Marketing Strategy

Starasr

Kotler_mm15e_inppt_03.pptx

Home >Business & Finance homework help >Management homework help > Marketing Strategy

Marketing Management

Fifteenth Edition

Chapter 3

Collecting Information and Forecasting Demand

If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed:

1) MathType Plugin

2) Math Player (free versions available)

3) NVDA Reader (free versions available)

Learning Objectives

3.1 What are the components of a modern marketing information system?

3.2 What are useful internal records for a marketing information system?

3.3 What makes up a marketing intelligence system?

3.4 What are some influential macroenvironment developments?

3.5 How can companies accurately measure and forecast demand

Components of a Modern Marketing Information System (MIS)

Internal company records

Marketing intelligence activities

Marketing research

A marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. It relies on internal company records, marketing intelligence activities, and marketing research.

The company’s marketing information system should combine what managers think they need, what they really need, and what is economically feasible.

Internal Records

Internal reports of orders

Sales

Prices

Costs

Inventory levels

Receivables

Payables

Internal records use the order-to-payment cycle, sales information systems, databases, data warehousing, and data mining to obtain this list of information.

Marketing Intelligence

Marketing intelligence system: a set of procedures and sources that managers use to obtain everyday information about developments in the marketing environment

The internal records system supplies results data, but the marketing intelligence system supplies happenings data. Marketing managers collect marketing intelligence by reading books, newspapers, and trade publications; talking to customers, suppliers, distributors, and other company managers; and monitoring online social media.

Improving Marketing Intelligence

Motivate sales force to report new developments

Motivate intermediaries to pass along intelligence

Hire external experts to collect intelligence

Network internally and externally

Set up a customer advisory panel

Take advantage of government-related data

Purchase information from outside research vendors

Collect marketing intelligence on Internet

Marketing intelligence gathering must be legal and ethical.

Marketing Intelligence on the Internet

Independent customer goods and service review forums

Distributor or sales agent feedback sites

Combo sites offering customer reviews and expert opinions

Customer complaint sites

Public blogs

Of course, companies can use many of these sources to monitor their own customers, products, services, and brands. Customer-service forums linked on a company’s home page are a very useful tool. Customers often

Respond faster and provide better answers to other customers than a company could.

Communicating & Acting on Marketing Intelligence

The competitive intelligence function works best when it is closely coordinated with the decision-making process

Given the speed of the Internet, it is important to act quickly on information gleaned online

When ticket broker StubHub detected criticism of its brand after confusion arose about refunds for a raindelayed Yankees–Red Sox game, it quickly offered appropriate discounts and credits. The director of customer service observed, “This [episode] is a canary in a coal mine for us.”

Analyzing the Macroenvironment

Needs and Trends

Fad

Trend

Megatrend

A fad is “unpredictable, short-lived, and without social, economic, and political significance.” A direction or sequence of events with momentum and durability, a trend is more predictable and durable than a fad; trends reveal the shape of the future and can provide strategic direction. A megatrend is a “large social, economic, political, and technological change [that] is slow to form, and once in place, influences us for some time—between seven and ten years, or longer.”

Identifying the Major Forces

Six major forces in the broad environment

Demographic

Economic

Socio-cultural

Natural

Technological

Political-legal

Firms must monitor six major forces in the broad environment: demographic, economic, social-cultural, natural, technological, and political-legal. Their interactions will lead to new opportunities and threats.

The Demographic Environment

Worldwide population growth

Population age mix

Ethnic and other markets

Educational groups

Household patterns

World population growth is explosive: The world’s population on July 1, 2012, was estimated at 7,027,349,193, forecasted to rise to 8.82 billion by 2040 and exceed 9 billion by 2045.

There is a global trend toward an aging population. In 1950, there were only 131 million people 65 and older;

in 1995, their number had almost tripled to 371 million. By 2050, one of 10 people worldwide will be 65 or older. Marketers generally divide the population into six age groups: preschool children, school-age children, teens,

young adults age 20 to 40, middle-aged adults 40 to 65, and older adults 65 and older. Some marketers focus on

cohorts, groups of individuals born during the same time period who travel through life together.

Ethnic and racial diversity varies across countries. As of the 2010 Census, the U.S. population was: White (72 percent), Black or African American (13 percent), American Indian and Alaskan Native (0.9 percent), Asian (5 percent), Hispanic (16 percent). More than half the growth between 2000 and 2010 came from the increase in the

Hispanic population, which grew by 43 percent, from 35.3 million to 50.5 million, representing a major shift

in the nation’s ethnic center of gravity.

The population in any society falls into five educational groups: illiterates, high school dropouts, high school diplomas, college degrees, and professional degrees. The United States has one of the world’s highest percentages of college-educated citizens. The large number of educated people in the United States drives strong demand for high-quality books, magazines, and travel and creates a supply of skills.

The traditional U.S. household included a husband, wife, and children under 18 (sometimes with grandparents). The U.S. family has been steadily evolving toward less traditional forms. More people are divorcing, separating,

choosing not to marry, or marrying later. Each type of household has distinctive needs and buying habits.

The Economic Environment

Consumer psychology

Income distribution

Income, savings, debt, credit

Purchasing power depends on consumers’ income, savings, debt, and credit availability as well as the price level.

As the recent economic downturn vividly demonstrated, fluctuating purchasing power strongly affects business, especially for products geared to high-income and price-sensitive consumers. Marketers must understand consumer psychology and levels and distribution of income, savings, debt, and credit.

Income Distribution

Subsistence economies

Raw-material-exporting economies

Industrializing economies

Industrial economies

Very low incomes

Mostly low incomes

Very low, very high incomes

Low, medium, high incomes

Mostly medium incomes

High-priced Lamborghini sports cars have found success in relatively poorer countries by appealing to enough affluent buyers.

The Sociocultural Environment (1 of 2)

Views of ourselves

Views of society

Views of others

Views of nature

Views of organizations

Views of the universe

From our sociocultural environment we absorb, almost unconsciously, a world view that defines our relationships to ourselves, others, organizations, society, nature, and the universe.

The Sociocultural Environment (2 of 2)

Core cultural values

Values are passed from parents to children and reinforced by social institutions

Subcultures

Groups with shared values, beliefs, preferences, and behaviors emerging from their special life experiences or circumstances

Most people in the United States still believe in working, getting married, giving to charity, and being honest. Although core values are fairly persistent, cultural swings do take place.

Marketers have always loved teenagers because they are trendsetters in fashion, music, entertainment, ideas, and attitudes. Attract someone as a teen, and you will likely keep the person as a customer later in life.

The Natural Environment

Corporate environmentalism

Opportunities await those who can reconcile prosperity with environmental protection

Corporate environmentalism recognizes the need to integrate environmental issues into the firm’s strategic plans. Trends for marketers to be aware of include the shortage of raw materials, especially water; the increased cost of energy; increased pollution levels; and the changing role of governments.

The Technological Environment

Accelerating pace of change

Unlimited opportunities for innovation

Varying R&D budgets

Increased regulation of technological change

In many markets, the next technological breakthrough seems right around the corner.

Medical researchers hope to use stem cells for organ generation and hybrid positron emission tomography (PET) and magnetic resonance imaging (MRI) to dramatically improve diagnosis. Environmental researchers are exploring plasma arc waste disposal to harness lightning and turn garbage into glass or a gaseous energy source.

A growing portion of U.S. R&D, however, goes to the development side, not research, raising concerns about

whether the United States can maintain its lead in basic science. Too many companies seem to be putting their

money into copying competitors’ products with minor improvements.

Government has expanded its agencies’ powers to investigate and ban potentially unsafe products. Safety and health regulations have increased for food, automobiles, clothing, electrical appliances, and construction.

The Political-Legal Environment

Laws

Government agencies

Pressure groups

Two major trends are increased business legislation and the growth of special-interest groups.

The European Commission has established new laws covering competitive behavior, product standards, product

liability, and commercial transactions for the 28 member nations of the European Union. The United States has

many consumer protection laws covering competition, product safety and liability, fair trade and credit practices,

and packaging and labeling, but many countries’ laws are stronger.

The consumerist movement organized citizens and government to strengthen the rights and powers of buyers

in relationship to sellers. Consumerists have won the right to know the real cost of a loan, the true cost per

Standard unit of competing brands (unit pricing), the basic ingredients and true benefits of a product, and the

nutritional quality and freshness of food. Privacy issues and identity theft will remain public policy hot buttons as long as consumers are willing to swap personal information for customized products—from marketers they trust

Forecasting and Demand Measurement

Market demand measures

Potential market

Available market

Target market

Penetrated market

The potential market is the set of consumers with a sufficient level of interest in a market offer.

The available market is the set of consumers who have interest, income, and access to a particular offer. Eligible adults constitute the qualified available market—the set of consumers who have interest, income, access, and qualifications for the market offer.

The target market is the part of the qualified available market the company decides to pursue.

The penetrated market is the set of consumers who are buying the company’s product.

Figure 3.1 Ninety Types of Demand Measurement

Demand Measurement Vocabulary (1 of 2)

Market demand

Figure 3.2 Market Demand Functions

The marketer’s first step in evaluating marketing opportunities is to estimate total market demand. Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program.

The horizontal axis shows different possible levels of industry marketing expenditure in a given time period. The vertical axis shows the resulting demand level. The curve represents the estimated market demand associated with varying levels of marketing expenditure.

Market Demand Vocabulary

Market share

Market-penetration index

Share-penetration index

Market share is a higher level of selective demand for a company’s product.

It pays to compare the current and potential levels of market demand. The result is the market-penetration index.

A low index indicates substantial growth potential for all the firms. A high index suggests it will be expensive to attract the few remaining prospects. Generally, price competition increases and margins fall when the market-penetration index is already high.

Comparing current and potential market shares yields a firm’s share-penetration index. If this index is low, the company can greatly expand its share. Holding it back could be low brand awareness, low availability, benefit

Deficiencies, or high price. A firm should calculate the share-penetration increases from removing each factor to

see which investments produce the greatest improvement.

Demand Measurement Vocabulary (2 of 2)

Market forecast

Market potential

Company demand

Company sales forecast

Company sales potential

Only one level of industry marketing expenditure will actually occur. The market demand corresponding to this level is called the market forecast.

Market potential is the limit approached by market demand as industry marketing expenditures approach infinity for a given marketing environment. Companies interested in market potential have a special interest in the product-penetration percentage, the percentage of ownership or use of a product or service in a population. The lower the product-penetration percentage, the higher the market potential, although this also assumes everyone will eventually be in the market for every product.

Company demand is the company’s estimated share of market demand at alternative levels of company marketing effort in a given time period.

The company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment. A sales quota is the sales goal set for a product line, company division,

or sales representative. A sales budget is a conservative estimate of the expected volume of sales, primarily for making current purchasing, production, and cash flow decisions.

Company sales potential is the sales limit approached by company demand as company marketing effort increases relative to that of competitors. The absolute limit of company demand is, of course, the market potential.

Estimating Current Demand (1 of 3)

Total market potential

Chain-ratio method

Total market potential is the maximum sales available to all firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions. A common way to estimate total market potential is to multiply the potential number of buyers by the average quantity each purchases and then by the price. A variation on this method is the chain-ratio method, which multiplies a base number by several adjusting percentages.

Estimating Current Demand (2 of 3)

Area market potential

Market-buildup method

Multiple-factor index method

Because companies must allocate their marketing budget optimally among their best territories, they need to estimate the market potential of different cities, states, and nations. Two major methods are the market-buildup method, used primarily by business marketers, and the multiple-factor index method, used primarily by consumer marketers.

The market-buildup method calls for identifying all the potential buyers in each market and estimating their potential purchases. It produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy. Unfortunately, this information is not always easy to gather.

Like business marketers, consumer companies also need to estimate area market potentials, but because their customers are too numerous to list, they commonly use a straightforward index.

Brand Development Index (BDI)

Table 3.5 Calculating the Brand Development Index (BDI)

Blank	(a) Percent of U.S. Brand	(b) Percent of U.S. Category	BDI
Territory	Sales	Sales	(a ÷ b) × 100
Seattle	3.09	2.71	114
Portland	6.74	10.41	65
Boston	3.49	3.85	91
Toledo	.97	.81	120
Chicago	1.13	.81	140
Baltimore	3.12	3.00	104

Many companies compute area indexes to allocate marketing resources. Suppose the drug company is reviewing the six cities listed in Table 3.5. The first two columns show its percentage of U.S. brand and category sales in these six cities. Column 3 shows the brand development index (BDI), the index of brand sales to category sales.

Seattle has a BDI of 114 because the brand is relatively more developed than the category in Seattle. Portland’s BDI is 65, which means the brand is relatively underdeveloped there.

Estimating Current Demand (3 of 3)

Industry sales and market share

Besides estimating total potential and area potential, a company needs to know the actual industry sales taking place in its market. This means identifying competitors and estimating their sales. The industry trade association will often collect and publish total industry sales, although it usually does not list individual company sales separately. Another way to estimate sales is to buy reports from a marketing research firm that audits total sales and brand sales.

Estimating Future Demand

Survey of buyers’ intentions

Forecasting and purchase probability scale

Composite of sales force opinions

Expert opinion

Past-sales analysis

Market-test method

All forecasts are built on one of three information bases: what people say, what people do, or what people have

done. Using what people say requires surveying buyers’ intentions, composites of sales force opinions, and expert opinion. Building a forecast on what people do means putting the product into a test market to measure buyer response. To use the final basis—what people have done—firms analyze records of past buying behavior or use time-series analysis or statistical demand analysis.

Forecasting is the art of anticipating what buyers are likely to do under a given set of conditions. For major consumer durables such as appliances, research organizations conduct periodic surveys of consumer buying intentions, ask questions like Do you intend to buy an automobile within the next six months?, and put the answers on a purchase probability scale.