ments of the market research process.

(pp. 100–118)

Customer Insights and Marketing It’s getting easier all the time for organizations to collect huge amounts of data. Data are raw, unorganized facts that need to be processed. Analysts then process, organize, structure and present the data so that it is useful for decision making. This transformation creates information, which is interpreted data. But, there is a downside to knowing too much! All of these data can be overwhelming—and not very useful—if no one has any idea what they all mean. As some describe the ocean, “water, water everywhere and not a drop to drink!” can be repurposed “data, data everywhere and nothing insightful to find!”

Enter the customer insight specialists to save the day. At its essence, the idea of customer insights refers to the collection, deployment, and interpretation of information that allows a business to acquire, develop, and retain its customers. Like Cindy Bean at Campbell’s, most companies today maintain a dedicated team of experts whose jobs are to sift through all the information available to support market planning decisions. This group does its best to un- derstand how customers interact with the organization (including the nasty encounters they may have) and to guide planners when they think about future initiatives.

The job is more complicated than it sounds. Traditionally, most companies have oper- ated in “silos,” so that, for example, the people in new product development would have zero contact with anyone in customer service who actually had to deal with complaints about the items they designed. The insights manager is like an artist who has to work with a lot of different colors on a palette—the job is to integrate feedback from syndicated stud- ies, marketing research, customer service, loyalty programs, and other sources to paint a more complete picture the organization can use. As such, this function in the organization usually plays a supporting role across the firm’s strategic business units (SBUs).

For example, to gain greater insight into the preferences and characteristics of those con- sumers who made purchases within a specific product line of soups, a product line manager at Campbell’s could reach out to Cindy Bean’s consumer insights team for help. The team would then gather a wide array of data about the specific types of consumers who enjoy soup from that product line as well as other data such as frequency of purchases by consumer segment and what key factors influence consumption of specific types of soup by consumer segment. Cindy’s team no doubt would deliver this information in an easy-to-understand format to highlight the most actionable insights. This analysis would enable the manager of the product line to determine how to better allocate resources to drive market performance of the products. Like Campbell’s, many organizations are “catching the wave” by adding customer (consumer) insights departments—this growing trend in turn offers a lot of promis- ing job opportunities for graduates who know how to fish for usable knowledge in the huge information ocean. More on using data to gain customer insights in Chapter 5.

data Raw, unorganized facts that need to be processed.

information Interpreted data.

customer insights The collection, deployment, and interpretation of information that allows a business to acquire, develop, and retain their customers.

4.2 OBJECTIVE Understand the concept of customer insights and the role it plays in making good marketing decisions.

(p. 100)

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Figure 4.3 provides a great road map of the steps in the research pro- cess. You can use it to track our discussion of each step.

Step 1: Define the Research Problem The first step in the market research process is to clearly understand what information managers need. This step is called defining the research prob- lem. You should note that the word problem here does not necessarily refer to “something that is wrong” but instead refers to the overall questions for which the firm needs answers. Defining the problem has three components:

1. Specify the research objectives: What questions will the research attempt to answer?

2. Identify the consumer population of interest: What are the characteristics of the consumer group(s) of interest?

3. Place the problem in an environmental context: What factors in the firm’s in- ternal and external business environment might influence the situation?

It’s not as simple as it may seem to provide the right kind of information for each of these pieces of the problem. Suppose a luxury car manufacturer wants to find out why its sales fell off dramatically over the past year. The research objective could center on any number of possible questions: Is the firm’s advertising failing to reach the right consumers? Is the right message being sent? Do the firm’s cars have a particular feature and related benefit (or lack of one) that turns customers away? Does a competitor offer some features and benefits that have better captured customer imaginations? Is there a prob- lem with the firm’s reputation for providing quality service? Do consumers believe the price is right for the value they get? The particular objective re- searchers choose depends on a variety of factors, such as the feedback the firm gets from its customers, the information it receives from the marketplace, and sometimes even the intuition of the people who design the research.

Often the focus of a research question comes from marketplace feedback that identifies a possible problem. Volvo, long known for the safety records of its cars, had a tough time competing with luxury brands like Mercedes-Benz, BMW, Lexus, and Audi. How could Volvo improve its market share among luxury car buyers?

The research objective determines the consumer population the company will study. In the case of Volvo, the research could have focused on current owners to find out what they especially like about the car. Or it could have been directed at non-owners to understand their lifestyles, what they look for in a luxury automobile, or their beliefs about the Volvo brand that discourage them from buying the cars. Instead, the company chose to focus on why consumers didn’t buy the competing brands. Managers figured it would be a good idea to identify the “pain points” shoppers experienced when they looked at rivals so that they could try to address these objections with their own marketing activities.

So what did Volvo find out? Its research showed that many car shoppers were too intimidated by the “ostentatious” image of Mercedes and BMW to consider actually buying one. Others felt that too many of their neighbors were driving a Lexus, and they wanted to make more of an individual state- ment. Volvo’s vice president of marketing explained that Volvo owners’ “interpretation of luxury is different but very real. They’re more into life’s experiences, and more into a Scandinavian simple design [of vehicles] versus a lot of clutter. They are very much luxury customers and love luxury products, but they don’t feel a need to impress others.” Based on the research findings, Volvo developed a

Define the Research Problem

• Specify the research objectives • Identify the consumer population of interest • Place the problem in an environmental context

Determine the Research Design

• Determine whether secondary data are available • Determine whether primary data are required —Exploratory research —Descriptive research —Causal research

Design the Sample

•�Choose between probability sampling and nonprobability sampling

Collect the Data

• Translate questionnaires and responses if necessary • Combine data from multiple sources (if available)

Analyze and Interpret the Data

• Tabulate and cross-tabulate the data • Interpret or draw conclusions from the results

Prepare the Research Report

• In general, the research report includes the following: —An executive summary —A description of the research methods —A discussion of the results of the study —Limitations of the study —Conclusions and recommendations

Choose the Method to Collect Primary Data

• Determine which survey methods are most appropriate —Mail questionnaires —Telephone interviews —Face-to-face interviews —Online questionnaires • Determine which observational methods are most appropriate —Personal observation —Unobtrusive measures —Mechanical observation

Figure 4.3 Process | Steps in the Market Research Process

The market research process includes a series of steps that begins with defining the problem or the information needed and ends with the finished research report for managers.

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new ad campaign, showing consumers that it was OK—and even desirable—to be differ- ent. The company even pokes fun at rival luxury brands. In one TV commercial, a sophis- ticated woman sits at a stoplight in her Mercedes-Benz SUV and checks out her makeup in the rear-view mirror. Another woman pulls up next to her in a Volvo XC60—but she’s more down to earth. The Volvo driver looks into her own rear-view mirror. The difference is she makes a funny face to make her kids in the backseat crack up. The voice-over says, “Volvos aren’t for everyone, and we kinda like it that way.”5

Step 2: Determine the Research Design Once we isolate specific problems, the second step of the research process is to decide on a “plan of attack.” This plan is the research design, which specifies exactly what information marketers will collect and what type of study they will do. Research designs fall into two broad categories based on whether the analysts will use primary or secondary data (see

Figure 4.4). All marketing problems do not call for the same research techniques, and marketers solve many problems most effectively with a combination of approaches.

Research with Secondary Data

The first question marketers must ask when they determine their research design is whether the information they require to make a decision already exists. For example, a coffee producer who needs to know the differences in coffee consumption among differ- ent demographic and geographic segments of the market may find that the information it needs is available from one or more studies already conducted by the National Coffee Association, the leading trade association of U.S. coffee companies and a major generator of industry research. Information that has been collected for some purpose other than the problem at hand is secondary data.

Many marketers thrive on going out and collecting new, “fresh” data from consumers. In fact, getting new data seems to be part of the marketing DNA. However, if secondary data are available, it saves the firm time and money because it has already incurred the expense to design a study and collect the data. Sometimes the information that marketers need may be “hiding” right under the organization’s nose in the form of company reports; previous company research studies; feedback received from customers, salespeople, or stores; or even in the memories of longtime employees (it’s amazing how many times a manager commissions a study without knowing that someone else who was working on a different problem already submitted a similar report!).

research design A plan that specifies what information marketers will collect and what type of study they will do.

secondary data Data that have been collected for some purpose other than the problem at hand.

Company reports Previous company

research Salesperson feedback Customer feedback

Internal Sources

Published research Trade organizations Syndicated research Government sources

External Sources

Secondary Research

Customer interviews Focus groups Projective techniques Case studies Ethnographies

Exploratory Research

Cross-sectional Longitudinal

Descriptive Research

Laboratory research Field studies

Causal Research

Primary Research

Figure 4.4 Process | Market Research Designs For some research problems, secondary data may provide the information needed. At other times, one of the primary data collection methods may be needed.

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More typically, though, researchers need to look elsewhere for secondary data. They may obtain reports published in the popular and business press, studies that private research organizations or government agencies conduct, and published research on the state of the industry from trade organizations. For example, many companies subscribe to reports such as the National Consumer Study, a survey conducted by syndicated research firm Experian Simmons. The company publishes results that it then sells to marketers, advertising agencies, and publishers. Access to its data is even available in some college libraries. This database contains more than 60,000 data variables with usage behavior on all major media, over 500 product categories, and over 8,000 brands. Data from Experian Simmons can give a brand manager a profile of who uses a product, identify heavy users, or even provide data on what information sources a target market is likely to consult prior to purchase.6 As examples, popular online sources of useful data for marketers in- clude Opinion Research Corporation (ORC), the U.S. Census Bureau and Bureau of Labor Statistics, the American Marketing Association, and LexisNexus.

Research with Primary Data

Of course, secondary data are not always the answer. When a company needs to make a specific decision, marketers often collect primary data: information they gather directly from respondents to specifically address the question at hand. Primary data include demographic and psychological information about customers and prospective customers, customers’ at- titudes and opinions about products and competing products, as well as their awareness or knowledge about a product and their beliefs about the people who use those products. In the next few sections, we’ll talk briefly about the various designs options to collect primary data.

Exploratory Research

Marketers use exploratory research to come up with ideas for new strategies and oppor- tunities or perhaps just to get a better handle on a problem they are currently experienc- ing with a product. Because the studies are usually small scale and less costly than other techniques, marketers may do this to test their hunches about what’s going on without too much risk or expense.

Exploratory studies often involve in-depth probing of a few consumers who fit the profile of the “typical” customer. Researchers may interview consumers, salespeople, or other employees about products, services, ads, or stores. They may simply “hang out” and watch what people do when they choose among competing brands in a store aisle. Or they may locate places where the consumers of interest tend to be and ask questions in these settings. For example, some researchers find that younger people often are too suspicious or skeptical in traditional research settings, so they may interview them while they wait in line to buy concert tickets or in clubs.7

We refer to most exploratory research as qualitative; that is, the results of the research project tend to be nonnumeric and instead might be detailed verbal or visual informa- tion about consumers’ attitudes, feelings, and buying behaviors in the form of words rather than in numbers. For example, consumer packaged goods (CPG) company Reckitt Benckiser came to believe that for their Finish® dishwashing detergent the best way to compete for market share was to focus on the functional performance of the product. Through their ads, they typically would demonstrate how effective it was at cleaning dishware and glassware, in some cases comparing results to those of direct competi- tors’ products such as P&G (who as a competitor in soap is no slouch). But then, Reckitt Benckiser brought in a market research firm to conduct a series of ethnographic studies (we will cover ethnography later in this section) focused on the observation of families in their homes actually using the product. The result of this research was the realization that a functionally oriented focus on the cleanness of dishware and glassware products resulting from the use of Finish® was masking a more compelling advertising message. This related to the dishwasher’s role (and in turn the dishwashing detergent’s role) as a

primary data Data from research conducted to help make a specific decision.

exploratory research A technique that marketers use to generate insights for future, more rigorous studies.

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central part of the home, one that spanned a wide range of social and family events. As a result of this insight, a whole new advertising campaign was launched that showcased all of the small and big life events in which dirty dishes are produced, closing with the mes- sage: “Everything in life creates dirty dishes. Love your dishwasher. Give it Finish®.” The campaign met with positive responses from consumers, and even earned industry acclaim in the form of a silver trophy at the Cannes Lions Festival of Creativity.8

A focus group is the technique that market researchers employ most often for explor- atory research. Focus groups typically consist of five to nine consumers who have been re- cruited because they share certain characteristics (they all play golf at least twice a month, are women in their twenties, etc.). These people sit together to discuss a product, ad, or some other marketing topic a discussion leader introduces. Typically, the leader records (by videotape or audiotape) these group discussions, which may be held at special interview- ing facilities that allow for observation by the client who watches from behind a one-way mirror. As a result of insights gathered from focus groups, MillerCoors decided to revise the packaging design for one of its brands to brighten it up and better appeal to consum- ers. The company heard from millennials in focus group sessions that the packaging on its Blue Moon Belgian White Ale was perceived as “dark,” “lonely,” and “mystical,” which prompted the change in packaging to a more “perky” motif.9

Today it’s common to find focus groups in cyberspace as well as in person. Firms such as IKEA and Volvo use online focus group sites that resemble other social network- ing sites. IKEA used consumer consulting boards, also known as a market research online community (MROC) in five different countries to solicit feedback for an update of its cata- log.10 An MROC is a privately assembled group of people, usually by a market research firm or department, used to gain insight into customer sentiments and tendencies. The MROC-based research is generally thought of as exploratory in nature and as a qualita- tive method. MROC’s are useful for many market research questions including product ideas, branding strategies, and packaging decisions.11 In a different approach from Ikea’s, Volvo launched a focus group via Twitter Chat to gather feedback about advertisements that the firm had developed. Volvo marketers said that the instant feedback they got from consumers helped strike the right balance in the ads. The rapid back-and-forth between the company and the online community allows for real-time data collection.12

The case study is a comprehensive examination of a particular firm or organization. In business-to-business market research in which the customers are other firms, for example, researchers may try to learn how one particular company makes its purchases. The goal is to identify the key decision makers, to learn what criteria they emphasize when they choose among suppliers, and perhaps to learn something about any conflicts and rivalries among these decision makers that may influence their choices.

Another qualitative approach is ethnography, which uses a technique that marketers borrow from anthropologists who go to “live with the natives” for months or even years. Some market researchers visit people’s homes or participate in real-life consumer activities to get a handle on how they really use products. Imagine having a researcher follow you around while you shop and then, while you use the products you bought, see what kind of consumer you are. This is basically marketing’s version of a reality show—though, we hope, the people they study are a bit more “realistic” than the ones on TV!

Descriptive Research

We’ve seen that marketers have many qualitative tools in their arsenal, including focus groups and observational techniques, to help them better define a problem or opportunity. These are usually modest studies of a small number of people, enough to get some indica- tion of what is going on but not enough for the marketer to feel confident about general- izing what she observes to the rest of the population.

The next step in market research, then, often is to conduct descriptive research. This kind of research probes systematically into the marketing problem and bases its conclusions on a

focus group A product-oriented discussion among a small group of consumers led by a trained moderator.

market research online community (MROC) A privately assembled group of people, usually by a market research firm or department, utilized to gain insight into customer sentiments and tendencies.

case study A comprehensive examination of a particular firm or organization.

ethnography An approach to research based on observations of people in their own homes or communities.

descriptive research A tool that probes more systematically into the problem and bases its conclusions on large numbers of observations.

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large sample of participants. Results typically are expressed in quantitative terms—averages, percentages, or other statistics that result from a large set of measurements. In such quantita- tive approaches to research, the project can be as simple as counting the number of Listerine bottles sold in a month in different regions of the country or as complex as statistical analyses of responses to a survey mailed to thousands of consumers about their flavor preferences in mouthwash. In each case, marketers conduct the descriptive research to answer a specific question, in contrast to the “fishing expedition” they may undertake in exploratory research. However, don’t downplay the usefulness of qualitative approaches—initial qualitative mar- ket research serves to greatly inform and shape subsequent quantitative approaches.

Market researchers who employ descriptive techniques most often use a cross- sectional design. This approach usually involves the systematic collection of responses to a consumer survey instrument, such as a questionnaire, from one or more samples of respon- dents at one point in time. They may collect the data on more than one occasion but usually not from the same pool of respondents.

In contrast to these one-shot studies, a longitudinal design tracks the responses of the same sample of respondents over time. Market researchers sometimes create consumer panels to get information; in this case, a sample of respondents that are representative of a larger market agrees to provide information about purchases on a weekly or monthly basis. Major consumer package goods firms like P&G, Unilever, Colgate Palmolive, and Johnson & Johnson, for example, recruit consumer advisory panels on a market-by-market basis to keep their fingers on the pulse of local shoppers. P&G maintains two key advisory panels: one for teens (Tremor) and one for moms (Vocalpoint). With more than 750,000 members weighing in on everything from package design to promotional material, P&G estimates that the loy- alty and advocacy of these members have boosted P&G’s sales by 10 to 30 percent.15

Causal Research

It’s a fact that purchases of both diapers and beer peak between 5:00 p.m. and 7:00 p.m. Can we say that purchasing one of these products caused shoppers to purchase the other as well—and, if so, which caused which? Does taking care of a baby drive a parent to drink? Or is the answer simply that this happens to be the time when young fathers stop at the

cross-sectional design A type of descriptive technique that involves the systematic collection of quantitative information.

longitudinal design A technique that tracks the responses of the same sample of respondents over time.

Ethical/Sustainable Decisions in the Real World Should companies that offer products or services that may pose health risks be allowed to fund research that could suggest that those products share little or no responsibility for those health risks? Are there any po- tential conflicts of interest that could manifest in the form of unethical practices on the part of the funding company or the company conducting the research?

In the soft-drink industry, Coca-Cola disclosed early in 2016 that it spent more than $132 million on scientific research on soft drinks from 2010 to 2015.13 Coke, like its industry competitors, has had to adapt to increasing societal concerns over the health effects of consuming large amounts of sugar and high fructose corn syrup, which are found in many of the firm’s best-selling products. For many soft beverage companies this has meant diversifying into offerings that are lower in sugar and perceived to be healthier. Coke CEO Muhtar Kens says their disclosure of all research funding contributions was a step taken to help avoid any public feelings of “confusion and mistrust.” The timing of the

disclosure came soon after it was documented that a group called the Global Energy Balance Network had failed to initially disclose that its work was funded by Coca-Cola. The organization maintained as one of its positions that Americans held an illegitimate fixation on calorie consumption and were losing sight of the importance of exercise.14

Some have suggested that Coke’s fund- ing of anti-obesity research is an attempt to place greater focus on the role that a lack of exercise has on obesity to shift focus away from the role that sweetened soda beverages have on obesity. Absent solid proof of such ac- cusations, it is worth considering the ethics of exerting influence on research groups funded by an organization with a conflict of interest that explicitly or implicitly makes it clear that the desired results would support a friendlier position for a potentially harmful product.

Ripped from the Headlines

ETHICS CHECK:

As a marketing executive, is it OK to commission and fund research that supports the posi- tion that the product posed no health risk when you are aware that other indepen- dent research studies contradict that view?

YES NO

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store on their way home from work to pick up some brew and Pampers?16

And what about hemlines? Since the 1920s, George Taylor’s “hemline theory” has posited that the length of women’s hemlines reflects overall economic health. The theory originated at a time when women wore silk stockings—when the econ- omy was strong, they shortened their hemlines to show off the stockings; when the economy took a dive, so did the hemlines, to cover up the fact that women couldn’t afford the fancy stockings. Don’t believe it? The same was true in 2009—when run- way designs were “shockingly short”—the stock market rallied 15 percent for the year.17

The descriptive techniques we’ve mentioned do a good job of providing valuable information about what is happening in the marketplace, but by its nature, descriptive research can only describe a marketplace phenomenon—it cannot tell us why it

occurs. Sometimes marketers need to know if something they’ve done has brought about some change in behavior. For example, does placing one product next to another in a store mean that people will buy more of each? We can’t answer this question through simple observation or description.

Causal research attempts to identify cause-and-effect relationships. Marketers use causal research techniques when they want to know if a change in something (e.g., placing cases of beer next to a diaper display) is responsible for a change in something else (e.g., a big increase in diaper sales). They call the factors that might cause such a change indepen- dent variables and the outcomes dependent variables. The independent variable(s) cause some change in the dependent variable(s). In our example, then, the beer display is an indepen- dent variable, and sales data for the diapers are a dependent variable—that is, the study would investigate whether an increase in diaper sales “depends” on the proximity of beer. Researchers can gather data and test the causal relationship statistically.

This form of causal research often involves using experimental designs. Experiments attempt to establish causality by ruling out alternative explanations, and to maintain a high level of control, experiments may entail bringing subjects (participants) into a lab so that researchers can control precisely what they experience. For the diaper example, a group of men might be paid to come into a testing facility and enter a “virtual store” on a computer screen. Researchers would then ask the men to fill a grocery cart as they click through the virtual aisles. The experiment might vary the placement of the diapers—next to shelves of beer in one scenario and near paper goods in another scenario. The objective of the experi- ment is to find out which placement gets more of the guys to put diapers into their carts.

Step 3: Choose the Method to Collect Primary Data When the researcher decides to work with primary data, the next step in the market re- search process is to figure out just how to collect it. We broadly describe primary data collection methods as either survey or observation. There are many ways to collect data, and marketers try new ones all the time. In fact, today, more and more marketers are turning to sophisticated brain scans to directly measure a consumers’ brain for reactions to vari- ous advertisements or products. This neuromarketing approach uses technologies such as functional magnetic resonance imaging (fMRI) to measure brain activity to better un- derstand why consumers make the decisions they do, and some firms have even invested in their own labs and in-house scientists to establish an ongoing neuromarketing research program.

causal research A technique that attempts to understand cause- and-effect relationships.

experiments A technique that tests predicted relationships among variables in a controlled environment.

neuromarketing A type of brain research that uses technologies such as functional magnetic resonance imaging (fMRI) to measure brain activity to better understand why consumers make the decisions they do.

Sales of diapers and beer are correlated, but does one cause the other?

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Neuromarketing has gained increasing popularity among companies such as Facebook, Twitter, and Time Warner as a tool to understand consumer reactions to ele- ments of various forms of marketing communication. Facebook, for example, learned in recent years that people take more away from ad information provided on a mobile phone compared to ad information provided on a TV. This insight came as a result of research the company commissioned from a firm called SalesBrain. SalesBrain’s ana- lysts attached a number of sensors to volunteers’ bodies to measure such factors as per- spiration, heart rate, eye movement, and brain activity as they watched ads on phones and televisions.18 Because most of us don’t have access to fMRI machines to conduct market research, in this section we’ll focus more on explaining other methods to collect primary data.

In contrast to neuromarketing as a primary data collection approach, surveys provide a more “traditional” approach. Survey methods involve some kind of interview or other direct contact with respondents who answer questions. Questionnaires can be adminis- tered on the phone, in person, through the mail, or over the Internet. Table 4.2 summarizes the advantages and disadvantages of different survey methods to collect data.

Table 4.2 | Advantages and Disadvantages of Survey Data Collection Methods Data Collection Method Advantages Disadvantages

Mail questionnaires � Respondents feel anonymous

� Low cost

� Good for ongoing research

� It may take a long time for questionnaires to be returned

� Low rate of response; many consumers may not return questionnaires

� Inflexible questionnaire format

� Length of questionnaire is limited by respon- dents’ interest in the topic

� Unclear whether respondents understand the questions

� Unclear who is responding

� No assurance that respondents are being honest

Telephone interviews � Fast

� High flexibility in questioning

� Low cost

� Limited interviewer follow-up

� Limited questionnaire length

� Decreasing levels of respondent cooperation

� High likelihood of respondent misunderstanding

� Respondents cannot view materials

� Cannot survey households without phones

� Consumers screen calls with answering ma- chines and caller ID

� Do-not-call lists allow many research subjects �%�%��%Z��%��!=�+�+�!�+%#

Face-to-face interviews � Flexibility of questioning

� Can use long questionnaires

� Can determine whether respondents have trouble understanding questions

� Take a lot of time

� Can use visuals or other materials

� High cost

� Interviewer bias a problem

Online questionnaires � Instantaneous data collection and analysis

� Questioning very flexible

� Low cost

� No interviewer bias

� No geographic restrictions

� Can use visuals or other materials

� Unclear who is responding

� No assurance that respondents are being honest

� Limited questionnaire length

� Unable to determine whether respondent understands the question

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Questionnaires

Questionnaires differ in their degree of structure. With a totally unstructured questionnaire, the researcher loosely determines the items in advance. Questions may evolve from the respondent’s answers to previous questions. At the other extreme, the researcher uses a completely structured questionnaire, asking every respondent the ex- act same questions, and each participant responds to the same set of fixed choices. You have probably experienced this kind of questionnaire, where you might have had to respond to a statement by saying if you “strongly agree,” “somewhat agree,” and so on. Moderately structured ques- tionnaires ask each respondent the same questions, but the respondent is allowed to answer the questions in his or her own words.

Mail questionnaires are easy to administer and offer a high degree of anonymity to respondents. On the down- side, because the questionnaire is printed and mailed, researchers have little flexibility in the types of questions they can ask and little control over the circumstances un-

der which the respondent answers them. Mail questionnaires also take a long time to get back to the company and are likely to have a much lower response rate than other types of data collection methods because people tend to ignore them.

Telephone interviews usually consist of a brief phone conversation in which an inter- viewer reads a short list of questions to the respondent. There are several problems with using telephone interviews as a data collection method. The respondent also may not feel comfortable speaking directly to an interviewer, especially if the survey is about a sensitive subject.

Another problem with this method is that the growth of telemarketing, in which busi- nesses sell directly to consumers over the phone, has eroded consumers’ willingness to participate in phone surveys. In addition to aggravating people by barraging them with telephone sales messages (usually during dinnertime!), some unscrupulous telemarketers disguise their pitches as research. They contact consumers under the pretense of doing a study when, in fact, their real intent is to sell the respondent something or to solicit funds for some cause. This in turn prompts increasing numbers of people to use voice mail and caller ID to screen calls, further reducing the response rate. And, as we noted previously, state and federal do-not-call lists allow many would-be research subjects to opt out of par- ticipation in both legitimate market research and unscrupulous telemarketing.19

Using face-to-face interviews, a live interviewer asks questions of one respondent at a time. Although in “the old days” researchers often went door-to-door to ask questions, that’s much less common today because of fears about security and because the large numbers of two-income families make it less likely to find people at home during the day. Typically, today’s face-to-face interviews occur in a mall intercept study in which research- ers recruit shoppers in malls or other public areas. You’ve probably seen this going on in your local mall, where a smiling person holding a clipboard stops shoppers to see if they are willing to answer a few questions. For example, have you seen pictures of super-hot models that show off cars at auto shows? Although you might think this strategy of using what the industry refers to as “booth babes” to get buyers’ attention is pretty “old school” and probably obsolete, in fact car companies have doubled their use of what they euphe- mistically call “product specialists.” Aspiring models or actors earn as much as $1000 per day to answer questions about new vehicles. The difference is that today they’re as likely to be asking the questions; many companies now want the models to extract as much

telemarketing The use of the telephone to sell directly to consumers and business customers.

mall intercept A study in which researchers recruit shoppers in malls or other public areas.

Sophisticated new technologies like virtual stores allow marketers to re-create shopping experiences on a respondent’s computer screen or mobile device.

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information as they can from visitors about their preferences. Do they like the car’s color options? What about the style? Are they still worried about the economy? Many product specialists record each show goer’s responses the minute he or she leaves the booth. Others write daily briefs or file a com- prehensive report at the end of a show. These re- searchers offer more than just a pretty face.20

Mall intercepts offer good opportunities to get feedback about new package designs, styles, or even reactions to new foods or fragrances. However, because only certain groups of the population fre- quently shop at malls, a mall intercept study does not provide the researcher with a representative sample of the population (unless the population of interest is mall shoppers). In addition to being more expensive than mail or phone surveys, respondents may be reluctant to answer questions of a personal nature in a face-to-face context.

Online questionnaires are growing in popularity, but the use of such questionnaires is not without concerns. Many researchers question the quality of responses they will re- ceive—particularly because (as with mail and phone interviews) no one can be really sure who is typing in the responses on the computer. In addition, it’s uncertain whether savvy online consumers are truly representative of the general population.21 However, these concerns are rapidly evaporating as research firms devise new ways to verify identities; present surveys in novel formats, including the use of images, sound, and animation; and recruit more diverse respondents.22

Observational Methods

A second major primary data collection method is observation. This term refers to situations where the researcher simply records the consumer’s behaviors.

When researchers use personal observation, they simply watch consumers in action to understand how they react to marketing activities. Although a laboratory allows research- ers to exert control over what test subjects see and do, marketers don’t always have the luxury of conducting this kind of “pure” research. But it is possible to conduct field studies in the real world, as long as the researchers still can control the independent variables. For example, a diaper company might choose two grocery stores that have similar customer bases in terms of age, income, and so on. With the cooperation of the grocery store’s man- agement, the company might place its diaper display next to the beer in one store and next to the paper goods in the other and then record diaper purchases men make over a two-week period. If a lot more guys buy diapers in the first store than in the second (and the company was sure that nothing else was different between the two stores, such as a dollar-off coupon for diapers being distributed in one store and not the other), the diaper manufacturer might conclude that the presence of beer in the background does indeed re- sult in increased diaper sales.

When they suspect that subjects will probably alter their behavior if they know someone is watching them, researchers may use unobtrusive measures to record traces of physical evidence that remain after people have consumed something. For example, instead of ask- ing a person to report on the alcohol products currently in her home, the researcher might go to the house and perform a “pantry check” by actually counting the bottles in her liquor cabinet. Another option is to sift through garbage to search for clues about each family’s con- sumption habits. The “garbologists” can tell, for example, which soft drink is accompanied

unobtrusive measures Measuring traces of physical evidence that remain after some action has been taken.

Auto show models today double as “product specialists.”

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by what kind of food. Because people in these studies don’t know that researchers are looking through products they’ve discarded, the information is totally objective—although a bit smelly!

Mechanical observation is a method of primary data collection that relies on nonhuman devices to record behav- ior. For example, one of the classic applications of mechani- cal observation is the Nielsen Company’s famous use of “people meters”—boxes the company attaches to the TV sets of selected viewers to record patterns of TV watching. The data that Nielsen obtains from these devices indicate who is watching which shows. These “television ratings” help network clients determine how much to charge adver- tisers for commercials and which shows to cancel or renew. Nielsen also measures user activity on digital media. The research company’s U.S. panel alone is comprised of more than 200,000 Internet users across 30,000 sites covering all the potential devices that a consumer would use to access digital media.23 This allows Nielsen to give clients a more updated understanding of how viewers interact with their favorite TV shows. For example, it tracks the number of TV-related tweets people post and provides demographic information including age and gender of individuals who post TV-related tweets.24

Similarly, Nielsen Audio (formerly Arbitron) deploys thousands of “portable people meters” (PPMs).25 PPMs resemble pagers and automati- cally record the wearer’s exposure to any media that has inserted an inaudible code into its promotion such as TV ads or shelf displays. Thus, when the consumer is exposed to a broadcast commercial, cinema ad, or other form of commercial, the PPM registers, records, and time-stamps the signal. Portability ensures that all exposures register; this eliminates obtrusive people meters and written diaries that participants often forget to fill out.26

Another form of mechanical observation that some firms use is eye tracking technology. This method relies on portable or stationary equipment to track the movement of a partici- pant’s eyes and can provide greater insight into what people look and for how long they look at it. For marketers this provides the opportunity to better understand how consumers en- gage with various forms of marketing of a visual nature. Examples of its use include tracking the viewing of print, television, and mobile ads, and product placement in televised sporting

events. Improvements in the portable or wearable version of eye tracking technology offer greater op- portunities for data to be gathered outside of lab set- tings—in the “real world” —thus offering potential for more applicable insights for marketers.27

Some retailers use sophisticated technology to observe where shoppers travel in their stores so they can identify places that attract a lot of traffic and those that are dead spots. In some cases these “heat maps” use the signals from shoppers’ mobile phones to record their movements through the aisles.

Online Research

Many companies find that an online approach is a superior way to collect data—it’s fast, it’s relatively cheap, and it lends itself well to forms of

mechanical observation A method of primary data collection that relies on machines to capture human behavior in a form that allows for future analysis and interpretation.

eye tracking technology A type of mechanical observation technology that uses sensors and sophisticated software to track the position and movement of an individual’s eyes to gain context-specific �� *�� respond to different visual elements and stimuli.

Sophisticated eye tracking technology gives marketers a close-up perspective on what people look at.

Nielsen’s “People Meter” monitors what a large sample of American consumers watch.

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research from simple questionnaires to online focus groups. In fact, some large companies like P&G now collect a large portion of their consumer intelligence online. Developments in online research are happening quickly, so let’s take some time now to see where things are headed.

There are two major types of online research. One type is information that organi- zations gather when they track consumers while they surf the web. The second type is information they gather more selectively through questionnaires on websites, including of course social media sites, through e-mail, or from focus groups that virtual moderators conduct in chat rooms. Most social media platforms, such as Twitter or Facebook, offer nu- merous ways to analyze trends and conduct market research. By simply searching the lat- est posts and popular terms—or, as marketers refer to it, “scraping the web”—you can gain insight into emerging trends and see what customers are talking about in real time. One example of this approach is conducting hashtag searches on Twitter. By setting up a few searches with hashtags related to your brand, industry, or product, you can receive instant notifications when customers, clients, or competitors use key terms.28

For marketers who want to collect data via surveys on the web, a platform such as Amazon Mechanical Turk (MTurk) is an effective medium. MTurk provides a place on the web where market researchers can post requests for one-off tasks that are typi- cally not time intensive, but do require human intelligence to be completed effectively.29 Using MTurk or a similar platform for collecting market research data could be poten- tially quicker and less costly than other methods used to gather large amount of re- sponses because of the audience of workers available to the firm and the relatively lower prices for the performance of required tasks (in some cases, participants engage in quick tasks in return for what amounts to pocket change for completing each assignment). For market research that requires the inclusion of a specific group of respondents, such a platform may not be well suited and instead seeking out focused panel data may be more appropriate.

You may like to share selfies with friends, but it’s possible companies are diving into Instagram and Pinterest to take a close look at your latest gems as well. Some firms use special software to scan photos to identify logos, facial expressions, and contexts so that they can learn more about how consumers use a client’s brands in daily life. There are huge numbers of photos to look at; Instagram alone has about 20 billion photos to share with another 60 million being added every day. The practice is so new that privacy concerns are just starting to bubble up. For now, think twice about what you post.30

Across all of its platforms and forms, the Internet offers unprecedented ability to track consumers as they search for information on Google, Bing, Ask, and other search engines. We’ve become so accustomed to just looking up stuff online that google has be- come a verb (as has friend). As consumers enter search terms like “lowest prices on J Brand jeans” or “home theaters,” these queries become small drops in the ocean of data available to marketers that engage in online behavioral tracking. How do they know what we’re looking at online? Beware the Cookie Monster! Cookies are text files that a website spon- sor inserts into a user’s hard drive when the user connects with the site. Cookies remem- ber details of a visit to a website and track which pages the user visits. Some sites request or require that visitors “register” on the site by answering questions about themselves and their likes and dislikes. In such cases, cookies also allow the site to access these details about the customer.

The technology associated with cookies allows websites to customize services, such as when Amazon recommends new books to users on the basis of what books they have or- dered in the past. Consider this one: It is late evening, and you should be studying, but you just can’t make yourself do it. So you grab your tablet and sign in to Netflix. And like every other time you sign in, Netflix offers up a bunch of movies and TV shows to tempt you away from the textbooks. But how does Netflix know what you want to see—sometimes they seem to anticipate your tastes better than your friends can!

cookies Text files inserted by a website sponsor into a web surfer’s hard drive that allows the site to track the surfer’s moves.

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No, there isn’t someone sitting at their office whose only job is to follow you around online to guess what you’ll want to see next. These surprising connections are the results of predictive technology, which uses shopping patterns of large numbers of people to de- termine which products are likely to be purchased if others are—except in this case what you’re “shopping” for is movies to watch. To figure out what movies or TV shows you are likely to enjoy, Netflix trained teams of people to watch thousands of movies and tag them according to attributes such as “goriness” or “plot conclusiveness.” Netflix then combines those attributes with the viewing habits of millions of users.31 And voilà—Netflix knows just what to serve up to satisfy your viewing fix.

You can block cookies or curb them by changing settings on your computer, although this makes life difficult if you are trying to log on to many sites, such as online newspapers or travel agencies that require this information to admit you. The information generated from tracking consumers’ online journeys has become big business, and in massive quanti- ties it has become popularly known as “Big Data,” a topic we will discuss in more detail in Chapter 5. To date, the Federal Trade Commission has relied primarily on firms and industries to develop and maintain its own standards instead of developing its own ex- tensive privacy regulations, but many would like to see that situation changed, and much discussion is afoot at all levels of government regarding online privacy rights. Proponents advocate the following guiding principles:

Information about a consumer belongs to the consumer.

Consumers should be made aware of information collection.

Consumers should know how information about them will be used.

Consumers should be able to refuse to allow information collection.

Information about a consumer should never be sold or given to another party without the permission of the consumer.

No data collection method is perfect, and online research is no exception—though many of the criticisms of online techniques also apply to offline techniques. One potential problem is the representativeness of the respondents. Many segments of the consumer population, mainly the economically disadvantaged and elderly, do not have the same level of access to the Internet as other groups.

In addition, in many studies (just as with mail surveys or mall intercepts), there is a self-selection bias in the sample. That is, because respondents have agreed to receive invita- tions to take part in online studies, by definition they tend to be the people who like to participate in surveys. As with other kinds of research, such as live focus groups or panel members, it’s not unusual to encounter “professional respondents”—people who just enjoy taking part in studies (and getting paid for it). Quality online research specialists such as Harris Interactive, SSI—Survey Sampling International—and Toluna address this problem by monitoring their participants and regulating how often they are allowed to participate in different studies over a period of time. However, unfortunately, with the proliferation of online data collection, many new and unproven data providers continue to come into the industry—therefore, in terms of online research, the venerable phrase caveat emptor (let the buyer beware) rules.

There are other disadvantages of online research. Hackers can actually try to influ- ence research results. Competitors can learn about a firm’s marketing plans, products, advertising, and other proprietary elements when they intercept information from these studies (though this can occur in offline studies just as easily). Because cheating has become so rampant, some companies today use fraud-busting software that cre- ates a digital fingerprint of each computer involved in a survey to identify respondents who fake responses or professionals who game the industry by doing as many surveys as possible.32

predictive technology Analysis techniques that use shopping patterns of large numbers of people to determine which products are likely to be purchased if others are.

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Data Quality: Garbage In, Garbage Out

We’ve seen that a firm can collect data in many ways, including focus groups, ethnographic approaches, observational studies, and controlled experiments. But how much faith should marketers place in what they find out from the research?

All too often, marketers who commission a study assume that because the researchers give them a massive report full of impressive-looking numbers and tables, they must be looking at the “truth.” Unfortunately, there are times when this “truth” is really just one person’s interpretation of the facts. At other times, the data researchers use to generate recommendations are flawed. Previously in the chapter we brought up GIGO: “garbage in, garbage out.”34 That is, your conclusions can be only as good as the quality of the in- formation you use to make them. Typically, three factors influence the quality of research results—validity, reliability, and representativeness.

Validity is the extent to which the research actually measures what it was intended to measure. Validity can be further broken down into internal validity and external validity. Internal validity relates to the extent that the research design was set up in such a manner that what was intended to be measured was accurately measured and not obscured (for instance, by the accidental inclusion of any factors not intended to be included in the study). This is typically accomplished in a highly controlled setting (such as a laboratory) where it is easier to avoid the introduction of extraneous factors that could muddy the results obtained. External validity relates to the extent that research results are practically applicable to the relevant target market (and not just the specific study participants who were intended to represent that target market). Another way of thinking about this is whether the research findings would hold up when leveraged out in the real world.

Validity was part of the problem underlying the famous New Coke fiasco in the 1980s, in which Coca-Cola underestimated people’s loyalty to its flagship soft drink after it re- placed “Old Coke” with a new, sweeter formula. This blunder was so huge that we still talk about it today even though it happened before your humble authors were even born (well, not quite . . . )! In a blind taste test, the company assumed testers’ preferences for one

validity The extent to which research actually measures what it was intended to measure.

internal validity The extent to which the results of a research study accurately measure what the study intended to measure by ensuring proper research design, including efforts to ensure that any potentially confounding factors were not included or introduced at any point during the execution of the research study.

external validity The extent to which the results of a research study can be generalized to the population its sample was intended to represent, providing a higher level of confidence that the findings can be applied outside of the setting where the research was conducted.

More and more, marketing is responsible for the e-commerce aspect of firms’ web strategies. Bounce rate is a marketing metric for analyzing website traffic. It represents the percentage of visitors who enter the site (typically at the home page) and “bounce” (leave the site) rather than continuing to view other pages on the site. It is a straightforward metric to understand and is based on the following formula:

Bounce rate = Total number of visitors viewing one page only

Total entries to the web page

A site’s bounce rate is easy to track with tools like Google Analytics. They can show the bounce rates on different pages of a website, how the user came to the site (organic search, paid search, banner ad, etc.), how the bounce rate has changed over time, and other data so that the marketer can really dig into where the leak is occurring.

Marketers use bounce rates to determine whether an entry page effectively generates visitors’ interest. A bounce rate, simply put, is the measure of how many visitors come to a page on a website and leave

without viewing any other pages. An entry page with a low bounce rate means that this first page encourages visitors to view still more pages and continue deeper into the website. High bounce rates, on the other hand, typically indicate that whatever visitors encounter on that first “hit” isn’t interesting enough to make them want to check out more.33

Apply the Metrics

1. A rule of thumb for website effectiveness is that great websites should fulfill three basic criteria: (1) the site should be attractive, (2) the site should be easy to navigate and get where you want to go, and (3) the site should have up-to-date information (no old stuff). When you bounce off of a website, does it tend to be for one or more of these reasons? Are any of them more important than others to you?

2. Consider the bounce rate metric we describe. Like any marketing met- ric, decisions should not be made based on the bounce rate alone. What other considerations should the marketer use to evaluate the effectiveness of a website?

bounce rate A marketing metric for analyzing website traffic. It represents the percentage of visitors who enter the site (typically at the home page) and “bounce” (leave the site) rather than continuing to view additional pages on the site.

Metrics Moment

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anonymous cola over another was a valid measure of consumers’ preferences for a cola brand. Arguably, we can also say that the use of a sip test is flawed (and lacking degrees of external validity) in that it is set up so that consumers try the colas in small quantities, as opposed to the larger quantities more typically experienced by consumers when enjoying a can, a bottle, or a glass of cola in a more leisurely setting.35 Coca-Cola found out the hard way that measuring taste only is not the same as measuring people’s deep allegiances to their favorite soft drinks. After all, Coke is a brand that elicits strong consumer loyalty and is nothing short of a cultural icon. Tampering with the flavors was like assaulting mom and apple pie. Sales eventually recovered after the company brought back the old version as “Coca-Cola Classic.”36

Reliability is the extent to which the research measurement techniques are free of er- rors. Sometimes, for example, the way in which a researcher asks a question creates error by biasing people’s responses. Imagine that an attractive female interviewer who works for Trojans condoms stops male college students on campus and asks them if they use con- traceptive products. Do you think their answers might change if they were asked the same questions on an anonymous survey they received in the mail? Most likely, their answers would be different because people are reluctant to disclose what they actually do when their responses are not anonymous. Researchers try to maximize reliability by thinking of several different ways to ask the same questions, by asking these questions on several occasions, or by using several analysts to interpret the responses. Thus, they can compare responses and look for consistency and stability.

Reliability is a problem when the researchers can’t be sure that the consumer popu- lation they’re studying even understands the questions. For example, kids are difficult subjects for market researchers because they tend to be undependable reporters of their own behavior, they have poor recall, and they often do not understand abstract ques- tions. In many cases, the children cannot explain why they prefer one item over another (or they’re not willing to share these secrets with grown-ups).37 For these reasons, re- searchers have to be especially creative when they design studies involving younger

consumers. Figure 4.5 shows part of a completion test that a set of researchers used to measure children’s preferences for TV programming in Japan.

Representativeness is the extent to which consumers in the study are similar to a larger group in which the organization has an interest. This criterion underscores the importance of sampling: the process of selecting respondents for a study. The issue then becomes how large the sample should be and how to choose these people. We’ll talk more about sampling in the next section.

Step 4: Design the Sample Once the researcher defines the problem, decides on a research design, and determines how to collect the data, the next step is to decide from whom to obtain the needed information. Of course, he or she could collect data from every single customer or prospective customer, but this would be extremely expensive and time consuming if possible at all (this is what the U.S. Census spends millions of dollars to do every 10 years). Not ev- eryone has the resources of the U.S. government to poll everyone in their market. So they typically collect most of their data from a small propor- tion, or sample, of the population of interest. Based on the answers from this sample, researchers generalize to the larger population. Whether such inferences are accurate or inaccurate depends on the type and quality of the study sample. There are two main types of samples: probability and nonprobability samples.

reliability The extent to which research measurement techniques are free of errors.

representativeness The extent to which consumers in a study are similar to a larger group in which the organization has an interest.

sampling The process of selecting respondents for a study.

Figure 4.5 Snapshot | Completion Test

It can be especially difficult to get accurate information from children. Researchers often use visuals, such as this Japanese completion test, to encourage children to express their feelings. The test asked boys to write in the empty balloon what they think the boy in the drawing will answer when the girl asks, “What program do you want to watch next?”

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Probability Sampling

In a probability sample, each member of the population has some known chance of being included. Using a probability sample ensures that the sample represents the population and that inferences we make about the population from what members of the sample say or do are justified. For example, if a larger percentage of males than females in a probability sample say they prefer action movies to “chick flicks,” one can infer with confidence that a larger percentage of males than females in the general population also would rather see a character get sliced and diced than kissed and dissed (okay, we wouldn’t really use these descriptions in a study, but you get the idea).

The most basic type of probability sample is a simple random sample, in which every member of a population has a known and equal chance of being included in the study. For example, if we simply take the names of all 40 students in a class, put them in a hat, and draw one out, each member of the class has a 1 in 40 chance of being included in the sample. In most studies, the population from which the sample will be drawn is too large for a hat, so marketers use a computer program to generate a random sample from a list of members.

Sometimes researchers use a systematic sampling procedure to select members of a population; they select the nth member of a population after a random start. For ex- ample, if we want a sample of 10 members of your class, we might begin with the second person on the roll and select every fourth name after that—the second, sixth, tenth, four- teenth, and so on. Researchers know that studies that use systematic samples are just as accurate as those that use simple random samples. But unless a list of members of the population of interest is already in a computer data file, it’s a lot simpler just to create a simple random sample.

Yet another type of probability sample is a stratified sample, in which a researcher di- vides the population into segments that relate to the study’s topic. For example, imagine you want to study what movies most theatergoers like. You have learned from previous studies that men and women in the population differ in their attitudes toward different types of movies—men like action flicks, and women like romantic comedies. To create a stratified sample, you would first divide the population into male and female segments. Then you would randomly select respondents from each of the two segments in propor- tion to their percentage of the population. In this way, you have created a sample that is proportionate to the population on a characteristic that you know will make a difference in the study results.

Nonprobability Sampling

Sometimes researchers do not believe that the time and effort required to develop a probability sample is justified, perhaps because they need an answer quickly or just want to get a general sense of how people feel about a topic. They may choose a nonprobability sample, which entails the use of personal judgment to select respon- dents—in some cases, they just ask anyone they can find. With a nonprobability sample, some members of the population have no chance at all of being included. Thus, there is no way to ensure that the sample is representative of the population. Results from non- probability studies can be generally suggestive of what is going on in the real world but are not necessarily definitive.

A convenience sample is a nonprobability sample composed of individuals who just happen to be available when and where the data are being collected. For example, if you were to simply stand in front of the student union and ask students who walk by to complete your questionnaire, the “guinea pigs” you get to agree to do it would be a convenience sample.

Finally, researchers may also use a quota sample, which includes the same proportion of individuals with certain characteristics as in the population. For example, if you are

probability sample A sample in which each member of the population has some known chance of being included.

nonprobability sample A sample in which personal judgment is used to select respondents.

convenience sample A nonprobability sample composed of individuals who just happen to be available when and where the data are being collected.

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studying attitudes of students in your university, you might just go on campus and find freshmen, sophomores, juniors, and seniors in proportion to the number of members of each class in the university. The quota sample is much like the stratified sample except that, with a quota sample, the researcher uses his or her individual judgment to select respondents.

Step 5: Collect the Data At this point, the researcher has determined the nature of the problem to address. She chose a research design that will specify how to investigate the problem and what kinds of information (data) she will need. The researcher has also selected the data collec- tion and sampling methods. Once she’s made these decisions, the next task is to collect the data.

We noted previously that the quality of your conclusions is only as good as the data you use. The same logic applies to the people who collect the data: The quality of research results is only as good as the poorest interviewer in the study. Careless interviewers may not read questions exactly as written, or they may not record respondent answers correctly. So marketers must train and supervise interviewers to make sure they follow the research procedures exactly as outlined. In the next section, we’ll talk about some of the problems in gathering data and some solutions.

Challenges to Gathering Data in Foreign Countries

Conducting market research around the world is big business for U.S. firms— for the top 50 companies (as measured by revenue), more than half of their income comes from work done outside the U.S.38 However, as we saw in Chapter 2 market conditions and consumer preferences vary worldwide, and there are major differences in the so- phistication of market research operations and the amount of data available to global marketers. In Mexico, for instance, because there are still large areas where native tribes speak languages other than Spanish, researchers may end up bypassing these groups in surveys. In Egypt, where the government must sign off on any survey, the approval process can take months or years. And in many developing countries, infrastructure is an impediment to executing phone or mail surveys, and lack of online connectivity blocks web-based research.

For these and other reasons, choosing an appropriate data collection method is dif- ficult. In some countries, many people may not have phones, or low literacy rates may interfere with mail surveys. Understanding local customs can be a challenge, and cultural differences also affect responses to survey items. Both Danish and British consumers, for example, agree that it is important to eat breakfast. However, the Danish sample may be thinking of fruit and yogurt, whereas the British sample has toast and tea in mind. Sometimes marketers can overcome these problems by involving local researchers in deci- sions about the research design.

Another problem with conducting market research in global markets is language. Sometimes translations just don’t come out right. In some cases, entire subcultures within a country might be excluded from the research sample. In fact, this issue is becoming more and more prevalent inside the U.S. as non-English speakers increase as a percentage of the population.

To overcome language difficulties, researchers use a process of back-translation, which requires two steps. First, a native speaker translates the questionnaire into the language of the targeted respondents. Then someone fluent in the second language translates this new version back into the original language to ensure that the correct meanings survive the pro- cess. Even with precautions such as these, researchers must interpret the data they obtain from other cultures with care.

back-translation The process of translating material to a foreign language and then back to the original language.

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Step 6: Analyze and Interpret the Data Once market researchers collect the data, what’s next? It’s like a spin on the old “if a tree falls in the woods” question: “If results exist, but there’s no one to interpret them, do they have a meaning?” Let’s leave the philosophers out of it and just say that marketers would answer “no.” Data need interpretation if the results are going to be useful.

To understand the important role of data analysis, let’s take a look at a hypothetical research example. Say a company that markets frozen foods wishes to better understand consumers’ preferences for varying levels of fat content in their diets. They conducted a descriptive research study where they collected primary data via telephone interviews. Because they know that dietary preferences relate to gender (among other aspects), they used a stratified sample that includes 175 males and 175 females.

Typically, marketers first tabulate the data as Table 4.3 shows—that is, they arrange the data in a table or other summary form so they can get a broad picture of the overall responses. The data in Table 4.3 indicate that 43 percent of the sample prefers a low-fat meal. In addition, there may be a desire to cross classify or cross tabulate the answers to questions by other vari- ables. Cross tabulation means that we examine the data that we break down into subgroups, in this case males and females separately, to see how results vary between categories. The cross- tabulation in Table 4.3 reveals that 59 percent of females versus only 27 percent of males prefer a meal with low-fat content. Researchers may wish to apply additional statistical tests that you may learn about in subsequent courses (now there’s something to look forward to!).

Based on the tabulation and cross tabulations, the researcher interprets the results and makes recommendations. For example, the study results in Table 4.3 may lead to the con- clusion that females are more likely than males to be concerned about a low-fat diet. Based on these data, the researcher might then recommend that the firm target females when it introduces a new line of low-fat foods.

Step 7: Prepare the Research Report The final step in the market research process is to prepare a report of the research results. In general, a research report must clearly and concisely tell the readers—top management, cli- ents, creative departments, and many others—what they need to know in a way that they

Table 4.3 | Examples of Data Tabulation and Cross-Tabulation Tables Fat Content Preference (number and percentages of responses)

Do you prefer a meal with high-fat content, medium-fat content, or low-fat content?

Questionnaire Response Number of Responses Percentage of Responses

High fat 21 6

Medium fat 179 51

Low fat 150 43

Total 350 100

Fat Content Preference by Gender (number and percentages of responses)

Do you prefer a meal with high-fat content, medium-fat content, or low-fat content?

Questionnaire Response

Number of Females

Percentage of Females

Number of Males

Percentage of Males

Total Number

Total Percentage

High fat 4 2 17 10 21 6

Medium fat 68 39 111 64 179 51

Low fat 103 59 47 27 150 43

Total 175 100 175 100 350 100

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MyMarketingLab™ Go to mymktlab.com to complete the problems marked with this icon as well as additional Marketing Metrics questions only available in MyMarketingLab.

Objective Summary Key Terms Apply CHAPTER 4

Study Map

4.1 Objective Summary (pp. 94–99) Explain the role of a marketing information sys- tem and a marketing decision support system in marketing decision making. A marketing information system (MIS) is composed of inter- nal data, market intelligence, market research data, acquired databases, and computer hardware and software. Firms use an MIS to gather, sort, analyze, store, and distribute informa- tion needed by managers for marketing decision making. The marketing decision support system (MDSS) allows managers to use analysis software and interactive software to access MIS data and to conduct analyses and find the information they need about their products and services.

Key Terms market research ethics, p. 95

database, p. 95

marketing information system (MIS), p. 95

intranet, p. 96

market intelligence system, p. 96

reverse engineering, p. 96

market research, p. 96

syndicated research, p. 97

custom research, p. 97

marketing decision support system (MDSS), p. 98

4.2 Objective Summary (p. 100) Understand the concept of customer insights and the role it plays in making good marketing decisions. Organizations today are collecting massive amounts of data, but they need customer insight specialists to sift through that data in order to make it useful. The concept of customer in- sights refers to the collection, deployment, and interpretation of information that allows a business to acquire, develop, and retain its customers. This information supports market planning decisions and guides planners about future business initiatives.

Key Terms data, p. 100

information, p. 100

customer insights, p. 100

can easily understand and that won’t bore you to tears (just like a good textbook should keep you engaged). A typical research report includes the following sections:

An executive summary of the report that covers the high points of the total report

An understandable description of the research methods

A complete discussion of the results of the study, including the tabulations, cross tabu- lations, and additional statistical analyses

Limitations of the study (no study is perfect)

Conclusions drawn from the results and the recommendations for managerial action based on the results

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Chapter Questions and Activities

Key Terms research design, p. 102

secondary data, p. 102

primary data, p. 103

exploratory research, p. 103

focus group, p. 104

market research online community (MROC), p. 104

case study, p. 104

ethnography, p. 104

descriptive research, p. 104

cross-sectional design, p. 105

longitudinal design, p. 105

causal research, p. 106

experiments, p. 106

neuromarketing, p. 106

telemarketing, p. 108

mall intercept, p. 108

unobtrusive measures, p. 109

mechanical observation, p. 110

eye tracking technology, p. 110

cookies, p. 111

predictive technology, p. 112

bounce rate, p. 113

validity, p. 113

internal validity, p. 113

external validity, p. 113

reliability, p. 114

representativeness, p. 114

sampling, p. 114

probability sample, p. 115

nonprobability sample, p. 115

convenience sample, p. 115

back-translation, p. 116

4.3 Objective Summary (pp. 100–118) List and explain the steps and key elements of the market research process. The research process begins by defining the problem and de- termining the research design or type of study. Next, research- ers choose the data collection method—that is, whether there are secondary data available or whether primary research with a communication study or through observation is necessary. Then researchers determine what type of sample is to be used for the study and then collect the data. The final steps in the research are to analyze and interpret the data and prepare a research report.

Exploratory research typically uses qualitative data col- lected by individual interviews, focus groups, or observational methods, such as ethnography. Descriptive research includes cross-sectional and longitudinal studies. Causal research goes a step further by designing controlled experiments to under- stand cause-and-effect relationships between independent marketing variables, such as price changes, and dependent variables, such as sales.

Researchers may choose to collect data via survey methods and observation approaches. Survey approaches include mail questionnaires, telephone interviews, face-to- face interviews, and online questionnaires. A study may use a probability sample, such as a simple random or stratified sample, in which inferences can be made to a population on the basis of sample results. Nonprobability sampling meth- ods include a convenience sample and a quota sample. The researcher tries to ensure that the data are valid, reliable, and representative.

Internet-based research, including via various social me- dia platforms, accounts for a rapidly growing proportion of all market research. Online tracking uses cookies to record where consumers go on a website. Consumers have become increasingly concerned about privacy and how this informa- tion is used and made available to others. Online approaches also provide an attractive alternative to traditional communi- cation data collection methods because of its speed and low cost. Many firms use the Internet to conduct online focus groups.

Concepts: Test Your Knowledge

4-1. What is a marketing information system (MIS)? What types of information does it include?

4-2. How does a marketing decision support system (MDSS) allow marketers to easily get the information they need?

4-3. Define the concept of customer insights and the role it plays in market planning decisions.

4-4. Why is defining the problem to be researched so im- portant to ultimate success with the research project?

4-5. Explain the difference between primary data and sec- ondary data.

4-6. What techniques can marketers use to gather data in exploratory research? How is this type of data collec- tion useful?

4-7. Explain what descriptive research is.

MyMarketingLab™ Go to mymktlab.com to watch this chapter’s Rising Star video(s) for career advice and to respond to questions.

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more passive (observation) approach to support the communication methods you employ?

4-20. Creative Homework/Short Project To what degree could secondary data sources be used to address the topics you selected in item 4-17? What specific sec- ondary sources (if any) might be most useful to help address your selected issues?

4-21. In Class, 10–25 Minutes for Teams Your market re- search firm is planning to conduct surveys to gather information for a number of clients. Your boss has asked you and a few other new employees to do some preliminary work. She has asked each of you to choose three of the topics (from among the fol- lowing six listed) that will be included in the project and to prepare an analysis of the advantages and dis- advantages of each these communication methods of collecting primary data: mail questionnaires, tele- phone interviews, face-to-face interviews, and online questionnaires. a. The amount of sports nutrition drinks consumed in

a city b. Why a local bank has been losing customers c. How heavily the company should invest in manu-

facturing and marketing home fax machines d. The amount of money being spent “over the state

line” for lottery tickets e. What local doctors would like to see changed in the

city’s hospitals f. Consumers’ attitudes toward several sports

celebrities 4-22. For Further Research (Individual) Some companies use

neuromarketing to gain an edge over their competi- tors. Research at least two companies that employ this technique. Explain how they use neuromarketing to gain a competitive advantage and assess whether the value of the information these marketers gained was worth the investment. (Hint: Just start by googling the term neuromarketing.)

4-23. For Further Research (Individual) For each of the types of mechanical observation listed within the chapter (people meters, portable people meters, eye tracking technology), conduct research online to identify (and document) the benefits and limitations of using each method.

Concepts: Apply Marketing Metrics

Marketers historically have tended to rely too much on click- through rates as a metric for success of web advertising. Click- through rate means the proportion of visitors who initiated action with respect to an advertisement that redirected them to another page where they might purchase an item or learn more about a product or service. Technically, click-through rate is the number of times a click is made on the advertise- ment divided by the total impressions (the times an advertise- ment was served up to the consumer during the visit to the website). Thus,

Click-through rate (%) = Number of click-throughs

Number of impressions

4-8. Describe the purpose of casual research. How does it differ from descriptive research?

4-9. What are the main methods to collect primary data? 4-10. GIGO—garbage in, garbage out—is mentioned in the

chapter. What is the significance of this concept to market research?

4-11. What is a (computer) cookie? What ethical and privacy issues relate to cookies?

4-12. What important issues must researchers consider when they plan to collect data online?

4-13. When we consider data quality, what are the differenc- es among validity, reliability, and representativeness? How can you know the data have high levels of these characteristics?

4-14. How do probability and nonprobability samples differ? What are some types of probability samples? What are some types of nonprobability samples?

4-15. What is a cross tabulation? How are cross tabulations useful to analyze and interpret data?

Activities: Apply What You’ve Learned

4-16. In Class, 10–25 Minutes for Teams Your firm is plan- ning to begin marketing a consumer product in several global markets. You have been given the responsibility of developing plans for market research to be conduct- ed in South Africa, in Spain, and in China. In a role- playing situation, present the difficulties you expect to encounter, if any, in conducting research in each of these areas.

4-17. Creative Homework/Short Project Select a multination- al company that sells products to consumers. a. Identify a particular product and a research ques-

tion related to that product that is most appropri- ately studied using a cross-sectional design. Justify your reasoning for selecting this design.

b. Identify a particular product and research question related to that product that is most appropriately studied using a longitudinal design. Justify your rea- soning for selecting this design.

4-18. Creative Homework/Short Project As an account exec- utive with a market research firm, you are responsible for deciding on the type of research to be used in vari- ous studies conducted for your clients. For each of the following client questions, list your choices of research approaches. a. Will TV or mobile device advertising be more effec-

tive for a local bank to use in its marketing com- munication plan?

b. Should a California winemaker operating on a na- tional scale switch from bottling its mid-tier wine ($9 to $15 per bottle) with corks to bottling it with screwcaps?

c. Are consumers more likely to buy brands from firms that support strong sustainability initiatives?

d. What existing features of an e-commerce site sell- ing clothing to women are most important for mak- ing a purchase decision?

4-19. Creative Homework/Short Project For each of the top- ics you selected in item 4-17, how might you use a

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4-34. Critical Thinking During the 2014 legislative session, the Data Broker and Accountability Act of 2014 was introduced in the hopes of giving consumers more control over the types of information data brokers col- lect about them as well as letting consumers opt out of the sale of such information to other companies. Would you support such legislation? Why or why not?

4-35. Ethics One unobtrusive measure mentioned in this chapter involved going through consumers’ or com- petitors’ garbage. Do you think marketers should have the right to do this? Is it ethical?

4-36. Critical Thinking Consider the approach to tracking consumers’ exposure to promotions via portable peo- ple meters (PPMs). Would you be willing to participate in a study that required you to use a PPM? Why or why not?

4-37. Ethics One of the potential opportunities offered by neuromarketing is the capability to look at patterns in brain activity and identify (a) how the presence of different product attributes and variations of those at- tributes can help to predict what choices a consumer prior to their actually making those choices, (b) and how those attributes can be manipulated to influence other choices without the consumer realizing the im- pact that those changes are having on their choices. Do you believe that marketers should be able to use this type of knowledge to their advantage? Would you have any personal qualms with doing so?

Miniproject: Learn by Doing

The purpose of this miniproject is to familiarize you with mar- ket research techniques and to help you apply these techniques to managerial decision making.

4-38. With a group of three other students in your class, select a small retail business or quick-serve restaurant to use as a “client” for your project. (Be sure to get the manager’s permission before you conduct your re- search.) Then choose one topic from among the fol- lowing possibilities to develop a study problem: � Employee–customer interactions � The busiest periods of customer activity � Customer perceptions of service � Customer likes and dislikes about the menu � Customer likes and dislikes about the environment

in the place of business � The benefits customers perceive to be important � The age-groups that frequent the place of business � The buying habits of a particular age group � How customer complaints are handled

1. Develop a plan for the research. a. Define the research question as you will study it. b. Choose the type of research approach you will use. c. Select the techniques you will use to gather data. d. Develop the mode and format for data collection.

2. Conduct the research. 3. Write a report (or develop a class presentation) that

includes the five parts shown in step 7 of the mar- ket research process covered in the chapter.

Although providing useful information, click-through rates merely measure quantity, not quality, of consumer response. Consider what you learned in this chapter about various ap- proaches to market research.

4-24. What other two or three data collection approaches to measuring the success of a web advertising campaign might be fruitful in providing more meaningful data than just clicks? Hint: Just because the metric relates to the web doesn’t mean non-web-based research ap- proaches are inappropriate.39

Choices: What Do You Think?

4-25. Critical Thinking This chapter introduces QScores, which are used to track the way that the public per- ceives different celebrities. A positive (and ideally high) QScore indicates a positive perception, whereas a neg- ative QScore indicates a negative perception of a celeb- rity. Is it possible for a celebrity to have a particular type of image or reputation for which a negative QScore might be beneficial from a commercial standpoint? Explain your answer and provide examples.

4-26. Ethics Some marketers attempt to disguise themselves as market researchers who want to ask you questions when their real intent is to sell something to the con- sumer. What is the impact of this practice on legitimate researchers? What do you think might be done about this practice?

4-27. Critical Thinking Do you believe that there could be a relationship between the amount of compensation received for actively participating in a research study and the level of effort put forth by a participant in that study? Are there forms of research that are more or less susceptible to such a relationship?

4-28. Critical Thinking What is your overall attitude toward market research? Do you think it is a beneficial activ- ity from a consumer’s perspective? Or do you think it merely gives marketers new insights on how to con- vince consumers to buy something they really don’t want or need?

4-29. Critical Thinking More and more companies are starting to employ customer insight specialists to make sense of the data collected about their cus- tomers. Do you think this position is really needed within companies, or is it just a fad? Explain your reasoning.

4-30. Ethics Marketers in numerous industries can benefit from conducting market research on children. What do you think is the youngest age that would be appropri- ate to conduct research on a child? Why did you select this age?

4-31. Critical Thinking Are you willing to divulge personal in- formation to market researchers? How much are you willing to tell, or where would you draw the line?

4-32. Critical Thinking Would you be willing to participate in an ethnographic research study within your own home? Why or why not?

4-33. Critical Thinking Would you alter the settings on your computer to disallow cookies? Why or why not?

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to more fully use the collected information. All of this can happen in real-time, which gives GetFeedback’s customers a speed advantage over their competitors. Collected infor- mation is owned by the customer and is readily available to share within their company. The information can easily be downloaded and exported into Microsoft Excel or any analyt- ical software that can handle comma separated values (CSV).

In its 2015 Global Market Research Report, ESOMAR estimates total annual global expenditures of $43 billion on telephone polls, online surveys, questionnaires, and other market research—$19 billion in the U.S. alone. The market for consumer research is immense and steadily growing especially in the online and mobile devise space. SurveyMonkey is the current market leader with more than 25 million customers including Kraft Foods, Samsung, and Facebook. The CEO of SurveyMonkey, Zander Lurie, stresses “Now it’s about execu- tion. We have all the opportunity to thrive and succeed but if we’re not super-focused and crisp about how we do it, then competition will take it.”

To continue to be successful, GetFeedback has to chal- lenge the market leader, make surveys as efficient to answer as possible for respondents, maintain information quality, and deliver great value to its customers. At the same time, the company must help its parent Campaign Monitor gener- ate attractive shareholder gains. In a competitive, change- able growth environment as dynamic as this one, it’s often difficult to decide what the next strategic move should be. GetFeedback needs to step back, consider the competitive environment, weigh opportunities and risks, and formulate its growth plans for the future.

You Make the Call 4-39. What is the decision facing GetFeedback? 4-40. What factors are important in understanding this deci-

sion situation? 4-41. What are the alternatives? 4-42. What decision(s) do you recommend? 4-43. What are some ways to implement your recommendation?

Based on: Heather Clancy, “With Mobile Surveys, Market Research Gets a Makeover,” Fortune (March 25, 2014), http://tech.fortune.cnn .com/2014/03/25/with-mobile-surveys-market-research-gets-a-makeover (accessed April 13, 2016); Ted Saunders, “Improving the Survey Experience for Mobile Respondents,” Marketing Research Association (August 13, 2015), http://www.marketingresearch.org/article/improving -survey-experience-mobile-respondents (accessed April 13, 2016); Sarah Kimmorley, “Zander Lurie explains How It felt to Be SurveyMonkey’s CEO After His Best Mate Dave Goldberg Died,” Business Insider (Apr 7, 2016), http://www.businessinsider.com.au/zander-lurie-on-taking- over-the-role-of-surveymonkeys-ceo-after-his-best-mate-dave-goldberg-died-2016-4 (accessed April 13, 2016).

We all know that the world has gone mobile! But how does this change impact the way market research is done? According to the Pew Research Center, 30 percent of cell phone owners use their phones as their primary Internet ac- cess point. Consumers are changing how they interact with companies, products, and services and recent research indi- cates that about 38 percent of all market research surveys began on mobile devices. In particular, when considering traditional market research data collection methods (mail, phone), millennials have the lowest reported response rates of any group. However, they are more willing to respond to studies offered on mobile devices. Amazingly though, Forrester Research estimates that as little as 17 percent of market researchers have taken their survey processes mobile, indicating that most market research companies still use out- dated technology and techniques.

In 2013, Kraig Swensrud and Sean Whiteley recognized the information collection gap in the marketplace and de- cided to close the gap with mobile-first customer surveys. The two former Salesforce.com employees created a startup called GetFeedback with a goal to be on the frontlines of the changeover to mobile computing. GetFeedback is a service that creates surveys for smartphones, tablets, and mobile web browsers. Campaign Monitor, an online e-mail market- ing application and software firm, acquired GetFeedback about a year later. Currently, GetFeedback has more than 1,000 enterprise users that includes high profile organiza- tions like United Way, ESPN, Facebook, LinkedIn, and Nike. Available data collection services include package sizes from Personal ($25/month) for up to 100 responses/month to Enterprise ($150/month) for up to 10,000 responses/month. Additionally, service plans may include web, e-mail, and tele- phone technical support.

Swensrud knew that mobile surveys present many challenges including how to optimize them for smaller screen sizes to allow for quick scrolling and processing. GetFeedback offers templates to integrate video clips, pho- tographs, or other images to reinforce a company’s market- ing. Clients can create surveys and then add style through colors, fonts, logos, and images. To attain deeper participant engagement and higher completion rates of online surveys, imagery and video are essential. The objective is to have the survey reflect the personality of the brand. Other key fea- tures of GetFeedback include push notifications that provide alerts and a set of analytical tools that allows customers

Marketing in Action Case Real Choices at GetFeedback

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4-44. Creative Homework/Short Project. Your company recently launched a new “dry” shampoo. Although initial sales were strong, they have steadily declined over the last year and a half. You have decided to conduct further market research, but first you have to define the research problem. What are your research objectives? What is the population of interest? How does the problem fit within the environmental context? Prepare a short report that clearly and fully defines the research problem for your product.

4-45. Creative Homework/Short Project. You work for a small company that designs and sells women’s trendy rubber rain boots throughout the U.S. Sales have been strong, but you think they could be stronger. You have begun the market research process and are now ready to design the sample. Will you design a probability sample or a nonprobability sample? What type of prob- ability or nonprobability sample will you use? What are the advantages of the method that you chose? What are the limitations of the method you chose?

MyMarketingLab™

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

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Chapter 6

Meet Dondeena Bradley A Decision Maker at Weight Watchers

Dondeena Bradley is an innovation strategist, health and well-being expert, and a visionary in the area of health innovation. She currently leads global innovation at Weight Watchers International. Prior to Weight Watchers she was

at PepsiCo, serving as Vice President, Nutrition Ventures, and Vice President of Nutrition R&D. Her previous food and nutrition experience includes Johnson & Johnson, Campbell’s Soup and M&M/Mars. Her education includes a

Doctor of Philosophy, Food Science, from Ohio State University, a Master of Science from Purdue University, and a Bachelor of Science from Anderson University.

6.1 Define consumer behavior, and explain the purchase decision-making process. pp. 160–166

THE CONSUMER DECISION-MAKING PROCESS p. 160

6.2 Explain how internal factors influence consumers’ decision-making processes. pp. 166–174

INTERNAL INFLUENCES ON CONSUMERS’ DECISIONS p. 166

6.3 Show how situational factors and consumers’ rela- tionships with other people

influence consumer behavior. pp. 174–179

SITUATIONAL AND SOCIAL INFLUENCES ON CONSUMERS’ DECISIONS p. 174

6.4 Understand the characteristics of business-to-business markets and business-to-business mar- ket demand and how market- ers classify business-to-business customers. pp. 179–185

BUSINESS MARKETS: BUYING AND SELLING WHEN THE CUSTOMER IS ANOTHER ORGANIZATION p. 179

6.5 Identify and describe the different business buying

situations and the business buying decision process including the use of e-commerce and social media. pp. 186–194

BUSINESS BUYING SITUATIONS AND THE BUSINESS BUYING DECISION PROCESS p. 186

Check out the Chapter 6 Study Map on page 195.

Understand Consumer and Business Markets

Do i

What I do when I’m not working: Reading, sketching, and live music

First job out of school: Research Scientist, M&M Mars

Business book I’m reading now: Super Better by Jane McGonigal

My management style: Collaborative, co-creative, and emergent

My pet peeve: People talking over each other

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Here’s my problem…

In the early 1960s, Weight Watchers founder Jean Nidetch began inviting friends into her Queens, New

York, living room once a week to talk about their lives and how stay on their diets. Today, that group of friends has grown to millions of women and men around the world who have joined Weight Watchers to lose weight and lead healthier lives.

More than 50 years after Weight Watchers was founded, the need for this kind of support has never been greater. Two out of three American adults are overweight, and one-third are obese. We spend more than $60 billion per year on weight-loss solutions, ranging from diet drinks and gym member- ships to programs like Weight Watchers and competitors like Jenny Craig and Nutrisystem.1 Healthcare providers and employers are grappling with the best way to address this costly epidemic. And losing weight continues to be a top priority for many consumers.

Yet there has been a shift in how people think about weight loss. Today’s consumers don’t want dieting, deprivation and restriction; they want a more holistic and personalized solution that integrates healthier eating, fitness, and emotional well-being. They are also looking for success to be measured by more than just the number on the scale.

In an age of infinite options and choices, it is getting harder to get people to “join” or commit to a single program. Many people opt for a “do it yourself” ap- proach using smartphones, apps, and trackers—and customized diets and exercise regimens that fit their preferences and needs. Many consumers say they don’t want a one-size-fits-all approach like Weight Watchers, and that they aren’t all that inter- ested in carving out time for weekly meetings that don’t seem current.

In January 2016, in response to this changing landscape, Weight Watchers launched a new “Beyond the Scale” program that takes a more personalized approach based on each member’s unique lifestyle, goals, and challenges. After an initial assessment, each member receives a custom program that includes daily and weekly SmartPoints targets (to encourage them to eat better), a personalized activity goal (to nudge them to move more), and education and inspiration tailored to their unique situation.

Members can choose to participate in the program online, in person, or both. A typical member’s experience consists of attending weekly meetings, each lasting about 45 minutes, at a Weight Watchers location where an inspir- ing leader who has been successful using the program supports the member group in achieving their stated weight-loss goals.

Whether a member engages with online or in person, the challenge is to find relevant ways to help them stay motivated, inspired, and positive week af- ter week—because the weight-loss journey is typically a long haul, and clinical evidence shows that happier people tend to make healthier choices.

As leader of the global innovation team, my job was to focus on trans- forming the Weight Watchers face-to-face business. My challenge was to mod- ernize the experience for today’s busy, “always on” consumer and to appeal to more people than the segment of age 50+ women that make up Weight Watcher’s core customer base.

My team also was asked to address the seasonal/cyclical nature of a business that starts strong at the beginning of the year and typically goes downhill from there. The fact is, after a big marketing and membership “burst”

in January when new year/new me resolutions are at a peak, engagement and attendance at Weight Watchers begins to decline significantly throughout the year—as people lose motivation, their commitment wanes, and it gets harder to stay on track.

There’s no doubt that people still want the benefits that Weight Watchers delivers, but I had to think hard about new ways for the company to show up and deliver our services given the realities of consumer behavior today.

Dondeena considered her Options 1 � 2 � 3

Option

Make the weekly meetings more productive and en- tertaining. Mix them up with lectures by lifestyle experts and offer classes in yoga, Pilates, and other forms of exercise to provide a “one-stop shopping” experience for attendees. These offerings would be attrac-

tive to busy people who want to maximize their “bang for the buck” when they allocate time to weight loss. They also sync nicely with the broader consumer trend of a heightened interest in wellness that continues to spread through the mainstream U.S. population. On the other hand, these activities would dilute the core Weight Watchers experience, which is unique because it emphasizes group support and provides a forum for people to share their anxieties and frustrations when they try to lose weight. In addition, Weight Watchers has no expertise in these areas, so becoming a broader lifestyle-oriented company is a departure from the company’s strategic mission. Plus, it would require a massive amount of training for our field of 10,000+ meeting leaders and service providers.

Option

Design an immersive well-being event that would debunk and shift current assumptions about Weight Watchers (dated, diet-focused, boring) and give par- ticipants a contemporary, compelling, life-changing experience. Make it unique and unexpected enough to energize

current members, re-engage those who have left, and entice individuals who have never considered Weight Watchers before. Capitalize on trends of people increas- ingly paying for “experiences” that range from 45-minute group cycling classes at Soul Cycle to a four-day Wanderlust retreat at a Hawaii resort featuring yoga and meditation instructors, chefs, and performers. The event would generate a lot of word of mouth (a critical driver to the Weight Watchers business), and my team could use feedback on the first one to modify subsequent events and determine whether this plan is feasible. On the other hand, a large dramatic event would be a far stretch from the traditional Weight Watchers model. It might alienate core members who expect Weight Watchers to be focused on food, not holistic prac- tices and approaches. It would also require a lot of resources to plan and execute a novel experience like this from scratch.

Real People, Real Choices

See what Option Dondeena chose in MyMarketingLab™

You Choose Which Option would you choose, and why?

Option 1 Option 2 Option 3

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Over 10 million students improved their results using the Pearson MyLabs. Visit mymktlab.com for simulations, tutorials, and end-of-chapter problems.

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Chapter 6 6.1 OBJECTIVE Define consumer behavior, and explain the purchase decision-making process.

(pp. 160–166)

Compelling new products, clever packaging, and creative advertising surround us, clamoring for our attention—and our money. And that’s not all—the Internet offers us 24/7 shopping on our “small screens” for these products from any location, information on a gazillion differ- ent products from just about as many sellers, plus product and seller reviews by other consumers.

But consumers don’t all respond in the same way. Each of us is unique, with our own reasons to choose one product over an-

other. Remember: The focus of the marketing concept is to satisfy consumers’ wants and needs. To accomplish that crucial goal, first we need to appreciate what those wants and needs are. What causes one consumer to step into an International House of Pancakes for an order of IHOP Rooty Tooty Fresh ‘N Fruity® Pancakes, whereas another opts for a quick Starbucks latte and Danish, and a third person will only eat a healthy serving of “natural” Kashi cereal and fruit? And what, other than income, will cause one consumer to buy that box of Kashi cereal only when it’s “on deal” while her neighbor never even looks at the price?

Consumer behavior is the process individuals or groups go through to select, pur- chase, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and desires. Marketers recognize that consumer decision making is an ongoing process; it’s much more than what happens at the moment a consumer forks over the cash and in turn receives a good or service.

Let’s go back to the shoppers who want to buy a box of dry cereal. Although this may seem like a simple purchase, in reality there are quite a few steps in the process that cereal marketers need to understand. The first decision in the process is where to buy your cereal. If you eat a lot of it, you may choose to make a special trip to a warehouse- type retailer that sells super-duper-sized boxes rather than just picking up a box while you’re at the local supermarket. If you want to choose from healthier organic alterna- tives, you may browse for cereal at Whole Foods or a local food co-op. Of course, if you get a craving for cereal in the middle of the night, you may dash to the local convenience store. Then, what type of cereal do you buy? Do you eat only low-fat, high-fiber bran cereals, or do you go for the sugar-coated varieties with marshmallows? Of course, you may also like to have a variety of cereals available so you can mix and match.

Marketers also need to know how and when you consume their products. Do you eat cereal only for breakfast, or do you snack on it while you sit in front of the TV at night? Do you eat certain kinds of cereal only at certain times (like sugary kids’ cereals that serve as comfort food when you pull an all-nighter)? What about storing the product (if it lasts that long)? Do you have a kitchen pantry where you can store the supersized box, or is space an issue?

And there’s more. Marketers also need to understand the many factors that influ- ence each of these steps in the consumer behavior process—internal factors unique to

consumer behavior The process involved when individuals or groups select, purchase, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and desires.

The Consumer Decision- Making Process

Option

Organize a transformative event, but partner with an existing organization like Wanderlust to leverage their experience and infrastructure. Instead of trying to reinvent the wheel, Weight Watchers could move quickly to market with a proven business model and a competent co-sponsor that knows how to stage a complicated event for hundreds/thousands of people. On the other hand, a partner wouldn’t be as familiar with the needs of the weight loss

community so the experience might not be as “authentic” for our customers. In addition, even if the event is successful, Weight Watchers would not “own” it so the value to our ongoing program might be hard to assess.

Now, put yourself in Dondeena’s shoes.

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each of us, situational factors at the time of purchase, and the social influences of people around us. In this chapter, we’ll talk about how all these factors influence how and why consumers do what they do. But first we’ll look at the types of decisions consumers make and the steps in the decision- making process.

Not All Decisions Are the Same Old school researchers assumed that consumers carefully col- lect information about competing products, determine which products possess the characteristics or product attributes im- portant to their needs, weigh the pluses and minuses of each alternative, and arrive at a satisfactory decision. But how ac- curate is this picture of the decision-making process? Is this the way you buy cereal?

Although it does seem that people take these steps when they make an important purchase such as a new car, is it realistic to assume that they do this for everything they buy, like that box of ce- real? Today, we realize that decision makers actually employ a set of approaches that range from painstaking analysis to pure whim, depending on the importance of what they are buying and how much effort they choose to put into the decision.2 Researchers find it convenient to think in terms of an “effort” continuum that is an- chored on one end by habitual decision making, such as deciding to purchase a box of cereal, and at the other end by extended problem solving, such as deciding to purchase a new car.

When consumers engage in extended problem solv- ing, they do indeed carefully go through the steps Figure 6.1 outlines: problem recognition, information search, eval- uation of alternatives, product choice, and postpurchase evaluation.

When we make habitual decisions, however, we make little or no conscious effort. Rather, the search for information and the comparison of alternatives may occur almost instan- taneously, as we recall what we have done in the past and the satisfaction we received. You may, for example, simply throw the same brand of cereal in your shopping cart week after week without thinking about it too much. Figure 6.2 provides a summary of the differences between extended problem solving and habitual decision making.

Many decisions fall somewhere in the middle and are characterized by limited prob- lem solving, which means that we do some work to make a decision but not a great deal. This is probably how you decide on a new pair of running shoes or a cool new case for your smartphone. Just how much effort do we put into our buying decisions? The answer depends on our level of involvement—how important we perceive the conse- quences of the purchase to be.

As a rule, we are more involved in the decision-making process for products that we think are risky in some way. Perceived risk may be present if the product is expensive or complex and hard to understand, such as a new computer or a sports car. Perceived risk also can play a role when we think that making a bad choice will result in embarrassment or social rejection. For example, a young woman might decide against purchasing a nice- looking and functional Nine West purse from Kohl’s for fear that she might be teased or ridiculed by her sorority sisters who all sport trendy Coach handbags.

involvement The relative importance of perceived consequences of the purchase to a consumer.

perceived risk The belief that choice of a product has potentially negative consequences, whether financial, physical, or social.

Brandon is fed up with driving his

old clunker.

Brandon talks to friends, visits car showrooms, and reads Consumer

Reports to get an idea of the new cars in which he might be interested.

Brandon narrows his choices to three car

models and thinks about the good and bad

features of each option.

Brandon chooses one car because it has a feature

that really appeals to him and he likes the image

it projects.

Brandon drives his new car and decides he’s

happy with his choice.

Information search

Problem recognition

Evaluation of alternatives

Product choice

Postpurchase evaluation

Figure 6.1 Process | The Consumer Decision-Making Process The consumer decision-making process involves a series of steps.

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When perceived risk is low—such as when we buy a box of cereal—we experience a low amount of involvement in the decision-making process. In these cases, we’re not overly concerned about which option we choose because it is not especially important or risky. The worst-case scenario is that you don’t like the taste and pawn off the box on your unsuspecting roommate! In low-involvement situations, the consumer’s decision is often a response to environmental cues, such as when you decide to try a new type of cereal be- cause the grocery store prominently displays it at the end of the aisle, known as an end cap. Under these circumstances, managers must concentrate on how a store displays products at the time of purchase to influence the decision maker.

For high-involvement purchases, such as when we buy a house or a car, we are more likely to carefully process all the available information and to have thought about the decision well before we buy the item. The consequences of the purchase are important and risky, especially because a bad decision may result in significant financial losses, aggravation, or embarrass- ment. Most of us would not just saunter into an auto dealer’s office at lunchtime and casually plunk down a deposit on a new Tesla Roadster. For high-involvement products, managers must start to reduce perceived risk by educating the consumer about why their product is the best choice well in advance of the time that the person is ready to make a decision.

To understand each of the steps in the decision-making process, we’ll follow the for- tunes of a consumer named Brandon, who, as Figure 6.1 shows, is in the market for a new ride—a highly involving purchase decision, to say the least.

Step 1: Problem Recognition Problem recognition occurs whenever a consumer sees a significant difference between his or her current state of affairs and some desired or ideal state. A woman whose 10-year-old Hyundai lives at the mechanic’s shop has a problem, as does the man who thinks he’d look so much “cooler” if he traded his Toyota for a new sports car. You may fall into the latter category if your old clunker runs okay, but you want to sport some wheels that will get you admiring stares instead of laughs.

Do marketing decisions have a role in consumers’ problem recognition? Although most problem recognition occurs spontaneously or when a true need arises, marketers of- ten develop creative advertising messages that stimulate consumers to recognize that their

problem recognition The process that occurs whenever the consumer sees a significant difference between his or her current state of affairs and some desired or ideal state; this recognition initiates the decision- making process.

Extended Problem Solving Habitual Decision Making

New car High (important decision) High (expensive, complex product) Careful processing of information (search advertising, magazines, car dealers, websites) Cognitive learning (use insight and creativity to use information found in environment) Provide information via advertising, salespeople, brochures, websites. Educate consumers to product benefits, risks of wrong decisions, etc.

Box of cereal Low (unimportant decision) Low (simple, low-cost product) Respond to environmental cues (store signage or displays) Behavioral learning (ad shows product in beautiful setting, creating positive attitude) Provide environmental cues at point-of-purchase, such as product display

Product Level of involvement Perceived risk Information processing Learning model Needed marketing actions

Figure 6.2 Process | Extended Problem Solving versus Habitual Decision Making Decisions characterized as extended problem solving versus habitual decision making differ in a number of ways.

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current state (that old car) just doesn’t equal their desired state (a shiny, new convertible). Figure 6.3 provides examples of marketers’ responses to consumers’ problem recogni-

tion and the other steps in the consumer decision-making process.

Step 2: Information Search Once Brandon recognizes his problem—he wants a newer car—he needs adequate in- formation to resolve it. Information search is the step of the decision-making process in which the consumer checks his or her memory and surveys the environment to identify

information search The process whereby a consumer searches for appropriate information to make a reasonable decision.

Marketing Strategy Stage in the Decision Process Example

• Create TV commercials showing the excitement of owning a new car

Encourage consumers to see that existing state does not equal desired state

Problem recognition

Provide information when and where consumers are likely to search

Information search

Understand the criteria consumers use in comparing brands and communicate own brand superiority

Evaluation of alternatives

• Provide honest advertising and sales presentations

Encourage accurate consumer expectations

Postpurchase evaluation

• Target advertising on TV programs with high target- market viewership

• Provide sales training that ensures knowledgeable salespeople

• Make new-car brochures available in dealer showrooms

• Design exciting, easy-to- navigate, and informative websites

• Provide information on blogs and social networks to encourage word-of-mouth strategies

• Use search marketing to ensure that your website has preferential search engine positioning

• Participate in consumer review/advisory websites such as tripadvisor.com

• Conduct research to identify most important evaluative criteria

•�Create advertising that includes reliable data on superiority of a brand (e.g., miles per gallon, safety, comfort)

Understand choice heuristics used by consumers and provide communication that encourages brand decision

Product choice • Advertise “Made in America” (country of origin)

•�Stress long history of the brand (brand loyalty)

Figure 6.3 Process | Responses

Understanding the consumer decision process means marketers can develop strategies to help move the consumer from recognizing a need to being a satisfied customer.

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what options might solve his or her problem. Advertisements in on TV information we google on the Internet, or a video on YouTube often provide valuable guidance during this step. Brandon might rely on recommendations from his friends, Facebook drivers’ clubs, information he finds at www.caranddriver.com, brochures from car dealerships, or the manufacturers’ websites. We’ll talk more about opportunities for consumers to gather information in the digital world in Chapter 14.

The search for information step includes finding out what alternatives are available and which meet our personal needs. We call the alternatives a consumer knows about the evoked set and the ones he or she seriously considers the consideration set. If a brand isn’t in the consumer’s evoked set, there’s pretty much a zero chance of purchase. That’s why marketers know it’s important for consumers to be exposed to messages about their brand frequently, thus ensuring a place in the consumers’ evoked set.

Increasingly, consumers use the Internet to search for information about products. Search engines, sites such as Google (www.google.com) and Bing (www.bing.com), help us locate useful information as they search millions of web pages for key words and return a list of sites that contain those key words. We’ll talk more about marketing and search engines in Chapter 13.

Comparison-shopping agents (shopbots) such as Bizrate.com or Pricegrabber.com, are web applications that can help online shoppers find what they are looking for at the lowest price. In addition to listing where a product is available and the price, these sites often pro- vide customer reviews and ratings of the product and the sellers. They enable consumers to view both positive and negative feedback about the product and the online retailer from other consumers. Increasingly, consumers also search out other consumers’ opinions and experiences through networking websites such as YouTube and Facebook. We’ll talk more about these sites and others similar to them later in the chapter.

Step 3: Evaluation of Alternatives Once Brandon identifies his options, it’s time to decide on a few true contenders. There are two components to this stage of the decision-making process. First, a consumer armed with information identifies a small number of products in which he or she is interested. Then he or she focuses on determinant attributes, the features most important to differen- tiate and compare among the product choices. Brandon has always wanted a red Ferrari. But after he allows himself to daydream for a few minutes, he returns to reality and reluc- tantly admits that an Italian sports car is probably not in the cards for him right now. He decides that the cars he likes—and can actually afford—are the Nissan Versa, the Kia Rio, the Chevrolet Spark, and the Honda Fit. He narrows down his options as he considers only affordable cars that come to mind or his Facebook friends suggest.

Now it’s decision time. Brandon has to look more systematically at each of the three possi- bilities and identify the important product characteristics, what marketers refer to as evaluative criteria, he will use to decide among them. The characteristics may be power, comfort, price, the style of the car, and yes, even safety. Keep in mind that marketers often play a role in educating consumers about which product characteristics they should use as evaluative criteria—usually they will “conveniently” emphasize the dimensions on which their product excels. To make sure customers like Brandon come to the “right” conclusions in their evaluation of the alterna- tives, marketers must understand which criteria consumers use and which they believe are more and less important. With this information, sales and advertising professionals can point out a brand’s superiority on the most important criteria as they have defined them.

Step 4: Product Choice When Brandon examines his alternatives and takes a few test drives, it’s time to “put the pedal to the metal.” Deciding on one product and acting on this choice is the next step in the decision-making process. After agonizing over his choice for a few weeks, Brandon

evoked set All of the alternative brands a consumer is aware of when making a decision. consideration set The alternative brands a consumer seriously considers in making a decision.

comparison shopping agents or shopbots Web applications that help online shoppers find what they are looking for at the lowest price and provide customer reviews and ratings of products and sellers.

determinant attributes The features most important to differentiate and compare among the product choices.

evaluative criteria The dimensions consumers use to compare competing product alternatives.

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decides that even though the Versa and the Fit have attractive qualities, the Honda Fit of- fers the affordability he needs, and its carefree image is the way he wants others to think about him. All this thinking about cars is “driving” him crazy, and he’s relieved to make a decision to buy the Fit and get on with his life.

So just how do consumers like Brandon choose among the alternatives they consider? These decisions often are complicated because it’s hard to juggle all the product charac- teristics in your head. One car may offer better gas mileage, another is $2,000 cheaper, whereas another boasts a better safety record. How do we make sense of all these qualities and arrive at a decision?

For extended problem solving decisions, we often consider all of the characteristics and the relative importance to us of each one. This type of decision uses compensatory de- cision rules that allow information about attributes of competing products to be averaged in some way. The poor standing on one attribute can potentially be offset by good standing on another.

Other times we rely on simple “rules of thumb,” or heuristics, instead of painstak- ingly learning all the ins and outs of every product alternative. These heuristics provide consumers with shortcuts that simplify the decision-making process. One such heuristic is “price = quality”; many people willingly buy the more expensive brand because they assume that if it costs more, it must be better (even though this isn’t always true).

Perhaps the most common heuristic is brand loyalty; this occurs when we buy the same brand over and over, and, as you might guess, it’s the Holy Grail for marketers. People form preferences for a favorite brand and then may never change their minds in the course of a lifetime, making it extremely difficult for rivals to persuade them to switch.

Still another heuristic is based on country of origin. We assume that a product has cer- tain characteristics if it comes from a certain country. In the car category, many people as- sociate German cars with fine engineering and Swedish cars with safety. Brandon assumed that the Japanese Honda Fit would be more dependable than the Kia or the Chevrolet, so he factored that into his decision.

Step 5: Postpurchase Evaluation In the last step of the decision-making process, the consumer evaluates just how good a choice he or she made. Everyone has experienced regret after making a purchase (“What was I think- ing?”), and (it is hoped) we have all been pleased with something we’ve bought. The evalua- tion of the product results in a level of consumer satisfaction/dissatisfaction. This refers to the overall feelings, or attitude, a person has about a product after he or she purchases it.

Just how do we decide if we’re satisfied with what we bought? When we buy a prod- uct, we have some expectations of product quality. How well a product or service meets or exceeds these expectations determines customer satisfaction. In other words, we tend to assess product quality by comparing what we have bought to a preexisting performance standard. Think about the customer who finds his new car gets 25 mpg fuel usage. If his expectation is the same 25 mpg, he will be satisfied; if his expectation is 20 mpg, he will be extremely satisfied; but if, based on the information he received before he purchases the auto, he expects the car to get 30 mpg, he will be dissatisfied.

We form our product expectations via a mixture of information from marketing com- munications, informal information sources such as friends and family, and our own prior experience with the product category. That’s why it’s important that marketers create ac- curate expectations of their product in advertising and other communications.

Even when a product performs to expectations, consumers may experience regret, or cognitive dissonance, after they make a purchase. When we reject product alterna- tives with attractive features, we may second-guess our decision. Brandon, for example, might begin to think, “Maybe I should have chosen the Kia Rio—Kia makes great cars and the price is right.” To generate satisfied customers and remove dissonance,

compensatory decision rules The methods for making decisions that allow information about attributes of competing products to be averaged in some way.

heuristics A mental rule of thumb that leads to a speedy decision by simplifying the process.

brand loyalty A pattern of repeat product purchases, accompanied by an underlying positive attitude toward the brand, based on the belief that the brand makes products superior to those of its competition.

consumer satisfaction/dissatisfaction The overall feelings or attitude a person has about a product after purchasing it.

cognitive dissonance The anxiety or regret a consumer may feel after choosing from among several similar attractive choices.IS

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marketers often seek to reinforce purchases through follow-up communications with the customer after the sale.

In a study, business students wrote complaint letters to companies. The companies responded with a free sample, a letter of apology, or no response at all. When the company sent a free sample, attitudes toward the company improved significantly; when the com- pany sent a letter of apology, there was no change in attitude; and when the company did not respond, the attitude was more negative than before.3

In addition to understanding the mechanics of the consumer decision-making process, marketers need to understand what influences in consumers’ lives affect this process. As we see in Figure 6.4, there are three main influences in the decision-making process: internal, situational, and social influences. All of these factors work together to affect the ultimate choice each person makes.

Internal Influences on Consumers’ Decisions What is your dream car? It may be a sporty Ferrari. However, your roommate dreams of a tricked-out Mustang, and your dad is set on owning a big Mercedes. As the saying goes, “That’s why they make chocolate and vanilla.” We can attribute much of these differences to internal influences on consumer behavior—those things that cause each of us to interpret information about the outside world, including which car is the best, differently from one another.

Perception Perception is the process by which people select, organize, and interpret information from the outside world. We receive information in the form of sensations, the immediate re- sponse of our sensory receptors—eyes, ears, nose, mouth, and skin—to basic stimuli such as light, color, odors, touch, and sound. We try to make sense of the sensations we receive by interpreting them in light of our past experiences.

We are bombarded with information about products—thousands of ads both on and off-line, in-store displays, special offers, our friends’ opinions we read on their Facebook page, and on and on. The perception process has important implications for marketers: As we absorb and make sense of the vast quantities of information that compete for our

perception The process by which people select, organize, and interpret information from the outside world.

6.2 OBJECTIVE Explain how internal factors influence consumers’ decision- making processes.

(pp. 166–174)

Decision Process

Social Influences

Situational Influences

External Influences

Internal Influences

Figure 6.4 Process | Influences

A number of different factors in consumers’ lives influence the consumer decision-making process. Marketers need to understand these influences and which ones are important in the purchase process.

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attention, the odds are that any single message will get lost in the clutter. And, if we do notice the message, there’s no guarantee that the meaning we give it will be the same one the marketer intended. Marketers need to understand the three steps that occur during this pro- cess: exposure, attention, and interpretation.

Exposure

The stimulus must be within range of people’s sensory receptors to be noticed; in other words, people must be physically able to see, hear, taste, smell, or feel the stimu- lus. For example, the lettering on a highway billboard must be big enough for a passing motorist to read eas- ily, or the message will be lost. Exposure is the extent to which a person’s sensory receptors are capable of regis- tering a stimulus.

Marketers work hard to achieve exposure for their products, but sometimes it’s just a matter of making sure that cool people use your product—and that others observe them doing so. One way marketers get their products into the hands of A-listers is to insert them into both official and unofficial gift bags that celebrities receive when they attend the Academy Awards—and then hope those celebrities like the swag so much they show it off for the cameras. One year, for example, actor Kevin James received as a gift a George Foreman grill that was such a hit that he wrote it into episodes of his hit show The King of Queens—where millions of viewers around the world saw it.4

Many people believe that even messages they can’t see will persuade them to buy ad- vertised products. Claims about subliminal advertising of messages hidden in ice cubes or baked into the tops of crackers have been surfacing since the 1950s. A survey of American consumers found that almost two-thirds believe in the existence of subliminal advertising, and more than one-half are convinced that this technique can get them to buy things they don’t really want.5

There is not much evidence to support the argument that this technique actually has any effect at all on our perceptions of products and even less that marketers are or ever have used subliminal advertising methods. But still, concerns persist. ABC once rejected a commercial for KFC that invites viewers to slowly replay the ad to find a secret message, citing the network’s long-standing policy against subliminal adver- tising. The ad (which other networks aired) is a seemingly ordinary pitch for KFC’s $.99 Buffalo Snacker chicken sandwich. But if you replay it slowly on a digital video recorder, it tells you that viewers can visit KFC’s website to receive a coupon for a free sandwich. Ironically, this technique is really the opposite of subliminal advertising be- cause instead of secretly placing words or images in the ad, KFC blatantly publicized its campaign by informing viewers that it contains a message and how to find it.6 The short story: Hidden messages are intriguing and fun to think about (if a little scary), but they don’t really work. Sorry for the letdown—and don’t bother trying to read this paragraph backward.

Attention

As you drive down the highway, you pass hundreds, maybe thousands, of other cars. But to how many do you pay attention? Probably only one or two—the bright pink and purple VW Bug and the Honda with the broken taillight that cut you off at the exit ramp. Attention is the extent to which we devote mental-processing activity to a particular stimulus.

exposure The extent to which a stimulus is capable of being registered by a person’s sensory receptors.

subliminal advertising Supposedly hidden messages in marketers’ communications.

attention The extent to which a person devotes mental processing to a particular stimulus.

New augmented reality (AR) applications add an exciting dimension to perception for marketers. AR combines a physical layer of information with a digital layer of information to create a dynamic image. This concept will be discussed further in Chapter 14.

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Factors That Influence Attention

Because attention is critical to advertising effectiveness, marketers continue to look for ways to ensure that con- sumers will attend to their messages. Some factors that influence consumers’ likelihood of devoting processing activity to a stimulus include the following:

Personal needs and goals: Consumers are more likely to pay attention to messages that speak to their current needs. A car that almost causes you to be in an accident will speak to your current need to get where you are going safely. That’s the same reason you’re far more likely to notice an ad for a fast-food restaurant when you’re hungry.

Size: A larger magazine or newspaper ad or a longer TV commercial is more likely to command attention.

Novelty: Stimuli that present something unexpected tend to grab our attention. That includes the red-and-white

polka-dot VW bug driving in front of us, ads that are in black and white in an all-color world, or ads in unconventional places such as painted on a sidewalk, on the backs of shopping carts or on bathroom walls. Novelty can also make product packaging stand out. When Pepsi came out with Pepsi One and Coke introduced Coca Cola Zero in black cans, these new versions stood out on store shelves.

Another problem marketers face when it comes to attention is multitasking; flitting back and forth among our e-mails, TV, instant messages, and so on. Getting the attention of young people in particular is a challenge—as your professor probably knows! More than half of teens report that they engage in multitasking, where they process information from more than one medium at a time as they alternate among their cell phones, TVs, and laptops.7

Online advertisers keep innovating to get visitors to watch their messages. Some have turned to rich media, a digital advertising term for an ad that includes advanced features like video and audio that encourage viewers to interact and engage with the content. The web page for the Chevrolet 2016 Spark allows viewers to see the car with different colors, trims, wheels and interiors.8 Online rich media for the Metropolitan Museum of Art allows web visitors to view a moving panorama of an exhibit or to examine details of a painting by clicking on the image.

Interpretation

Interpretation is the process of assigning meaning to a stimulus based on prior associations we have with it and assumptions we make about it. Two people can see or hear the same event, but their interpretation of it can be as different as night and day, depending on what they had expected the stimulus to be. In one study, kids ages 3 to 5 who ate McDonald’s French fries served in a McDonald’s bag overwhelmingly thought they tasted better than those who ate the same fries out of a plain white bag. Even carrots tasted better when they came out of a McDonald’s bag—more than half the kids preferred them to the same carrots served in a plain package! Ronald would be proud.9

Motivation Motivation is an internal state that drives us to satisfy needs. Once we activate a need, a state of tension exists that drives the consumer toward some goal that will reduce this tension by eliminating the need. Have you ever been on an Interstate highway and seen a billboard with a giant picture of a hamburger available at the next exit, realized how good a big fat juicy ham- burger would taste at that moment, and you decided to go for it? That’s motivation at work.

multitasking Moving back and forth between various activities such as e-mails TV, instant messages, and so on.

rich media A digital advertising term for an ad that includes advanced features other elements like video and audio that encourage viewers to interact and engage with the content.

interpretation The process of assigning meaning to a stimulus based on prior associations a person has with it and assumptions he or she makes about it.

motivation An internal state that drives us to satisfy needs by activating goal-oriented behavior.

Novelty and contrast in a message are useful to capture consumers’ attention.

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Psychologist Abraham Maslow developed an influential approach to motivation.10 He formulated a hierarchy of needs that categorizes motives according to five levels of importance, the more basic needs being on the bottom of the hierarchy and the higher needs at the top. The hierarchy suggests that before a person can meet needs at a given level, he or she must first meet the lower level’s needs—somehow those hot new 7 For All Mankind jeans don’t seem as enticing when you don’t have enough money to buy food.

As you can see from Figure 6.5, people start at the lowest level with basic physi- ological needs for food and sleep. Then they progress to higher levels to satisfy more complex needs, such as the need to be accepted by others or to feel a sense of accomplishment. Ultimately, they can reach the highest-level needs, where they will be motivated to attain such goals as self-fulfillment. As the figure shows, if marketers understand the level of needs relevant to consumers in their target market, they can tai- lor their products and messages to them.

Marketers use their understanding of consumer needs for prestige, status, and accomplishment when they use gamification. Gamification is a strategy in which marketers apply game design techniques to non-gaming contexts like shopping. They often do this by awarding points or badges to motivate consumers. Nike+, for ex- ample, allows consumers to earn points and set goals to push themselves to exercise more. Foursquare and Zynga apps use gamification to encourage app usage. Stride gum introduced “Gumulon,” the world’s first chewing- based mobile game. Players position the camera on their

hierarchy of needs An approach that categorizes motives according to five levels of importance, the more basic needs being on the bottom of the hierarchy and the higher needs at the top.

gamification A strategy in which marketers apply game design techniques, often by awarding of points, badges, or levels, to non-game experiences to engage consumers.

SELF- ACTUALIZATION Self-Fulfillment,

Enriching Experiences

EGO NEEDS Prestige, Status, Accomplishment

BELONGINGNESS Love, Friendship,

Acceptance by Others

SAFETY Security, Shelter, Protection

PHYSIOLOGICAL Water, Sleep, Food

HIGHER-LEVEL NEEDS

LOWER-LEVEL NEEDS

Relevant Products

Hobbies, travel, education

Cars, furniture, credit cards, stores, country clubs, liquors

Clothing, grooming products, clubs, drinks

Insurance, alarm systems, retirement, investments

Medicines, staple items, generics

Example

U.S. Army–‘‘Be all you can be.’’

Royal Salute Scotch–‘‘What the rich give the wealthy.’’

Pepsi–‘‘You’re in the Pepsi generation.’’

Allstate Insurance–‘‘You’re in good hands with Allstate.’’

Quaker Oat Bran–‘‘It’s the right thing to do.’’

Figure 6.5 Snapshot | Maslow’s Hierarchy of Needs and Related Products Abraham Maslow proposed a hierarchy of needs that categorizes motives. Savvy marketers know they need to understand the level of needs that motivates a consumer to buy a particular product or brand. Source: Adapted from Maslow, Abraham H.; Frager, Robert D.; Fadiman, James, Motivation and Personality, 3rd Ed., ©1987. Reprinted and Electronically reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey.

Consumers purchase many products such as bathtubs for both functional and aesthetic reasons.

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ETHICS CHECK:

Should there be more government regulations on data brokers to protect consumers’ privacy?

YES NO

If data on consumers has financial value, should consumers be financially compensated for their information?

YES NO

mobile devices to use their mouths to control the intergalactic game. A simple chewing motion causes the main character, Ace, to jump and advance through levels of the game, which takes place in a cavernous outer space mine (on the planet “Gumulon”). Many be- lieve that gamification will become an even more significant trend in the future. Would you study more if you could collect badges for your efforts?

Learning Learning is a change in behavior caused by information or experience. Psychologists who study learning have advanced several theories to explain the learning process, and these perspectives are important because a major goal for marketers is to “teach” consumers to prefer their products. We refer to the two major perspectives on how people learn as be- havioral and cognitive learning.

Behavioral Learning

Behavioral learning theories assume that learning occurs as the result of experience and the connections we form between events. In one type of behavioral learning, classical conditioning, a person perceives two stimuli at about the same time. After a while, the person transfers his or her response from one stimulus to the other. For example, an ad shows a product and a breathtakingly beautiful scene so that (the marketer hopes) you will transfer the positive feelings you get when you look at the scene to the advertised prod- uct. Hint: Did you ever notice that car ads often show a new auto on a beautiful beach at sunset or speeding down a mountain road with brightly colored leaves blowing across the pavement?

Another common form of behavioral learning is operant conditioning, which occurs when people learn that their actions result in rewards or punishments. This feedback

learning A relatively permanent change in behavior caused by acquired information or experience.

behavioral learning theories Theories of learning that focus on how consumer behavior is changed by external events or stimuli.

classical conditioning The learning that occurs when a stimulus eliciting a response is paired with another stimulus that initially does not elicit a response on its own but will cause a similar response over time because of its association with the first stimulus.

operant conditioning Learning that occurs as the result of rewards or punishments.

Ethical/Sustainable Decisions in the Real World Information about you, a typical consumer, is big business because it has huge financial value. Most of us know that companies place cookies on our computers to track our online activities. That’s how Amazon offers you great books you’ll like and why that ad for a Bosch refrigerator con- veniently pops up when you’re reading the New York Times online—and you happen to be in the market for a refrigerator. But exactly what data companies collect about consumers and what happens to it after they have it is a complex and very troubling question to many.

Data brokers are companies that collect information on consumers and use it to create detailed profiles of individuals. These companies then sell or share the personal information with others. It’s not only your searches on Google that data brokers track. Data brokers are also monitoring what you post on Facebook, looking over your shoulder as you handle financial transactions online, even storing the information on the medications you take. Using a treasure box of analytical tools, the brokers are able to create a picture of you, with your name, your address, your likes and dislikes, your closest friends, your bad habits, even your daily movements, both online and offline. And then they sell that “picture” of you to advertisers, finan- cial institutions, insurance companies, the hospitality industry, cable and telecommunications companies, political campaigns, retail stores, and even government entities and law enforcement agencies.

Many believe that consumers are in a kind of wild, wild West where the precious commodity that is being mined and sold is the innocent and unprotected consumer rather than gold. True, you benefit because you’re much more likely to get useful information about the products and services you really want and not be bothered by ads for stuff you wouldn’t buy in a million years. However, many critics are concerned because at the present time, there are no laws that require data bro- kers to maintain the privacy of consumer data unless they use that data for credit, employment, insurance, housing, or other similar purposes. There are no laws that give consumers the right to know the information the brokers have about them so that they can correct inaccuracies, and no laws that give consumers the right to “opt out” and prevent data brokers from selling their per- sonal information. And, although platforms like Facebook do offer some forms of privacy protection, many users aren’t aware of these options and in some cases they don’t read “the fine print” closely enough to under- stand what happens to their data. Do you think that this business is unethical?

Ripped from the Headlines

data brokers Companies that collect information on consumers, use it to create detailed profiles of individuals, and sell or share the information with others.

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influences how they will respond in similar situations in the future. Just as a rat in a maze learns the route to a piece of cheese, consumers who receive a “reward,” like the toy that you used to get in your Happy Meal at McDonald’s, will be more likely to buy that brand again. We don’t like to think that marketers can train us like lab mice, but like it or not that kind of feedback does reward us for the behavior and make it more likely that we’ll re- peat it in the future.

Cognitive Learning

In contrast to behavioral theories of learning that empha- size simple stimulus-response connections, cognitive learning theory views people as problem solvers who learn as they proactively absorb new information. Supporters of this viewpoint stress the role of creativ- ity and insight during the learning process. Cognitive learning occurs when consumers make a connection between ideas or by observing things in their environment.

Observational learning occurs when people watch the actions of others and note what happens to them as a result. They store these observations in memory and at some later point use the information to guide their own behavior. Marketers often use this process to create advertising and other messages that allow consumers to observe the benefits of us- ing their products. Health clubs and manufacturers of exercise equipment feature ripped men and women pounding away on treadmills, whereas mouthwash makers imply that fresh breath is the key to romance.

Now we’ve discussed how the three internal processes of perception, motivation, and learning influence consumer behavior. But the results of these processes—the interpreta- tion the consumer gives to a marketing message or action—differ depending on unique consumer characteristics. Let’s talk next about some of these characteristics: existing con- sumer attitudes, the personality of the consumer, and consumer age groups.

Attitudes An attitude is a lasting evaluation of a person, object, or issue.11 Consumers have attitudes toward brands, such as whether McDonald’s or Wendy’s has the best hamburgers. They also evaluate more general consumption-related behaviors, such as whether high-fat foods, including hamburgers, are a no-no in a healthy diet. Marketers often measure consumer attitudes because they believe attitudes predict behavior—people like Brandon who think Honda Fit is a “cool” car are more likely to buy one than consumers who cherish the plush comfort of a big Buick. To make attitude measurement meaningful, marketers understand that a person’s attitude has three components: affect, cognition, and behavior.

Affect is the feeling component of attitudes. This term refers to the overall emotional response a person has to a product. Affect is usually dominant for expressive products, such as perfume, where we choose a fragrance if it makes us feel happy. In other cases, ad- vertisers try to arouse more negative emotions to get our attention and create a bond with their products. This new trend even has a name, sadvertising. Ads that provoke a good cry are all around us; think about all the adorable puppies and ponies you see in modern Super Bowl spots.12 These emotional reactions actually cause physiological changes, such as an increase in pulse and sweating when a well-done commercial really gets to us. Some advertising researchers measure heart rate and skin conductivity and track the eye gaze of consumers while they view ads over the Internet, mobile devices, and their TVs.13

Cognition, the knowing component, refers to the beliefs or knowledge a person has about a product and its important characteristics. Cognition is important for complex

cognitive learning theory Theory of learning that stresses the importance of internal mental processes and that views people as problem solvers who actively use information from the world around them to master their environment.

observational learning Learning that occurs when people watch the actions of others and note what happens to them as a result.

attitude A learned predisposition to respond favorably or unfavorably to stimuli on the basis of relatively enduring evaluations of people, objects, and issues.

affect The feeling component of attitudes; refers to the overall emotional response a person has to a product.

sadvertising Advertising designed to arouse more negative emotions to get our attention and create a bond with their products.

cognition The knowing component of attitudes; refers to the beliefs or knowledge a person has about a product and its important characteristics.

Consumers learn to like or dislike products in part based on how others in their environment react. Marmite is an “acquired taste;” it’s a yeast extract that is extremely salty and a local delicacy in the U.K. Australians favor a similar product called vegemite. Americans aren’t wild about either.

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products such as computers, for which we may develop beliefs on the basis of technical information.

Behavior, the doing component, involves a consumer’s intention to do something, as the intention to purchase or use a certain product. For products such as cereal, consumers act (purchase and try the product) on the basis of limited information and then form an evaluation of the product simply on the basis of how the product tastes or performs.

Personality and the Self: Are You What You Buy? Personality is the set of unique psychological characteristics that consistently influences the way a person responds to situations in the environment. One adventure-seeking consumer may always be on the lookout for new experiences and cutting-edge products, whereas another is happiest in familiar surroundings where he or she can use the same brands over and over. Today, popular online matchmaking services like Match.com, Matchmaker.com, and eHarmony.com offer to create your “personality profile” and then hook you up with other members whose profiles are a good match.

A person’s self-concept is his or her attitude toward himself or herself. The self-con- cept is composed of a mixture of beliefs about one’s abilities and observations of one’s own behavior and feelings (both positive and negative) about one’s personal attributes, such as body type or facial features. The extent to which a person’s self-concept is positive or negative can influence the products he or she buys and even the extent to which he or she fantasizes about changing his or her life.

Self-esteem refers to how positive a person’s self-concept is. Our society is obsessed with the self. Consumers track their health and diet on apps like Fitbit, they post updates on their relationships on Facebook, and they spend billions on apparel and beauty prod- ucts to “edit” the person that others see. The “selfie” epidemic is another symptom of this infatuation, as people go to great lengths to record their presence at parties, museums,

and many other locations. A recent survey of young consumers reported that they spend an average of 54 hours per year taking selfies. About half of the respondents were OK with the idea of snapping selfies during childbirth, and one in five think it’s OK to take them during a funeral!14

As Dondeena at Weight Watchers knows, the appeal of many products re- lates directly to their promise to improve self-image. A lot of these appeals focus on a person’s body parts and how he or she feels about their physical condition. Of course in our society “thin is in,” and women are constantly bombarded with images of anorexic-looking models. That focus may be starting to change as the movement toward more realistic body ideals gains steam. Recently a plus-size blogger with a huge following threatened to mobilize a boycott against Target because the chain didn’t carry larger versions of the designer fashions she craved. Target’s social media team picked up on this threat and the retailer nipped the problem in the bud: It now sells a line of plus-sized fashions called AVA & VIV and guess who is one of the models for the clothes? Sometimes the squeaky wheel does get the grease.15

Age A person’s age is another internal influence on purchasing behavior. Many of us feel we have more in common with those of our own age because we share a common set of experiences and memories about cultural events, whether these involve Woodstock, Woodstock II, or even Woodstock III. Goods and services often appeal to a specific age group. Although there are exceptions, it is safe to as- sume that most buyers of Rihanna’s CDs are younger than those who buy Barbra Streisand discs.

behavior The doing component of attitudes; involves a consumer’s intention to do something, such as the intention to purchase or use a certain product.

personality The set of unique psychological characteristics that consistently influences the way a person responds to situations in the environment.

self-concept An individual’s self-image that is composed of a mixture of beliefs, observations, and feelings about personal attributes.

Goods and services often appeal to a specific age-group.

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Age is important, but regardless of how old we are, what we buy often depends more on our current position in the family life cycle—the stages through which family members pass as they grow older. Singles (of any age) are more likely to spend money on expensive cars, en- tertainment, and recreation. Couples with small children purchase baby furniture, insurance, and a larger house, whereas older couples whose children have “left the nest” are more likely to buy a retirement home in Florida.

Lifestyle Demographic characteristics, such as age, income, and family life cycle, tell marketers what products people buy, but they don’t reveal why. Two consumers can share the same demographic characteristics yet be totally different people—all 20-year-old male college students are hardly identical to one another. That’s why marketers often fur- ther profile consumers in terms of their lifestyles. A lifestyle is a pattern of living that de- termines how people choose to spend their time, money, and energy and that reflects their values, tastes, and preferences.

family life cycle A means of characterizing consumers within a family structure on the basis of different stages through which people pass as they grow older.

Each stage in the family life cycle presents new challenges.

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There are many potential metrics available to assess aspects of consumer behavior. Here are some popular ones and an example of each.

$� Overall awareness: The percentage of all consumers who rec- ognize or know the name of a brand. This can be “aided” or “un- aided.” A marketer can measure unaided awareness for Sensodyne toothpaste simply by asking consumers to name all the brands of toothpaste that come to mind. Aided recognition is measured by asking consumers questions such as “Have you heard of Tom’s of Maine toothpaste?” Then follow-up questions can be asked to as- certain additional pertinent information.

$� Top-of-mind awareness (TOMA): The first brand that comes to a consumer’s mind when he or she thinks of a product category. Marketers measure TOMA with questions such as “What school comes to mind when you think of Ivy League universities?”

$� Consumer knowledge: Measured by asking consumers if they have some specific knowledge about a brand. To measure brand knowledge, marketers may ask consumers if they believe the brand possesses certain attributes or characteristics, such as “Does the Kia Soul come with Bluetooth wireless technology as a base feature?”

$� Attitude toward a brand: Often measured with survey questions about beliefs that the brand possesses certain characteristics, the relative importance of those characteristics to the product category, and the overall measure of how much the consumer likes the brand. A resulting question might be “What is your overall feeling toward Chick- fil-A?” (measured on a scale from very unfavorable to highly favorable).

$� Purchase intentions: A consumer’s stated willingness to buy or expressed likelihood of certain behavior. A consumer survey may ask, “If you are in the market for a new pair of running shoes, what

is the likelihood that you would purchase a pair of Brooks running shoes?” (measured on a scale from highly unlikely to highly likely). Caution: Stated intent to purchase does not perfectly translate into actual purchase behavior!

$� Purchase habits: Another measure of a consumer’s self-reported behavior. Marketers ask questions such as “On average, how many times a month does your family eat out?”; “Which restaurant did you go to the last time you ate out?”; and “How much do you nor- mally spend on a dinner out with your family?”

$� Customer loyalty: A measure of a consumer’s commitment to a specific brand. Once the marketer has determined which brand the consumer typically uses, they follow up with questions such as “If on your next trip to the store you plan to purchase hand soap and your favorite brand of hand soap is not available, would you buy another brand or wait until you find your favorite brand to make the purchase?”

$� Customer satisfaction: A consumer survey may ask questions such as “How satisfied are you with the level of cabin service by JetBlue Airlines?” (measured on a scale from very dissatisfied to very satisfied).

Apply the Metrics

Consider the consumer behavior metrics mentioned. Pick out several met- rics that you think would be most useful to gain a better understanding of each item that follows. How might you use each metric you choose to do the following? 1. Better understand a firm’s existing customers 2. Identify potential new customers for a firm 3. Gauge the market potential for a new product

Metrics Moment

lifestyle The pattern of living that determines how people choose to spend their time, money, and energy and that reflects their values, tastes, and preferences.

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Savvy marketers often try to identify how consumers’ lifestyle preferences create opportunities for products and services that relate to their values. Consider for example the growing cannabis revolution. Almost overnight, legal pot has become big business, with revenues in the United States of close to $3 billion per year already. As more states decide to legalize marijuana, businesses large and small are rushing in to satisfy cus- tomers’ needs for the weed but also related items (Oreos, anyone?). The magazine High Times, founded by a former drug smuggler way back in 1974, is a “trade paper” for this lifestyle. Today it’s at the forefront of the revolution. It hosts the High Times Cannabis Cups, weekend festivals that feature more than 500 vendors, seminars, and celebrity ap- pearances such as Ice Cube and David Arquette. Now it’s moving into other ventures, including nightclubs that offer cannabis menus and merchandise such as socks embla- zoned with pot leaves.16

To determine the lifestyles of consumers, marketers turn to psychographics, which groups consumers according to psychological and behavioral similarities. One way to do this is to describe people in terms of their activities, interests, and opinions (AIOs). These dimensions are based on preferences for vacation destinations, club memberships, hobbies, political and social attitudes, tastes in food and fashion, and so on. Using data from large samples, marketers create profiles of customers who resemble one another in terms of their activities and patterns of product use.17

psychographics The use of psychological, sociological, and anthropological factors to construct market segments.

activities, interests, and opinions (AIOs) Measures of consumer activities, interests, and opinions used to place consumers into dimensions.

Situational and Social Influences on Consumers’ Decisions We’ve seen that internal factors, such as how people perceive market- ing messages, their motivation to acquire products, and their unique personalities, age groups, family life cycle, and lifestyle, influence the decisions we make. In addition, situational and social influences— factors external to the consumer—have a big impact on the choices consumers make and how we make them.

Situational Influences When, where, and how consumers shop—what we call situational influences—shape our purchase choices. Some important situational cues are our physical surroundings and time pressures.

Marketers know that dimensions of the physical environment, including factors such as decor, smells, lighting, music, and even temperature, can significantly influence consump- tion. When casino operators replaced old school “one-armed bandits” with electronic slot machines that no longer made the familiar whirring noises when players pulled the handle, earnings fell by 24 percent.18 And the Hard Rock Hotel in Orlando, Florida, boosted ice cream sales by 50 percent simply by spraying a waffle cone scent into the air outside its shop.19

Sensory marketing is becoming big business. Specialized companies sell scents to hotels, car manufacturers, and even banks (like customers don’t know what money smells like). Some offer individual scents, like vanilla, whereas others sell combinations of popu- lar scents. But for some retailers, like Victoria’s Secret and Bloomingdale’s, it’s not enough to have just any scent; these retailers have actually purchased custom scents that not only appeal to their customers but also enhance their brand. And, coming soon: Books, mov- ies, and even clothing that will deliver specific scents via pellets that you insert into your

sensory marketing Marketing techniques that link distinct sensory experiences such as a unique fragrance with a product or service.

6.3 OBJECTIVE Show how situational factors and consum- ers’ relationships with other people influence consumer behavior.

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iPhone!20 Marketers term this strategy sensory branding.21 Let’s see how some other situ- ational factors influence the consumer decision-making process.

The Physical Environment

It’s no secret that physical surroundings strongly influence people’s moods and behaviors. Despite all their efforts to presell consumers through advertising, marketers know that the store environment influences many purchases. For example, one study of purchasing habits showed that consumers decide on about three out of every four of their supermarket product purchases in the aisles (so always eat before you go to the supermarket). The study also showed that in-store marketing and branding had a strong influence on shoppers’ purchasing decisions.22

Two dimensions, arousal and pleasure, determine whether a shopper will react posi- tively or negatively to a store environment. In other words, the person’s surroundings can be either dull or exciting (arousing) and either pleasant or unpleasant. Just because the environment is arousing doesn’t necessarily mean it will be pleasant—we’ve all been in crowded, loud, hot stores that are anything but. The importance of these surroundings explains why many retailers focus on packing as much entertainment as possible into their stores. For example, Bass Pro Shops, a growing chain of outdoor sports equipment stores built in the style of an enormous hunting lodge, features giant aquariums, waterfalls, trout ponds, archery and rifle ranges, putting greens, fish and wildlife mounts at every turn, and free classes (for adults and kids) in everything from ice fishing to conservation to meat pro- cessing. And if all that sensory overload leaves you famished, many of the Bass Pro Shops stores even offer on-site restaurants at their more than 60 current locations.

Time

Time is one of consumers’ most limited resources. We talk about “making time” or “spend- ing time,” and we remind one another that “time is money.” Marketers know that the time of day, the season of the year, and how much time a person has to make a purchase affects decision making.

Indeed, many consumers believe that they are more pressed for time than ever before. This sense of time poverty makes consumers responsive to marketing innovations that allow them to save time, including services such as drive-through lanes at pharmacies, to- your-door grocery delivery, and mobile pet grooming. In fact, a funeral home in Farmville, Virginia, even offers drive-through viewing for mourners who don’t want to get out of their cars to see the deceased.23

Then of course there is the “always open” convenience of “stores” on the web, ready to serve you whenever, wherever, and however you want. In fact, online shopping is growing at about seven times the rate of overall retail spending in the United States But even though 70 percent of people said that they preferred to shop their favorite retailer online, that doesn’t mean your favorite bricks-and-mortar store is going away anytime soon.24 Instead, these stores are adapting their services to meet your needs. For example, many retailers now let you ship your online purchase to the store nearest you free of charge, and you can return items you purchased online at this location as well. And while you’re in the store picking up that new summer tank top you ordered online, chances are you’ll pick up a few extra items you didn’t know you needed, like those matching earrings and to-die-for flip-flops.

Social Influences on Consumers’ Decisions Although we are all individuals, we are also members of many groups that influence our buying decisions. Families, friends, and classmates often sway us, as do larger groups with which we identify, such as ethnic groups and political parties. Now let’s consider how social influences, such as culture, social class, influential friends and acquaintances, and trends within the larger society, affect the consumer decision-making process.

sensory branding The use of distinct sensory experiences not only to appeal to customers but also to enhance their brand.

time poverty Consumers’ belief that they are more pressed for time than ever before.

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Culture

We can think of culture as a society’s personality. It is the values, beliefs, customs, and tastes a group of people produce or practice. Although we often assume that what people in one culture (especially our own) think is desirable or appropriate will be appreciated in other cultures as well, that’s far from the truth. For example, simply translating American mar- keting messages into Spanish doesn’t mean those messages will be accepted— especially among those Hispanic consumers living in the United States who have a strong desire to maintain their Hispanic identity. Instead, marketers must “recognize that Hispanics buy brands that empower their cultural relevancy.”25 That means developing relationships with customers and considering their family and religious values.

Values (Again)

As we also saw in Chapter 2, cultural values are deeply held beliefs about right and wrong ways to live.26 Marketers who understand a culture’s values can tailor their product offer- ings accordingly. But over time, cultural values do change. Consider, for example, that the values for collectivist countries differ greatly from those of individualistic cultures, where immediate gratification of one’s own needs come before all other loyalties. In collectivist cultures, loyalty to a family or a tribe overrides personal goals. Today, we see the economic growth of some collectivist countries such as India, Japan, and China, making many con- sumers more affluent—and individualistic. For marketers, this means growth opportuni- ties for products such as travel, luxury goods, sports activities like tennis and golf, and entertainment.

Subcultures

A subculture is a group that coexists with other groups in a larger culture but whose mem- bers share a distinctive set of beliefs or characteristics, such as members of a religious or- ganization or an ethnic group. Microcultures are groups of consumers who identify with a specific activity or art form. These form around TV shows like The Voice or Grey’s Anatomy, online games like Candy Crush Saga, or leisure activities such as extreme sports. Social me- dia have been a real boon to subcultures and microcultures; they provide an opportunity for like-minded consumers to share their thoughts, photographs, videos, and so on. More on these important new sharing platforms later in the book.

For marketers, some of the most important subcultures are racial and ethnic groups because many consumers identify strongly with their heritage, and products that appeal to this aspect of their identities appeal to them. To grow its business, Clorox got down and dirty with its Hispanic consumers. After studying how Hispanics traditionally clean their homes, Clorox introduced its Clorox Fraganzia line of cleaning products to meet all of their cleaning needs—a thorough process of cleaning, disinfecting, and aromatizing. Even their toilet-bowl cleaners, in the shape of little baskets, or canastillas, look like those used in Latin America.27

Conscientious Consumerism: An Emerging Lifestyle Trend

Powerful new social movements within a society also contribute to how consumers make decisions about what we want and what we don’t. One such influence is consumerism, the social movement directed toward protecting consumers from harmful business practices. Much of the current focus of consumerism is about business activities that harm the en- vironment and the potential damage to our planet. Worries about climate change, entire species going extinct, widespread exposure to carcinogens and harmful bacteria and many other issues are front and center.

As more and more emphasis has been placed on this by consumers and the media, many of us are much more mindful of environmental issues when we shop and when we make decisions about the foods we eat, the clothes we wear, the buildings in which we live

culture The values, beliefs, customs, and tastes a group of people values.

subculture A group within a society whose members share a distinctive set of beliefs, characteristics, or common experiences.

microcultures Groups of consumers who identify with a specific activity or art form.

consumerism A social movement that attempts to protect consumers from harmful business practices.

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and work, and the cars we drive. Even marketers are following the consumerism call to action. Unilever launched a campaign on Facebook and YouTube tied to its Axe brand to encourage reduced usage of hot water. The “Showerpooling” campaign asks fans to take a pledge to share a shower with a like-minded acquaintance or attractive stranger.28 Some analysts call this new value conscientious consumerism.29 We see evidence of its impact everywhere, in the form of vegan restaurants, electric cars, and solar heating panels on homes.

Social Class

Social class is the overall rank of people in a society. People who are within the same class tend to exhibit similarities in occupation, education, and income level, and they often have similar tastes in clothing, decorating styles, and leisure activities. Class members also share many political and religious beliefs as well as preferences for AIOs.

Many marketers design their products and stores to appeal to people in a specific social class. Working-class consumers tend to evaluate products in more utilitarian terms, such as sturdiness or comfort, instead of trendiness or aesthetics. They are less likely to experiment with new products or styles, such as modern furniture or colored appliances, because they tend to prefer predictability to novelty.30 Marketers need to understand these differences and develop product and communication strategies that appeal to different social classes.

Luxury goods often serve as status symbols, visible markers that provide a way for people to flaunt their membership in higher social classes (or at least to make others believe they are members). The bumper sticker “He who dies with the most toys wins” illustrates the desire to accumulate these badges of achievement. However, it’s important to note that over time, the importance of different status symbols rises and falls. For ex- ample, when James Dean starred in the 1956 movie Giant, the Cadillac convertible was the ultimate status symbol car in the United States. Today, wealthy consumers who want to let the world know of their success are far more likely to choose a Mercedes, a Tesla, or even a humbler Prius.

In addition, traditional status symbols today are available to a much wider range of consumers around the world with rising incomes. This change fuels demand for mass- consumed products that still offer some degree of panache or style. Think about the success of companies like Nokia, H&M, Zara, ING, Dell Computers, Gap, Nike, EasyJet, or L’Oréal. They cater to a consumer segment that analysts label mass class. This term refers to the hundreds of millions of global consumers who now enjoy a level of purchasing power that’s sufficient to let them afford high-quality products offered by well-known multina- tional companies.

Group Membership

Anyone who’s ever “gone along with the crowd” knows that people act differently in groups than they do on their own. When there are more people in a group, it becomes less likely that any one member will be singled out for attention, and normal restraints on be- havior may evaporate (think about the last wild party you attended). In many cases, group members show a greater willingness to consider riskier alternatives than they would if each member made the decision alone.31

A reference group is a set of people that a consumer wants to please or imitate. Consumers “refer to” these groups when they decide what to wear, where they hang out, and what brands they buy. This influence can take the form of family and friends, a soror- ity or fraternity, a respected statesman like Martin Luther King Jr., celebrities like Angelina Jolie, or even (dare we say it) your professors. Marketers often try to cultivate a loyal com- munity of fans who will spread the word about their clothing, cars, music, sports teams, or movies. Nobody does this better than Lucasfilm for its Star Wars franchise. The studio even employs a full-time head of fan relations.32

conscientious consumerism A continuation of the consumerism movement in which consumers are much more mindful of environmental issues in their daily purchases and marketers support consumerism issues in their advertising.

social class The overall rank or social standing of groups of people within a society according to the value assigned to factors such as family background, education, occupation, and income.

status symbols Visible markers that provide a way for people to flaunt their membership in higher social classes (or at least to make others believe they are members).

mass class The hundreds of millions of global consumers who now enjoy a level of purchasing power that’s sufficient to let them afford high-quality products—except for big-ticket items like college educations, housing, or luxury cars.

reference group An actual or imaginary individual or group that has a significant effect on an individual’s evaluations, aspirations, or behavior.

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Opinion Leaders

If, like Brandon, you are in the market for a new car, is there a certain person to whom you’d turn for advice? An opinion leader is a person who influences others’ attitudes or behaviors because they believe that he or she possesses expertise about the product.33 Opinion leaders usually exhibit high levels of interest in the product category. They con- tinuously update their knowledge as they read blogs, talk to salespeople, or subscribe to podcasts about the topic. Because of this involvement, opinion leaders are valuable information sources.

Unlike commercial endorsers, who are paid to represent the interests of just one company, opinion leaders have no ax to grind and can impart both positive and negative information about the product (unless they’re being compensated to blog on behalf of a brand, which is not unheard of these days!). In addition, these knowledgeable consumers often are among the first to buy new products, so they absorb much of the risk and reduce uncertainty for others who are not as courageous.

Gender Roles

Some of the strongest pressures to conform come from our gender roles, society’s ex- pectations regarding the appropriate attitudes, behaviors, and appearance for men and women.34 Of course, marketers play a part in teaching us how society expects us to act as men and women. Marketing communications and products often portray women and men differently. These influences teach us what the “proper” gender roles of women or men should be and which products are appropriate for each gender.

Gender roles vary across cultures, and they can change rapidly over time (as the re- cent debate over transgender people using bathrooms shows). In other cultures, however, old expectations can be hard to change: A husband in Italy (which has fairly traditional gender role expectations compared to some other countries) had the police formally charge his 40-year-old wife with “mistreatment of the family.” He accused her of 2 years of neglect, including an unwillingness to cook and clean. She faces up to 6 years in prison if she is convicted for these offenses.35

Many products are sex-typed, which means they are intended specifically to ap- peal to one gender or the other. For years, consumers and feminists for example have

opinion leader A person who is frequently able to influence others’ attitudes or behaviors by virtue of his or her active interest and expertise in one or more product categories.

gender roles Society’s expectations regarding the appropriate attitudes, behaviors, and appearance for men and women.

Lucasfilm hosts a huge gathering every other year called Star Wars Celebration, which attracts almost 50,000 Jedis, Wookiees, and Stormtroopers.

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claimed that the Barbie doll reinforces unrealistic ideas about what women’s bodies should look like. In 2015, Mattel reintroduced its traditional blonde Barbie in a variety of skin tones, hairstyles, and outfits to attract a more diverse market. Even newer versions in three new body shapes: Tall, curvy and petite, followed in 2016.36

Sex roles constantly evolve; in a complex society like ours, we often encounter contradictory messages about “appropriate” behavior. We can clearly see this in the messages girls have been getting from the media for the last several years: It’s cool to be overly provocative. Role models like Paris Hilton, Lindsay Lohan, Britney Spears, and Miley Cyrus convey stan- dards about how far preteens and teens should go to broadcast their sexuality. Of course not everyone, especially parents, agree with this trend.

Men’s sex roles are changing too. For one, men are concerned as never before with their appear- ance. In fact, appearance ranks as their second-biggest worry (topped only by money worries and weighing on them more than worries about their family and their health).37 To prove this point, guys spend $17.5 billion on toiletries globally each year—and that doesn’t include the cost of razors, razor blades, or shaving cream.38 How does this ob- session with hair gels and moisturizers coexist with the traditional “macho” guy who can hardly be bothered to comb his hair? Clearly, our cultural definition of masculinity is evolving as men try to redefine sex roles while they stay in a “safety zone” of accept- able behaviors bounded by danger zones of sloppiness at one extreme and effeminate behavior at the other. And, some cultural observers report the emergence of “retrosexu- als”—men who want to emphasize their old-school masculinity as they get plastic sur- gery to create a more rugged look that includes hairier chests and beards, squarer chins, and more angular jawlines.39

Every culture communicates expectations about the proper roles for men and women, as this ad from Chile for a line of power tools illustrates.

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Business Markets: Buying and Selling When the Customer Is Another Organization You might think most marketers spend their days dreaming up the best way to promote cutting-edge products for consumers like new apps for your iPhone, a new power drink to keep you fit, or some funky shoes to add to your collection. But this is not the whole pic- ture. Many marketers know that the “real action” also lies in prod- ucts that companies sell to businesses and organizations rather than to end-user consumers like you—software applications to make a business more efficient, safety goggles for industrial plants, the carts shoppers push in supermarkets, or the sensors that keep track of your luggage at the airport. In fact, some of the most interesting and

lucrative jobs for young marketers are in businesses you’ve never heard of because these companies don’t deal directly with consumers.

6.4 OBJECTIVE Understand the characteristics of business-to- business markets and business-to-business market demand and how marketers classify business-to- business customers.

(pp. 179–185)

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Like an end consumer, a business buyer makes decisions—but with an important difference: The purchase may be worth millions of dollars, and both the buyer and the seller have a lot at stake (maybe even their jobs). A consumer may decide to buy two or three T-shirts at one time, each emblazoned with a different design. Fortune 500 companies such as ExxonMobil, PepsiCo Inc., and FedEx buy thousands of employee uniforms em- broidered with their corporate logos in a single order.

Consider these transactions: P&G contracts with several advertising agencies to pro- mote its brands at home and around the globe. The Metropolitan Opera buys costumes, sets, and programs. Mac’s Diner buys a case of canned peas from BJ’s Wholesale Club. The U.S. government places an order for 3,000 new HP laser printers. The country of Qatar purchases five new Boeing 787 Dreamliners to add to its fleet—at a price that can exceed $200 million each.40

All the these exchanges have one thing in common: they’re part of business-to-business (B2B) marketing. As we saw in Chapter 1, this is the marketing of goods and services that businesses and other organizations buy for purposes other than personal consumption. Some firms resell these goods and services, so they are part of a channel of distribution, a concept we’ll revisit in Chapters 11 and 12. Other firms use the goods and services they buy to produce still other goods and services that meet the needs of their customers or to support their own operations. These business-to-business (B2B) markets, also called organizational markets, include manufacturers and other product producers, wholesalers, retailers, and a variety of other organizations, such as hospitals, universities, and govern- mental agencies.

To put the size and complexity of business markets into perspective, let’s consider a single product—a pair of jeans. A consumer may browse through several racks of jeans and ultimately purchase a single pair, but the buyer who works for the store at which the consumer shops had to purchase many pairs of jeans in different sizes, styles, and brands from different manufacturers. Each of these manufacturers purchases fabrics, zippers, buttons, and thread from other manufacturers, which in turn purchase the raw materi- als to make these components. In addition, all the firms in this chain need to purchase equipment, electricity, labor, computer systems, legal and accounting services, insurance, office supplies, packing materials, and countless other goods and services. So, even a single purchase of a pair of 7 For All Mankind jeans is the culmination of a series of buy- ing and selling activities among many organizations; many people have been keeping busy while you’re out shopping! In this section we’ll first talk about the different types of business customers that buy goods and services, different types of B2B purchases and the steps in the B2B decision process. Finally, we’ll look at B2B e-commerce and digital marketing.

Types of Business-to-Business Customers As we noted before, many firms buy products in business markets so they can produce other goods. Other B2B customers resell, rent, or lease goods and services. Still other cus- tomers, including governments and not-for-profit institutions such as the Red Cross or a local church, serve the public in some way. In this section, we’ll look at the three major classes of B2B customers we show in Figure 6.6 (producers, resellers, and organiza- tions). Then we’ll look at how marketers classify specific industries.

Producers

Producers purchase products for the production of other goods and services that they, in turn, sell to make a profit. For this reason, they are customers for a vast number of products from raw materials to goods that still other producers manufacture. For example, Dell buys microprocessor chips from Intel and AMD that go into its line of computers, and Marriott hotels buys linens, furniture, and food to produce the accommodations and meals their

business-to-business (B2B) markets The group of customers that include manufacturers, wholesalers, retailers, and other organizations.

organizational markets Another name for business-to-business markets.

producers The individuals or organizations that purchase products for use in the production of other goods and services.

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guests expect. In addition to manufacturers of goods, the fishing, agricultural and lumber industries are considered producers.

Resellers

Resellers buy finished goods for the purpose of reselling, renting, or leasing to consumers and other businesses. Although resellers do not actually produce goods, they do provide their customers with the time, place, and possession utility we talked about in Chapter 1 because they make the goods available to consumers when and where they want them. For example, Walmart buys toothpaste, peanuts, kids’ shoes, and about a gazillion other prod- ucts to sell in its more than 10,000 stores worldwide.41

Increasingly, large retail businesses such as Walmart, Walgreen’s, and Kroger Supermarkets have taken over the functions that were previously the job of wholesalers and distributors. This means that there are fewer of these resellers today. More on that in Chapter 12.

Government and Not-for-Profit Organizations

Governments and not-for-profit institutions are two other types of organizations in the business marketplace. Government markets make up the largest single business and or- ganizational market in the United States. The U.S. government market includes more than 3,000 county governments, 35,000 municipalities and townships, 37,000 special district governments, 50 states and the District of Columbia, plus the federal government. State and local government markets alone account for 15 percent of the U.S. gross national product.42

And of course, there are thousands more government customers around the globe, and many of those governments are just about the only customers for certain products, such as jet bombers and nuclear power plants. But many government expenditures are for more familiar items. Pens, pencils, and paper for offices; cots, bedding, and

resellers The individuals or organizations that buy finished goods for the purpose of reselling, renting, or leasing to others to make a profit and to maintain their business operations.

government markets The federal, state, county, and local governments that buy goods and services to carry out public objectives and to support their operations.

Producers

Fishing, agricultural, and lumber industries

Manufacturers of consumer goods and component parts

Service, including financial, transportation, restaurants, hotels, health care, recreation and entertainment, and others

Resellers

Wholesalers and distributors

Retailers

Organizations

Government, including federal, state, county, and local units

Not-for-profit institutions, including organizations with education, charity, community, and other public service goals

Total Business Market

Figure 6.6 Snapshot | The Business Marketplace The business marketplace consists of three major categories of customers: producers, resellers, and organizations. B2B marketers must understand the different needs of these customers if they want to build successful relationships with them.

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toiletries for jails and prisons; and cleaning supplies for routine facilities maintenance are just a few examples of items that consumers buy one at a time but that governments purchase in bulk.

As we said in Chapter 1, not-for-profit organizations are organizations with educa- tional, community, and other public service goals, such as hospitals, churches, universities, museums, and charitable and cause-related organizations like the Salvation Army and the Red Cross. These institutions tend to operate on low budgets. Because nonprofessional part-time buyers who have other duties often make purchases, these customers may rely on marketers to provide more advice and assistance before and after the sale.

The North American Industry Classification System

In addition to looking at B2B markets within these three general categories, marketers rely on the North American Industry Classification System (NAICS) to identify their customers. This is a numerical coding of industries the United States, Canada, and Mexico devel- oped. Table 6.1 illustrates how the NAICS coding system works. NAICS replaced the U.S. Standard Industrial Classification system in 1997 so that the North American Free Trade Agreement (NAFTA) countries could compare economic and financial statistics.43 The NAICS reports the number of firms, the total dollar amount of sales, the number of em- ployees, and the growth rate for industries, all broken down by geographic region. Many firms use the NAICS to assess potential markets and to determine how well they are doing compared to others in their industry group.

Firms may also use the NAICS to find new customers. A marketer might first deter- mine the NAICS industry classifications of his or her current customers and then evaluate the sales potential of other firms occupying these categories.

Factors That Make a Difference in Business Markets In theory, the same basic marketing principles should hold true in both consumer and business markets—firms identify customer needs and develop a marketing mix to sat- isfy those needs. For example, take the company that made the desks and chairs in your classroom. Just like a firm that markets consumer goods, the classroom furniture com- pany first must create an important competitive advantage for its target market of uni- versities. Next, the firm develops a marketing mix strategy that begins with a product— classroom furniture that will withstand years of use by thousands of students—while it provides a level of comfort that a good learning environment requires (and you thought those hardback chairs were intended just to keep you awake during class). The firm must offer the furniture at prices that universities will pay and that will allow the firm to make a reasonable profit. Then the firm must develop a sales force or other marketing

North American Industry Classification System (NAICS) The numerical coding system that the United States, Canada, and Mexico use to classify firms into detailed categories according to their business activities.

Table 6.1 | The North American Industry Classification System: A Sample Frozen Fruit Example Cellular Telecommunications Example

� Sector (two digits) 31–33 Manufacturing 51 Information

� Subsector (three digits) 311 Food manufacturing 513 Broadcasting and telecommunications

� Industry group (four digits) 3114 Fruit and vegetable preserving and specialty food manufacturing

5133 Telecommunications

� Industry (five digits) 31141 Frozen food manufacturing 51332 Wireless telecommunications carriers (except satellite)

� U.S. industry (six digits) 311311 Frozen fruit, juice, and vegetable manufacturing

513322 Cellular and other wireless telecommunications

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Key Differences in Business versus

Consumer Markets Number of Customers

Multiple Buyers

Size of Purchases

Geographic Concentration

Figure 6.7 Snapshot | Key Differences in Business versus Consumer Markets

There are a number of differences between business and consumer markets. To be successful, marketers must understand these differences and develop strategies specific to organizational customers.

communication strategy to make sure your university (and hundreds of others) consid- ers—and hopefully chooses—its products when it furnishes classrooms.

Although marketing to business customers does have a lot in common with consumer marketing, there are differences that make this basic process more complex.44 Figure 6.7 summarizes the key areas of difference, and Table 6.2 provides a more extensive set of comparisons between the two types of markets.

Multiple Buyers

In business markets, products often have to do more than satisfy an individual’s needs. They must meet the requirements of everyone involved in the company’s purchase deci- sion. If you decide to buy a new chair for your room or apartment, you’re the only one who has to be satisfied. For your classroom, the furniture must satisfy not only students but also faculty, administrators, campus planners, and the people at your school who actually do the purchasing. If your school is a state or other governmental institution, the furniture may also have to meet certain government-mandated engineering standards. If you have a formal green initiative, the purchase must satisfy environment-friendly criteria.

Number of Customers

Organizational customers are few and far between compared to end-user consumers. In the United States, there are about 100 million consumer households but less than half a mil- lion businesses and other organizations.

Size of Purchases

B2B products dwarf consumer purchases both in the quantity of items ordered and in how much a single item may cost. A company that rents uniforms to other businesses, for exam- ple, buys hundreds of large drums of laundry detergent each year to launder its uniforms. In contrast, even a hard-core soccer mom who deals with piles of dirty socks and shorts goes through a box of detergent only every few weeks.

Organizations purchase many products, such as a highly sophisticated piece of manu- facturing equipment or computer-based marketing information systems that can cost a million dollars or more. Recognizing such differences in the size of purchases allows mar- keters to develop effective marketing strategies.

Geographic Concentration

Another difference between business markets and consumer markets is geographic con- centration, meaning that many business customers may be located in a single region of

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the country. Whether they live in the heart of New York City or in a small fishing vil- lage in Oregon, consumers buy and use toothpaste and TVs. For years, Silicon Valley, a 50-mile-long corridor close to the California coast, has been home to thousands of elec- tronics and software companies because of its high concentration of skilled engineers and scientists. For B2B marketers who wish to sell to these markets, this means that they can concentrate their sales efforts and perhaps even locate distribution centers in a single geographic area.

B2B Demand Demand in business markets differs from consumer demand. Most demand for B2B prod- ucts is derived, inelastic, fluctuating, and joint. Understanding how these factors influence B2B demand is important for marketers when they forecast sales and plan effective mar- keting strategies. Let’s look at each of these concepts in a bit more detail.

Derived Demand

Consumer demand is based on a direct connection between a need and the satisfaction of that need. But business customers don’t purchase goods and services to satisfy their own needs. Businesses instead operate on derived demand because a business’s demand for

derived demand Demand for business or organizational products caused by demand for consumer goods or services.

Table 6.2 | Differences between Organizational and Consumer Markets Organizational Markets Consumer Markets

� Purchases made for some purpose other than personal consumption

� Purchases for individual or household consumption

� Purchases made by someone other than the user of the product

� The ultimate user often makes the purchase

� Several people frequently make the decisions � Individuals or small groups like couples and families usually decide

� Purchases made according to precise technical specifications based on product expertise

� Purchases often based on brand reputation or personal recommendations with little or no product expertise

� Purchases made after careful weighing of alternatives � Purchases frequently made on impulse

� Purchases based on rational criteria* � Purchases based on emotional responses to products or promotions

� Purchasers often engage in lengthy decision processes � Individual purchasers often make quick decisions

� Interdependencies between buyers and sellers; long-term relationships

� Buyers engage in limited-term or one-time-only relationships with many different sellers

� Purchases may involve competitive bidding, price negotiations, and complex financial arrangements

� Most purchases made at “list price” with cash or credit cards

� Products frequently purchased directly from producer � Products usually purchased from someone other than producer of the product

� Purchases frequently involve high risk and high cost � Most purchases are relatively low risk and low cost

� Limited number of large buyers � Many individuals or household customers

� Buyers often geographically concentrated in certain areas � Buyers generally dispersed throughout total population

� Products often complex; classified based on how organizational customers use them

� Products: consumer goods and services for individual use

� Demand derived from demand for other goods and services, generally inelastic in the short run, subject to fluctuations, and may be joined to their demand for other goods and services

� Demand based on consumer needs and preferences, is generally price elastic, steady over time and independent of demand for other products

� Promotion emphasizes personal selling � Promotion emphasizes advertising

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goods and services comes either directly or indirectly from consumers’ demand for what it produces.

To better understand derived demand, take a look at Figure 6.8 (beginning at the bottom). Demand for forestry products comes from the demand for pulp, which in turn is derived from the demand for paper that publishers buy to make the textbooks you use in your classes. The demand for textbooks comes from the demand for education (yes, education is the “product” you’re buying—with the occasional party or football game thrown in as a bonus). As a result of derived demand, the success of one company may depend on another company in a differ- ent industry. The derived nature of business demand means that marketers must constantly be alert to changes in consumer trends that ultimately will have an effect on B2B sales. So, if fewer students attend college and those who do increas- ingly choose to purchase digital textbooks, the forestry industry has to find other sources of demand for its products.

Inelastic Demand

Inelastic demand means that it usually doesn’t matter if the price of a B2B product goes up or down—business customers still buy the same quantity. Demand in B2B markets is mostly inelastic because what an individual firm sells often is just one of the many parts or materials that go into producing the consumer product. It is not unusual for a large increase in a business product’s price to have little effect on the final consumer product’s price.

For example, you can buy a Limited Edition Porsche Boxster S “loaded” with options for about $64,000.45 To produce the car, Porsche purchases thousands of different parts. If the price of tires, batteries, or stereos goes up or down, Porsche will still buy enough to meet consumer demand for its cars. As you might imag- ine, increasing the price by $30 or $40 or even $100 won’t change consumer demand for Boxsters—so demand for parts remains the same. (If you have to ask how much it costs, you can’t afford it!)

Fluctuating Demand

Business demand also is subject to greater fluctuations than is consumer demand. There are two reasons for this. First, even modest changes in consumer demand can create large increases or decreases in business demand. Take, for example, air travel. A rise in jet fuel prices, causing higher ticket prices and a shift by some consumers from flying to driving vacations, can cause airlines to postpone or cancel orders for new equipment. This change in turn creates a dramatic decrease in demand for planes from manufacturers such as Boeing and Airbus.

A product’s life expectancy is another reason for fluctuating demand. Business cus- tomers tend to purchase certain products infrequently. They may need to replace some types of large machinery only every 10 or 20 years. Thus, demand for such products fluctuates—it may be high one year when a lot of customers’ machinery wears out but low the following year because everyone’s old machinery works fine.

Joint Demand

Joint demand occurs when two or more goods are necessary to create a product. For ex- ample, Porsche needs tires, batteries, and spark plugs to make that Limited Edition Boxster S that piqued your interest earlier. If the supply of one of these parts decreases, Porsche will be unable to manufacture as many automobiles, so it will not buy as many of the other items either.

inelastic demand Demand in which changes in price have little or no effect on the amount demanded.

joint demand Demand for two or more goods that are used together to create a product.

Demand for Education

Derived Demand for Paper

Derived Demand for Pulp

Derived Demand for Forestry Products

Derived Demand for Textbooks

Figure 6.8 Process | Derived Demand B2B demand is derived demand. That is, the demand is derived directly or indirectly from consumer demand for another good or service. Some of the demand for forestry products is derived indirectly from the demand for education. At least until the day when all texts are available only online, publishers will need to buy paper.

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Business Buying Situations and the Business Buying Decision Process So far we’ve talked about how B2B markets are different from con- sumer markets and about the different types of customers that make up business markets. In this section, we’ll discuss some of the impor- tant characteristics of business buying situations. This is important because just like companies that sell to end-user consumers, a suc- cessful B2B marketer needs to understand how his or her customers make decisions. Armed with this knowledge, the company is able to participate in the buyer’s decision process from the start.

The Buyclass Framework Like end-user consumers, business buyers spend more time and effort on some purchases than on others. This usually depends on the complexity of the product and how often they need to make the decision. A buyclass framework, as Figure 6.9 illustrates, identifies the degree of effort required of the firm’s personnel to collect information and make a pur- chase decision. These classes, which apply to three different buying situations, are straight rebuys, modified rebuys, and new-task buys.

Straight Rebuy

A straight rebuy refers to the routine purchase of items that a B2B customer regularly needs. The buyer has purchased the same items many times before and routinely reor- ders them when supplies are low, often from the same suppliers. Reordering the items takes little time. Buyers typically maintain a list of approved vendors that have demon- strated their ability to meet the firm’s criteria for pricing, quality, service, and delivery. GE Healthcare’s customers routinely purchase its line of basic surgical scrubs (the cloth- ing and caps doctors and nurses wear in the operating room) without much evaluation on each occasion.

Because straight rebuys often contribute the “bread-and-butter” revenue a firm needs to maintain a steady stream of income, many business marketers go to great lengths to

cultivate and maintain relationships with customers who submit reorders on a regular basis. Salespeople may regularly call on these customers to personally handle orders and to see if there are ad- ditional products the customer needs—and to take the purchasing agent to lunch. The goal is to be sure that the customer doesn’t even think twice about just buying the same product every time he or she runs low. Rebuys keep a supplier’s sales volume up and help cover selling costs.

Modified Rebuy

Life is sweet for companies whose customers automatically do straight rebuys. Unfortunately, these situations don’t last forever. A modified rebuy occurs when a firm decides to shop around for suppliers with better prices, quality, or delivery times. This situa- tion also can occur when the organization confronts new needs for products it already buys. A buyer who purchased many BlackBerry smartphones, for example, may have to reevaluate several other op- tions if the firm upgrades its cellular telecommunications system.

buyclass One of three classifications of business buying situations that characterizes the degree of time and effort required to make a decision.

straight rebuy A buying situation in which business buyers make routine purchases that require minimal decision making.

modified rebuy A buying situation classification used by business buyers to categorize a previously made purchase that involves some change and that requires limited decision making.

6.5 OBJECTIVE Identify and describe the different business buying situations and the business buying decision process including the use of e-commerce and social media.

(pp. 186–194)

Business Buying

Situations

Modified Rebuy

Straight Rebuy

New- Task Buy

Figure 6.9 Snapshot | Elements of the Buyclass Framework

The classes of the buyclass framework relate to three different organizational buying situations: straight rebuy, modified rebuy, and new-task buy.

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Modified rebuys require more time and effort than straight rebuys. The buyer gen- erally knows the purchase requirements and has a few potential suppliers in mind. Marketers know that modified rebuys can mean that some vendors get added to a buyer’s approved supplier list, whereas others may be dropped. So even if in the past a company purchased its smartphones from Blackberry, this doesn’t necessarily mean it will do so in the future as this company’s operating system steadily loses ground to newer rivals. Now, other platforms, like Apple and Google’s Android, may gain approved supplier status going forward, and the race is on. Astute marketers routinely call on buyers to detect and define problems that can lead to winning or losing in such situations.

New-Task Buy

A first-time purchase is a new-task buy. Uncertainty and risk characterize buying decisions in this classification, and they require the most effort because the buyer has no previous experience on which to base a decision.

Your university, for example, may decide (if it hasn’t done so already) to develop “active-learning” classrooms. Furnishing the classrooms for a different form of learning that will meet the needs of classes in different disciplines is a complex new-task buy for a school. In new-task buying situations, not only do buyers lack experience with the product, but they also are often unfamiliar with firms that supply the product. Supplier choice is critical, and buyers gather much information about quality, pricing, delivery, and service from several potential suppliers.

Marketers know that to get the order in a new-buy situation, they must develop a close working relationship with the business buyer. There are many situations in which marketers focus on selling their product by wooing people who recommend their prod- ucts—over and above the end consumers who actually buy them. To use an example close to home, think about all of the goods and services that make up the higher-education industry. For instance, even though you are the one who shelled out the money for this extremely awesome text, your professor was the one who made the exceptionally wise decision to assign it. He or she made this choice (did we mention it was a really wise choice?) only after carefully considering numerous texts and talking to several publishers’ sales representatives.

Professional Buyers and Buying Centers Just as it is important for marketers of consumer goods and services to understand their customers, it’s essential that B2B marketers understand who handles the buying for their business customers. Trained professional buyers typically carry out buying in B2B markets. These people have titles such as purchasing agents, procurement officers, or directors of materi- als management.

Although some consumers like to shop ’til they drop almost every day, most of us spend far less time roaming the aisles. However, professional purchasers do it all day, every day—it’s their job and their business to buy. These individuals focus on economic factors beyond the initial price of the product, including transportation and delivery charges, ac- cessory products or supplies, maintenance, and other ongoing costs. They are responsible for selecting quality products and ensuring their timely delivery. They shop as if their jobs depend on it—because they do.

Many times in business buying situations, several people—ranging from a production worker to the CFO—work together to reach a decision. The buying center is the group of people in the organization who participate in the decision-making process. Although this term may conjure up an image of “command central” buzzing with purchasing activity, a buying center is not a place at all. Instead, it is a cross-functional team of decision makers. Generally, the members of a buying center have some expertise or interest in the particular decision, and as a group they are able to make the best decision.

new-task buy A new business-to-business purchase that is complex or risky and that requires extensive decision making.

buying center The group of people in an organization who participate in a purchasing decision.

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Depending on the complexity of the purchase and the size of the buying center, a par- ticipant may assume one, several, or all of the six roles that Table 6.3 shows. Let’s review them now.

The initiator begins the buying process by first recognizing that the firm needs to make a purchase. A production employee, for example, may notice that a piece of equipment is not working properly and notify a supervisor that it is slowing up the production line. Depending on the initiator’s position in the organization and the type of purchase, the initiator may or may not influence the actual purchase decision. For marketers, it’s important to make sure that individuals who might initiate a purchase are aware of improved products they offer.

The user is the member of the buying center who actually needs the product. The user’s role in the buying center varies. For example, an administrative assistant may give her input on the features a new copier should have because she will be chained to it for several hours a day. Marketers need to inform users of their products’ benefits, especially if the benefits outweigh those that competitors offer.

The gatekeeper is the person who controls the flow of information to other members. Typically, the gatekeeper is the purchasing agent, who gathers information and mate- rials from salespeople, schedules sales presentations, and controls suppliers’ access to other participants in the buying process. For salespeople, developing and maintaining strong personal relationships with gatekeepers is critical to being able to offer their products to the buying center.

An influencer affects the buying decision when he or she dispenses advice or shares expertise. Highly trained employees, like engineers, quality control specialists, and other technical experts in the firm, generally have a great deal of influence in pur- chasing equipment, materials, and component parts the company uses in produc- tion. The influencers may or may not wind up using the product. Marketers need to identify key influencers in the buying center and persuade them of their product’s superiority.

The decider is the member of the buying center who makes the final decision. This per- son usually has the greatest power within the buying center; he or she often has power within the organization to authorize spending the company’s money. For a routine purchase, the decider may be the purchasing agent. If the purchase is complex, a man- ager or even the CEO may be the decider. The decider is critical to a marketer’s success and deserves a lot of attention in the selling process.

The buyer is the person who has responsibility to execute the purchase. The buyer obtains competing bids, negotiates contracts, and arranges delivery dates and

Table 6.3 | Roles in the Buying Center Role Potential Player Responsibility

� Initiator

� User

� Gatekeeper

� Influencer

� Decider

� Buyer

� Production employees, sales manager, almost anyone

� Production employees, secretaries, almost anyone

� Buyer/purchasing agent

� Engineers, quality control experts, technical specialists, outside consultants

� Purchasing agent, managers, CEO

� Purchasing agent

� Recognizes that a purchase needs to be made

� Individual(s) who will ultimately use the product

� Controls flow of information to others in the organization

� Affects decision by giving advice and sharing expertise

� Makes the final purchase decision

� Executes the purchase decision

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payment plans. Once a firm makes the purchase decision, marketers turn their attention to negotiating the details of the purchase with the buyer. Successful marketers are well aware that providing exemplary service in this stage of the purchase can be a critical factor in achieving future sales from this client.

The Business Buying Decision Process We’ve seen that there are a number of players in the business buying process, begin- ning with an initiator and ending with a buyer. To make matters even more chal- lenging to marketers, members of the buying team go through several stages in the decision-making process before the marketer gets an order. The business buying deci- sion process, as Figure 6.10 shows, is a series of steps similar to those in the con- sumer decision process we discussed previously in this chapter. To help understand these steps, let’s say you’ve just started working at the Way Radical Skateboard Company and your boss just assigned you to the buying center for the purchase of new software for web page design—a new-task buy for your firm.

Step 1: Recognize the Problem

As in consumer buying, the first step in the business buying decision process oc- curs when someone sees that a purchase can solve a problem. For straight rebuy purchases, this may occur because the firm has run out of paper, pens, or garbage bags. In these cases, the buyer places the order, and the decision-making process ends. Recognition of the need for modified rebuy purchases often comes when the organization wants to replace outdated existing equipment, from changes in technology, or from an ad, brochure, or some other marketing communication that offers the customer a better product or one at a lower price. Two events may occur in the problem-recognition step. First, a firm makes a request or requisition, usually in writing. Then, depending on the complexity of the purchase, the firm may form a buying center. The need for new-task purchases often occurs because the firm wants to enhance its operations in some way or when a smart salesperson tells the business customer about a new product that will increase the efficiency of the firm’s opera- tions or improve the firm’s end products.

Step 2: Search for Information

In the second step of the decision process (for purchases other than straight rebuys), the buying center searches for information about products and suppliers. Members of the buying center may individually or collectively refer to reports in trade magazines and journals, seek advice from outside consultants, and pay close attention to marketing com- munications from different manufacturers and suppliers. As in consumer marketing, it’s the job of marketers to make sure that information is available when and where business customers want it—by placing ads in trade magazines, by mailing brochures and other printed material to prospects, by having a well-trained sales force regularly calling on customers to build long-term relationships and by skillful use of the Internet. We’ll talk more about how B2B firms can use the Internet and social media to increase their sales later in this chapter.

There are thousands of specialized publications out there that cater to just about any industry you can think of. Usually sponsored by leading industry trade associations, each is bursting with information from competing companies that cater to a specific niche. Who needs that fluffy romance novel at the beach? Try leafing through the latest issue of Chemical Processing or Meat and Poultry Magazine instead.

Of course, sometimes B2B marketers try to get the information about their prod- uct into the hands of buyers via less specialized media. For example, in recent years

Step 5: Evaluate Postpurchase

• Survey users •�Document performance

Step 1: Recognize the problem

• Make purchase requisition or request • Form buying center, if needed

Step 2: Search for Information

• Develop product specifications •�Identify potential suppliers •�Obtain proposals and quotations

Step 3: Evaluate the Alternatives

• Evaluate proposals •�Obtain and evaluate samples

Step 4: Select the Product and Supplier

• Issue purchase order

Figure 6.10 Process | Steps in the Business Buying Decision Process

The steps in the business buying decision process are the same as those in the consumer decision process. But for business purchases, each step may be far more complex and require more attention from marketers.

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AFLAC—the American Family Life Assurance Company of Columbus (the firm behind the famous duck)—has heavily advertised on TV even though most of its customers are in the B2B space. In fact, many end-user consumers don’t have the foggiest notion what AFLAC sells—but they sure love to “quack up” over the duck’s antics. The truth is, AFLAC’s pri- mary business is working with businesses (more than 400,000 of them, in fact) to enhance their employee benefits packages with various types of insurance and other benefits in order to improve recruiting and retention of the firms’ people. But their strategy of adver- tising directly on mass media was brilliant; now when an organizational buyer or human resources manager searches for these services, AFLAC’s name will surely be at the top of the list. Now there’s a duck that’s not out of water!46

Business buyers often develop product specifications, that is, a written descrip- tion of the quality, size, weight, color, features, quantity, training, warranty, service terms, and delivery requirements for the purchase. When the product needs are com- plex or technical, engineers and other experts are the key players who identify specific product characteristics they require and determine whether the organizations can get by with standardized, off-the-shelf items or if they need to acquire customized, made- to-order goods and services. Once the product specifications are in hand, the next step is to identify potential suppliers and obtain written or verbal proposals, or bids, from one or more of them. For standardized or branded products in which there are few if any differences in the products of different suppliers, this may be as simple as an informal request for pricing information, including discounts, shipping charges, and confirmation of delivery dates. At other times, the potential suppliers receive a formal written request for proposal or request for quotation that requires detailed information from vendors.

Step 3: Evaluate the Alternatives

In this stage of the business buying decision process, the buying center assesses the proposals it receives. Total spending for goods and services can have a major impact on the firm’s profitability, so, all other things being equal, price can be a primary consider- ation. Pricing evaluations must take into account discount policies for certain quantities, returned-goods policies, the cost of repair and maintenance services, terms of payment, and the cost of financing large purchases. For capital equipment, cost criteria also include the life expectancy of the purchase, the expected resale value, and disposal costs for the old equipment. In some cases, the buying center may negotiate with the preferred supplier to match the lowest bidder.

Although a firm often selects a bidder because it offers the lowest price, there are times when it bases the buying decision on other factors. For example, in its lucrative B2B market, American Express wins bids for its travel agency business because it offers extra services other agencies don’t or can’t, such as a corporate credit card, monthly reports that detail the company’s total travel expenses, and perks tied to the company’s customer loy- alty program.

The more complex and costly the purchase, the more time buyers spend searching for the best supplier—and the more marketers must do to win the order. In some cases, a company may even ask one or more of its current customers to participate in a customer reference program. In these situations, customers formally share success stories and ac- tively recommend products to other potential clients, often as part of an online community composed of people with similar needs.

Marketers often make formal presentations and product demonstrations to the buying center group. In the case of installations and large equipment, they may arrange for buyers to speak with or even visit other customers to examine how the product performs. For less complex products, the buying firm may ask potential suppliers for samples of the products so that its people can evaluate them personally. The buying center may ask salespeople

product specifications A written description of the quality, size, weight, and other details required of a product purchase.

customer reference program A formalized process by which customers formally share success stories and actively recommend products to other potential clients, usually facilitated through an online community. IS

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from various companies to demonstrate their software for your Way Radical group so that you can all compare the capabilities of different products.

Step 4: Select the Product and Supplier

Once buyers have assessed all proposals, it’s time for the rubber to hit the road. The next step in the buying process is the purchase decision when the group selects the best product and supplier to meet the organization’s needs. Reliability and durability rank especially high for equipment and systems that keep the firm’s operations running smoothly without interruption. For some purchases, warranties, repair service, and regular maintenance after the sale are important.

One of the most important decisions a buyer makes is how many suppliers can best serve the firm’s needs. Sometimes having one supplier is more beneficial to the organiza- tion than having multiple suppliers. Single sourcing, in which a buyer and seller work quite closely, is particularly important when a firm needs frequent deliveries or specialized products. Single sourcing also helps assure consistency of quality of materials input into the production process. But reliance on a single source means that the firm is at the mercy of the chosen supplier to deliver the needed goods or services without interruption. If the single source doesn’t come through, the firm’s relationship with its own end users will likely be affected.

However, using one or a few suppliers rather than many has its advantages. A firm that buys from a single supplier becomes a large customer with a lot of clout when it comes to negotiating prices and contract terms. Having one or a few suppliers also lowers the firm’s administrative costs because it has fewer invoices to pay, fewer contracts to negoti- ate, and fewer salespeople to see than if it uses many sources.

In contrast, multiple sourcing means buying a product from several different suppli- ers. Under this system, suppliers are more likely to remain price competitive. And if one supplier has problems with delivery, the firm has others to fall back on. The automotive industry practices this philosophy: A vehicle manufacturer often won’t buy a new product from a supplier unless the vendor’s rivals also are capable of making the same item. This policy tends to stifle innovation, but it does ensure a steady supply of parts to feed to the assembly line.

Sometimes supplier selection is based on reciprocity, which means that a buyer and seller agree to be each other’s customers by saying, essentially, “I’ll buy from you, and you buy from me.” For example, a firm that supplies parts to a company that manufactures trucks would agree to buy trucks from only that firm.

The U.S. government frowns on reciprocal agreements and often determines that such agreements between large firms are illegal because they limit free competition; new suppliers simply don’t have a chance against the preferred suppliers. Reciprocity between smaller firms, that is, firms that are not so large as to control a significant proportion of the business in their industry, is legal in the United States if both parties voluntarily agree to it. In other countries, reciprocity is a practice that is common and even expected in B2B marketing.

Outsourcing occurs when firms obtain outside vendors to provide goods or services that might otherwise be supplied in-house. For example, Sodexo is the world’s largest outsourcer for food and facilities management services with more than 6,000 U.S. client sites. Colleges and universities are a major category of clientele for Sodexo (are they your school’s vendor?) because these educational institutions want to focus on educating stu- dents rather than preparing and serving food. (Fortunately, your professors don’t have to cook as well as teach!)

Outsourcing is an increasingly popular strategy, but in some cases it can be contro- versial. Many critics object when U.S. companies contract with companies or individuals in remote places like China or India to perform work they used to do at home, a process

single sourcing The business practice of buying a particular product from only one supplier.

multiple sourcing The business practice of buying a particular product from several different suppliers.

reciprocity A trading partnership in which two firms agree to buy from one another.

outsourcing The business buying process of obtaining outside vendors to provide goods or services that otherwise might be supplied in house.

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known as offshoring. These tasks range from complicated jobs like writing computer code to fairly simple ones like manning reservations desks, staffing call centers for tele- phone sales, and even taking drive-through orders at U.S. fast-food restaurants. (Yes, in some cases, it’s actually more efficient for an operator in India to relay an order from a customer for a #3 Burger Combo to the restaurant’s cooks than for an on-site person to take the order.)

Yet another type of buyer–seller partnership is reverse marketing. Instead of sellers trying to identify potential customers and then “pitching” their products, buyers try to find suppliers that can produce specifically needed products and then attempt to “sell” the idea to the suppliers. Often large poultry producers practice reverse marketing. Purdue supplies baby chickens, chicken food, financing for chicken houses, medications, and ev- erything else necessary for farmers to lay “golden eggs” for the company. This assures the farmer that he or she will have a buyer while at the same time Purdue knows it can rely on a steady supply of chickens.

Step 5: Evaluate Postpurchase

Just as consumers evaluate purchases, an organizational buyer assesses whether the per- formance of the product and the supplier lives up to expectations. The buyer surveys the users to determine their satisfaction with the product as well as with the installation, deliv- ery, and service that the supplier provides. For producers of goods, this may relate to the level of satisfaction of the final consumer of the buying firm’s product. Has demand for the producer’s product increased, decreased, or stayed the same? By documenting and review- ing supplier performance, a firm decides whether to keep or drop the supplier.

An important element in postpurchase evaluation is measurement. When you think about measuring elements of a customer’s experience with a company and its products and brands, we’ll bet you automatically think about end-user consumers—like travelers’ views of their Marriott hotel stay or the taste of that new Starbucks coffee flavor. Similarly, in the B2B world, managers pay a lot of attention to the feedback they get from their cus- tomers about the purchases they’ve made.

B2B E-Commerce and Social Media We know that the Internet transformed marketing—from the creation of new products to providing more effective and efficient marketing communications to the actual distribution of some products. This is certainly true in business markets as well. Business-to-business (B2B) e-commerce refers to Internet exchanges of information, goods, services, and pay- ments between two or more businesses or organizations. It’s not as glitzy as consumer e-commerce, but it sure has changed the way businesses operate. Using the Internet for e-commerce allows business marketers to link directly to suppliers, factories, distributors, and their customers, radically reducing the time necessary for order and delivery of goods, tracking sales, and getting feedback from customers.

In the simplest form of B2B e-commerce, the Internet provides an online catalog of goods and services that businesses need. Companies find that their Internet site is impor- tant to deliver online technical support, product information, order status information, and customer service to corporate customers. Many companies, for example, save millions of dollars a year when they replace hard-copy manuals with electronic downloads. And, of course, B2B e-commerce creates some exciting opportunities for a variety of B2B service industries.

Intranets and Extranets

Although the Internet is the primary means of B2B e-commerce, many companies maintain an intranet, which provides a more secure means of conducting business. As we said in

offshoring A process by which companies contract with companies or individuals in remote places like China or India to perform work they used to do at home.

reverse marketing A business practice in which a buyer firm attempts to identify suppliers who will produce products according to the buyer firm’s specifications.

business-to-business (B2B) e-commerce Online exchanges between companies and individual consumers.

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Chapter 4, this term refers to an internal corporate computer network that uses Internet technology to link a company’s departments, employees, and databases. Intranets give access only to authorized employees. They allow companies to process internal transac- tions with greater control and consistency because of stricter security measures than those they can use on the entire web. Businesses also use intranets to videoconference, distrib- ute internal documents, communicate with geographically dispersed branches, and train employees.

In contrast to an intranet, an extranet allows certain suppliers, customers, and others outside the organization to access a company’s internal system. A business customer that a company authorizes to use its extranet can place orders online. Extranets can be especially useful for companies that need to have secure communications between the company and its dealers, distributors, or franchisees. As you can imagine, intranets and extranets are cost efficient and save money for organizations.

In addition to saving companies money, extranets allow business partners to col- laborate on projects (such as product design) and build relationships. GE’s extranet, the Trading Process Network, began as a set of online purchasing procedures and has morphed into an extensive online extranet community that connects GE with large buyers, such as Con Edison.

The Dark Side of B2B E-Commerce

Doing business the web-enabled way sounds great—perhaps too great. There are also security risks because so much information gets passed around in cyberspace. You’ve no doubt heard stories about hackers obtaining vast lists of consumers’ credit card numbers from a number of retailers including Target and Neiman-Marcus. But companies have even greater worries. When hackers break into company sites, they can destroy company records and steal trade secrets. Both B2C and B2B e-commerce companies worry about authentication and ensuring that transactions are secure. This means making sure that only authorized individuals are allowed to access a site and place an order. Maintaining security also requires firms to keep the information transferred as part of a transaction, such as a credit card number, from criminals’ hard drives.

Well-meaning employees also can create security problems. They can give out unau- thorized access to company computer systems by being careless about keeping their pass- words into the system a secret. For example, hackers can guess at obvious passwords— nicknames, birth dates, hobbies, or a spouse’s name.

Some employees (and even nonemployees) are not so well-meaning; they deliberately create security breaches by leaking confidential documents or hacking into an organiza- tion’s computer system for sensitive information. Edward Snowden became famous (or, rather, infamous) for his role in leaking thousands of classified documents to the media while working as a consultant for the National Security Agency. And Target’s computer system was breached when hackers installed malware (software designed specifically to damage or disrupt computer systems) that captured more than 40 million credit card num- bers and other customer data despite safeguards the retailer had in place.47

To increase security of their Internet sites and transactions, most companies now have safeguards in place—firewalls and encryption devices, to name the two most common methods, though, as we saw with Target, even these safeguards aren’t always 100 percent hacker-proof.

A firewall is a combination of hardware and software that ensures that only autho- rized individuals gain entry into a computer system. The firewall monitors and controls all traffic between the Internet and the intranet to restrict access. Companies may even place additional firewalls within their intranet when they wish only designated employees to have access to certain parts of the system. Although firewalls can be fairly effective (even though none is totally foolproof), they require costly, constant monitoring.

intranet An internal corporate communication network that uses Internet technology to link company departments, employees, and databases.

extranet A private, corporate computer network that links company departments, employees, and databases to suppliers, customers, and others outside the organization.

malware Software designed specifically to damage or disrupt computer systems.

firewall A combination of hardware and software that ensures that only authorized individuals gain entry into a computer system.

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Encryption means scrambling a message so that only another individual (or computer) with the right “key” can unscramble it. Otherwise, it looks like gobbledygook. The mes- sage is inaccessible without the appropriate encryption software—kind of like a decoder ring your favorite superhero might wear. Without encryption, it would be easy for unethi- cal people to get a credit card number by creating a “sniffer” program that intercepts and reads messages. A sniffer finds messages with four blocks of four numbers, copies the data, and voilà!—someone else has your credit card number.

Despite firewalls, encryption, and other security measures, web security for B2B mar- keters remains a serious problem. The threat to intranet and extranet usage goes beyond competitive espionage. The increasing sophistication of hackers and Internet criminals who create viruses and worms and other approaches to disrupting individual computers and entire company systems mean that all organizations—and consumers—are vulnerable to attacks and must remain vigilant.

B2B and Social Media

Although most of us associate business use of social media such as Facebook, LinkedIn, and Twitter with consumer marketing, B2B organizations are increasing their use of and their budgets for social media:48

A recent study found three social media sites that B2B marketers are most likely to use: LinkedIn (91 percent), Twitter (85 percent), and Facebook (81 percent). Effectiveness ratings for the three sites were lower: LinkedIn (62 percent), Twitter (50 percent), and Facebook (30 percent).

Forty-five percent of B2B marketers have gained a customer through LinkedIn.

Job postings on LinkedIn for social media marketers have increased by 1,300 percent since 2010.

Seventy-six percent of B2B marketers say they maintain company blogs, and 52 per- cent say it is an important to their company for communicating content.

How do B2B marketers use social media? Eighty-three percent say they use sites to increase brand exposure, 69 percent to increase web traffic, and 65 percent to gain marketing insights.

Why are B2B and marketers turning to social media? Many say they are tired of the normal impersonal communication of advertising and that social media allow them to relate to one another.

In 2013, global Internet ad spending including that by B2B firms grew to second place (20.6 percent) behind TV (40.2 percent), while newspaper advertising dropped to only 17.0 percent of total ad spending.

As with consumer marketing, a number of strategies can be successful in using so- cial media marketing for B2B firms.49 First, social media sites are good sources of infor- mation to identify target audiences. It’s helpful to know which potential customers your competitors interact with on social media. And, one of the most important uses of social media for both consumer marketers and business marketers is to monitor what your cus- tomers and others say about your product, your firm, and your competitors. A number of tools, such as Google Analytics, Radian6, and Social Mention, have been developed for this purpose. Social media provide platforms for marketers or consumers to join in conversations, get answers to their questions, and share experiences. Marketers who un- derstand social media contribute to conversations on Twitter, Facebook, and blogs. They give good answers to questions and establish their credibility and a leadership position in the industry.

encryption The process of scrambling a message so that only another individual (or computer) with the right “key” can unscramble it.

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MyMarketingLab™ Go to mymktlab.com to complete the problems marked with this icon as well as additional Marketing Metrics questions only available in MyMarketingLab.

Objective Summary Key Terms Apply CHAPTER 6

Study Map

6.1 Objective Summary (pp. 160–166) Define consumer behavior, and explain the pur- chase decision-making process. Consumer behavior is the process individuals or groups go through to select, purchase, use, and dispose of goods, ser- vices, ideas, or experiences to satisfy their needs and desires. Consumer decisions differ greatly, ranging from habitual, repeat (low-involvement) purchases to complex, extended problem- solving activities for important, risky (high-involvement) pur- chases. When consumers make important purchases, they go through a series of five steps. First, they recognize there is a problem to be solved. Then they search for information to make the best decision. Next, they evaluate a set of alternatives and judge them on the basis of various evaluative criteria. At this point, they are ready to make their purchasing decision. Following the purchase, consumers decide whether the product matched their expectations and may develop anxiety or regret or cognitive dissonance.

Key Terms consumer behavior, p. 160

involvement, p. 161

perceived risk, p. 161

problem recognition, p. 162

information search, p. 163

evoked set, p. 164

consideration set, p. 164

comparison shopping agents or shopbots, p. 164

determinant attributes, p. 164

evaluative criteria, p. 164

compensatory decision rules, p. 165

heuristics, p. 165

brand loyalty, p. 165

consumer satisfaction/dissatisfaction, p. 165

cognitive dissonance, p. 165

6.2 Objective Summary (pp. 166–174) Explain how internal factors influence consumers’ decision-making processes. Several internal factors influence consumer decisions. Perception is how consumers select, organize, and interpret stimuli. Motivation is an internal state that drives consumers to satisfy needs. Learning is a change in behavior that results from information or experience. Behavioral learning results from external events, whereas cognitive learning refers to internal mental activity. An attitude is a lasting evaluation of a person, object, or issue and includes three components: af- fect, cognition, and behavior. Personality influences how con- sumers respond to situations in the environment. Marketers seek to understand a consumer’s self-concept to develop product attributes that match some aspect of the consumer’s self-concept.

The age of consumers, family life cycle, and their life- style also are strongly related to consumption preferences. Marketers may use psychographics to group people according to activities, interests, and opinions that may explain reasons for purchasing products.

Key Terms perception, p. 166

exposure, p. 167

subliminal advertising, p. 167

attention, p. 167

multitasking, p. 168

rich media, p. 168

interpretation, p. 168

motivation, p. 168

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subculture, p. 176

microcultures, p. 176

consumerism, p. 176

conscientious consumerism, p. 177

social class, p. 177

status symbols, p. 177

mass class, p. 177

reference group, p. 177

opinion leader, p. 178

gender roles, p. 178

6.4 Objective Summary (pp. 179–185) Understand the characteristics of business- to-business markets and business-to-business market demand and how marketers classify business-to-business customers. B2B markets include business or organizational customers that buy goods and services for purposes other than personal consumption. Business customers include producers, resell- ers, governments, and not-for-profit organizations. Producers purchase materials, parts, and various goods and services needed to produce other goods and services to be sold at a profit. Resellers purchase finished goods to resell at a profit as well as other goods and services to maintain their operations. Governments and other not-for-profit organizations purchase the goods and services necessary to fulfill their objectives. The NAICS, a numerical coding system developed by NAFTA coun- tries, is a widely used classification system for business and organizational markets.

There are a number of major and minor differences be- tween organizational and consumer markets. To be successful, marketers must understand these differences and develop strategies that can be effective with organizational customers. For example, business customers are usually few in number, they may be geographically concentrated, and they often purchase higher-priced products in larger quantities. Business demand derives from the demand for another good or service, is generally not affected by price increases or decreases, is sub- ject to great fluctuations, and may be tied to the demand and availability of some other good.

Key Terms business-to-business (B2B) markets, p. 180

organizational markets, p. 180

producers, p. 180

resellers, p. 181

government markets, p. 181

North American Industry Classification System (NAICS), p. 182

derived demand, p. 184

inelastic demand, p. 185

joint demand, p. 185

hierarchy of needs, p. 169

gamification, p. 169

learning, p. 170

behavioral learning theories, p. 170

classical conditioning, p. 170

operant conditioning, p. 170

data brokers, p. 170

cognitive learning theory, p. 171

observational learning, p. 171

attitude, p. 171

affect, p. 171

sadvertising, p. 171

cognition, p. 171

behavior, p. 172

personality, p. 172

self-concept, p. 172

family life cycle, p. 173

lifestyle, p. 173

psychographics, p. 174

activities, interests, and opinions (AIOs), p. 174

6.3 Objective Summary (pp. 174–179) Show how situational factors and consumers’ relationships with other people influence con- sumer behavior. Situational influences include our physical surroundings and time pressures. Dimensions of the physical environment create arousal and pleasure and can determine how consumers react to the environment. The time of day, the season of the year, and how much time one has to make a purchase also affect decision making.

Consumers’ overall preferences for products are deter- mined by their membership in cultures and subcultures and by cultural values such as collectivism and individualism. Consumerism is a social movement directed toward protect- ing consumers from harmful business practices. Social class, group memberships, and opinion leaders are other types of social influences that affect consumer choices. A reference group is a set of people a consumer wants to please or imi- tate, and this affects the consumer’s purchasing decisions. Purchases also result from conformity to real or imagined group pressures. Another way social influence is felt is in the expectations of society regarding the proper roles for men and women. Such expectations have led to many gender- typed products.

Key Terms sensory marketing, p. 174

sensory branding, p. 175

time poverty, p. 175

culture, p. 176

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media to gather information on target audiences, increase brand exposure and web traffic, monitor what customers and others are saying, and provide a platform for conversations with customers.

Key Terms buyclass, p. 186

straight rebuy, p. 186

modified rebuy, p. 186

new-task buy, p. 187

buying center, p. 187

product specifications, p. 190

customer reference program, p. 190

single sourcing, p. 191

multiple sourcing, p. 191

reciprocity, p. 191

outsourcing, p. 191

offshoring, p. 192

reverse marketing, p. 192

business-to-business (B2B) e-commerce, p. 192

intranet, p. 193

extranet, p. 193

malware, p. 193

firewall, p. 193

encryption, p. 194

6.5 Objective Summary (pp. 186–194) Identify and describe the different business buy- ing situations and the business buying decision process including the use of e-commerce and so- cial media. The buyclass framework identifies the degree and effort re- quired to make a business buying decision. Purchase situations can be straight rebuy, modified rebuy, and new-task buying. A buying center is a group of people who work together to make a buying decision. The roles in the buying center are (1) the initiator, who recognizes the need for a purchase; (2) the user, who will ultimately use the product; (3) the gatekeeper, who controls the flow of information to others; (4) the influ- encer, who shares advice and expertise; (5) the decider, who makes the final decision; and (6) the buyer, who executes the purchase. The steps in the business buying process are similar to those in the consumer decision process but are of- ten somewhat more complex. For example, in the search for information, B2B firms often develop written product specifi- cations, identify potential suppliers, and obtain proposals and quotations.

B2B e-commerce refers to Internet exchanges of infor- mation, goods and services, and payments between two or more businesses or organizations. B2B firms often maintain intranets that give access only to employees or extranets that allow access to certain suppliers and other outsiders. Firms often install firewalls and use encryption to prevent problems from hackers and other threats to the security of the firm’s intranets and extranets. B2B firms are increasingly using social

6-10. What is family life cycle? 6-11. Explain what lifestyle means. 6-12. How do situational influences, such as the physical en-

vironment and time, shape consumer purchase deci- sions?

6-13. What are cultures, subcultures, and microcultures? 6-14. What is the significance of social class to marketers? 6-15. What are reference groups, and how do they influence

consumers? 6-16. What are opinion leaders? 6-17. What are gender roles? Define this term and give an

example. 6-18. How do B2B markets differ from consumer markets? 6-19. Explain what we mean by derived demand, inelastic

demand, fluctuating demand, and joint demand. 6-20. How do we generally classify B2B markets? 6-21. Describe the buyclass framework. What are new-task

buys, modified rebuys, and straight rebuys? 6-22. What is a buying center? What are the roles of the

members of in a buying center?

Concepts: Test Your Knowledge

6-1. What is consumer behavior? Why is it important for marketers to understand consumer behavior?

6-2. Explain habitual decision making, limited problem solv- ing, and extended problem solving. What is the role of perceived risk in the decision process?

6-3. Explain the steps in the consumer decision-making pro- cess.

6-4. What is perception? Explain the three parts of the per- ception process: exposure, attention, and interpreta- tion.

6-5. Describe Maslow’s hierarchy of needs as it relates to motivation.

6-6. How does gamification influence consumers’ motiva- tion to interact with brands?

6-7. What is behavioral learning? What is cognitive learn- ing?

6-8. What are the three components of attitudes? 6-9. What is personality?

MyMarketingLab™ Go to mymktlab.com to watch this chapter’s Rising Star video(s) for career advice and to respond to questions.

Chapter Questions and Activities

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of products used in landscaping. Your customers are municipalities that range in size from very large to very small. Your company offers its customers a wide range of products—everything from simple rakes and shovels to large heavy duty tractors and computer- ized irrigation equipment. Thus, purchases made by your customers include straight rebuys, modified re- buys, and new-task purchases. You have a meeting scheduled this week with your regional sales man- ager. He wants to talk about how you can get the business for all types of purchases. Develop an outline of your planned discussion on this. Then with a class- mate, present your ideas to your boss in a role-playing situation.

6-31. For Further Research (Individual) In this chapter, we learned that firms may use rich media in their messag- es online to create interaction and engagement with consumers. “Surf” the web and find at least three ex- amples of rich media. Develop a report that describes the three rich media examples you found, what you believe the advertiser was seeking to gain in terms of interaction and engagement, and your opinion about the rich media suggestions for use in this ad and how it might be improved.

6-32. For Further Research (Groups) We learned in this chap- ter that when considering a product need, consumers have an evoked set of brands and a consideration set of brands. With some of your classmates, conduct a simple research study and explain your results using the following steps. a. Select a product that students in college would

might purchase. b. Develop a questionnaire that you will ask stu-

dent participants to complete. The questionnaire should ask students to list all of the brands of the product you have selected that they are aware of. Give them at least five minutes to complete this question.

c. Then ask them to tell you which ones would they seriously consider buying if they were going to make a purchase today.

d. Develop a report using the results of the survey. What conclusions can you draw from the research?

Concepts: Apply Marketing Metrics

B2B customers (clients) are busy professionals and thus are no- toriously reluctant to take time to provide data to marketers. To measure important issues described in the chapter, such as overall client satisfaction, service quality by the vendor firm, level of customer engagement, repurchase intentions, and speed and effectiveness of problem resolution, marketers must employ the most user-friendly and efficient data collection methods available when dealing with these professional busi- ness clients. Otherwise, it is highly unlikely that they will take time to provide any useful data for market planning and deci- sion making.

6-23. Explain the steps in the business buying decision pro- cess.

6-24. What is single sourcing? Multiple sourcing? Outsourc- ing?

6-25. Explain the role of intranets and extranets in B2B e- commerce. Describe the security issues firms face in B2B e-commerce and some safeguards firms use to reduce their security risks.

Activities: Apply What You’ve Learned

6-26. Creative Homework/Short Project This chapter indicat- ed that consumers go through a series of steps (from problem recognition to postpurchase evaluation) as they make purchases. Write a detailed report describ- ing what you as a consumer would do in each of these steps when deciding to purchase one of the following products: a. A suit for an upcoming job interview b. A piece of jewelry to be given to a special friend for

his or her birthday c. A fast-food lunch d. A Christmas tree Then make suggestions for what marketers might do to make sure that consumers like you who are going through each step in the consumer decision process move toward the purchase of their brand. (Hint: Think about product, place, price, and promotion strategies.)

6-27. In Class, 10–25 Minutes for Teams During the last week of class, your professor explains how she wants to employ a gamification strategy next semester to fur- ther motivate and engage students, and she is asking for your help. Develop a simple gamification strategy that she can use in the classroom. Describe what the goals should be, how progress will be measured, and what the reward system will be.

6-28. Creative Homework/Short Project You probably had more than one school in mind before you ultimately decided on the college or university you are now at- tending. To better understand how consumers make decisions, prepare an outline that shows how inter- nal influences like perception, motivation, and so on had an impact on the decision you made about which school to attend. Include specific examples for each type of internal influence in your outline.

6-29. Creative Homework/Short Project Think about some of the goods and services you purchase each month (piz- za on Saturday night or your smartphone bill) as well as a few impulse purchases you might make (new music from iTunes). Categorize each of these items accord- ing to Maslow’s hierarchy of needs. Explain why your budget does or doesn’t match this hierarchy of needs (i.e., most of your budget goes toward physiological needs, followed by safety needs, etc.). What does this say about your motivations?

6-30. In Class, 10–25 Minutes for Teams Assume you are a sales representative for a firm that sells a variety

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6-40. Ethics When firms implement a single sourcing policy in their buying, other possible suppliers do not have an opportunity to compete for the business. Is this ethi- cal? What are the advantages to the company? What are the disadvantages?

6-41. Critical Thinking In the buying center, the gatekeeper controls information flow to others in the center. Thus, the gatekeeper determines which possible sellers are heard and which are not. Does the gatekeeper have too much power? What policies might be implement- ed to make sure that all possible sellers are treated fairly?

6-42. Critical Thinking Outsourcing and offshoring are prac- tices often surrounded by controversy. What are the benefits of outsourcing for businesses? For consum- ers? What are the disadvantages of outsourcing for businesses? For consumers? Should outsourcing be regulated to protect U.S. interests both at home and abroad? Why or why not?

Miniproject: Learn by Doing

The purpose of this miniproject is to increase your understand- ing of the process that consumers go through when making a purchase decision. First, select one of the following products (or some other product of your choice) that now, or in the future, you might be in the market for.

� New or used car � Spring break vacation � Apartment � Computer or smart phone

6-43. Problem Recognition Describe the problem that might lead you to purchase this product.

6-44. Information Search Use the Internet to gather some initial information about the product you chose. Visit at least two stores or locations where the product may be purchased to gather further information.

6-45. Evaluation of Alternatives Identify at least five alterna- tive product options that you are interested in. Narrow down your selection to two or three choices. Which are the most feasible? What are the pros and cons of each?

6-46. Product Choice Make a final decision about which product you will purchase. Describe the heuristics that aided in your decision making.

6-47. Postpurchase Evaluation If this is a product you have actually purchased, explain the reasoning behind your current satisfaction or dissatisfaction with the product. If not, develop several reasons you might be satisfied or dissatisfied with the product.

6-48. Prepare a report that explains in detail the decision- making process for the product in your purchase scenario.

6-33. Take a few minutes to go back and briefly review what you learned in Chapter 4 about the different approach- es to collecting data. Propose an approach to collecting the types of information from a busy B2B customer in a way that is most likely to result in his or her coopera- tion. Be as specific as you can in describing your chosen approach and explain why you selected it.

Choices: What Do You Think?

6-34. Critical Thinking Changing demographics and cultural values are important to marketers. List at least three current trends that may affect the successful marketing of the following products: a. Housing b. Food c. Education d. Clothing e. Travel and tourism f. Automobiles

6-35. Critical Thinking Consumers often buy products be- cause they feel pressure from reference groups to con- form. Does conformity exert a positive or a negative influence on consumers? With what types of products is conformity more likely to occur?

6-36. Ethics Marketers have been shelling out the bucks on sensory marketing techniques for years to appeal to your subconscious mind. And studies show that it works. But is sensory marketing fair? Some say it’s a way to enhance the purchasing process, while others say marketers are unethically manipulating consumers. What are some of the pros and cons associated with sensory marketing? What is your position?

6-37. Critical Thinking E-commerce is dramatically chang- ing the way B2B transactions take place. What are the advantages of B2B e-commerce to companies? To society? Are there any disadvantages of B2B e-commerce?

6-38. Critical Thinking Mobile commerce (m-commerce) is a rapidly growing category of e-commerce that takes place via a smart phone or tablet instead of a desktop or laptop computer. How has m-commerce changed the way consumers shop? What do marketers need to do now and in the future to better support their m- commerce customers? What do you think the future of m-commerce will be?

6-39. Critical Thinking The practice of buying business products based on sealed competitive bids is popular among all types of business buyers. What are the ad- vantages and disadvantages of this practice to buyers? What are the advantages and disadvantages to sellers? Should companies always give the business to the low- est bidder? Why or why not?

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Marketing in Action Case Real Choices at Airbus

There is always room for more. At least that’s what Airbus thinks. It has improved on its A320 product family (the world’s best-selling aircraft) and introduced the A320neo (new engine option). The A320neo is available with two different engine configurations and will be a more fuel-efficient, single-aisle aircraft, for purchasing by the world’s airlines. According to Airbus’s estimates, the A320neo family of aircraft will lower per- seat fuel burn by 20 percent while providing additional range, reduced engine noise, and lower pollution emissions.

To create this level of efficiency, the new engine options are accompanied by Sharklets wingtips, which not only provide for better fuel efficiency but also add more passenger comfort. Sharklets cut down aerodynamic drag and offer airlines up to four percent fuel burn reduction on longer-range flights. The Sharklets derive their name from their resemblance to a shark’s fin, are made from light-weight composites and are 2.4 meters tall. With other aerodynamic refinements and significant weight savings, the A320neo has an increased range of approximately 500 nautical miles. The interior enhancements incorporate a re- designed cabin that offers larger carry-on luggage space and an upgraded air purification system. The cabin upgrades will allow for 20 additional revenue-generating passengers.

Airbus also offers its customers other NEO type of aircraft including the A319neo and A321neo versions. These new planes share 95 percent of the spare parts used by their currently avail- able versions. More compatibility will allow current A320 cus- tomers to make use of parts and equipment that they already own, thereby lowering implementation costs. In addition, the new aircraft include a variety of other improvements over current aircraft.

Airbus’s greatest competition for the A320neo is from Boeing’s most recent entry into the short-haul airliner market, the 737 MAX. Boeing’s Senior Vice President of Program Man- agement, Scott Fancher, calls this medium-size airplane “the heart of the market.” The 737 MAX boasts increased fuel ef- ficiency as the result of a redesigned wing, improved interface of the wing and engine, and the use of winglets. Boeing, how- ever, is behind Airbus. The 787 MAX program is operating ap- proximately 18 months behind Airbus. Boeing did not have its first flight of the 737 MAX until after the initial delivery of the Airbus A320neo. As of December 2015, Boeing had 3,072 firm orders for the new aircraft and the first 737 MAX is scheduled for delivery in 2017.

Since early 2015, there have been more than 4,500 worldwide orders for aircraft in the A320neo product line. In January 2016, German carrier Lufthansa became the first airline to receive and put into use the A320neo’s improved airplanes. Airbus was thus first to the market with signifi- cant pre-orders and ready to take a commanding lead in the single- aisle market.

It is not uncommon in the aircraft business for manufac- turers to experience small production issues during the intro- duction phase. The A320neo’s problems are more significant than usual and are causing a delay in delivery schedules.

Although Lufthansa was the first to receive delivery of the A320neo, it was not the initial intention of Airbus. Qatar Air- ways had been scheduled to receive the first delivery in late 2015. However, after testing the aircraft, the airline complained of engine problems and refused to take possession. Airbus be- gan dealing with these issues, but they still persist. They had to compensate Lufthansa because the airline was restricted to using the A320neo only at the airports where it had additional technical staff. Someone once said, “Good things take time.”

The introduction of the A320neo has been plagued with problems. However, the delays in delivery are expected to end. With more than 4,000 awaiting orders from a multitude of customers, Airbus has the potential to turn something bad into something good. There are a lot of customer relationships that need soothing. How does the company get customers not to cancel orders and choose Boeing’s aircraft? Airbus’s challenges are far from over.

You Make the Call 6-49. What is the decision facing Airbus? 6-50. What factors are important in understanding this deci-

sion situation? 6-51. What are the alternatives? 6-52. What decision(s) do you recommend? 6-53. What are some ways to implement your recommen-

dation?

Sources: Based on Dhierin Bechai, “Did The Airbus A320neo Lose Its Momentum?” Seeking Alpha (March 21, 2016), http://seekingalpha.com /article/3959986-airbus-a320neo-lose-momentum (accessed April 21, 2016); “Spotlight on … The neo: a Born Leader,” Airbus, http://www .airbus.com/aircraftfamilies/passengeraircraft/a320family/spotlight-on-a320neo/ (accessed April 21, 2016); Dominic Gates, “Boeing’s 737 MAX Takes Wing with New Engines, High Hopes,” Seattle Times (January 29, 2016), http://www.seattletimes.com/business/boeing-aerospace /boeings-737-max-takes-off-on-first-flight/ (accessed April 21, 2016).

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6-54. Creative Homework/Short Project. Sometimes advertising or other marketing activities cause problem recognition by showing consumers how much bet- ter off they would be with a new product or by pointing out problems with products they already own. Discuss problem recognition for the following product categories. Make a list of some ways marketers might try to stimu- late problem recognition for each product. Present your ideas to your class. a. Toothpaste b. A home security system c. A new automobile d. An online dating service e. A health club membership

6-55. Creative Homework/Short Project. As a director of purchasing for a firm that manufactures motorcycles, you have been notified that the price of an important part used in the manufacture of the bikes has nearly doubled from $100 to nearly $200. You see your company having three choices: buying the part and passing the cost on to the customer by increasing your price; buying the part and absorbing the increase in cost, keeping the price of your bikes the same; or buying a lower-priced part that will be of lower quality. Prepare a list of pros and cons for each alternative. Then explain your recommenda- tion and justification for it.

MyMarketingLab™

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

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Miniproject: Learn by Doing

The purpose of this miniproject is to gain an understanding of market planning through actual experience.

3-29. a. Select one of the following for your market plan- ning project: � Yourself (in your search for a career) � Your university � A specific department in your university

b. Next, develop the following elements of the market planning process: � A mission statement � A SWOT analysis � Objectives � A description of the target market(s) � A positioning strategy � A brief outline of the marketing mix strategies—

the product, pricing, distribution, and promotion strategies—that satisfy the objectives and address the target market

c. Prepare a brief outline of a marketing plan using the basic template provided in this chapter as a guide.

3-26. When most people think of successful marketing, in- ternal firm culture doesn’t immediately come to mind as a contributing factor. You may have learned about corporate culture in a management course. What is a corporate culture? What are some reasons a firm’s culture is important to the capability of doing good marketing? Give some examples of aspects that you consider indicate a good corporate culture for marketing.

3-27. Many companies operate on the mentality that “mar- keting is an expense.” Do you agree that marketing is an expense, or should marketing be treated as an investment? Should there be a business standard as to whether marketing is treated as an expense/invest- ment, or should individual organizations be given the freedom to choose which line item to assign it to? Ex- plain your reasoning.

3-28. A common saying among managers is “if we can’t measure it, we can’t manage it.” Is there such a thing as an overreliance on marketing metrics? Are there cases or specific aspects of marketing where a single- minded focus on metrics is inappropriate or detrimental to the firm?

In addition, periodically on select items sold by Amazon offers 0 percent APR financing with 12 equal monthly payments. One of the key benefits to Amazon is that compared to the use of traditional cards like Visa, MasterCard, or AmEx, transaction processing costs for its Prime Store Card are lower.

One of the best benefits that brick-and-mortar retail stores have maintained over online retailers is the ability to provide customers with instant gratification. Amazon aims to decrease that advantage through its services. Recently introduced in select cities is Prime Now. a service that allows customers to receive their order within one hour for a fee of $7.99, or within two hours for no additional fee. Currently, the products available for Prime Now delivery are limited to 15,000 to 40,000 available items, which may seem like a lot but Prime members currently have access to millions of items to select from for two-day shipping. Prime Now is definitely an innovative service, but in some markets it is faced with other competitors for on-demand delivery offerings, like Google Express and UberRush.

Amazon continues to establish more services under the Prime umbrella. Prime Pantry is an option by which members can fill a virtual box with groceries and household products and have them delivered for $5.99 per box. Prime Music offers ad-free access to playlists and a catalog of more than1 mil- lion songs and albums. Prime Photo provides unlimited photo storage on the Amazon Cloud. This wide variety of associated services draws the attention of numerous varied competitors, and the key question as Amazon move forward is: How will the company successfully manage such a large portfolio of of- ferings? For success to be sustained over time, Amazon must carefully consider what long-term strategies are necessary to continue to make Amazon Prime a profitable winner in a com- petitive marketplace.

In marketing, yesterday’s success quickly becomes old news. How should one of the world’s largest retailers plan to build on its’ previous achievements? In the retail marketplace, it is be- coming harder for companies to differentiate themselves from the competition beyond simply price. Amazon is now faced with this challenge and must develop offerings to protect and grow its customer base. One of its primary offerings to meet this task has been the creation of Amazon Prime. The service was created in 2005 offering free two-day shipping within the U.S. on qualified purchases. The initial annual membership fee was $79 and also allowed discounted one-day shipping rates on those same purchases. In 2014, the fee was increase to $99 and more services were added to increase customer value.

Prime Instant Video allows customers to stream movies and TV shows to their web browsers or multiple Amazon video- compatible devices. The current library of tens of thousands of titles provides a wide array of choice to lure potential custom- ers. Subscribers can also purchase online video subscriptions from premium content providers like Showtime, Starz, and other streaming entertainment channels. The objective of the add-on services is to attract new customers to Amazon Prime in a crowded competitive environment. As of 2016, Netflix is the world’s largest provider of streaming video content with more than 75 million subscribers. In addition, Hulu is a joint venture of Walt Disney, 21st Century Fox, and Comcast’s NBCUniversal that similarly provides streaming services.

One of Amazon’s latest additions to its Prime service is the ƒ=+]��@�%=��!='*� /��!='�=�\!='"�"Z~"�=+~�="�\+�/�€��=��#�� cash back on all Amazon purchases. Or, in lieu of the 5 percent cash back, members can choose a tiered financing option for purchases more than $149. In this plan, when customers reach cost thresholds they can avoid paying interest if the outstand- ing balance is paid within 6, 12, or 24 months, as applicable.

Marketing in Action Case Real Choices at Amazon

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3-33. What decision(s) do you recommend? 3-34. What are some ways to implement your recommendation?

Based on: Tricia Duryee, “Future-Proofing Prime: Amazon’s Plans Go Way Beyond Free Shipping,” GeekWire.com, (April 26, 2014), http:// www.geekwire.com/2014/future-proofing-prime-amazons-ambitious-plans-go-way-beyond-shipping/ (accessed April 5, 2016); Amazon.com, “About Amazon Prime,” https://www.amazon.com/gp/help/customer/display.html/ref=hp_468520_norush?nodeId =20044 4160 (accessed April 5, 2016); Taylor Tepper, “Should You Get the Amazon Prime Store Card?” Time.com, July 24, 2015, http://time.com/money/3970639/ amazon-prime-store-credit-card/ (accessed April 5, 2016); Jason Del Rey, “Prime Now Has Become Amazon’s Biggest Retail Bet,” Re/code. net, December 14, 2015, http://recode.net/2015/12/14/prime-now-has-become-amazons-biggest-retail-bet/ (accessed April 5, 2016).

You Make the Call 3-30. What is the decision facing Amazon? 3-31. What factors are important in understanding this deci-

sion situation? 3-32. What are the alternatives?

3-35. Creative Homework/Short Project. Assume that you are the marketing director for Mattel Toys. Your boss, the company vice president for marketing, has decided that it’s time to develop some new objectives for some of their product lines as the company begins market planning. Your VP has asked you to help out by writing several initial objectives. Select any product line at Mattel and develop several objectives that fulfill the criteria for objectives discussed in the chapter.

3-36. Creative Homework/Short Project. An important part of planning is a SWOT analysis, understanding an organization’s strengths, weaknesses, opportunities, and threats. Prepare a SWOT analysis for Panera Bread that includes three or four items in each of the four SWOT categories.

MyMarketingLab™

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

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