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Need-Based Theories

What you’ll learn to do: Explain need-based theories of worker motivation

In this section we will look at four main theories about how human needs are satisfied: Maslow’s hierarchy of needs, Alderfer’s ERG theory, Herzberg’s two-factor theory, and McClelland’s acquired-needs theory.

Learning Outcomes

· List the levels of needs in Maslow’s hierarchy

· Explain the impact that Maslow’s levels of needs have on worker motivation

· Summarize the changes to Maslow’s hierarchy of needs in Alderfer’s ERG theory

· Explain the difference between intrinsic and extrinsic motivators in Herzberg’s two-factor theory

· Describe how employees might be motivated using McClelland’s acquired-needs theory

Maslow’s Hierarchy of Needs 

Human motivation can be defined as the fulfillment of various needs. These needs can encompass a range of human desires, from basic, tangible needs of survival to complex emotional needs surrounding an individual’s psychological well-being.

Abraham Maslow, a social psychologist, was interested in a broad spectrum of human psychological needs, rather than individual psychological problems. He is best known for his hierarchy-of-needs theory. Depicted in the pyramid below, the theory organizes the different levels of human psychological and physical needs in order of importance.

Maslow’s Hierarchy of Needs

Managers can apply Maslow’s hierarchy to better understand employees’ needs and motivation, and address them in ways that lead to high productivity and job satisfaction.

Physiological Needs

At the bottom of the pyramid are the physiological, or basic human survival needs: food, shelter, water, sleep, etc. Once physical needs are satisfied, individual safety takes precedence. Safety and security needs include personal security, financial security, and health and well-being.

After they have basic nutrition, shelter, and safety, people seek to fulfill higher-level needs.     

Connection: The Third Level of Need

The third level of needs—love and belonging—are the desire to share and connect with others. Neglect, shunning, or ostracism can impact a person’s ability to form and maintain emotionally significant relationships. Humans need to feel a sense of belonging and acceptance, whether from a large social group or a small network of family and friends. Without these attachments, they may be vulnerable to loneliness, social anxiety, and depression.

Higher-Level Needs 

The fourth level is esteem—the normal human desire to be valued and validated by others—as well as self-esteem. People with low self-esteem may find that external validation by others—through fame, glory, accolades, etc.—only partially or temporarily fulfills their needs at this level.

Finally, at the top of the pyramid is self-actualization. At this stage, people feel that they have reached their full potential. Self-actualization may occur after reaching an important goal or overcoming a particular challenge, and it may be marked by a new sense of self-confidence or contentment. But it is rarely a permanent state. Rather, self-actualization is an ongoing need for personal growth and discovery that people have throughout their lives.       

Hierarchy of Needs and Organizational Theory

Maslow’s hierarchy of needs is relevant to organizational theory because both are concerned with human motivation. Understanding what people need—and how their needs differ—is an important part of effective management. For example, some people work primarily for money (and fulfill their other needs elsewhere), but others like to go to work because they enjoy their coworkers or feel respected by others and appreciated for their good work.

In the workplace, Maslow’s hierarchy of needs suggests that if a lower need is not met, then the higher ones will be ignored. For example, if employees lack job security, they will be far more concerned about their financial well-being and paying their bills than about friendships and respect at work. However, if employees receive adequate financial compensation (and have job security), meaningful group relationships and praise for good work may be more important motivators.     

Consequences of Unmet Needs

When their needs aren’t met, employees can become very frustrated. For example, if someone works hard for a promotion and doesn’t get the recognition it represents, she may lose motivation and put in less effort. Also, after a need is met, it will no longer serve as a motivator: The next level up in the needs hierarchy will become more important. Therefore, keeping employees motivated can seem like a moving target. People seldom fit neatly into pyramids or diagrams; their needs are complicated and often change over time.

Assessing Needs Accurately

Maria is a long-time employee who is punctual, does high-quality work, and is well liked by her coworkers. However, her supervisor begins to notice that she is coming in late and seems distracted. He concludes that Maria is bored with her job and wants to leave. But when he raises these issues in her semiannual performance appraisal, he learns that Maria’s husband lost his job six months ago and, unable to keep up with mortgage payments, the couple has been living in a hotel. Maria has moved down the needs pyramid and, if the supervisor wants to be an effective manager, he must adapt the motivational approaches he uses. In short, a manager’s best strategy is to recognize this complexity and try to remain attuned to what employees say they need.

Alderfer’s ERG Theory

Old-Growth Forest

Clayton Paul Alderfer, an American psychologist, used Maslow’s hierarchy of needs in developing the Alderfer’s ERG theory, which refers to core needs in three areas:

· existence

· relatedness

· growth

These three areas align, respectively, with Maslow’s levels of physiological, social, and self-actualization needs.

Alderfer proposed that when needs in one category are not met, people will redouble their efforts to fulfill needs in a lower category. For example, if their self-esteem (an area of need in the growth category) is suffering, people will invest more effort in the relatedness category of needs.

Herzberg’s Two-Factor Theory

American psychologist Frederick Herzberg is regarded as one of the great original thinkers in management and motivational theory. He set out to determine the effect of attitude on motivation by simply asking people to describe the times when they felt really good, and really bad, about their jobs. What he found was that people who felt good gave very different responses from people who felt bad.

The results from this inquiry form the basis of Herzberg’s Motivation-Hygiene Theory, sometimes called Herzberg’s two-factor theory (1968), which hypothesized that two sets of factors govern job satisfaction and job dissatisfaction: hygiene factors, or extrinsic motivators, and motivation factors, or intrinsic motivators.

Hygiene factors, or extrinsic motivators, tend to represent more tangible, basic needs like those noted in both the existence category of ERG theory and in the lower levels of Maslow’s hierarchy of needs. Extrinsic motivators include status, job security, salary, and fringe benefits. It’s important for managers to realize that not providing the appropriate and expected extrinsic motivators will sow dissatisfaction and decrease motivation among employees.

Motivation factors, or intrinsic motivators, tend to be less tangible. They are tied more to  emotional needs like those identified in the “relatedness” and “growth” categories in the ERG theory and at the higher levels of Maslow’s hierarchy of needs. Intrinsic motivators include challenging work, recognition, relationships, and growth potential. Managers need to recognize that while these needs may fall outside the traditional scope of what a workplace ought to provide, they can be critical to strong individual and team performance.

The factor that differentiates two-factor theory from the others is the role of employee expectations. According to Herzberg, intrinsic motivators and extrinsic motivators have an inverse relationship. That is, intrinsic motivators tend to increase motivation when they are present, while extrinsic motivators tend to reduce motivation when they are absent. This is due to employees’ expectations. Extrinsic motivators (e.g., salary, benefits) are expected, so they won’t increase motivation when they are in place, but they will cause dissatisfaction when they are missing. Intrinsic motivators (e.g., challenging work, growth potential), on the other hand, can be a source of additional motivation when they are available.

If managers want to increase employees’ job satisfaction, they should be concerned with the nature of the work itself—opportunities for employees to gain status, assume responsibility, and achieve self-realization. If, on the other hand, management wishes to reduce dissatisfaction, then the focus should be on the job environment—policies, procedures, supervision, and working conditions. To ensure a satisfied and productive workforce, managers must pay attention to both sets of job factors.

McClelland’s Acquired-Needs Theory

An achievement-oriented tendency is to strive for mastery.

Psychologist David McClelland’s acquired-needs theory splits the needs of employees into three categories:

· achievement

· affiliation

· power

Employees who are strongly achievement motivated are driven by the desire for mastery. They prefer working on tasks of moderate difficulty in which outcomes are the result of their effort rather than luck. They value receiving feedback on their work.

Employees who are strongly affiliation-motivated are driven by the desire to create and maintain social relationships. They enjoy belonging to a group and want to feel loved and accepted. They may not make effective managers because they may worry too much about how others will feel about them.

Employees who are strongly power-motivated are driven by the desire to influence, teach, or encourage others. They enjoy work and place a high value on discipline. However, they may take a zero-sum approach to group work—for one person to succeed, another must fail. If channeled appropriately, their motivation can positively support group goals and help others in the group feel competent.

The acquired-needs theory doesn’t claim that people can be neatly categorized as one of the three types. Rather, it asserts that all people are motivated by all of these needs to varying degrees. Also, needs do not necessarily correlate with competencies; it is possible for an employee to be strongly affiliation-motivated, for example, but still be successful in a situation that doesn’t meet her affiliation needs.

McClelland proposes that people in top management generally have a high need for power and a low need for affiliation. He also believes that although individuals with a need for achievement can make good managers, they are not generally suited to being in top management positions.          

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

Clayton Alderfer’s ERG theory is a modification of Maslow’s hierarchy of needs because it states that human needs can be grouped into three instead of five categories. ________ is not one of the ERG categories.

Relatedness

Safety

Existence

Question 2

Herzberg hypothesized that two different sets of factors governing job satisfaction and job dissatisfaction. These are

financial needs and safety needs

hygiene factors and motivation factors

existence and relations needs

Question 3

David McClelland’s acquired-needs theory splits the needs of employees into three categories. These categories are

achievement, affiliation, and power

belonging, responsibility, and achievement

autonomy, mastery, and purpose

References

Herzberg, F. (1968). One more time: How do you motivate employees? Harvard Business Review, 46(1), 53–62.

Licenses and Attributions

Introduction to Need-Based Theories from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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Process-Based Theories

What you’ll learn to do: Explain process-based theories of motivation

In this section we will discuss three process-based theories of motivation: equity theory, expectancy theory, and reinforcement theory.

Learning Outcomes

· Describe the role of inputs and outcomes in equity theory

· Explain the implications of equity theory for business managers

· Describe the ways managers can use expectancy theory to motivate employees

· Explain how reinforcement theory can be used as a management tool

Equity Theory

In contrast to the need-based theories we have covered so far, process-based theories view motivation as a rational process. Individuals analyze their environment, develop reactions and feelings, and respond in specific, predictable ways.

Equity theory attempts to explain relational satisfaction in terms of perceived fairness: That is, people evaluate how fair or unfair distribution of resources is within their interpersonal relationships. Regarded as one of many theories of justice, equity theory was first developed in 1963 by John Stacey Adams. Adams, a workplace and behavioral psychologist, asserted that employees seek to maintain equity between their inputs and rewards from a job, and the perceived inputs and outcomes of others.

Equity theory proposes that people value fair treatment, which motivates them to maintain a similar standard of fairness with their coworkers and the organization. Accordingly, equity structure in the workplace is based on the ratio of inputs to outcomes.

Inputs are the employee’s contributions to the workplace. They include time spent working and level of effort but can also include less tangible contributions such as loyalty, commitment, and enthusiasm.

Outputs are what the employee receives from the employer. They can also be tangible or intangible. Tangible outcomes include salary and job security. Intangible outcomes might be recognition, praise, or a sense of achievement.

A Workplace Example

For example, let’s look at Ross and Monica, who both perform similar jobs for a large magazine publishing company. If Ross received a pay raise but saw that Monica was given a larger raise for the same amount of work, Ross would evaluate this change, perceive an inequality, and be distressed. However, if Ross perceived that Monica was being given more responsibility and, therefore, relatively more work along with the salary increase, then he would see no loss in equality status and would not object to the change.

An employee will feel that he is treated fairly if he perceives the ratio of his inputs to his outcomes is equivalent to those around him.

Primary Propositions 

Equity theory includes the following primary propositions:

· Individuals will try to maximize their outcomes.

· Individuals can maximize collective rewards by evolving accepted systems for equitably apportioning resources among members. As a result, groups will evolve such systems of equity and will attempt to induce members to accept and adhere to these systems. In addition, groups will generally reward members who treat others equitably and punish members who treat others inequitably.

· When individuals find themselves in inequitable relationships, they will become distressed. The more inequitable the relationship, the more distress they will feel. According to equity theory, the person who gets “too much” and the person who gets “too little” both feel distressed. The person who gets too much may feel guilt or shame. The person who gets too little may feel angry or humiliated.

· Individuals who discover they are in inequitable relationships will attempt to eliminate their distress by restoring equity.

Compensation

When an employee compares his input/outcome ratio to his fellow workers’, he will look for others with similar jobs or skill sets. For example, Ross would not compare his salary and responsibilities to those of the magazine company’s CEO. However, he might look outside the organization for comparison. For example, he might visit a job search website to check salaries for positions like his at other publishing houses.

Pay, whether hourly or salary, is a central concern for employees and is therefore the cause of equity or inequity in most, but not all, cases. In any position, employees want to feel that their contributions and work performance are being rewarded with fair pay. An employee who feels underpaid may experience feelings of hostility toward the organization and perhaps coworkers. This hostility may cause the employee to underperform and breed job dissatisfaction among others.

Subtle or intangible compensation also plays an important role in equity. Receiving recognition and being thanked for strong job performance can help employees feel valued and satisfied with their jobs, resulting in better outcomes for both the individual and the organization.

Takeaways

Equity theory has several implications for business managers:

· Employees measure the total of their inputs and outcomes. This means a working parent may accept lower monetary compensation in return for more flexible working hours.

· Different employees ascribe different personal values to inputs and outcomes. Thus, two employees of equal experience and qualification performing the same work for the same pay may have different perceptions of the fairness of the deal.

· Employees are able to adjust for purchasing power and local market conditions. Thus, a teacher from Vancouver, Washington, may accept lower compensation than his colleague in Seattle if his cost of living is different, and a teacher in a remote African village may accept a totally different pay structure.

· Although it may be acceptable for more senior staff to receive higher compensation, there are limits to the balance of the scales of equity, and employees can find excessive executive pay demotivating.

· Staff perceptions of inputs and outcomes of themselves and others may be incorrect, so perceptions need to be managed effectively.

Expectancy Theory 

Expectancy theory, initially put forward by Victor Vroom at the Yale School of Management, suggests that behavior is motivated by anticipated results or consequences. Vroom proposed that a person decides to behave in a certain way based on the expected result. For example, people will work harder if they think the extra effort will be rewarded.

In essence, individuals make choices based on their expectations for the results of a given behavior. This process begins in childhood and continues throughout life. Expectancy theory has three components: expectancy, instrumentality, and valence.

Expectancy is the belief that effort will lead to the intended performance goals. It describes a person’s belief that “I can do this.” Usually, the belief is based on an individual’s past experience, self-confidence, and the perceived difficulty of the performance standard or goal. Factors associated with a person’s expectancy perception are competence, goal difficulty, and control.

Instrumentality is the belief that meeting the performance expectation will result in a desired outcome. Instrumentality reflects the person’s belief that, “If I accomplish this, I will get that.” The desired outcome may be a pay increase, promotion, recognition, or sense of accomplishment. Having clear policies in place—preferably spelled out in a contract—guarantees that the reward will be delivered if the agreed-upon performance is met. Instrumentality is low when the outcome is vague or uncertain, or if the outcome is the same for all possible levels of performance.

Valence is the unique value an individual places on a particular outcome. Valence captures the fact that “I find this particular outcome desirable because I’m me.” Factors associated with a person’s valence are needs, goals, preferences, values, sources of motivation, and the strength of their preference for a particular outcome. An outcome that one employee finds motivating and desirable—such as a bonus or pay raise—may not be motivating and desirable to another (who may, for example, prefer greater recognition or more flexible working hours).

Expectancy theory, when properly followed, can help managers understand how individuals are motivated to choose among various behavioral alternatives. To enhance the connection between performance and outcomes, managers should use systems that tie rewards closely to performance. They can also use training to help employees improve their abilities and their belief that added effort will, in fact, lead to better performance.

A Note of Caution 

It’s important to understand that expectancy theory can run aground if managers interpret it too simplistically. Vroom’s theory entails more than just the assumption that people will work harder if they think their effort will be rewarded. The reward needs to be meaningful and take valence into account. Valence has a significant cultural as well as personal dimension, as illustrated here:

When Japanese motor company ASMO opened a plant in the United States, it brought in a large Japanese workforce but hired American managers to oversee operations. The managers, seeking to motivate the workers with a reward system, initiated a costly employee-of-the-month program that included free parking and other perks. The program was a huge flop, and participation was disappointingly low. Why? The program required employees to nominate their coworkers to be considered for the award. Japanese culture values modesty, teamwork, and conformity, and to be put forward or singled out for being special is considered inappropriate and even shameful. To be named Employee of the Month would be a very great embarrassment indeed—not at all the reward that management assumed. Especially as companies become more culturally diverse, the lesson is that managers need to get to know employees and their needs—their unique valences—if they want to understand what makes the workers feel motivated, happy, and valued.

The basic premise of the theory of reinforcement is both simple and intuitive: An individual’s behavior depends on the consequences. It’s simply cause and effect: If I work hard today, I’ll make more money. If I make more money, I’m more likely to want to work hard.

Operant Conditioning

Reinforcement theory is based on the work of B. F. Skinner in the field of operant conditioning. The theory relies on four primary inputs, or aspects of operant conditioning, from the external environment: positive reinforcement, negative reinforcement, positive punishment, and negative punishment.

The Operant Conditioning chart shows the reinforcement and punishment pathways. Each one may include positive and negative stimuli.

Operant Conditioning

Positive is presence of a stimulus, negative is absence of a stimulus, reinforcement increases behavior, punishment decreases behavior, escape removes a stimulus, avoidance prevents a stimulus.

Types of Reinforcement

Positive reinforcement attempts to increase the frequency of a behavior through rewards. For example, if an employee identifies a new market opportunity that creates profit, she may receive a bonus.

Negative reinforcement, on the other hand, attempts to increase the frequency of a behavior by removing something the individual doesn’t like. For example, an employee demonstrates a strong work ethic and wraps up a few projects faster than expected. This employee happens to have a long commute. The manager rewards the employee’s progress by allowing her to work from home for a few days.

Reinforcement can be affected by various factors:

· satiation—the degree of need. If an employee is already wealthy a bonus may not be motivating or reinforcing.

· immediacy—the time elapsed between the desired behavior and the reinforcement. The shorter the time between the two, the more likely that the employee will correlate the reinforcement with the behavior. If an employee does something great but isn’t rewarded until two months later, he or she may not connect the behavior with the outcome. The reinforcement loses meaning and power.

· size—the magnitude of a reward or punishment can have a big effect on the degree of response. For example, where satiation is not a factor, a bigger bonus often has a bigger impact.

In managing employees, reinforcers include salary increases, bonuses, promotions, variable incomes, flexible work hours, and paid sabbaticals. Managers are responsible for identifying the behaviors to promote and those to discourage, and for carefully considering how the behaviors relate to organizational objectives. Implementing rewards and punishments that are aligned with the organization’s goals helps to create a more consistent, efficient work culture.

Incentive programs. One particularly common positive-reinforcement technique is incentive programs to encourage specific actions, behaviors, or results during a defined time period. Incentive programs can reduce turnover, boost morale and loyalty, improve wellness, increase retention, and drive daily performance. By motivating staff, businesses can increase productivity and meet goals.

Let’s look at an IT sales team, for example. Its goal is to sell a company’s new software to larger businesses, so the manager offers a 5 percent commission reward to team members who gain clients of 5,000 or more employees. This reward reinforces the behavior of closing big contracts, motivates team members to work toward the goal, and likely will increase the number of big contracts closed.

To maximize the impact of reinforcement, every feature of an incentive program must be tailored to participants’ interests. A successful incentive program contains clearly defined rules, suitable rewards, efficient communication strategies, and metrics for measuring success. By adapting each element to fit the target audience, companies are better able to engage employees and enhance the program’s efficacy.

Punishment 

Positive punishment is a straightforward form of conditioning: identifying a negative behavior and providing an adverse stimulus to discourage future occurrences. A simple example would be suspending an employee for inappropriate behavior.

Negative punishment entails removing or withholding something. For example, an employee in the IT department prefers to work unconventional hours, from 10:30 a.m. to 7 p.m. However, she has been performing poorly. A negative punishment would be to revoke her right to keep the preferred schedule until her performance improves.

The purpose of punishment is to prevent future occurrences of an unacceptable or undesirable behavior. According to deterrence theory, awareness of a punishment can prevent people from engaging in a behavior: by punishing them immediately after the behavior, or by educating them about consequences upfront to discourage the behavior. Punishment tools can include demotions, salary cuts, and terminations.

In business organizations, both punishment and deterrence play vital roles in shaping workplace culture, and in avoiding conflicts and negative outcomes—both internally and externally. If employees know exactly what they are not supposed to do, and they understand the possible repercussions of violating expectations, they will generally try to avoid crossing the line. Prevention is a much cheaper and easier approach than waiting for something bad to happen. Therefore, preemptive education about rules—and the penalties for violations—is common in business.

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

Employees of a financial services company are complaining and gossiping that the pay is unfair, hurting morale and productivity.

Managers should speak to the loss of productivity but ignore the gossip. Managers should expect those who feel the strongest to leave the company.

The company managers should reprimand the critics and tell them to get back to work.

The company should survey the market value of each job and show employees the results, demonstrating that the pay is market-based.

Question 2

Vroom’s expectancy theory proposes that a rational calculation determines whether individuals are motivated to demonstrate more or less effort. Questions people ask themselves as part of this rational calculation include:

Is my compensation fair compared to others?

Is the offered incentive desirable?

Is this the norm for our company culture?

Question 3

The basic premise of the theory of reinforcement is that

an individual’s behavior depends on the consequences of that behavior

fair treatment is the key to employee motivation

behavior depends on socialization and group norms

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Putting It Together: Managing Processes from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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Motivational Strategies/

Job Design and Job Characteristics Theory 

Job Design

Job design is an important prerequisite for motivation in the workplace. A well-designed job can encourage positive behaviors and create a strong infrastructure for employee success. Job design involves specifying the contents, responsibilities, objectives, and relationships required to satisfy expectations of the role. Following are some established approaches to help managers doing this thoughtfully and well.

 Job Characteristics Theory    

Proposed by Hackman and Oldham (1976), job characteristics theory identifies five core characteristics that managers should keep in mind when they are designing jobs. They proposed that these dimensions relate to and help satisfy the employee, resulting in greater job satisfaction and motivation, and less absenteeism and turnover.

Core Job Characteristics

These are the core job characteristics, and the reasons why each one is an important motivator:

· Skill variety. Doing the same thing day in, day out gets tedious. The solution is to design jobs with enough variety to stimulate ongoing interest, growth, and satisfaction.

· Task identity. Being part of a team is motivating, but so, too, is having some ownership of a set of tasks or part of the process. Having a clear understanding of what one is responsible for, with some degree of control over it, is an important motivator.

· Task significance. Feeling relevant to organizational success provides important motivation for getting a task or job done. Knowing that one’s contributions are important contributes to a sense of satisfaction and accomplishment.

· Autonomy. No one likes to be micromanaged, and having some freedom to be the expert is critical to job satisfaction. Companies usually hire people for their specialized knowledge. Giving specialists autonomy to make the right decisions is a win-win.

· Feedback. Finally, everyone needs objective feedback on how they are doing and how they can do better. Providing well-constructed feedback with tangible outcomes is a key component of job design.

In the following Ted Talk, career analyst Dan Pink examines the puzzle of motivation, starting with a fact that social scientists know but most managers don’t: Traditional external rewards aren’t always as effective as we think; those that speak to a person’s internal motivation are often more potent and lasting.

https://youtu.be/rrkrvAUbU9Y

Psychological States

The following psychological states help employees feel motivated and satisfied with their work:

· Experienced meaningfulness. This is a positive psychological state that will be achieved if the first three job dimensions—skill variety, task identity, and task significance—are in place. All three dimensions help employees feel that what they do is meaningful.

· Experienced responsibility. Dimension four, autonomy, contributes to a sense of accountability, which for most people is intrinsically motivating.

· Knowledge of results. Dimension five, feedback, provides a sense of progress, growth, and personal assessment. Understanding one’s accomplishments is a healthy state of mind for motivation and satisfaction.

Work Outcomes

The combination of core job characteristics and psychological states influences the following work outcomes:

· Job satisfaction. When employees feel that their jobs are meaningful, their positive psychological state contributes to a sense of satisfaction.

· Motivation. Employees who experience responsibility in their job, a sense of ownership over their work, and knowledge of the results tend to be more highly motivated.

· Absenteeism. When employees are motivated and satisfied, absenteeism and job turnover decrease.

Overall, the manager’s goal is to design the job so that the core characteristics complement the worker’s psychological states of the worker and lead to positive outcomes

Job Design Techniques

As a motivational force in the organization, managers must consider how to design jobs that lead to empowered, motivated, and satisfied employees. There are established methods to accomplish this objective:

· Job rotation. As noted previously, it’s not particularly motivating to do the same thing every day. Rotating jobs and expanding employees’ skill sets accomplishes two objectives: increasing employee satisfaction and broadening employees’ skills.

· Job enlargement (horizontal). Giving employees the autonomy to step back and assess the quality of their work, improve the efficiency of their processes, and address mistakes contributes to satisfaction in the workplace.

· Intrinsic and extrinsic rewards. Allowing employees autonomy helps generate intrinsic rewards (self-satisfaction) and motivation. Extrinsic rewards (such as time off, a bonus, or a commission) are also motivating.

· Job enrichment (vertical). It’s important for managers to delegate some of their planning to seasoned employees as they grow into their roles. By turning over control of work-task planning to employees themselves, managers help workers feel a strong sense of engagement, career progress, and ownership of their work outcomes.

Goal-Setting Theory    

Goal Setting

Research shows that people perform better when they are committed to achieving particular goals. Factors that help ensure commitment to goals include

· importance of the expected outcomes

· self-efficacy, or the belief that the goal can be achieved

· promises or engagements to others, which can strengthen commitment

In a business setting, managers cannot constantly drive employees’ motivation or monitor their work from moment to moment. Instead, they rely on goal setting to help employees regulate their own performance and stay on track. Goal setting affects outcomes in the following important ways:

· Choice. Goals narrow attention and direct efforts to goal-relevant activities, and away from goal-irrelevant actions.

· Effort. Goals can lead to more effort; for example, raising a worker’s production from four widgets per hour to six.

· Persistence. People are more likely to work through setbacks if they are pursuing a goal.

· Cognition. Goals can lead individuals to develop and change their behavior.

Edwin Locke and his colleagues examined the behavioral effects of goal setting, and they found that 90 percent of laboratory and field studies involving specific and challenging goals led to higher performance, whereas those with easy or no goals showed minimal improvement. While some managers believe it is sufficient to urge employees to “do their best,” these researchers learned that people who are instructed to do their best generally do not. The reason is that if you want to elicit a specific behavior, you need to give a clear picture of what is expected. “Do your best” is too vague. A goal is important because it establishes a specified direction and performance measure.

Toward Peak Performance

Athletes set goals during the training process. Through choice, effort, persistence, and cognition, they can prepare to compete.

You’ll recall from the discussion of SMART objectives that setting effective goals and identifying the best ways to achieve them are important aspects of the controlling function of managers. It turns out that setting SMART goals is also a powerful way to motivate employees, especially when employees are able to participate in setting their goals. Specific, Measurable, Achievable, Realistic, and Time-constrained goals give both managers and employees clear direction and a way to measure performance.

Goals and Feedback

Managers need to track performance so employees can see how effective they have been in attaining their goals. Without proper feedback channels, employees find it impossible to adapt or adjust their behavior. Goal setting and feedback go hand-in-hand. Without feedback, goal setting is unlikely to work.

Providing feedback on short-term objectives helps sustain an employee’s motivation and commitment. When giving feedback, managers should

· create a positive context

· use constructive and positive language

· focus on behaviors and strategies

· tailor feedback to the needs of the individual worker

· make feedback a two-way communication

Goals and Performance

Goal setting is closely tied to performance. Those who set realistic but challenging goals are likely to perform better than those who do not.

Goal setting may have little effect if the employee can’t evaluate his own performance in relation to the goal. By giving accurate, constructive feedback, managers can help employees evaluate whether they need to work harder or change their approach.

Although goal-setting theory is useful in business, it does have limitations. Using production targets to drive motivation may encourage workers to meet those targets by any means necessary—resulting in poor quality or, worse, unethical behavior. You’ll recall that this was the case in the recent Wells Fargo scandal, where employees created millions of fake bank accounts in order to hit sales targets. Another problem with goal setting is that a manager’s goals may not be aligned with the organization’s, and conflict may ensue, or the employees may feel uncertain about which goals ought to be prioritized—the manager’s or organization’s? Either way, performance can suffer. In addition, for complex or creative tasks, it is possible for goal setting to actually hamper achievement, because the individual can become preoccupied with meeting goals and distracted from completing tasks. This is especially true if reviews and pay increases are strongly tied to goal achievement.    

Videos: Motivation in Today’s Workplace

References

Hackman, J. R., & Oldham, G. R. (1976). Motivation through the design of work: Test of a theory. Organizational Behavior and Human Performance, 16(2), 250-279. doi:10.1016/0030-5073(76)90016-7

The following videos contain examples of motivational theory at work in today’s companies. As you watch, see if you recognize any of the theories you’ve studied. Are they need based or process based? What are the results of the motivational strategies these companies use?

https://youtu.be/QO6AWhDy_Ac

https://youtu.be/W18DXW8gYZA

https://youtu.be/4hNu98BQFvI

Licenses and Attributions

Introduction to Strategies for Motivating Employees from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

Marketing Function: Why It Matters

Why learn about the marketing function?

How did your day start? If you are like most people, you woke up to an alarm that rang on a smartphone, you climbed out of bed, and you stumbled over to your favorite morning beverage of coffee, soda, or tea. You may have checked the weather using your phone or TV. You showered, brushed your teeth, and got dressed. If you were headed to work or school, you may have gotten in your car for the drive. Maybe you grabbed breakfast at a drive-through. Between these activities there were probably a hundred other small things you did as part of your routine—like giving your dog a treat, applying makeup, making a lunch, and packing a bag or briefcase. All of these activities have one thing in common: They are all directly related to a company’s marketing efforts.

Look at the brand of cell phone you chose. Which brand of coffee or soda did you drink? What shampoo did you use? What make and model of car did you drive? Which fast-food restaurant did you visit? Where do you work or go to school? And more to the point, why do you use the things you use? Buy what you buy? Eat where you eat?

The answer is marketing.

Companies expend a vast quantity of resources to get their products into your hands, homes, and stomachs. They identify a market for their products, goods, and services and then market to the consumers like you who make up that market. By focusing on the consumer, meeting their demands, and keeping them happy, companies expand their market presence and, as a result, increase their sales and profits.

In this section you will explore the role customers play in marketing efforts and learn how companies segment markets to better target prospective customers. You’ll also get an introduction to the marketing mix—the components a company can choose from to achieve sales goals. In the words of Stanley Marcus, founder of the department store Neiman Marcus, businesses use marketing to ensure that they “sell products that don’t come back, to people who do.”

Licenses and Attributions

Why It Matters: Marketing Function from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

CC LICENSED CONTENT, ORIGINAL

· Marketing Function: Why It Matters. Authored by: Linda Williams and Lumen Learning. License: CC BY: Attribution

· First Product Shot. Authored by: Tormod Ulsberg. Located at: https://www.flickr.com/photos/tormodspictures/11923473083/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

Why It Matters: Marketing Function

Why learn about the marketing function?

How did your day start today? If you are like most people, you woke up to an alarm that rang on a Smartphone, and you climbed of bed and stumbled over to your favorite morning beverage, be it coffee, soda, or tea. You may have turned on your TV to check the weather while you got ready for your shower. You washed your hair, brushed your teeth, and got dressed. If you headed out to work or school, you probably got in your car or someone else’s car for the drive. If you were rushed, maybe you went through the drive-thru of a fast-food restaurant and grabbed breakfast on your way to your final destination. In between these activities there were probably a hundred other small things that happened as part of your routine. Things like giving the dog a treat, applying makeup, making your lunch, packing up your book bag or briefcase. All of these activities have a one thing in common: they are all directly related to a company’s marketing efforts.

How is that possible? What type of phone do you have: iPhone, Android, Windows? Which brand of coffee or sofa did you drink? What shampoo did you use? What make and model of car did you ride in or drive? Which fast-food restaurant did you visit? Where do you work or go to school? More important: Why do you use the things you use? Buy the things you buy? Eat where you eat? MARKETING.

Company’s expend a vast quantity of their resources to get their products into your hands, homes, or stomachs. How? They identify the market for their products, goods, and services and then market to the consumers (you) who make up that market. By focusing on the consumer, meeting their demands, and keeping them happy, companies expand their market presence and, as a result, increase their sales and profits.

In this section you will explore the role that customers play in today’s marketing efforts and learn how companies segment the market to better target prospective customers. You’ll also get an introduction to the mix of marketing components a company can use to achieve its sales goals. In the words of Stanley Marcus, founder of the department store Neiman Marcus, businesses use marketing as a way to ensure that they “sell products that don’t come back, to people who do.”

The Role of Customers in Marketing

What you’ll learn to do: Explain the role of customers in marketing

All marketing focuses on creating, delivering, and communicating value to the customer. In this section you’ll learn why customers play such an important role in a business’s marketing activities.

Hong Kong

Learning Outcomes

· Define the term marketing

· Explain the marketing concept

· Identify and describe an organization’s value proposition

· Demonstrate the importance of managing the customer relationship

· Discuss the factors that influence customer decisions

· Analyze the consumer buying process

What Is Marketing?

Marketing is the range of activities related to creating, communicating, delivering, and exchanging offerings that have value for others. In business, the marketing function brings value to customers the business seeks to identify, satisfy, and retain. This chapter emphasizes the role of marketing in business to sell products. However, many of the concepts will apply to other entities, like nonprofits; and for other purposes, like issues advocacy and campaigns to influence perceptions and behavior.

The Art of the Exchange 

In marketing, the act of obtaining something by offering something else of value in return is called the exchange process. It has four components:

1. customer (buyer)—a person or organization with a want or need, and the willingness to give money or another personal resource to satisfy it

2. product—a good, service, experience, or idea designed to satisfy the customer’s want or need

3. provider (seller)—the company or organization offering this need-satisfying thing, which may be a product, service, experience or idea

4. transaction—the terms of trading this value-for-value (most often, money for product), which both the customer and provider agree to

Individuals on both sides of the exchange try to maximize rewards and minimize transaction costs to gain the most profitable outcomes. Ideally, everyone achieves a satisfactory level of reward.

Marketing creates a bundle of goods and services that the company offers, for a price, to its customers. The bundle consists of a tangible good, an intangible service or benefit, and the price of the offering.

When you compare one car with another, for example, you can evaluate the three dimensions separately. However, you can’t buy one manufacturer’s car, another manufacturer’s service, and a third manufacturer’s price—you must purchase them as a group. They make up a company’s offer or bundle.

Marketing is also responsible for the environment in which this value exchange occurs. The marketing role is to

· identify customers, their needs, and how much value they place on satisfying their needs

· inform product design to meet customer needs and provide value proportional to cost

· communicate with customers about products, explaining who is offering them and why they are desirable

· listen to customers, communicate feedback to the provider about how well they are satisfying customer needs, and suggest opportunities for improvement

· shape the location and terms of a transaction, as well as the customer experience after a product is delivered

Creating Value for Customers

The purpose of all business is to “create and keep a customer (Levitt, 1977).” Marketing is instrumental in helping achieve this purpose. It is much more than just advertising, selling, and collecting money. Marketing generates value by creating connections between people and products, customers and companies.

How does this happen? The essential role of marketing is to identify, satisfy, and retain customers.

Before you can create anything of value, you must first identify a want or need that you can address, as well as prospective customers with the want or need.

Next, you work to satisfy customers by delivering a product or service that addresses their needs at the right time. Key to customer satisfaction is ensuring that everyone perceives a benefit from the exchange. In other words, your customer is happy with the value they get for what they pay, and you are happy with the payment you receive in exchange for what you provide.

Effective marketing doesn’t stop there. It also must retain customers by creating new opportunities to win their loyalty and future business.

As discussed previously, marketing encompasses various activities accomplish these objectives. How companies approach day-to-day marketing activities varies widely.

For many large, highly visible companies, such as Disney-ABC, Procter & Gamble, Sony, and Toyota, marketing is a major expenditure. It permeates organizational strategies, budget, and operations. Conversely, for other organizations, particularly those in highly regulated or less competitive industries like utilities, social services, health care, or businesses providing one-of-a-kind products, marketing may be much less visible: It could be as simple as a website or an informational brochure.

There is no one model that guarantees marketing success. Effective marketing may be very expensive, or it may cost next to nothing. What marketing must do in all cases is to help the organization identify, satisfy, and retain customers. Regardless of size or complexity, a marketing program is worth its costs only if it facilitates the organization’s ability to reach its goals.

Approaches

When companies develop a marketing strategy, they are making decisions about the direction the company and their marketing efforts will take. Companies can focus on the customer, product, sales, or production. Over time, the way companies focus their marketing efforts has changed.

Marketing Concept

An organization applying the marketing concept takes steps to know as much about the consumer as possible and begins to base marketing, product, and even strategy decisions on this information. This means starting with the customers’ needs and working backward to create value, rather than starting with another factor, like production capacity or an innovative invention, and then going out to sell it to consumers. The marketing concept assumes that success depends on doing better than competitors at understanding, creating, delivering, and communicating value to their target customers.

Product Concept

Both historically and currently, many businesses do not follow the marketing concept. For many years, companies such as Texas Instruments and Otis Elevator have followed a product orientation or product concept approach, in which the primary organizational focus is technology and innovation. This approach invests heavily in building and showcasing impressive features and product advances. Rather than focusing on a deep understanding of customer needs, companies following this model assume that a technically superior or less expensive product will sell itself. While this approach can be very profitable, there is a high risk of losing touch with what customers really want and becoming vulnerable to more customer-oriented competitors.

Sales Concept

Other companies have a sales orientation. These businesses emphasize the sales process and try to make it as effective as possible. While companies in any industry may adopt the sales concept, multilevel-marketing companies such as Herbalife and Amway generally fall into this category. Many business-to-business companies with dedicated sales teams also fit this profile. These organizations assume that a good salesperson with the right tools and incentives is capable of selling almost anything. Techniques include aggressive selling methods, promotions, and other activities that support “making the sale.” The selling process may ignore the customer or view consumers as an audience to be manipulated. Although these companies sell what they make, it isn’t necessarily what customers want.

Production Concept

Ford Assembly Line, 1913

Workers in Highland Park, Michigan, place bolts on hubcaps at a Ford plant.

Organizations following the production concept are striving for low production costs, highly efficient processes, and mass distribution, so they can deliver low-cost goods at the best price. This approach became popular during the Industrial Revolution, when businesses were beginning to exploit opportunities associated with automation and mass production. Production-oriented companies assume that customers care most about low-cost products being readily available and less about specific product features. Henry Ford’s success with the groundbreaking assembly-line-built Model T is a classic example. Today this approach is still widely successful in developing countries seeking economic gains in the manufacturing sector.

Seeing the Whole Picture

Savvy businesses acknowledge the importance of product features, production, and sales. They also realize that in today’s business environment a marketing orientation will be most successful when businesses continuously collect information about customers’ needs and competitors’ capabilities, share the information across departments, and use it to create a competitive advantage by increasing value for customers.

What Is Value?

Marketing exists to help organizations understand, reach, and deliver value to their customers. In its simplest form, value is the measure of benefit gained from a product or service relative to the item’s total cost. Value is created in the marketing exchange.

value = benefit – cost

Let’s look at a simple example: If you and I each decide to give the other a $5 bill at the same moment, is either one of us creating value? Since neither of us is receiving a benefit greater than the $5 bill, the answer is no—there is no value in the exchange.

Now, imagine that you are passing by a machine that dispenses bus tickets. The machine is malfunctioning and will only accept $1 bills. The bus is about to arrive and a man in front of the machine asks if you would be willing to give him four $1 bills in exchange for a $5 bill. You could, of course, decide to make change for him (and give him five $1 bills), making it an even exchange. But let’s say you agree to his proposal of exchanging four $1 bills for a $5. In that moment a $1 bill is worth $1.25 to him. How does that make sense in the value equation? From his perspective, the ability to use the bus ticket dispenser in that moment adds value in the transaction.

Value is not simply a question of financial costs and benefits. It includes perceptions of benefit that are different for every person. The marketer has to understand what is of greatest value to the target customer, and then use the information to develop a total offering that creates value.

More Than Price

Notice that we use cost rather than price in the value equation. That’s because although price plays an important role in defining value, it’s not the only consideration. Let’s look at a few examples:

· Two products have exactly the same ingredients, but a customer selects the higher-priced product because of the brand name. This means that the brand is adding value in the transaction.

· A customer shopping online selects a product but abandons their shopping cart, because there are too many steps in the purchase process. The inconvenience of filling out forms, or concerns about providing personal information, can add cost and subtract from the value the customer perceives.

· A person interested in a political cause commits to attending a meeting but cancels when he realizes that he doesn’t know anyone attending and that the meeting is on the other side of town. For him, the benefit of attending and participating is lower than the perceived value, since he’s not risking his social connections by not going, the inconvenience outweighs the perceived benefit.

As you can see, the process of determining an offering’s value and aligning it with a target customer’s wants and needs is challenging. As you read on, think about what you value and how it impacts the buying decisions you make every day.

The Competitive Marketplace

As if understanding individual perceptions of value aren’t difficult enough, the presence of competitors further complicates value perceptions. Customers instinctively choose between competitive offerings based on perceived value.

Seattle Skyline

Imagine that you are traveling to Seattle, Washington, with a group of six friends for a school event. You have the option to stay at a hotel next to the event venue for $95 per night. If you pay the “additional person fee,” you could share the room with one friend for a cost of $50 per night. However, one of your friends finds an Airbnb listing, for an apartment that sleeps six, for $280 per night. That takes the price down to $40 per person per night, but the apartment is five miles away from the venue and, since there are seven of you, you would likely be sleeping on a couch or fighting for a bed. It has a more homey feel and a kitchen though, which you like. It’s an interesting dilemma. Regardless which option you would really choose, consider the differences in their values and how the presence of both options generates unavoidable comparisons: Introducing the Airbnb alternative has the effect of highlighting new shortcomings and benefits of the hotel room.

Competition, Substitutes and Differentiation

Alternatives generally fall into two categories: competitors and substitutes. A competitor provides the same offering but accentuates different features and benefits. If, say, you are evaluating two different hotel rooms offered by different hotel chains, then you are looking at competitive offerings. Although both are rooms, their features, prices and locations differ, creating different perceptions of value for customers.

Airbnb, as a service for renting homes, apartments, or a single room to lodgers, is an alternative to a hotel. Substitute offerings like this are not a replication of the offering (hotel room), which means they provide different value to customers.

Competitors and substitutes force the marketer to identify the unique aspects of an offering compared with alternatives. This is called differentiation. It is simply the process of identifying and optimizing the elements of an offering that provide unique value to customers. Sometimes organizations refer to this process as competitive differentiation, since it focuses on optimizing value within the competitive environment.

Finally, organizations seek to create an advantage in the marketplace, so that their offerings provide greater value because of a unique strategy, asset, or approach that is not easily copied. This is a competitive advantage, or "a total offer, vis-à-vis relevant competition, that is more attractive to customers. It exists when the competencies of a firm permit the firm to outperform its competitors (American Marketing Association)." When a company can create greater value for customers than its competitors, it has a competitive advantage.

The Value Proposition

We have discussed the complexity of understanding customer perceptions of value. As the company seeks to understand and optimize the value of its offering, it also must communicate the core elements of value to potential customers. Marketers do this through a value proposition.

A value proposition needs to answer this question: Why should someone buy what you are offering? This question contains three components:

· Who? The value proposition does not name the target buyer, but it must show clear value to the target buyer.

· What? The offering needs to be defined in the context of the buyer.

· Why? It must show that the offering is uniquely valuable to the buyer.

It is difficult to create an effective value proposition. The marketer must distill many different elements of value and differentiation into one simple statement that can be easily read and understood. Despite this challenge, it is very important to create an effective value proposition, because it will focus marketing efforts on the customers, and the unique benefit of your offering for them. The value proposition is a message, and the audience is the target customer. You want your value proposition to communicate, very succinctly, the unique value in your offering.

Creating and Evaluating

When creating or evaluating a value proposition, it is helpful to step away from long lists of features and benefits and deep competitive analysis. Keep it simple, striving for focus and clarity. A value proposition should be clear, compelling, and must differentiate your offering.

· Identify the offering and its value or benefit.

· Convey the benefit in a way that motivates the buyer to act.

· Differentiate the offering from others.

Marketing and Customer Relationships

Marketing exists to help organizations understand, reach, and deliver value to their customers. For this reason, the customer is considered the cornerstone of marketing.

With this in mind, think about what is likely to happen when an organization doesn’t understand or pay attention to what its customers want. What if an organization doesn’t even really understand who its customers are?

Customer Relationship Management

Remember that the central purpose of marketing is to help organizations identify, satisfy, and retain customers. These three activities lay the groundwork for what has become a strategic imperative in modern marketing: customer relationship management.

To a student of marketing in the digital age, the idea of relationship building between customers and companies may seem obvious and commonplace. It certainly is a natural outgrowth of the marketing concept, which orients entire organizations toward understanding and addressing customer needs. But only in recent decades has technology made it possible for companies to capture and use information about their customers to such a great extent and in such meaningful ways. The Internet and social media have created new platforms for customers and product providers to find and communicate with one another. As a result, there are more tools than ever to help companies create, maintain, and manage customer relationships.

Maximizing Customer Lifetime Value

Central to these developments is the concept of customer lifetime value, which predicts how much profit is associated with a customer during a relationship with the company. One-time customers usually have a relatively low customer lifetime value, while frequent, loyal, repeat customers typically have a high customer lifetime value.

How do companies develop strong, ongoing relationships with customers who are likely to have a high customer lifetime value? Through marketing, of course.

Marketing applies a customer-oriented mindset and, through particular marketing activities, tries to make initial contact with customers and move them through various stages of the relationship—all with the goal of increasing lifetime customer value. These activities are summarized in the table that follows.

Stages of the Customer Relationship
Relationship Stage	Typical Marketing Activities
Meeting and Getting Acquainted	· Find desirable target customers, including those likely to have high customer lifetime value · Understand what these customers want · Build awareness and demand for what you offer · Capture new business
Providing a Satisfying Experience	· Measure and improve customer satisfaction · Track how customers’ needs and wants evolve · Develop customer confidence, trust, and goodwill · Demonstrate and communicate competitive advantage · Monitor and counter competitive forces
Sustaining a Committed Relationship	· Convert contacts into loyal repeat customers · Anticipate and respond to evolving needs · Deepen relationships, expanding the reach of, and reliance on, what you offer

Customer relationship management reduces the cost of doing business and increases profitability. As a rule, winning a new customer’s business takes significantly more time, effort, and marketing resources than garnering repeat business.

Competitive Advantage

As the global marketplace provides more choices for consumers, relationships can easily become a primary driver of a customer choosing one company over others (or choosing none at all). When customers feel satisfaction and affinity with a specific company or product, it simplifies their buying choices.

For example, why might a woman shopping for a cocktail dress choose to go to Nordstrom rather than Macy’s, Dillard’s, or an online store? Possibly because she prefers the selection of dresses at Nordstrom and the store’s atmosphere. But it’s much more likely that, thanks to her personal stylist at Nordstrom, this shopper has a relationship with an attentive sales associate who has helped her find great outfits and accessories in the past. She also knows about the store’s customer-friendly return policy, which might come in handy if she needs to return something.

A company like Nordstrom delivers such satisfactory experiences that its customers return again and again. A consistently positive customer experience matures into a relationship in which the customer becomes increasingly receptive to the company and its products. Over time, the customer relationship gives Nordstrom a competitive advantage over other traditional department stores and online retailers.

Your Best Marketing Tool: Customers

Customer testimonials and recommendations have always been powerful marketing tools. They often persuade new customers to try a product. With digital media, there is unprecedented opportunity for companies to engage customers, build a relationship, and garner advocates for their products.

Service providers including restaurateurs, medical professionals, and salons will ask their clients to write reviews on sites like Yelp. Product providers do the same on sites like Amazon and CNET. Although companies risk getting a bad review, they usually gain more by harnessing the authenticity of the customer experience. In this process they also gain the opportunity to truly build a relationship with a customer. By showing a customer that feedback is a valuable part of product development and enhancement, you may actually increase customer loyalty. With the right information, a company can retool its products or approach over time to respond to what customers want.

Yelp Reviews

Additionally, smart marketers know that when people take a stand publicly on a product or issue, they tend to become more committed to their position. Thus, customer relationship management can become a virtuous cycle. As customers have more exposure and positive interaction with a company and its products, they want to become more deeply engaged, and they are more likely to become evangelists for your product, service or brand. Customers become an active part of a marketing engine that generates new business and retains loyal customers, increasing customer lifetime value.

Influences on Consumer Decisions

While the decision-making process itself appears quite standardized, no two people make  decisions in exactly the same way. Their beliefs and behavioral tendencies may or may not be within our control as marketers. Many factors influence the uniqueness of each customer and his or her choices as a consumer. It isn’t feasible for marketers to react to the unique profile of every consumer, but it is possible to identify factors that tend to influence most consumers in predictable ways.

For example, as groups, men and women express different needs and behaviors regarding personal-care products. Families with young children tend to make different restaurant choices from single and married people without children. A consumer with a lot of prior purchasing experience in a product category might approach the buying decision differently from someone with no experience. As marketers gain a better understanding of these influencing factors, they can draw more accurate conclusions about consumer behavior.

We can group these influencing factors into four categories:

· situational factors—pertain to the consumer’s level of involvement in a buying task and the market offerings that are available

· personal factors—are individual characteristics and traits, such as age, life stage, economic situation, and personality

· psychological factors—relate to the consumer’s motivation, learning, socialization, attitudes, and beliefs

· social factors—pertain to the influence of culture, social class, family, and reference groups

Consumer Behavior

Buying Process

Consumer Decisions

Once the consumer decision-making process starts, a potential buyer can withdraw at any stage before making a purchase. The five stages shown in the flow chart that follows represent the steps people undergo when they consciously consider options and select a product. A first-time big-ticket, or durable product purchase, includes more complex decision making.

The Buying Process

For many products, the purchasing behavior is routine: you notice a need and you satisfy it through repurchasing a preferred brand, the cheapest alternative, or the product that is most convenient. You are assessing trade-offs and value. You have learned from past experience what will best satisfy your need, so you bypass the second and third stages of decision making. This is called simple decision making. However, if something (price, product, availability, services) changes appreciably, then you may reenter the decision process and consider alternatives.

Following are the steps of consumer decision making.

Need Recognition

The first step of the consumer decision process is recognizing a problem, or an unmet need, that warrants action.Two factors influence whether this need will be acted on: (1) the magnitude of the difference between what we have and what we need, and (2) the importance of the problem. A potential car buyer may desire a new Lexus and own a five-year-old Ford Focus. The discrepancy in brand/model may be fairly large, but still unimportant compared with other needs he or she has. Conversely, another consumer may own a two-year-old car that is running well, but he or she still considers it extremely important to purchase a car this year. Consumers do not move on to the second step until they have confirmed that their specific needs are important enough to act on.

Information Search

After recognizing a need, the prospective consumer may seek to identify and evaluate alternative products, services, experiences, and outlets that will meet a need. Research tools  may include family and friends, search engines, Yelp reviews, observation, Consumer Reports, salespeople, product samples, and so forth. Which sources are most important depends on the individual and the type of purchase.

Information-search may uncover additional needs. As a tire shopper looks for information, she may decide that a new car, rather than new tires, will better satisfy her need—triggering a return to information search.

Evaluation of Alternatives

As a consumer finds and processes information about the problem she is trying to solve, she identifies the alternative products, services, and outlets that are viable options. The next step is to evaluate these alternatives and make a choice, assuming there is one that meets the consumer’s financial and psychological requirements. Evaluation criteria vary from consumer to consumer and from purchase to purchase, just as the needs and information sources vary. One consumer may consider price most important while another puts more weight on quality or convenience.

Imagine you are buying a new vacuum cleaner. During your information search, you identify five leading models through online reviews, as well as the criteria that are most important to you: price, suction power, warranty, weight, noise level, and ease of using attachments. After checking out all the options in person, you’re torn between two models you short-listed. Finally you make the agonizing choice, and the salesperson heads to the warehouse to get one for you. He returns with bad news: The vacuum cleaner is out of stock, but a new shipment is expected in three days. Strangely relieved, you take that as a sign to go for the other model, which happens to be in stock. Although convenience wasn’t on your original list of selection criteria, you need the vacuum cleaner before the party you’re having the next day. You pick the number-two choice and never look back.

The Purchase Decision

After searching and evaluating, consumers decide whether they are going to buy, so anything marketers can do to simplify purchasing will be attractive. For example, in advertising, marketers might suggest the best size of product for a particular use or the right wine to drink with a particular food. Sometimes decision-making can be simplified by consolidating choices, as with a travel packaged as a tour. Or, marketers may smooth the way toward a decision by offering extended warranties for what they are selling.

Post-Purchase Behavior 

All of the behaviors discussed so far take place before or during a purchase. However, a consumer’s feelings and evaluations after the sale are also significant, because they can influence repeat sales and what the customer tells other people about the product or brand.

So, marketing is all about keeping the customer happy at every stage of the decision-making process, including after the purchase. It is normal for consumers to experience some post-purchase anxiety after any significant or nonroutine purchase. This anxiety is called cognitive dissonance. According to this theory, people strive for consistency among their cognitions (knowledge, attitudes, beliefs, and values). When there are inconsistencies, dissonance arises, which people try to eliminate.

Marketers may take specific steps to reduce post-purchase dissonance. One obvious way is to help ensure delivery of a quality solution that will satisfy customers. Another is to develop advertising and new-customer communications that stress the positive attributes or confirm the popularity of the product. Providing personal reinforcement has proven effective with big-ticket items such as automobiles and major appliances. Salespeople may send cards or even make personal calls to reassure customers about their purchase.

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

Marketing is best defined as the activities, organizations, and processes for ________.

advertising, building awareness of and promoting an object of value for customers

creating, communicating, delivering, and exchanging offerings that customers value

designing, building, delivering and supporting a product or service

Question 2

An organization’s value proposition can be described as

a proposition explaining the value an organization brings to the community

a statement detailing how much value a customer will receive when he or she considers how much a product or service costs minus how much effort went into making the purchase

a statement that summarizes why a consumer should buy a product or use a service

Question 3

The buying process does NOT include

need recognition

generational adaption

evaluation

References

American Marketing Association Dictionary. Retrieved from https://www.ama.org/resources/Pages/Dictionary.aspx?dLetter=C

Levitt, T. (1977, March 2). Marketing and the Corporate Purpose. Delivered at New York University.

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Segmentation and Targeting

What you’ll learn to do: Explain the role of segmentation and targeting in marketing

Segmentation and targeting answer a basic question: Who am I trying to reach? In this section, we will first focus on why segmentation and targeting are so important. Then we will discuss how to conduct segmentation and targeting. and use these tools to guide marketing activity.

Learning Outcomes

· Explain the concepts of segmentation and targeting

· Discuss how segmentation and targeting relate to marketing strategy

· Describe the process and goal of market research

· Analyze how market research helps marketers validate their target markets

Defining Your Target Market 

Suppose you are selling automotive detailing products. Is your target “anyone with money to pay for your product?” Or are you focusing on a tightly defined market segment that needs what you are selling? “Anyone with money” is such a broad audience that it would be difficult to make any impact with your marketing efforts or convince many people that they need your product. However, if you narrow and carefully define your target market, your efforts will be more fruitful: You will be focusing on people with a preexisting need or interest in your offering.

Step 1: Identify the Customer Need

To define your total market, start by stating the needs you will fulfill: Who are your products or services intended for? Who do you want to do business with? What is unique about your product? If you’re selling products for auto detailing, your market consists of vehicle owners—that is, all the people who could potentially buy your product. Your business will help them keep their vehicles clean and shiny.

Step 2: Segment Your Total Market

Next, segment, or break down this market into smaller sections. You can use a variety of approaches to segment the total market into groups with common wants or needs. In this case, we can segment by vehicle ownership and related behavior. Specific segments might include

· people who restore classic automobiles

· people who drive old clunkers and run them through the car wash occasionally

· people who own “status” cars

· truck drivers

· motorcycle owners

Which subgroups are least likely to be productive? You recognize that car owners who don’t care about keeping their vehicles clean and shiny probably won’t be very interested in your products. Then there are those who care, but they lack the time and interest to do the work themselves, so they take their vehicles to be detailed. Others worry about detailing only when it’s time for a trade-in.

You reject these segments as unsuitable for your niche market because they probably don’t care enough about what you offer. After further consideration and research, you decide that your market segment will be automobile owners with both the time and the interest to do their own detailing—people who not only enjoy puttering with their vehicles, but who have the time to spend and who take pride in their vehicle’s appearance.

You need to conduct research to confirm that there are enough potential customers in this group to support your business. You should also do competitive analysis to confirm that what you are offering is not readily available to them elsewhere. With this validation, you move to step three.

Step 3: Develop Profiles of Target Segments

Next, develop profiles of your target customers so you can serve them. Describe them as fully as possible. Who will buy your product? What do you know about them? Where do they live? What languages do they speak? How much do they spend on car detailing? Where do they shop? What is their annual income? What kinds of cars do they drive? If you’re selling online, what methods for online payment do they prefer? What websites do they visit? How do they want their products delivered?

There are many different ways to profile your customers.

Common Market Segmentation Approaches
Approach	Criteria
Geographic	nations, states, regions, cities, neighborhoods, zip codes, etc.
Demographic	age, gender, family size, income, occupation, education, religion, ethnicity, and nationality
Psychographic	lifestyle, personality, attitudes, and social class
Behavioral	user status, purchase occasion, loyalty, readiness to buy
Decision maker	decision-making role (purchaser, influencer, etc.)

Identify your customer profile before planning activities, so that your planning is a good fit for your customers’ behavior, interests, and needs.

Step 4: Research and Validate Your Market Opportunity

After identifying your target market, conduct research to verify that there will be enough business to support your company’s growth. This process confirms, objectively, that there is a need for what you will offer.

Use both primary and secondary sources in your research. This might include business directories, statistics regarding automobile owners and their car-care practices, or newspaper and magazine articles about the subject. You can also conduct market research using surveys, focus groups, interviews, and other tools.

Your research should determine the size of the market opportunity in revenue as well as your potential market share.

Again, you can use both primary and secondary sources to find out how many potential customers there are in the geographic area you have defined, and how many businesses are directly or indirectly competing with you. Your market share is the number of customers likely to buy from you rather than your competition.

Having defined and validated your target market, you are now better positioned to develop a marketing plan that will reach your potential customers. Perhaps your sales will take off right away—a great problem to have!    

Information and Research

Customer Insights

Effective marketing starts with a strong knowledge of your customers—the kind that gives you unique insights into what they want and how to satisfy them better than your competition can. The most reliable source of fresh customer insights is good marketing information. Useful marketing information may come from a variety of sources both inside and outside your organization. It is generated through a variety of activities, including marketing research.

Marketing research is a systematic process for identifying marketing opportunities and solving marketing problems by collecting and analyzing marketing information, including customer insights. The mechanics of marketing research must be controlled to uncover information relevant for decision making. The marketing research director controls the fact-finding process. He or she designs and supervises the research.

A marketing information system comprises the people, technologies, and processes for managing marketing information, overseeing market research activities, and using customer insights to guide marketing decisions, as well as broader management and strategy decisions.

Knowledge Is Power

The business environment is increasingly competitive. With something as simple as a Google search, customers have unprecedented opportunities to explore alternatives to what any company offers. Likewise, companies have ample opportunity to identify, track, and lure customers away from their less-vigilant competitors. A regular infusion of fresh customer insights can make all the difference in keeping customers or losing them. Marketing information and research are essential tools for marketers and the management team as they align strategy with customer wants and needs. Consider this example:

Before introducing OnStar, the first connected-car service, GM used marketing research to understand what types of applications would pique consumers’ interest most and how much they would pay for a subscription. Ultimately, the research led GM to focus first on driver assistance and security. The research also helped determine OnStar pricing to help the company build a large subscriber base quickly (Barabba, 2004, pp. 46–50).

Using Marketing Information

Information and research play a role in all aspects of marketing. Important research questions include:

· Who is the customer?

· What problems is the customer trying to solve with a given purchase?

· What needs does the customer have?

· How does the customer get information about available choices?

· Where does he or she choose to purchase?

· Why does the customer buy—or not?

· When does he or she make a purchase?

· How does the customer approach the market?

Seeking answers to these questions yields insights into the customer’s needs, perceptions, and behaviors.

Another area of critical research is profitability. Organizations must forecast sales and related costs to ensure profitability. Analyzing past sales and interpreting cost information are important to evaluate performance and provide useful facts for future planning.

All of these activities rely on marketing information and a rigorous marketing research process to produce insights managers can trust and act on. By building this knowledge your company can plan competitive marketing programs that will produce the desired level of sales at an appropriate cost. Therefore, as a rule, if the research results can save the company more time, money, and/or risk than it costs to conduct the research, it is wise to proceed.

Admittedly, many marketing decisions are made without consulting marketing information or using formal marketing research.

For example, a decision maker may feel she already knows enough to make a good decision, or there may not be enough time to investigate a question or conduct formal marketing research. In other cases, obtaining the data would be too costly, or the desired data cannot be obtained for other reasons.

In a few instances, there may be no choice among alternatives and, therefore, no decision to make. There is little value in spending time and money to study a problem if there is only one possible solution. But in most business situations, marketers and managers must choose among two or more courses of action. This is where fact-finding, marketing information, and research enter. Ultimately, successful people blend facts and intuition to make decisions.

Researching Customer Preferences

There is a difference between the performance of organizations that produced top-performing products and those that produced under-performing products. The use of marketing research was a striking differentiator:

More than 80 percent of the top performers said they periodically tested and validated customer preferences during the development process, compared with just 43 percent of bottom performers. They were also twice as likely as the laggards to research what, exactly, customers wanted (Gordon, et al, 2010).

The study also identified other differences between top and bottom performers, but an underlying theme was the emphasis successful projects and companies placed on understanding their customers and adjusting course as needed to better address customers’ needs. This research provides more than anecdotal evidence that marketing research and well-applied marketing information can make a substantial contribution to an organization’s success.

The Research Process

Introduction

Carrying out marketing research can involve highly specialized skills that go beyond the scope of this chapter. However, it’s important to be familiar with the basic procedures and techniques of marketing research.

It’s very likely that at some point a marketing professional will need to supervise an internal marketing research activity or work with an outside marketing research firm. Managers who understand the research function can do a better job of framing the problem, critically appraising the proposals made by research specialists, and evaluating findings and recommendations.

Periodically marketers themselves need to find solutions to marketing problems without the assistance of research specialists. If you are familiar with the basic procedures of marketing research, you can supervise a study or even search for information yourself.       

Step 1: Identify the Problem

The first step for any marketing research activity is to clearly identify, state, and define a problem. Next, articulate the objectives for the research: What do you want to understand by the time the research project is completed? What specific information, guidance, or recommendations are needed so that the research will be a worthwhile investment?

It’s important to share the problem definition and research objectives with other team members. Collaborating with other stakeholders can help refine, focus, and prioritize the research objectives. This is helpful in allocating resources.

It’s useful to begin by brainstorming research questions. For example: What are the questions you need to answer in order to get to the research outcomes? What is the missing information that marketing research will help you find?

By generating preliminary, big-picture questions that will frame your research inquiry, you get a sense of what information may already be available, where to look for the information you don’t have, and who can help you answer the research questions.

Marketing Research for a Bookstore

Your uncle Dan owns an independent bookstore called Bookends, and it’s not doing very well. The store’s sales are down, and the rent is going up. Dan has turned to you for help, since you know a thing or two about marketing.

You need information to help your uncle turn things around, so you do the preliminary work for  marketing research: identifying the problem, research objectives, and initial research questions.     

Problems, Objectives, and Questions
Core business problem	How to get more people to spend more money at Bookends
Research objectives	Identify · promising target audiences for Bookends · strategies for rapidly increasing revenue from these target audiences
Initial research questions	Who are Bookends’ current customers? How much do they spend? Why do they come to Bookends? What do they wish Bookends offered? Who isn’t coming to Bookends, and why?

Step 2: Develop a Research Plan

After identifying the problem, establishing research objectives, and developing preliminary research questions, the next step is to create a research plan. This plan will specify the information needed to answer the questions and achieve the research objectives:

Do you need to understand customer opinions about something? Are you looking for a clearer picture of customer needs and related behaviors? Do you need sales, spending, or revenue data? Do you need information about competitors’ products, or insight about what will make prospective customers notice you? When is the information needed, and what’s the time frame for getting it? What budget and resources are available?

Once you have clarified the information needed, timing and budget for the project, you can develop the research design. This details the plan for collecting and analyzing the information gathered. Some information is readily available through secondary sources. Secondary research analyzes information that has already been collected for another purpose by a third party, such as a government agency, an industry association, or another company. Other types of information come from talking to customers. This primary research collects data expressly to meet your research goals. Marketing research projects may include secondary research, primary research, or both.

Depending on your objectives and budget, sometimes a small-scale project will be enough to get the insight and direction you need. At other times, in order to reach the level of certainty or detail required, you may need larger-scale research involving participation from hundreds, or even thousands, of individual consumers. The research plan lays out the information your project will capture—both primary and secondary data—and describes what you will do with it to get the answers you need. (Note: You’ll learn more about data collection methods and when to use them later in this chapter.)

Analysis

Data collection and analysis go hand-in-hand, and different types of analysis yield different results. The analysis plan should match the type of data you are collecting, the outcomes your project is seeking, and the resources available. Simpler research designs tend to require simpler analysis techniques, but more complex research designs can yield powerful results, such as understanding causality and trade-offs in customer perceptions. More sophisticated designs can require more time and money for data collection and analytical expertise.

The research plan also specifies who will conduct the research, including data collection, analysis, interpretation, and reporting. Sometimes a marketing manager or research specialist runs the entire project. Other times, a company may contract with a marketing research analyst or consulting firm, and the marketing manager provides oversight to ensure the research delivers on expectations.

Finally, the research plan indicates who will interpret the research findings and how they will be reported. The internal audience(s) for the research and the reporting format that will be most useful are important considerations. Often, senior executives are the primary stakeholders, and they’re anxious for marketing research to inform and validate their choices. Getting their buy-in on the research plan is recommended to make sure that they are comfortable with the approach and receptive to the findings.

Bookends’ Research Plan

After discussing the results of your problem identification work with Dan, he says you’re on the right track and wants to know what’s next. You explain that the next step is to put together a detailed plan for getting answers to the research questions.

Dan is enthusiastic, but he’s also short on money. Although financial constraints will limit what’s possible, with Dan’s help you decide you can still accomplish worthwhile research using the following plan:

Research Plan for Bookends Bookstore
Data needed	1) demographics and attitudes of current Bookends customers, 2) current customers’ spending patterns, 3) metro area demographics (to determine types of people who aren’t coming to the store)
Timing	one month
Budget	0
Data collection methods	1) current customer survey using free online survey tool, 2) store sales data mapped with customer survey results, 3) free US census data on metro-area demographics, 4) 8–10 intercept (“man on the street”) interviews with non-customers
Analysis plan	Use Excel or Google Sheets to tabulate data, and enlist Dan’s cousin, Marina, who is a statistician, to help identify market segments through data patterns
Interpretation and reporting	Work with Dan to review the data for insights, and create a PowerPoint presentation of significant results, key findings, and recommendations

Step 3: Conduct Research

Conducting research can be fun and exciting. After struggling with the gaps in your knowledge of market dynamics—which led you to embark on a marketing research project—things are about to change. Conducting research begins to generate information that helps answer your urgent marketing questions.

Typically data collection begins by reviewing existing research and data that provide information or insight about the problem. As a rule, this is secondary research. Prior research projects, internal data analyses, industry reports, customer-satisfaction survey results, and other information sources may be worthwhile to review. Even though these resources may not answer your research questions fully, they may further illuminate the problem you are trying to solve. Secondary research and data sources are nearly always a cheaper alternative. Your marketing research project should benefit from prior work wherever possible.

After getting everything you can from secondary research, it’s time to shift attention to primary research, if this is part of your research plan. Primary research involves asking questions of your target audience(s) or observing their behavior. To generate reliable, accurate results, it is important to use scientific methods for both data collection and analysis. Identifying the right people and quantity of respondents, and carefully wording surveys and interview scripts, will help capture the right data. You want to avoid bias that will point your efforts in the wrong direction.

Applied Example: Getting the Data on Bookends

Dan is onboard with the research plan, and he’s excited to dig into the project. You start with secondary data—sales figures for the past two years—along with related information: customer name, zip code, frequency of purchase, gender, date of purchase, and discounts or promotions.

You visit the US Census Bureau website for demographic data about your metro area. The data include zip codes in the area, population size, gender breakdown, age ranges, and income and education levels.

Next, you work with Dan to put together a short survey about customer attitudes toward Bookends, how often and why they come, where else they spend money on books and entertainment, and why they go to places other than Bookends. Dan comes up with a great idea—offering a 5 percent discount coupon to anyone who completes the survey. Although it eats into his profits, more people complete the survey and buy books, so it’s worth it.

For two days, you and Dan take turns doing “man on the street” interviews. You find people who say they’ve never been to Bookends and ask them a few questions about why they haven’t visited the store, where else they buy books and other entertainment, and what might get them interested in visiting your store. This is a lot of work, but for a zero-budget project, it’s coming together pretty well.     

Step 4: Analyze and Report Findings

Analyzing the data obtained in a market survey involves transforming it into useful information and insights that answer the research questions. The information is condensed into a format managers can use—usually a presentation or report.

Analysis starts with formatting, cleaning, and editing the data to make sure it is usable. Next, data are tabulated to show customers’ attitudes and behavior, including purchasing behavior, as well as revenue. Common analytical techniques include regression analysis to reveal correlations; conjoint analysis to determine trade-offs and priorities; predictive modeling to anticipate patterns and causality; and analysis of unstructured data, such as Internet search terms or social media posts, to provide context and meaning for what people say and do.

Data Interpretation

Sound analysis is key to interpreting the results. Data interpretation answers the question so what? It explains what managers need to know and do based on the results. For example, what is the short list of key findings and takeaways that managers should remember from the research? What market segments have been identified, and which ones should be targeted?  What are the primary reasons customers choose a competitor’s product over yours, and what does this mean for product development and improvement?

Marketing research reports incorporate both data analysis and interpretation to address the project objectives. People with a good working knowledge of the business should be involved in interpreting the data because they are in the best position to pinpoint significant insights and make recommendations based on the research findings.

Often a slide presentation is the preferred format for initially sharing results with internal stakeholders. For large, complex projects, a detailed written report can provide benchmarking data and a reference for future study.

Analysis and Insights for Bookends

Getting the data was a bit of a hassle, but now that you have it you’re excited to see what it reveals. Marina, the statistician, was a whiz with both the sales and census data. She identified several demographic profiles in the metro area that looked a lot like lifestyle segments. Then she mapped Bookends’ sales data onto those segments to show who was and wasn’t visiting Bookends. After matching customer-survey data to the sales data, she disaggregated the segments further, based on their spending levels and reasons they visit Bookends.

Gradually a clearer picture of Bookends’ customers is beginning to emerge: who they are, why they come, why they don’t come, and what role Bookends plays in their lives. Right away, a couple of higher-priority segments—based on spending levels, proximity, and loyalty to Bookends—stand out. You and your uncle are definitely seeing some possibilities for making the bookstore a more prominent part of their lives. You capture these insights as “recommendations to be considered” while you evaluate the right marketing mix for each of the new segments you’d like to focus on.     

Step 5: Take Action

Once the report is complete, the presentation is delivered, and the recommendations are made, the marketing research project is over, right? Wrong.

What comes next may be the most important step of all: taking action based on your research results.

If your project has done a good job of interpreting the findings and translating them into recommendations for the marketing team and other functional areas, this step may seem relatively straightforward. When the research results validate a path the organization is already on, the “take action” step can galvanize the team to move further and faster.

Things are not as simple when the research results point toward a new direction or a significant shift. In these cases, it’s worthwhile to spend time helping managers understand the research, explain why it is wise to shift course, and articulate how the business will benefit from the new path. As with any important business decision, managers must think deeply about the new approach and carefully map strategies, tactics, and available resources to change course. Making the results available and accessible to managers and their teams helps the organization plan, execute, and adjust course as the teams work toward desired outcomes.

It is worth mentioning that many marketing research projects are never translated into management action. Sometimes this is because the report is too technical and difficult to understand. In other cases, the research conclusions fail to provide useful insights or solutions to a problem, or the report writer fails to offer specific suggestions for translating the research findings into management strategy. These pitfalls can be avoided by paying attention to the research objectives throughout the project and allocating sufficient time and resources to do a good job interpreting research results for those who will need to act on them.

Applied Example: Bookends’ New Customer Campaign

Your research findings and recommendations identified three segments for Bookends to focus on. Based on demographics, lifestyle, and spending patterns, you’re able to name them: 1) Bored Empty-Nesters, 2) Busy Families, and 3) Hipster Wannabes. Dan has a decent-sized clientele across all three groups, and they are pretty big spenders when they come in. But until now he hasn’t done much to purposely attract any of them.

With the newly identified segments in focus, you and Dan begin brainstorming about a marketing mix to target each group. What types of books and other products would appeal to each one? What activities or events would bring them into the store? Are there promotions or messages that would induce them to buy at Bookends instead of Amazon or another bookseller? How will Dan reach and communicate with each group? And what can you do to bring more new customers into the store within these target groups?

Even though Bookends is a real-life project with serious consequences for your uncle Dan, it’s also a fun laboratory where you can test out some of the principles you’re learning in your marketing class. You’re figuring out quickly what it’s like to be a marketer.

Well done, rookie!

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

What is the important first step in any marketing research project?

problem definition

research design formulation

development of an approach to the problem

Question 2

Sweet Teas tea shop’s sales have been declining. The company has been leaving coupons on the doors of homes around the neighborhood to get more customers in the door and increase sales. However, lately the owner of Sweet Teas has noticed that very few customers use the coupons. How could Sweet Teas verify that its target market (the homes in the surrounding neighborhood) are really its primary customers?

Sweet Teas could update the look of the shop, adding some new light fixtures, paintings and better seating which would appeal to its target customer.

Sweet Teas could conduct market research to validate its target market.

Sweet Teas could place coupons on doors in a different neighborhood to see if those neighbors visit Sweet Teas.

Question 3

Demographic market segmentation uses the following criteria:

age, gender, family size, income, occupation, education, religion, ethnicity, and nationality

lifestyle, personality, attitude, and social class

user status, purchase occasion, loyalty, readiness to buy

References

Barabba, V.P. (2004). Surviving transformation: Lessons from GM's surprising turnaround. England: Oxford University Press.

Gordon, M., Musso, C., Rebentisch, E., & Gupta, N. (2010, January). The path to successful new products. McKinsey Insights. Retrieved from https://www.mckinsey.com/business-functions/operations/our-insights/the-path-to-successful-new-products

Licenses and Attributions

Introduction to Segmentation and Targeting from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

CC LICENSED CONTENT, ORIGINAL

· Outcome: Segmentation and Targeting. Authored by: Linda Williams and Lumen Learning. License: CC BY: Attribution

Segmentation and Targeting from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution-ShareAlike 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Revision and adaptation. Provided by: Lumen Learning. License: CC BY-SA: Attribution-ShareAlike

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Marketing Mix

What you’ll learn to do: Explain the marketing mix

The value proposition explains why a consumer should buy a product or use a service, as well as how the product or service will add more value, or better solve a problem, than other similar offerings. Once you get the value proposition right, you still have to actually deliver value to your target customer. The marketing mix describes the tools that marketers use to create value for customers.

Learning Outcomes

· Define price, product, promotion, and place

· Describe examples of the marketing mix

· Explain how marketing strategies align with corporate strategies

How to Reach Customers

The value proposition is a simple, powerful statement—and it is only the tip of the iceberg. How do marketing professionals ensure that they are reaching and delivering value to the target customer?

As a cell phone customer, for example, consider what would make you want to buy a new phone and how the following would affect your purchasing decision:

· Features. A new phone with features that appeal to you has just been released.

· Price. The price concerns you. Is it a good deal? Too expensive? So low-priced that  you suspect there’s a catch?

· Information. How did you find out about the phone? An ad? A friend? Online?

· Customer service. Is your service provider making it easier for you to buy this phone with a new plan or an upgrade?

· Convenience. Could you easily buy it online in a moment of indulgence?

You can see there are many factors that might influence your thinking and decision about what to buy. Taken together, these factors are known as the marketing mix. It is the combination of factors that a company controls to provide value to its target customers. Organizations must find the right combination to gain an advantage over their competitors.

Evolving Definition

The marketing mix is presented in different ways. During the 1950s its components were conceived as the “four P's” (McCarthy, 1964):

· product—the goods and services offered

· price—ensuring fair value in the transaction

· place—distribution or delivery

· promotion—communication and information

These categories are still useful for understanding marketing activities. They represent the way an organization’s broad marketing strategies are translated into programs for action.

Over time, new categories have been proposed for the marketing mix. Most are more consumer oriented and attempt to better fit the movement toward a marketing orientation and a greater emphasis on customer value (Lauterborn, 1990). The Four C's of the marketing mix are as follows:

· customer solution—what the customer wants and needs

· communication—a two-way dialogue with the customer

· convenience—an easy process to act or buy

· cost—the customer’s cost to satisfy that want or need

The four C's greater focus on the customer align nicely with the four P's. They also enable thinking about the marketing mix for services, not just products. For example, hotel accommodations can be thought of as customer solution, rather than strictly as a product. The table that follows shows how the four P's and the four C's align.

Four P’s and Four C's
Four P's	Four C's	Definition
Product	Consumer solution	A company will only sell what the consumer specifically wants to buy. So, marketers should study consumer wants and needs in order to attract them one by one with something they want to purchase.
Price	Cost	Price is only a part of the total cost to satisfy a want or a need. For example, total cost might include the time to acquire a good or service. It reflects the total cost of ownership. Many factors affect cost. They include, but are not limited to, the customer’s cost to change or implement the new product or service and the cost of not selecting a competitor’s product or service.
Price	Cost	Communication can include advertising, public relations, personal selling, viral advertising, and any other form of communication between the organization and the consumer.
Place	Convenience	Today people often don’t have to go to a particular place to satisfy a want or a need, nor are they limited by location. Marketers should know how the target market prefers to buy, and how to be ubiquitous, in order to provide convenience. The Internet and hybrid models of purchasing are making place less relevant. Convenience includes the ease of finding the product and information about it, as well as purchasing.

Whether we reference the four P's or the four C's, it is important to recognize that marketing requires a range of different approaches, and includes many variables that influence customer behavior. The right mix of activities is essential for marketing success.

Competitors

The challenge of getting the right marketing mix is magnified by the existence of competitors, who exert market pressures through their strategies to address the marketing mix. Remember, the purpose of the marketing mix is to find the right combination of product, price, promotion, and distribution (place) so that a company can gain and maintain a competitive advantage.

Components

Product

In the marketing mix, product means the solution that the customer wants and needs. In this context, we focus on a solution rather than just a product. Product examples include

· the Tesla Model S, a premium electric car

· a stay at a Holiday Inn Express, a low-priced national hotel chain

· Doritos nacho cheese, a snack food

· Simple, an online banking service

Each of these products has unique features, design, name, and brand that are focused on a target customer. Their characteristics are different from competitors’ products.

Promotion

Promotion is the communication that occurs between the company and the customer. It includes both messages the company sends and those that customers send to the public about their experience. Promotion examples include:

· advertisement in Cooking Light magazine

· customer’s review of a product on Tumblr

· local newspaper article quoting a company employee as an expert

· test message sent to a list of customers or prospects

Marketing professionals have an increasingly difficult job influencing promotions that cannot be controlled by the company. The company’s formal messages and advertising are only one part of promotions.

Marketers often run social media campaigns, rewarding customers who like their companies on Facebook.

Place

In the marketing mix, place refers to product distribution. Where does the customer buy? It could be a traditional brick-and-mortar store or online. Each choice may include other options:

· an online retailer like Amazon

· a direct sales force

· the company’s website, such as the shoe purchases at Nike.com

· a distributor or partner like Best Buy or Verizon (cell phones, for example)

Today the concept of “place” in the marketing mix rarely refers to a specific physical address. It takes into account a broad range of distribution channels that makes it easy for the target customer to buy.

Price

In the marketing mix, the term price is the cost to the customer. This requires the company to analyze the product’s value for the target customer. Examples include

· the price of a used college textbook in the campus bookstore

· promotional pricing such as Sonic’s half-price cheeseburgers after 5:00 p.m. on Tuesdays

· discounts to trade customers, such as furniture discounts for interior designers

Marketing professionals must analyze what buyers are willing to pay, what competitors are charging, and what price means to the target customer in calculating a product’s value. Determining price is almost always a complicated analysis that brings together many variables.

Sonic offers a discount Tuesdays—typically a day with low sales volume.

The Right Marketing Mix

How does an organization determine the right marketing mix? The answer depends on the organization’s goals. It’s a recipe that can be adjusted—through tiny or dramatic changes—to support broader company goals.

Decisions about the marketing mix are interrelated. Each variable must be coordinated with the other elements of the marketing program.

Consider, for a moment, the simple selection of shampoo. Let’s call the three brands we have to choose from Discount, Upscale, and Premium. The table below shows some of the marketing mix elements that impact decisions by target customers.

How the Marketing Mix Works in Purchasing
	Discount	Upscale	Premium
Product	Cleansing product, pleasant smell, low-cost packaging	Cleansing product, pleasant smell, attractive packaging	Cleansing product, pleasant smell created by named ingredients, premium packaging
Promotion	Few, if any, broad communications	National commercials show famous female promoters with clean, bouncy hair	Differentiating features and ingredients highlighted (e.g., safe for colored hair), science behind the formula emphasized. Recommended by consumer’s stylist
Place	Distributed in grocery stores and drugstores	Distributed in grocery stores and drugstores	Distributed only in licensed salons
Price	Lowest price on the shelf	Highest price in the grocery store (8 times the prices of Discount)	3 to 5 times the price of Upscale

A number of credible studies suggest that there is no difference in the effectiveness of Premium or Upscale shampoo compared with Discount shampoo, but the communication, distribution, and price are substantially different. Each product appeals to a very different target market. Do you buy your shampoo in a grocery store or a salon? Your answer is likely based on the marketing mix that has most influenced you.

An effective marketing mix centers on a target customer. Each element is evaluated and adjusted to provide unique value to the target customer. In our shampoo example, if the target market is affluent women who pay for expensive salon services, then reducing the price of a premium product might actually hurt sales, particularly if it leads stylists in salons to question the quality of the ingredients. Similarly, making the packaging more appealing for a discount product could have a negative impact if it increases the price even slightly or causes shoppers to confuse it with a more expensive product.

The goal with the marketing mix is to align marketing activities with the needs of the target customer.

Creating and Aligning the Marketing Strategy

Developing the marketing strategy follows substantially the same sequence of activities as defining a corporate strategy. The chief difference is that the marketing strategy is directly affected by the overall corporate strategy; that is, the marketing strategy needs to work with—not separate from—the corporate strategy. As a result, the marketing strategy must always involve monitoring and reacting to changes in the corporate strategy and objectives.

To be effective, a marketing strategy must capitalize on the resources within the company, while taking advantage of external market forces. One way to assess these factors, or inputs, is by conducting a situation analysis. As you recall, a SWOT analysis includes reviewing the company’s internal strengths and weaknesses, as well as external opportunities and threats.

The Target Customer

The marketing strategy defines how the marketing mix can best be used to achieve the corporate strategy and objectives. The centerpiece of the marketing strategy is the target customer. While the corporate strategy may have elements focused on internal operations or seek to influence external forces, each component of the marketing strategy focuses on the target customer.

Recall the following four steps for determining your target customer:

1. Identify the business need you will address, which will be driven by the corporate strategies and objectives.

2. Segment your total market, and identify the subgroup you will target.

3. Profile your target customer, so that you understand how to provide unique value.

4. Research and validate your market opportunity.

Focusing the marketing strategy on the target customer seems like a no-brainer, but often organizations get wrapped up in their own strategies, initiatives, and products—and they forget who the target customer is. When this happens, the customer loses faith in the product or the company and turns to alternatives.

Alignment with Corporate Strategy

Objectives can create alignment between corporate and marketing strategies. If the corporate objectives are clearly defined and communicated, they can guide and reinforce each step of the marketing planning process.

How would good corporate-level objectives inform the marketing strategy and objectives? Consider the following examples:

· Imagine completing a market segmentation process. You find a target market that will find unique value in your offering. The decision to pursue that target market will depend on whether the segment is large enough to support the corporate objectives for market growth.

· How many new products should the company launch this year? The answer should be informed by the corporate objectives for growth and profitability.

· The marketing function has identified a customer relationship management campaign that would create greater customer loyalty. Do the cost of the campaign and its expected returns align with the company objectives?

As you can see, company objectives provide important guidance to the marketing planning process. Likewise, marketing objectives ensure that the goals of the marketing strategy are defined, communicated, and measured.

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

 ________ is the component of the marketing mix that can be compared to cost using the 4 C's.

Price

Product

Promotion

Question 2

________ refers to the component of the marketing mix that can be compared to “convenience” using the 4 C's.

Promotion

Place

Product

Question 3

Advertising, public relations, personal selling, viral advertising, and any form of communication between the organization and the consumer are examples of

promotion

place

product

References

Lauterborn, B. (1990). New marketing litany: Four Ps passé: C-words take over. Advertising Age, 61(41), 26.

McCarthy, Jerome E. (1964). Basic marketing: A managerial approach. Homewood, IL: Irwin. 

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Introduction to Marketing Mix from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Outcome: Marketing Mix. Authored by: Linda Williams and Lumen Learning. License:  CC BY: Attribution

The Marketing Mix from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Boundless Marketing. Provided by: Boundless. Located at:  https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/introduction-to-marketing-1/introduction-to-marketing-18/product-placement-promotion-and-price-108-4454/ . License:  CC BY-SA: Attribution-ShareAlike

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· Value Creation Through the Marketing Mix. Provided by: McGraw-Hill Higher Education. Located at:  https://youtu.be/dNDSYW5Zu4E . License: All Rights Reserved. License Terms: Standard YouTube license

The Marketing Mix from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Defining the Marketing Mix. Provided by: Lumen Learning. License:  CC BY: Attribution

· Components of the Marketing Mix. Provided by: Lumen Learning. License:  CC BY: Attribution

· Screenshot of Simple Banking. Provided by: Lumen Learning. License:  CC BY: Attribution

· Screen Shot of Facebook Logo. Provided by: Lumen Learning. License:  CC BY: Attribution

· Screen Shot of Sonic Burger Ad. Provided by: Lumen Learning. License:  CC BY: Attribution

· Check Your Understanding. Authored by: Lumen Learning. License:  CC BY: Attribution

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· Introducing Marketing. Authored by: John Burnett. Project: The Global Text Project. License:  CC BY: Attribution

· 4 Ps and 4 Cs chart. Provided by: Wikipedia. Located at:  https://en.m.wikipedia.org/wiki/Marketing_mix#Lauterborn.27s_four_Cs . License:  CC BY-SA: Attribution-ShareAlike

· Boundless Marketing. Provided by: Boundless. Located at:  https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/introduction-to-marketing-1/introduction-to-marketing-18/product-placement-promotion-and-price-108-4454/ . License:  CC BY-SA: Attribution-ShareAlike

ALL RIGHTS RESERVED CONTENT

· Value Creation Through the Marketing Mix. Provided by: McGraw-Hill Higher Education. Located at:  https://youtu.be/dNDSYW5Zu4E . License: All Rights Reserved. License Terms: Standard YouTube license

,

The Marketing Mix from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

CC LICENSED CONTENT, ORIGINAL

· Defining the Marketing Mix. Provided by: Lumen Learning. License:  CC BY: Attribution

· Components of the Marketing Mix. Provided by: Lumen Learning. License:  CC BY: Attribution

· Screenshot of Simple Banking. Provided by: Lumen Learning. License:  CC BY: Attribution

· Screen Shot of Facebook Logo. Provided by: Lumen Learning. License:  CC BY: Attribution

· Screen Shot of Sonic Burger Ad. Provided by: Lumen Learning. License:  CC BY: Attribution

· Check Your Understanding. Authored by: Lumen Learning. License:  CC BY: Attribution

CC LICENSED CONTENT, SHARED PREVIOUSLY

· Introducing Marketing. Authored by: John Burnett. Project: The Global Text Project. License:  CC BY: Attribution

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· Boundless Marketing. Provided by: Boundless. Located at:  https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/introduction-to-marketing-1/introduction-to-marketing-18/product-placement-promotion-and-price-108-4454/ . License:  CC BY-SA: Attribution-ShareAlike

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Putting It Together: Marketing Function

Synthesis

On February 1, 2015, a notable event occurred in the history of television: More than 114 million people watched a football game on TV, making it the most watched television program in US history. Are there really 114.5 million football fans in the United States? Probably not. Why did so many people watch the Super Bowl? The commercials!

Advertisers paid $4.5 million for 30 seconds of commercial airtime. That works out to $150,000 per second. What were those companies doing when they made the decision to spend so much money? Marketing!

This is, of course, an extreme example, but if you look around, you’ll find that companies’ marketing efforts are everywhere. Why do you shop where you shop? Are you a Coke or a Pepsi drinker? Do you purchase items only when they are on sale? Is your keychain (real or virtual) full of customer-loyalty cards? Marketing efforts are at work practically every time a customer perceives the value of a product or service and decides to swap their hard-earned money for it. Marketing triumphs are not just the happy result of arbitrary circumstances—they’re the product of strategic planning and research. Understanding how marketing efforts are created and conducted can help you be a better-informed consumer of products, goods, services, and information.

Summary

This chapter covered the following marketing topics:

Role of Customers

All marketing centers on creating, delivering, and communicating value to the customer. A value proposition is a clear and succinct statement to the customer of the value being offered by a company’s products or services.

Segmentation and Targeting

One of the first steps in effective marketing is identifying and reaching the right customers. To do this, marketers use segmentation and targeting. Market segmentation splits buyers into distinct, measurable groups that share similar wants and needs. Common segmentation approaches include geographic, demographic, psychographic, and behavioral criteria. Once different segments are identified, marketers determine which ones to focus on to support corporate strategy and growth.

Marketing Mix

Multiple factors can influence thinking and decision making about what to buy. Taken together, these factors are all part of the marketing mix. Also known as the four P's, it includes four main factors:

1. product—the goods and services offered

2. promotion—communication and information

3. place—distribution or delivery

4. price—ensuring fair value in the transaction

A major part of marketing is getting the marketing mix right for the target customer.

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Putting It Together: Marketing Function from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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Marketing Mix: Why It Matters

Why learn about the marketing mix?

Why did Red Bull sponsor Felix Baumgartner’s record-breaking free fall from outer space? Why does Anheuser-Busch pay millions of dollars for a 30-second television during the Super Bowl? Why does Verizon Wireless put its name on sports and other event centers around the country? Think about these three examples and how appropriate the strategy is to the target markets. Energy drinks and skydiving are a great matchup, and many people like to drink a beer or two while watching a football game. What about cell phones and concerts? Think about who uses cell phones the most—teenagers and young adults. These companies are following marketing strategies that will give them the highest return on their marketing investment to reach their target customers most effectively. Using an appropriate marketing mix helps businesses meet their sales goals.

Licenses and Attributions

Why It Matters: Marketing Mix from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

ALL RIGHTS RESERVED CONTENT

· Felix Baumgartner's supersonic free fall from 128k': Mission Highlights. Authored by: Red Bull. Located at:  https://youtu.be/FHtvDA0W34I . License:  Public Domain: No Known Copyright

Product Marketing

What you’ll learn to do: Explain common product marketing strategies and how organizations use them

Often when we hear the word marketing, we think about promotion or, perhaps, only advertising. However, product is the core of the marketing mix. It is what will be priced, promoted, and distributed. If you are able to create and deliver a product that provides exceptional value to your target customer, the rest of the marketing mix is easier to manage. A successful product makes every aspect of a marketer’s job easier—and more fun.

Learning Outcomes

· Distinguish common consumer product categories

· Explain the elements and benefits of branding

· Identify common branding strategies

· Explain the product life cycle

· Discuss marketing considerations through the product life cycle

· Differentiate the stages of the new-product development process

Defining Product

A product is a bundle of attributes (features, functions, benefits, and uses) that a person receives in an exchange. In essence, it is anything, tangible or intangible, that an organization offers to satisfy a customer. Thus, a product may be an idea (recycling), a physical good (a pair of sneakers), a service (banking), or a combination of any of these (American Marketing Association, 2018).

Broadly speaking, products fall into one of two categories: consumer or business (also called B2B or industrial goods). Retail products are a type of consumer good. Raw materials, component parts, or tools used to produce other products are examples of B2B or industrial goods. A computer is an example of a product that is both a consumer good and a business product, depending on who purchases and uses it.

The product is the core of an exchange. So, does it provide the features, functions, benefits, and uses that the target customer expects and desires? Throughout our discussion of product we will focus on the target customer. Often companies become excited about their capabilities, technologies, and ideas—but they forget the customer’s perspective. This leads to investments in product enhancements or new products that don’t provide value to the customer. As a result, these new products or product improvements are unsuccessful.

Consumer Product Categories

Consumer products are often classified into four groups related to different kinds of buying decisions: convenience, shopping, specialty, and unsought products.

Convenience Products 

A convenience product is an inexpensive product that requires a minimal amount of purchasing effort. Examples of convenience products are bread, soft drinks, pain reliever, and coffee; also, headphones, power cords, and other items that are easily misplaced.

From the consumer’s perspective, little time, planning, or effort go into buying convenience products. Often product purchases are made on impulse, so availability is important. Consumers have come to expect a wide variety of products to be conveniently located at their local supermarkets. They also expect easy online purchase options and low-cost, quick shipping for convenience purchases. Convenience items are also found in vending machines and at kiosks.

The primary marketing strategy for convenience products is extensive distribution. Products must be available in every conceivable outlet and easily accessible within them. The products’ unit value is typically low, and the product is usually highly standardized. Therefore, marketers may rely on a high level of brand awareness and recognition—accomplished through mass advertising, sales promotion devices like coupons and point-of-purchase displays, and packaging. Yet, the key is convincing wholesalers and retailers to carry the product. If it’s not available when, where, and how the consumer desires, a convenience product will fail.

Shopping Products

Shopping products are those that consumers want to be able to compare. They are usually more expensive than convenience products, and they are purchased only occasionally. The consumer is more likely to compare a number of options to assess quality, cost, and features.

Although many shopping goods are nationally advertised like convenience products, the marketing strategy often relies on the retailer’s ability to differentiate itself to generate the sale. For example, if you decide to buy a TV at Best Buy, then you are more likely to evaluate the range of options and prices there. It becomes important for Best Buy to provide a knowledgeable and effective salesperson and have the right pricing discounts to offer you a competitive deal. Best Buy might also offer you an extended warranty or in-store service options. While shopping at Best Buy, consumers can easily check prices and options for online retailers, which places even greater pressure on the conventional store to provide the best total value. If the retailer can’t make the sale, product turnover is slower, and a great deal of capital is tied up in inventory.

There is a distinction between heterogeneous and homogeneous shopping products. Heterogeneous shopping products are unique. Think about shopping for clothing or furniture. There are many style differences, and the shopper is trying to find the best style match at the right price. The purchase decision with heterogeneous shopping products is more likely to be based on finding the right fit than on price alone.

In contrast, homogeneous shopping products are very similar. Take refrigerators, for example. Each model has certain features available at different price points, but the basic functions of all models are very similar. A typical shopper will look for the lowest price available for the features desired.

Speciality Products

Specialty goods are the third product classification. From the consumer’s perspective, these products are so unique that it’s worth it to go to great lengths to find and purchase them. Almost without exception, price is not the principal factor affecting sales of specialty goods. Although these products may be custom-made or one-of-a-kind, it is also possible that the marketer has been very successful in differentiating the product in the consumer’s mind.

Blizzcon attendees, 2014

For example, some consumers feel a strong attachment to their hairstylist or barber. They are more likely to wait for an appointment than schedule time with a different stylist.

Another example is the annual Blizzcon event produced by Blizzard Entertainment. Tickets sell out minutes after they are released, and can be resold at a premium. The event is an opportunity to learn about new video games and to play games that have not yet been released. Attendees can also purchase limited-edition promotional items. Blizzard’s customers are paying for a specialty product that is a massive marketing event.

It is generally desirable for a marketer to lift a product from the shopping to the specialty category—and keep it there. With the exception of price-cutting, the entire range of marketing activities is needed to accomplish this transition.

Unsought Products

Unsought products are those the consumer never plans or hopes to buy. These are either products that the customer is unaware of or products consumers hope they will not need. For example, most consumers hope to never purchase pest control services and try to avoid purchasing funeral plots. Unsought products have a tendency to draw aggressive sales techniques, as it is difficult to get the attention of a buyer who is not seeking the product.

Elements of Brand

Brands are interesting, powerful concoctions of the marketplace that create tremendous value for organizations and for individuals. Because a brand serves several functions, we can define it as follows:

· identifier—a name, sign, symbol, design, term, or some combination that identifies an offering and helps simplify choice for the consumer

· promise—what a company or offering will provide to the people who interact with it

· asset—a reputation in the marketplace that can drive price premiums and customer preference for goods from a particular provider

· set of perceptions—everything individuals believe, think, see, know, feel, hear, and experience about a product, service, or organization

· mind share—the unique position a company or offering holds in the customer’s mind, based on his or her past experiences and expectations

A brand consists of all the features that distinguish the goods and services of one seller from another, including name, term, design, style, symbols, and customer touch points. Together, all elements of a brand work as a psychological trigger—a stimulus—that causes an association with all the other thoughts a consumer has about it.

Brands are a combination of tangible and intangible elements:

· visual design elements—logo, color, typography, images, tagline, packaging

· distinctive product features—quality, design sensibility, personality

· intangible aspects—included in the customer experience with a product or company, reputation

The act of creating or building a brand may take place at multiple levels: company brands, individual product brands, or branded product lines. Any entity that works to build consumer loyalty can also be considered a brand, such as celebrities (Lady Gaga), events (Susan G. Komen Race for the Cure), and places (Las Vegas).

Brands Create Market Perceptions

A successful brand is much more than just a name or logo. As suggested previously, brand is the sum of perceptions about a company or product in the minds of consumers. Effective brand building can create and sustain a strong, positive, and lasting impression that is difficult to displace. If they are developed and managed properly, brands provide external cues to taste, design, performance, quality, value, or other desired attributes. Brands convey positive or negative messages about a company, product, or service. Brand perceptions are a direct result of past advertising, promotion, product reputation, and customer experience.

A brand can convey multiple levels of meaning, including the following:

· attributes—specific product features. The Mercedes-Benz brand, for example, suggests expensive, well-built, well-engineered, durable vehicles.

· benefits—attributes translated into functional and emotional benefits. Mercedes automobiles suggest prestige, luxury, wealth, reliability, and self-esteem.

· values—company values and operational principles. The Mercedes brand evokes company values around excellence, high performance, and power.

· culture—cultural elements of the company and brand. Mercedes represents German precision, discipline, efficiency, and quality.

· personality—a set of distinctive characteristics that go beyond features. The Mercedes brand personality combines luxury and efficiency, precision and prestige.

· user—the types of consumers who buy and use the product. Mercedes drivers might be perceived and classified differently from, for example, the drivers of Cadillacs, Corvettes, or BMWs.

As an automobile brand, the Mercedes-Benz logo suggests high prestige.

Brands Create an Experience

Effective branding encompasses everything that shapes the perception of a company or product in the minds of customers. Names, logos, brand marks, trade characters, and trademarks are commonly associated with brand, but these are just part of the picture. Branding also addresses virtually every aspect of a customer’s experience with a company or product: visual design, quality, distinctiveness, purchasing experience, customer service, and so forth. Branding requires a deep knowledge of customers and how they experience a company or product. Brand-building requires long-term investment in communicating about and delivering the unique value embodied in a company’s brand. This effort can bring long-term rewards.

In consumer and business-to-business markets, branding can influence whether consumers will buy the product and how much they are willing to pay. Branding can also help in new product introduction by creating meaning, market perceptions, and differentiation where they didn’t exist. When companies introduce a new product using an existing brand name (a brand extension or a branded product line), they can build on consumers’ positive perceptions of the established brand to create greater receptivity for the new offering.

Brands Create Value 

Brands create value for consumers and organizations in a variety of ways.

The Dunkin’ Donuts logo, which includes an image of a cup of coffee, makes it easy to spot. The coffee is known for being a good value.

Value for the Consumer

Brands help simplify consumer choices. They help create trust and an expectation. Effective branding enables the consumer to easily identify a desirable company or product because the features and benefits have been communicated effectively. Positive, well-established brand associations increase the likelihood that consumers will select, purchase, and consume the product. Dunkin’ Donuts, for example, has an established logo and imagery familiar to many consumers. The vivid colors and image of a cup are easy to recognize and distinguish from competitors, and many associate the brand with tasty donuts, good coffee, and reasonable prices.

Value of Branding for Companies

The Starbucks brand is associated with premium, high-priced coffee.

For companies and other organizations, branding helps create loyalty. It decreases the risk of losing market share by establishing a competitive advantage over the competition that customers can count on. Strong brands often command premium pricing, because consumers are willing to pay more for a product they know, trust, and perceive as a good value. Branding can be a great vehicle for effectively reaching target audiences and positioning a company relative to the competition. Branding helps guide choices around messaging, visual design, packaging, marketing, communications, and product strategy.

For example, Starbucks’ loyal fan base values and pays premium prices for its coffee. Starbucks’ choices about beverage products, neighborhood shops, the buying experience, and corporate social responsibility all help build its brand and communicate its value to a global customer base.

Value of Branding for the Retailer 

Branding has enabled national retailers like Target and Walmart, and regional grocers like Wegmans and Aldi, to differentiate themselves, build customer loyalty and expand. Retail brand building may focus on the in-store or online shopping environment, product selection, prices, convenience, personal service, customer promotions, product display, and other considerations.

Retailers also benefit from carrying the branded products customers want. For example, a customer who hears about a particular allergen-free or organic product may visit a retailer just to purchase those goods. The same could be said of designer labels at a department store.

Managing a Strategic Asset 

As organizations establish and build strong brands, they can pursue a number of strategies to continue developing them and extending their value to stakeholders like customers, retailers, supply chain and distribution partners, and the organization itself.

Brand Ownership

Steve Jobs, co-founder and CEO of Apple

 

Who owns the brand? The legal owner is generally the individual or entity whose name is on the legal registration. But in practice, all of those who work for a company need to take ownership of its brand. Brand ownership is about building and maintaining a brand that reflects your principles and values. Brand building is about effectively persuading customers to believe in and purchase your product or service. Iconic brands, such as Apple and Disney, often have a history of visionary leaders who champion the brand, evangelize about it, and build it into the organizational culture and operations.

Branding Strategies

A branding strategy helps establish a product within the market and build a brand that will grow and mature. Making smart branding decisions up front is crucial since a company may have to live with its decisions for a long time. The following are commonly used branding strategies:

House Brand Strategy

A house brand applies to a range of products under one name—typically the company’s (for example, Mercedes-Benz or Stanley Black & Decker) or a range of subsidiary brands (such as Cadbury Dairy Milk). The primary focus and investment is in a single, dominant brand. This approach can be simpler and more cost effective in the long run when it is aligned well with broader corporate strategy.

House of Brands Strategy

Kool-Aid Man

In contrast to companies practicing the house brand strategy, a company investing in building out a variety of individual, product-level brands is using a house of brands strategy. Each brand has its own name, which may not be associated with the parent company name at all. These brands may even be in de facto competition with other brands from the same company. For example, Kool-Aid and Tang are powdered beverage products that are both owned by Kraft Foods. The house of brands strategy is well suited to companies that operate across many product categories. They can introduce products within the same category aimed at different types of consumers without diluting brand perceptions.

Private-Label Branding

Also called store branding, private-label branding has become increasingly popular. If the retailer has a particularly strong identity, the private label may be able to compete well with even the most well-known brands, and may outperform similar products that are not strongly branded. Wegmans’ brand strategy includes economical store brands as well as higher-priced specialty goods and in-store experiences.

No-Brand Branding

A number of companies successfully pursue no-brand strategies by creating packaging that imitates generic-brand simplicity. Despite the term, no-brand branding is a type of branding, since the product is made conspicuous by the absence of a brand name. Tapa Amarilla, or Yellow Cap, is a brand name that also describes the color of the tops on the company’s cleaning-related products.

Personal and Organizational Branding

Personal and organizational branding are strategies for developing a brand image and marketing around individual people or groups. Personal branding applies to an individual and his or her career, which can be projected to target audiences. Organizational branding promotes the mission, goals, and work of a group being branded. The music and entertainment industries provide many examples of personal and organizational branding. From Justin Bieber to George Clooney to Kim Kardashian, virtually any celebrity is a personal brand. Likewise, bands, orchestras, and other artistic groups typically cultivate an organizational (or group) brand. Faith branding is a variant of this brand strategy, which treats religious figures and organizations as brands seeking to increase their following. Mission-driven organizations such the Girl Scouts of America, Sierra Club, National Rifle Association, and others pursue organizational branding to expand their membership, resources, and impact.

Place Branding

The developing fields of place branding and nation branding work on the assumption that places compete with other places to win over people, investment, tourism, economic development, and other resources. With this in mind, public administrators, civic leaders, and business groups may team up to brand their city, region, or nation and promote it to target audiences. Depending on the goals they are trying to achieve, targets for these marketing initiatives may be real-estate developers, employers and business investors, tourists and tour operators. While place branding may focus on any geographic area or destination, nation branding aims to measure, build, and manage the reputation of countries.

The city-state of Singapore is an early example of successful nation branding.

Co-Branding

Co-branding is an arrangement in which two established brands collaborate to offer a single product or service that carries both brand names. In these relationships, generally both parties contribute something of value to the new offering that neither would have been able to achieve independently. Effective co-branding builds on the complementary strengths of the existing brands. It can also allow both brands an entry point into markets where they would not be credible players separately.

The following are some examples of co-branded offerings:

· Airlines and retailers offer co-branded credit cards with customer rewards.

· Home furnishings company Pottery Barn and paint manufacturer Benjamin Moore co-brand seasonal color palettes for interior paints.

· Fashion designer Liz Lange designs a ready-to-wear clothing line co-branded with and sold exclusively at Target stores.

· Automaker Fiat and toy maker Mattel teamed up to celebrate Barbie’s fiftieth anniversary with a pink Fiat 500 Barbie car.

Fiat 500 Barbie Automobile

Co-branding is a common brand-building strategy, but it can present difficulties. There is always risk around how well the market will receive new offerings, and sometimes, despite the best-laid plans, co-branded offerings fall flat. Also, these arrangements often involve complex legal agreements that are difficult to implement. Co-branding relationships may be uneven: Partners may have different visions for their collaboration or they may prioritize the co-branded venture differently. One partner may hold significantly more power than the other in their working relationship. Because co-branding impacts the existing brands, the partners may struggle with how to protect their current brands while introducing something new and, possibly, risky.

Licensing 

Campbell’s Star Wars Soup

Source: http://www.campbells.com/star-wars/

Brand licensing is the process of leasing or renting the right to use a brand in association with a product or set of products for a defined period and within a defined market, geography, or territory. Through a licensing agreement, a licensor provides a tangible or intangible asset to a licensee, and grants the right to use the licensor’s brand name and related brand assets in return for payment. The licensee obtains a competitive advantage, while the licensor obtains inexpensive access to a market.

Licensing can be extremely lucrative for the brand owner, as other organizations pay for permission to produce products carrying a licensed name. The Walt Disney Company was a pioneer in brand licensing (Mickey Mouse) and remains a leader. Toy manufacturers pay millions of dollars and vie for the rights to produce and sell products affiliated with Disney movies.

Line and Brand Extensions

Organizations use line extensions and brand extensions to leverage and increase brand equity.

Diet Coke is a line extension of the Coke brand.

A company creates a line extension when it introduces a new offering within the same product category. A food company might add new flavors, package sizes, nutritional content, or products containing special ingredients. Line extensions aim to provide more variety and, hopefully, capture more of the market within a given category. More than half of all new products introduced each year are line extensions. For example, M&M candy varieties like peanut, pretzel, peanut butter, and dark chocolate are all line extensions of the M&M brand. Diet Coke is a line extension of the parent brand Coke. While the varieties have distinct attributes, they are in the same product category.

A brand extension moves an existing brand name into a new product category, with a new or modified product. In this scenario, a company uses the strength of an established product to launch a product in a different category, hoping the popularity of the original brand will increase receptivity of the new product. An example of a brand extension is Jell-O pudding pops, an extension from the original product, Jell-O gelatin. This strategy increases awareness of the brand name and increases profitability from offerings in more than one product category.

Line extensions and brand extensions are important tools for companies: They reduce the financial risk associated with new-product development by leveraging the equity in the parent brand name to enhance consumers’ perceptions and receptivity toward new products. With the established success of the parent brand, consumers will have instant recognition of the product name and be more likely to try the new line extension.

The Product Life Cycle 

A company has to be good at both developing new products and managing them in the face of changing tastes, technologies, and competition. Products generally go through a life cycle with predictable sales and profits. Marketers use the product life cycle to follow this progression and identify strategies to influence it. The product life cycle (PLC) starts with the product’s development and introduction, then moves toward withdrawal or eventual demise. This progression is shown in the graph below.

The five stages of the PLC are:

1. Product development

2. Market introduction

3. Growth

4. Maturity

5. Decline

The Table below shows charactersitics of each stage.

Product Stages
Development	· Investment is made. · Sales have not begun. · New product ideas are generated, operationalized, and tested.
Market introduction	· Costs are very high. · Sales volumes are low. · There is little or no competition. · There is no demand; customers have to be prompted to try the product. · Profits are low.
Growth	· Cost are reduced with economies of scale. · Sales volume increases significantly. · Profitability begins to rise. · Public awareness increases. · Competition begins to increase, with a few new players in establishing market. · Increased competition leads to price decreases.
Maturity	· Costs are lowered as a result of increasing production volume. · Sales volume peaks and market saturation is reached. · New competitors enter the market. · Prices tend to drop with the proliferation of competing products. · Brand differentiation and feature diversification are emphasized to maintain or increase market share. · Profits decline.
Decline	· Sales volume declines. · Costs increase as economies of scale are lost. · Prices and profitability diminish. · Profit becomes more a challenge of production and distribution efficiency than increased sales.

Planning and Limitations

The product life cycle can be a useful tool in planning for the life of the product, but it has a number of limitations.

Not all products follow a smooth and predictable growth path. Some are tied to specific business cycles or have seasonal factors that impact growth. For example, enrollment in higher education tracks closely with economic trends. When there is an economic downturn, more people lose jobs and enroll in college to improve their job prospects. When the economy improves and more people are fully employed, college enrollments drop. This does not necessarily mean that education is in decline, only that it is in a down cycle.

Furthermore, evidence suggests that the PLC framework holds true for industry segments but not necessarily for individual brands or projects, which are likely to experience greater variability (Mullor-Sebastian, 1983).

Of course, changes in other elements of the marketing mix can also affect the life cycle of a product. Change in the competitive situation during any stage may have a much greater impact on the marketing approach than the PLC itself. An effective promotional program or a dramatic price reduction may improve the sales picture during the decline period, at least temporarily. Usually the improvements brought about by non-product tactics are relatively short-lived. Basic alterations to product offerings provide longer benefits.

Whether one accepts the S-shaped curve shown in the graph as a valid sales pattern or as a pattern that holds only for some products, the PLC concept is a useful framework for dealing systematically with product marketing issues and activities. The marketer needs to be aware of the generalizations that apply to a given product as it moves through various stages.

Marketing through the PLC 

Common marketing considerations are associated with each stage of the PLC. The marketing mix and the blend of promotional activities—also known as the promotion mix—should reflect a product’s life-cycle stage and progress toward market adoption. It’s not a formula to guarantee success, but can guide thinking about budget, objectives, strategies, tactics, and potential opportunities and threats.

Market Introduction Stages

Think of the market introduction stage as the product launch. This phase of the PLC requires a significant marketing budget, since the market is not yet aware of the product or its benefits. Introducing a product involves convincing consumers that they have a problem or need that the new offering can uniquely address. At its core, messaging should convey, “This product is a great idea! You want this!” Usually a promotional budget is needed to create broad awareness and educate the market about the new product. To achieve these goals, often a product launch includes promotional elements such as a new website (or significant update to an existing site), a press release and media campaign, and a social media campaign.  

Investment in developing the distribution channels and related marketing support are also needed. For a B2B product, this often requires training the sales force, and developing sales tools and materials for direct and personal selling. In a B2C market, it might include training and incentivizing retail partners to stock and promote the product.

Prices in the introduction phase are generally set fairly high, as there are fewer competitors in the market, but they may be offset by discounts and promotions.

Google Glass Smart Glasses

Launches look different, depending on whether the product is a completely new innovation. If it is, education as well as awareness-building are needed.

In 2013 when Google launched Google Glass—an eyeglass-mounted computer display—it had to not only spread the word about the product but also help prospective buyers understand how it might be used. Google initially targeted tech-savvy audiences most interested in novelty and innovation. By creating media fanfare and limiting the product’s availability, Google’s promotional strategy ignited demand among these market segments. Tech bloggers and insiders blogged and tweeted about their Google Glass adventures, and word-of-mouth spread rapidly.

You can imagine how this was different from the launch of Wheat Thins Spicy Buffalo crackers, an extension of an existing product line targeting different audiences with promotional activities that fit the product’s marketing and distribution channels.

The Google Glass launch was also different from the launch of Tesla’s home battery. In that case Tesla offered a new line of home products from the company that had previously sold only automobiles. Breaking into new product categories and markets is challenging even for a well-known company like Tesla. As you might expect, the greater the difference in new products from a company’s existing offerings, the greater the complexity and expense of the introduction stage.

One other consideration is the maturity of a product. Sometimes marketers will choose to be conservative during marketing introduction, when a product is not yet fully developed or proven, or when the distribution channels are not well established. This might mean initially introducing the product to only one market segment, doing less promotion, or limiting distribution (as with Google Glass). This approach allows for early customer feedback but reduces the risk of product issues during the launch.

While we often think of an introduction or launch as a single event, it can last several years. Generally a product moves out of the introduction stage when it begins to see rapid growth, but the growth curve varies significantly based on the product and the market.

Growth Stage 

Once rapid growth begins, the product or industry has entered the growth stage. When a product category begins to demonstrate significant growth, the market usually responds. New competitors enter the market, and larger companies acquire high-growth companies and products.

These emerging competitive threats drive new marketing tactics. Marketers who have been seeking to build broad market awareness through the introduction phase must now differentiate their products from competitors’, emphasizing unique features that appeal to target customers. The central thrust of market messaging and promotion during this stage is “This brand is the best!” Pricing also becomes more competitive and must be adjusted to align with the differentiation strategy.

Often in the growth phase the marketer must pay significant attention to distribution. With a growing number of customers seeking the product, more distribution channels are needed. Mass marketing and other promotional strategies—to reach more customers and segments—start to make sense for consumer-focused markets during the growth stage. In business-to-business markets, personal selling and sales promotions often help open doors to broader growth. Marketers often must develop and support new distribution channels to meet demand. Through the growth phase, distribution partners will become more experienced selling the product and may require less support over time.

The primary challenges during the growth phase are to identify a differentiated position in the market that allows the product to capture a significant portion of the demand, and to manage distribution to meet it.

Maturity Stage

When growth begins to plateau, the product has reached maturity. To achieve strong business results through maturity, the company must take advantage of economies of scale. This is usually a period in which marketers manage budget carefully, often redirecting resources toward products that are earlier in their life cycle and have higher revenue potential.

At this stage, organizations are trying to extract as much value from an established product as they can, typically in a very competitive field. Marketing messages and promotions seek to remind customers about a great product, differentiate it from competitors, and reinforce brand loyalty: “Remember why this brand is the best.” As mentioned in the previous section, this late in the life cycle, promotional tactics and pricing discounts are likely to provide only short-term benefits. Changes to a product have a better chance of yielding more sustained results.

In the maturity stage, marketers often focus on niche markets, using promotional strategies, messaging, and tactics designed to capture new market share. Since there is no new growth, the emphasis shifts from drawing new customers to the market to winning more of the existing market. The company may extend a product line, adding new varieties that have greater appeal to a smaller segment of the market.

Often, distribution partners will reduce their emphasis on mature products. A sales force will shift its focus to new products with more growth potential. A retailer will reallocate shelf space. When this happens, the manufacturer may need to take on a stronger role in driving demand.

This has been a common tactic in the soft drink industry. As the market has matured, the number of different flavors of large brands like Coke and Pepsi has grown significantly.

Decline Stage 

Once a product or industry has entered decline, the focus shifts almost entirely to eliminating costs. Little if any marketing spending goes into products in this stage, because the marketing investment is better spent on other priorities. For goods, distributors will seek to eliminate inventory by cutting prices. For services, companies will reallocate staff to ensure that delivery costs are in check. Where possible, companies may initiate planned obsolescence. Technology companies will announce to customers that they will not continue to support a product after a set obsolescence date.

Often a primary focus for marketers during this stage is to transition customers to newer products that are earlier in the product life cycle and have more favorable economics. Promotional activities and marketing communications, if any, typically focus on making this transition successful among brand-loyal segments who still want the old product. A typical theme of marketing activity is “This familiar brand is still here, but now there’s something even better.”

New-Product Development 

There are probably as many varieties of new-product development systems as there are types of companies, Most share the same basic steps or stages, but they are executed in different ways. One way to look at new-product development is eight stages grouped into three phases.  Many of the activities are performed repeatedly throughout the process, but they become more concrete as the product idea is refined and more data is gathered. For example, at each stage the product development team asks, “Is this a viable product concept?” The answer changes as the product is refined and more market perspectives are added to the evaluation.

New-Product Development: Eight Stages in Three Phases
Phase I: Generating and Screening Ideas	Phase II: Developing New Products	Phase III: Commercializing New Products
Stage 1: Generate new product ideas	Stage 4: Analyze business case	Stage 6: Perform test marketing
Stage 2: Screen product ideas	Stage 5: Focus on technical and market development	Stage 7: Launch
Stage 3: Develop and test concept		Stage 8: Evaluate

Stage 1: Generate New Product Ideas

Generating new product ideas is a creative task. Coming up with ideas is easy, but generating good ideas is another story. Companies use a range of internal and external sources to identify new product ideas. A SWOT analysis might suggest strengths in existing products that could be the basis for new products or market opportunities. Research might identify market and customer trends. A competitive analysis might expose a hole in the company’s product portfolio. Customer focus groups or the sales team might identify an unmet customer need. Many amazing products are also the result of lucky mistakes—product experiments that don’t meet the intended goal but turn out to have an interesting application. For example, 3M scientist Spencer Silver invented Post-It Notes in a failed experiment to create a super-strong adhesive (Wikipedia).

The key to the idea-generation stage is to explore possibilities, knowing that most will not result in products that go to market.

Stage 2: Screen Product Ideas 

The second stage of the product development process is idea screening. This is the first of many screening points. At this stage, there are many unknowns about the market opportunity. Still, product ideas that do not meet the organization’s objectives should be rejected. If a poor product idea is allowed to pass the screening stage, it wastes effort and money in later stages until it is abandoned. On the other hand, screening out a worthwhile idea can squander a significant market opportunity. For this reason, this early screening stage allows many ideas to move forward that ultimately may not go to market.

The screening process may include ratings gathered internally, with employees scoring products using a set of criteria and only the highest-ranked products moving forward.

Stage 3: Develop and Test Concept

Today, it is increasingly common for companies to run a small concept test in a real marketing setting. The product concept is a synthesis or description of a product idea that reflects the core element of the proposed product. Marketing tries to have the most accurate and detailed product concept possible so that the reactions of target buyers will be accurate. The reactions can then be used to inform the final product, the marketing mix, and the business analysis.

New tools for technology and product development are available that support the rapid development of prototypes that can be tested with potential buyers. When concept testing can include an actual product prototype, the early test results are much more reliable. Concept testing helps companies avoid investing in bad ideas while helping them capture outstanding ones.

Stage 4: Analyze the Business Case 

Before companies make a significant investment in a product’s development, they need to be sure that it will bring a sufficient return.

These are some questions the company seeks to answer:

1. What is the market opportunity for this product?

2. What are the costs to bring this product to market?

3. What are the costs through the stages of the product life cycle?

4. Where does this product fit in the product portfolio and how will it impact existing product sales?

5. How does this product impact the brand?

6. How does this product impact other corporate objectives, such as social responsibility?

The marketing budget and costs are one element of the business analysis, but the full scope includes all revenues, costs, and other business impacts.

Stage 5: Focus on Technical and Market Development 

A product that has passed through screening and business analysis is ready for technical and marketing development. Technical development processes vary greatly according to product type. For a product with a complex manufacturing process, there is a lab phase to create specifications and an equally complex phase to develop the manufacturing process. For a service, there may be new processes requiring new employee skills or the delivery of new equipment. These are only two of many possible examples, but in every case the company must define both what the product is and how it will be delivered to many buyers.

While technical development is under way, the marketing department tests the early product with target customers to find the best possible marketing mix. Ideally, marketing uses product prototypes or early production models to understand and capture customer responses and identify how best to present the product to the market. Through this process, product marketing must prepare a complete marketing plan—starting with a statement of objectives and ending with coherent product distribution, promotion, and pricing integrated into a marketing action plan.

Stage 6: Perform Test Marketing

Test marketing is the final stage before commercialization. The objective is to test all variables in the marketing plan, including elements of the product. Test marketing represents an actual launch of the total marketing program, but it is done on a limited basis.

Initial product testing and test marketing are not the same. Product testing is initiated by the producer: He or she selects a sample of consumers, provides them with the test product, and offers them an incentive to participate.

In test marketing, the test group represents the full market, and the consumer must make a purchase decision and pay for the product. In addition, the test product must compete with  existing products in the actual marketing environment. For these and other reasons, a market test is an accurate simulation of the broader market and serves as a method for reducing risk. It should enhance the new product’s probability of success and allow for final adjustment in the marketing mix before the product is introduced on a large scale.

Stage 7: Launch

Finally, the product arrives at the commercial launch stage. The marketing mix comes together to introduce the product to the market. This stage marks the beginning of the product life cycle

Stage 8: Evaluate

The launch is not an end to the marketing role. To the contrary, after launch the marketer finally has real market data about how the product performs in the real market, outside the test environment. These market data initiate a new cycle of idea generation for improvements and adjustments that can be made within the marketing mix.

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

Which of the following would be considered convenience products?

shirts and shoes

soft drinks and chewing gum

tires and car batteries

Question 2

A set of attributes or features (e.g., name, term, design, symbol, reputation) that distinguishes the goods and services of one seller from another is known as ________

a marketing strategy

a trademark

a brand

Question 3

High costs, low sales volume, and little competition are common characteristics associated with which of the following stages of the product life cycle?

market introduction stage

growth stage

maturity

References 

American Marketing Association Dictionary. Retrieved from https://www.ama.org/resources/Pages/Dictionary.aspx?dLetter=P#product

Mullor-Sebastian, A. (1983). The Product life cycle theory: Empirical evidence. Journal of International Business Studies 14(3) 95–105. 

Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Post-it_note

Licenses and Attributions

Introduction to Product Marketing from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Outcome: Product Marketing. Authored by: Linda Williams and Lumen Learning. License:  CC BY: Attribution

Product Marketing from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Revision and adaptation. Provided by: Lumen Learning. License: CC BY: Attribution

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· Chapter 7: Introducing and Managing the Product, from Introducing Marketing. Authored by: John Burnett. Project: Global Text. License: CC BY: Attribution

· New Kicks. Authored by: Grace Miller. Located at: https://www.flickr.com/photos/gracemillerphotography/6101851438/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

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· Walmart's Action Alley. Provided by: Walmart. Located at: https://www.flickr.com/photos/walmartcorporate/5684811762/. License: CC BY: Attribution

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· Mercedes Benz 500sl 1996. Authored by: Martin Pettitt. Located at: https://www.flickr.com/photos/mdpettitt/7980662156/. License: CC BY: Attribution

· Coca-Cola. Provided by: BBC. Located at: https://youtu.be/C_7tMOusVYo. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

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Pricing Strategies

What you’ll learn to do: Explain common pricing strategies and how organizations use them

In this section you’ll learn about specific, standard pricing strategies that organizations use to meet their objectives and address consumer perceptions of value.

Rent the Runway Founders

Learning Outcomes

· Explain pricing from the customer’s viewpoint

· Describe the objectives businesses hope to achieve with product pricing

· Explain the cost-plus pricing method

· Explain the methods businesses use for discounts and allowances

Customer Value and Price

Introduction

Rent the Runway is a company that lets customers borrow expensive designer dresses for a short time at a low price—to wear on a special occasion, for example—and then send them back. Do the customers get a bargain when they can wear a designer dress for a special occasion at 15 percent of the retail price? Does the retail price matter to customers in determining value, or are they only considering the style and price they will pay for the rental?

What does value really mean in the pricing equation?

The Customer’s View of Price

Whether a customer is the ultimate user of the finished product or a business that purchases components of the finished product, the customer seeks to satisfy a need by making a purchase. Customers use several criteria to decide how much they are willing to spend to satisfy a need. They prefer to pay as little as possible.

To increase value, a business can either increase the perceived benefits or reduce the perceived costs. Both are important aspects of price. If you buy a Louis Vuitton bag for $600, you perceive that you are getting a beautifully designed, well-made bag that will last for decades. In other words, the value is high enough for you that it can offset the cost. When you buy a parking pass to park in a campus lot, you are buying the convenience of a parking place close to your classes. Both of these purchases provide value at some cost. The perceived benefits are directly related to the price-value equation. Some of the possible benefits are status, convenience, the deal, brand, quality, and choice. Some benefits tend to go hand in hand. For instance, Mercedes-Benz E-Class is a very high-status brand, so buyers expect superb quality to be part of the value equation that would make them willing to pay $100,000 or more. In other cases, there are trade-offs between benefits. Someone living in an isolated mountain community might prefer to pay a lot more for groceries at a local store than drive 60 miles to the nearest Safeway. That person is willing to sacrifice the lowest price for the benefit of greater convenience.

When we talk about increasing perceived benefits, we are talking about value added. Identifying and increasing the value-added elements of a product are an important marketing strategy.

Consider the Rent the Runway example. The company provides dresses for special occasions. The prices for the dresses are reduced, but the price of a dress can also be considered high,  because the customer must return it. There are many value-added elements, though, so that customers accept the price. These include a broad selection of current styles and the option to try a second size at no additional cost. In a very competitive marketplace, the value-added elements become increasingly important, as marketers use them to differentiate the product from other similar offerings.

Perceived costs include the actual dollar amount printed on the product, plus a host of other factors. If you learn that a gas station is selling gas for 25 cents less per gallon than your local station, will you automatically buy from the lower-priced gas station? That depends. You will consider a range of other issues. How far do you have to drive to get there? Is it an easy drive or through traffic? Are there long lines that will increase the time it takes to fill your tank? Is the low-cost fuel the grade or brand that you prefer? Inconvenience, poor service, and limited choice are all possible perceived costs. Other common perceived costs are the risk of making a mistake, related costs, lost opportunity, and unexpected consequences, to name but a few.

Viewing price from the customer’s point of view pays off in many ways. Most notably, it helps define value—the most important basis for creating a competitive advantage.

Pricing Objectives

Companies set the prices of their products to achieve specific objectives. Consider the following examples:

In 2014 Nike initiated a new pricing strategy. The company determined from a market analysis that its customers appreciated the value that the brand provided, which meant that it could charge a higher price for its products. Nike began to raise its prices 4 to 5 percent a year. Footwear News reported on the impact of the strategy:

'The ability to raise prices is a key long-term advantage in the branded apparel and footwear industry—we are particularly encouraged that Nike is able to drive pricing while most US apparel names are calling for elevated promotional [and] markdown levels in the near-term,' said UBS analyst Michael Binetti. Binetti said Nike’s new strategy is an emerging competitive advantage (Jordan, 2014).

Nike’s understanding of customer value enabled it to raise prices and achieve company growth objectives, increasing US athletic footwear sales by $168 million in one year.

In 2015 the US airline industry lost $12 billion in value in one day because of concerns about potential price wars. When Southwest Airlines announced that it was increasing capacity by 1 percent, the CEO of American Airlines—the world’s largest airline—responded that American would not lose customers to price competition and would match lower fares. Forbes magazine reported on the consequences:

This induced panic among investors, as they feared that this would trigger a price war among the airlines. The investors believe that competing on prices would undermine the airline’s ability to charge profitable fares, pull down their profits, and push them back into the shackles of heavy losses. Thus, the worried investors sold off stocks of major airlines, wiping out nearly $12 billion of market value of the airline industry in a single trading day (Trefis Team, 2015).

Common Pricing Objectives

Not surprising, product pricing has a big effect on company objectives. (You’ll recall that objectives are essentially a company’s business goals.) Pricing can be used strategically to adjust performance to meet revenue or profit objectives, as in the Nike example above. Or, as the airline-industry example shows, pricing can also have unintended or adverse effects on a company’s objectives. Product pricing impacts each of the hypothetical objectives below:

· Profit objective: “Increase net profit in 2016 by 5 percent.”

· Competitive objective: “Capture 30 percent market share in the product category.”

· Customer: “Increase customer retention.”

Of course, over the long run, no company can really say, “We don’t care about profits. We are pricing to beat competitors.” Nor can the company focus only on profits and ignore how it delivers customer value. For this reason, marketers talk about a company’s pricing orientation, or the relative importance of one factor compared to the others. All companies must consider customer value in pricing, but some have an orientation toward profit. We would call this profit-oriented pricing.

Profit-Oriented Pricing

Profit-oriented pricing places an emphasis on the finances of the product and business. A business’s profit is the money left after all costs are covered. Following is the equation:

profit = revenue – costs

In profit-oriented pricing, the price per product is set higher than the total cost of producing and selling each product to ensure that the company makes a profit on each sale.

The benefit of profit-oriented pricing is obvious: The company is guaranteed a profit on every sale. There are real risks to this strategy, though. If a competitor has lower costs, then it can easily undercut the pricing and steal market share. Even if a competitor does not have lower costs, it might choose a more aggressive pricing strategy to gain momentum in the market.

Also, customers don’t really care about the company’s costs. Price is a component of the value equation, but if the product fails to deliver value, it will be difficult to generate sales.

Finally, profit-oriented pricing is often a difficult strategy for marketers to succeed with, because it limits flexibility. If the price is too high, then the marketer has to adjust other aspects of the marketing mix to create more value. If the marketer invests in the other three Ps—by, say, making improvements to the product, increasing promotion, or adding distribution channels—that investment will probably require additional budget, which will further raise the price.

It’s fairly standard for retailers to use some profit-oriented pricing—applying a standard markup over wholesale prices for products, for instance—but that’s rarely their only strategy. Successful retailers will also adjust pricing for some or all products in order to increase the value they provide to customers.

Competitor-Oriented Pricing

Sometimes prices are set almost completely according to competitor prices. A company simply copies the competitor’s pricing strategy or seeks to use price as one of the features that differentiates the product. That could mean either pricing the product higher than competitive products, to indicate that the company believes its product provides greater value, or lower than competitive products in order to be a low-price solution.

This is a fairly simple way to price, especially if product pricing information is easily collected and compared. Like profit-oriented pricing, this strategy also carries some risks. Competitor-oriented pricing doesn’t fully account for the value of the product to the customer vis-à-vis the value of competitive products. As a result, the product might be priced too low—or too high—for the value it provides,.

As the airline example illustrates, competitor-oriented pricing can contribute to a difficult market dynamic. If players in a market compete exclusively on price, they will erode their profits and, over time, limit their ability to add value to products.

Customer-Oriented Pricing

Customer-oriented pricing is also referred to as value-oriented pricing. Given the centrality of the customer in a marketing orientation, it is no surprise that customer-oriented pricing is the recommended pricing approach because its focus is on providing value to the customer. Customer-oriented pricing looks at the full price-value equation and establishes the price that balances the value. The company seeks to charge the highest price that supports the value received by the customer.

Customer-oriented pricing requires an analysis of the customer and the market. The company must understand the buyer persona, the value that the buyer is seeking, and the degree to which the product meets customer need. The market analysis shows competitive pricing as well as pricing for substitutes.

To try to bring the customer’s voice into pricing decisions, many companies conduct primary market research with target customers. Crafting questions to get at the value perceptions of the customer is difficult, though, so marketers often turn to something called the Van Westendorp price-sensitivity meter. This method uses the following four questions to understand customer perceptions of pricing:

1. At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)

2. At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap)

3. At what price would you consider the product starting to get expensive, such that it’s not out of the question, but you would have to give some thought to buying it? (Expensive/High Side)

4. At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)

Each of these questions asks about the customer’s perspective on the product value, with price as one component of the value equation.

Cost-Oriented Pricing

Cost-Plus Pricing

Cost-plus pricing, sometimes called gross margin pricing, is perhaps the most widely used pricing method. The manager selects as a goal a particular gross margin that will produce a desirable profit level. Gross margin is the difference between how much the product costs and the actual price for which it sells. This gross margin is designated by a percent of net sales. The percent chosen varies among types of merchandise. This means that one product may have a goal of 48 percent gross margin while another has a target of 33.5 percent.

A primary reason that the cost-plus method is attractive to marketers is that they don’t have to forecast general business conditions or customer demand. If sales volume projections are reasonably accurate, profits will be on target. Consumers may also view this method as fair, since the price they pay is related to the cost of producing the item. Likewise, the marketer is sure that costs are covered.

A major disadvantage of cost-plus pricing is its inherent inflexibility. For example, department stores often find it hard to meet (and beat) competition from discount stores, catalog retailers, and furniture warehouses because of their commitment to cost-plus pricing. Another disadvantage is that it doesn’t take into account consumers’ perceptions of a product’s value. Finally, a company’s costs may fluctuate, and constant price changing is not a viable strategy.

Markups

When middlemen use the term markup, they are referring to the difference between the average cost and price of all merchandise in stock, for a particular department, or for an individual item. The difference may be expressed in dollars or as a percentage. For example, a man’s tie costs $14.50 and is sold for $25.23. The dollar markup is $10.73. The markup may be designated as a percent of the selling price or as a percent of the cost of the merchandise. In this example, the markup is 74 percent of cost ($10.73 / $14.50) or 42.5 percent of the retail price ($10.73 / $25.23).

Cost-Oriented Pricing of New Products

Certainly costs are an important component of pricing. No company can make a profit until it covers its costs. However, the process of determining costs and setting a price based on costs does not take into account what the customer is willing to pay in the marketplace. This strategy is a bit of a trap for companies that develop products and continually add features to them, thus adding cost. Their cost-based approach leads them to add a percentage to the cost, which they pass on to customers as a new, higher price. Then they are disappointed when their customers do not see sufficient value in the cost-based price.

Discounting Strategies

In addition to deciding the base price of products and services, marketing managers must also set policies regarding the use of discounts and allowances. There are many different types of price reductions–each designed to accomplish a specific purpose. The major types are described below.

Quantity discounts are reductions in base price for a buyer purchasing a predetermined quantity of merchandise. A noncumulative quantity discount applies to each purchase and is intended to encourage buyers to make larger purchases. This means that the buyer holds the excess merchandise until it is used, possibly cutting the inventory cost of the seller and preventing the buyer from switching to a competitor at least until the stock is used. A cumulative quantity discount applies to the total bought over a period of time. The buyer adds to the potential discount with each additional purchase. This policy helps to build repeat purchases.

Both Home Depot and Lowe’s offer discounts to trade contractors who buy more than a specific value of goods (Pro Xtra).

Seasonal discounts are price reductions on out-of-season merchandise—snowmobiles discounted during the summer, for example. The purpose is to spread demand over the year, allowing fuller use of production facilities and improved cash flow.

Seasonal discounts are not always straightforward. It seems logical that gas grills are discounted in September when the summer grilling season is over, and hot tubs are discounted in January when the weather is bad and consumers spend less freely. However, the biggest discounts on large-screen televisions are offered during the weeks before the Super Bowl, when demand is greatest. This strategy aims to drive impulse purchases of the large-ticket item, rather than spurring sales during the off-season.

Cash discounts are reductions on base price for paying cash or within a short time period. For example, a 2 percent discount on bills paid within 10 days is a cash discount. The purpose is generally to accelerate the cash flow of the organization and to reduce transaction costs.

Generally cash discounts are offered in a business-to-business transaction where the buyer is negotiating a range of pricing terms, including payment terms. You can imagine that if you offered to pay cash immediately instead of using a credit card at a department store, you wouldn’t receive a discount.

Trade discounts are price reductions given to middlemen (e.g., wholesalers, industrial distributors, retailers) to encourage them to stock and give preferred treatment to an organization’s products. For example, a consumer goods company might give a retailer a 20 percent discount to place a larger order for soap. The discount might also be used to gain shelf space or a preferred position in the store.

Calico Corners offers a discount on fabrics to interior designers. They have paired this with a quantity-discounts program that offers gift certificates for buyers who purchase more than a given amount in a year.

Personal allowances are similar strategies aimed at middlemen. Their purpose is to encourage middlemen to aggressively promote a company’s products. For example, a furniture manufacturer may offer to pay some specified amount toward a retailer’s advertising expenses if the retailer agrees to include the manufacturer’s brand name in the ads.

Some manufacturers or wholesalers also give retailers a SPIF, or sales promotion incentive fund, payment. This is especially common in the electronics and clothing industries, where “spiffs” are designed to promote new products, slow movers, or high-margin items.

When employees in electronics stores recommend a specific brand or product to a buyer they may receive compensation from the manufacturer on top of their wages and commissions from the store.

Trade-in allowances also reduce the base price of a product or service. These are often used to help the seller negotiate the best price with a buyer. The trade-in may, of course, be of value if it can be resold. Accepting trade-ins is necessary in marketing many types of products. A construction company with a used grader worth $70,000 probably wouldn’t buy a new model from an equipment company that did not accept trade-ins, particularly when other companies accept them.

Price bundling is a very popular pricing strategy. The marketer groups similar or complementary products and charges a total price that is lower than if they were sold separately. Internet, cable and phone companies follow this strategy by combining different products and services for one price. Similarly, Microsoft bundles its office products into one suite of software. The underlying assumption of this pricing strategy is that the increased sales generated will more than compensate for a lower profit margin. It may also be a way of selling a less popular product by combining it with more popular ones. Financial services, telecommunications, and software companies make very effective use of this strategy.

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

Which of the following is the Price-Value Equation from the customer’s perspective?

value = perceived benefits - actual costs

value = actual benefits - perceived costs

value = perceived benefits - perceived costs

Question 2

. _______ are reductions in base price given as the result of a buyer purchasing some predetermined amount of merchandise.

Cash discounts

Trade discounts

Quantity discounts

Question 3

Which of the following is an example of the “value-added element”?

more commercials

good marketing

broad selection of sizes

References

Jordan. (2014, July 14). Nike price hikes drive U.S. sneaker growth. FN by Footwear News. Retrieved from http://footwearnews.com/2014/business/news/nike-price-hikes-drive-u-s-sneaker-growth-144128/

Pro Xtra: The Home Depot Pro Loyalty Program. Retrieved from http://www.homedepot.com/c/Pro_Xtra

Team, T. (2015, June 11). Airlines’ stocks drop as fear of price war clouds the industry. Forbes. Retrieved from http://www.forbes.com/sites/greatspeculations/2015/06/11/airlines-stocks-drop-as-fear-of-price-war-clouds-the-industry/#2715e4857a0b103622d442d5

Licenses and Attributions

Introduction to Pricing Strategies from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

CC LICENSED CONTENT, ORIGINAL

· Outcome: Pricing Strategies. Provided by: Linda Williams and Lumen Learning. License: CC BY: Attribution

Pricing Strategies from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Revision and adaptation. Provided by: Lumen Learning. License: CC BY: Attribution

· Pricing Objectives. Provided by: Lumen Learning. License: CC BY: Attribution

· Check Your Understanding. Authored by: Lumen Learning. License: CC BY: Attribution

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· Chapter 9: Pricing the Product, from Introducing Marketing. Authored by: John Burnett. Located at: http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf. License: CC BY: Attribution

· Rent the Runway Founders. Authored by: Kempton. Located at: https://www.flickr.com/photos/k-ideas/4089502683/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

· Best Price. Located at: https://pixabay.com/en/award-price-tag-note-board-offer-73084/. License: CC0: No Rights Reserved

· Pricing the Product, from Introducing Marketing. Authored by: John Burnett. Project: Global Text. License: CC BY: Attribution

· Mangos. Authored by: Quinn Dombrowski. Located at: https://www.flickr.com/photos/quinnanya/2886818380/. License: CC BY-SA: Attribution-ShareAlike

· Chapter 9, Pricing the Product, Introducing Marketing. Authored by: John Burnett. Project: Global Text. License: CC BY: Attribution

· Fabric Bolts. Authored by: Laura. Provided by: Pixabay. Located at: https://www.flickr.com/photos/luckylaura/2749694639/. License: CC BY: Attribution

Place: Distribution Channels

What you’ll learn to do: Explain common product distribution strategies and how organizations use them

Distribution channels—which is place in the four P's—cover all the activities needed to transfer the ownership of goods and move them from the point of production to the point of consumption. In this section you’ll learn more about distribution channels and some of the common strategies companies use to take advantage of them.

Learning Outcomes

· List the characteristics and flows of a distribution channel

· Describe the partners that support distribution channels

· Explain the role of wholesale intermediaries

· Describe the different types of retailers businesses use to distribute products

· Differentiate between supply chains and distribution channels

Evolution of Distribution Channels 

As consumers, we take for granted that when we go to a supermarket the shelves will be filled with the products we want; that when we are thirsty there will be a Coke machine or drive-through nearby; and that we can go online and find any product we need with quick delivery. Of course, if we give it some thought, we realize that this magic is not a given and that hundreds of thousands of people plan, organize, and labor long hours to make this convenience possible. It has not always been this way, and is still not this way in many regions of the world.

Looking back, the channel structure in primitive culture was virtually nonexistent. The family or tribal group was almost entirely self-sufficient. In these groups were both communal producers and consumers of whatever goods and services could be made available. As economies evolved, people began to specialize in particular aspects of economic activity, like farming, hunting, fishing, or a craft. Eventually their specialized skills produced excess products, which they exchanged or traded for others’ goods. This exchange process, or barter, marked the beginning of formal channels of distribution. These early channels involved a series of exchanges between parties who were producers of one product and consumers of another.

Specialization. With the growth of specialization, particularly industrial specialization, and improvements in transportation and communication, channels of distribution have become longer and more complex. Thus, corn grown in Illinois may be processed into corn chips in West Texas, which are then distributed throughout the United States. Or, turkeys raised in Virginia are sent to New York so that they can be shipped to supermarkets in Virginia. Channels do not always make sense.

The channel mechanism also operates for service products. In the case of medical care, the channel mechanism may consist of a local physician, specialists, hospitals, ambulances, laboratories, insurance companies, physical therapists, home care professionals, and so on. All of these individuals are interdependent and could not operate successfully without the cooperation and capabilities of all the others.

We define a channel of distribution, also called a marketing channel, as sets of interdependent organizations involved in the process of making a product or service available for use or consumption, as well as providing a payment mechanism for the provider.

This definition implies several important characteristics of the channel.

First, the channel consists of organizations, some under the control of the producer and some outside the producer’s control. Yet all must be recognized, selected, and integrated into an efficient channel arrangement.

Second, the channel management process is continuous, requiring ongoing monitoring and reappraisal. The channel operates 24 hours a day and exists in an environment where change is the norm.

Finally, channels should have certain distribution objectives guiding their activities. The structure and management of the marketing channel is thus, in part, a function of a firm’s distribution objective. It’s also a part of the marketing objectives—especially the need to make an acceptable profit. Channels usually represent the largest costs in marketing a product.

Channel Flows 

One traditional framework that has been used to express the channel mechanism is the concept of flow. Flows reflect the many linkages that tie channel members and other agencies together in the distribution of goods and services. From the perspective of the channel manager, there are five important flows.

· product—movement of the physical product from the manufacturer through all the parties who take physical possession of the product until it reaches the ultimate consumer

· negotiation—institutions that are associated with the actual exchange processes

· ownership—transfer of title through the channel

· information—individuals who participate in the flow of information either up or down the channel

· promotion—flow of persuasive communication in the form of advertising, personal selling, sales promotion, and public relations

Energy Drinks: From Product to Promotion

The figure below maps the channel flows for the Monster Energy drink (and many other energy drink brands). Why is Monster’s relationship with Coca-Cola so valuable? Every single flow passes through bottlers and distributors before before reaching consumers at supermarkets.

Coca-Cola explains the importance of the bottlers in the distribution network:

While many view our company as simply ‘Coca-Cola,’ our system operates through multiple local channels. Our company manufactures and sells concentrates, beverage bases and syrups to bottling operations, owns the brands and is responsible for consumer brand marketing initiatives. Our bottling partners manufacture, package, merchandise, and distribute the final branded beverages to our customers and vending partners, who then sell our products to consumers.

All bottling partners work closely with customers—grocery stores, restaurants, street vendors, convenience stores, movie theaters and amusement parks, among many others—to execute localized strategies developed in partnership with our company. Customers then sell our products to consumers at a rate of more than 1.9 billion servings a day (Coca-Cola).

Revisiting the five channel flows, we find that the bottlers and distributors play a role in each one. Examples of the flows are listed below. Remember, while the consumer is the individual who eventually consumes the drink, the supermarkets, restaurants, and other outlets are Coca-Cola’s customers.

· Product flow. Bottlers receive and process the bases and syrups.

· Negotiation flow. Bottlers buy concentrate, sell product, and collect revenue from customers.

· Ownership flow. Distributors acquire the title of the syrups and own the product until it’s sold to supermarkets.

· Information flow. Bottlers communicate product options to customers, and communicate demand and needs to Coca-Cola.

· Promotion flow. Bottlers communicate benefits and provide promotional materials to customers.

Marketing Channels

While channels can be very complex, there is a common set of channel structures that can be identified in most transactions. Each channel structure includes different organizations. Generally, the organizations that collectively support the distribution channel are referred to as channel partners.

The direct channel is the simplest channel. In this case, the producer sells directly to the consumer. The most straightforward examples are producers who sell in small quantities. If you visit a farmers’ market, you can purchase goods directly from farmers and craftsmen. There are also examples of very large corporations using the direct channel effectively, especially for B2B transactions. Services may also be sold through direct channels, and the same principle applies: An individual buys a service directly from the provider who delivers it.

Examples of the direct channel include

· Etsy.com online marketplace

· farmers’ markets

· Oracle’s sales team working with businesses

· a bake sale

Retailers are companies in the channel that focuses on selling directly to consumers. You are likely to participate in the retail channel almost every day. The retail channel is different from the direct channel in that the retailer doesn’t produce the product, but markets and sells goods on behalf of the producer. For consumers, retailers provide tremendous contact efficiency by creating one location where many products can be purchased. Retailers may sell products in a store, online, in a kiosk, or on your doorstep. The emphasis is not the specific location but on selling directly to the consumer.

Examples of retailers include

· Walmart discount stores

· Amazon online store

· Nordstrom department store

· Dairy Queen restaurant

From a consumer’s perspective, the wholesale channel looks very similar to the retail channel, but it also involves a wholesaler. A wholesaler is primarily engaged in buying and, usually, storing and physically handling goods in large quantities, which are then resold (usually in smaller quantities) to retailers, or industrial or business users. The vast majority of goods produced in an advanced economy have wholesaling involved in their distribution. Wholesale channels also include manufacturers operating sales offices to perform wholesale functions, and retailers operating warehouses or engaging in other wholesale activities.  

Examples of wholesalers include:

· Christmas-tree wholesalers who buy from growers and sell to retail outlets

· restaurant food suppliers

· clothing wholesalers that sell to retailers

The broker or agent channel includes one additional intermediary. Agents and brokers are different from wholesalers in that they do not take title to the merchandise. In other words, they do not own the merchandise because they neither buy nor sell. Instead, brokers bring buyers and sellers together and negotiate the terms of the transaction. Agents represent either the buyer or seller, usually on a permanent basis, whereas brokers bring parties together on a temporary basis. Think about a real-estate agent. They do not buy your home and sell it to someone else; they market and arrange the sale of the home. Agents and brokers match buyers with sellers, or add expertise to create a more efficient channel.

Examples of brokers include:

· an insurance broker, who sells insurance products from many companies to businesses and individuals

· a literary agent, who represents writers and their works to publishers, and theatrical and film producers

· an export broker, who negotiates and manages transportation requirements, shipping, and customs clearance on behalf of a purchaser or producer

It’s important to note that the larger and more complex the flow of materials from the initial design through purchase, the more likely it is that multiple channel partners may be involved, because each channel partner will bring unique expertise that increases the efficiency of the process. If an intermediary is not adding value, they will likely be removed over time, because the cost of managing and coordinating with each intermediary is significant.

The Role of Wholesale Intermediaries 

While the retail channel is the most familiar one, wholesalers play an important role as intermediaries. Intermediaries act as a link in the distribution process, but the roles they fill are broader than simply connecting channel partners. Wholesalers, often called “merchant wholesalers,” help move goods between producers and retailers.

Let’s look at each of the functions that a merchant wholesaler fulfills:

Purchasing 

Wholesalers purchase very large quantities of goods directly from producers or from other wholesalers. By purchasing large quantities or volumes, they can secure significantly lower prices.

Imagine that a farmer has a very large crop of potatoes. If he sells all of them to a single wholesaler, he will negotiate one price and make one sale. Because this is an efficient process that allows him to focus on farming (rather than searching for additional buyers), he will likely be willing to negotiate a lower price. Even more important, because the wholesaler has such strong buying power, it can force a lower price on every farmer selling potatoes.

The same is true for almost all mass-produced goods. When a producer creates a large quantity of goods, it is most efficient to sell all of them to one wholesaler, rather than negotiating prices and making sales with many retailers or an even larger number of consumers. Also, the bigger the wholesaler is, the more likely that it will have significant power in price-setting.

Warehousing and Transportation 

Once the wholesaler has purchased a mass quantity of goods, it needs to get them to a place where they can be purchased by consumers. This is a complex and expensive process. A company might operate eighty distribution centers around the country, each with more than 500,000 square feet. This requires state-of-the art inventory tracking systems. Some wholesalers also operate transportation networks using their own fleet of trucks.

Grading and Packaging 

Wholesalers buy a very large quantity of goods and then break it down into smaller lots. The process of breaking large quantities into smaller lots that will be resold is called bulk breaking. Often this includes physically sorting, grading, and assembling the goods. Returning to our potato example, the wholesaler would determine which potatoes are of a size and quality to sell individually and which will be packaged for sale in five-pound bags.

Risk Bearing

Wholesalers either take title to the goods they purchase, or they own them. There are two primary consequences of this. First, the wholesaler finances the purchase of the goods and carries the cost of the goods in inventory until they are sold. Because this is a tremendous expense, it drives wholesalers to be accurate and efficient in their purchasing, warehousing, and transportation processes.

Second, wholesalers also bear the risk for the products until they are delivered. If goods are damaged in transport and cannot be sold, then the wholesaler is left with the goods and the cost. If there is a significant change in the value of the products between the time of the purchase from the producer and the sale to the retailer, the wholesaler will absorb that profit or loss.

Marketing 

Often, the wholesaler will fill a role in promoting the products distributed. This might include creating displays for the wholesaler’s products and providing the display to retailers to increase sales. The wholesaler may advertise the products that are carried by many retailers.

Wholesalers also influence which products the retailer offers. For example, McLane Company was a winner of the 2016 Convenience Store News Category Captains award, recognizing innovations in providing the right products to customers. McLane created unique packaging and products featuring movie themes, college football themes, and other special occasion branding designed to appeal to impulse buyers. They also shifted the transportation and delivery strategy to get the right products in front of consumers at the time they were most likely to buy. Its convenience store customers as well as McLane saw sales growth (Durtschi, 2016).

Distribution

As distribution channels have evolved, some retailers, such as Walmart and Target, have grown so large that they have taken over aspects of the wholesale function. Still, it is unlikely that wholesalers will ever go away. Most retailers rely on wholesalers: They simply do not have the capability or expertise to manage the full distribution process. Plus, many of the functions that wholesalers fill are performed most efficiently at scale. Wholesalers are able to focus on creating efficiencies for their retail channel partners that are very difficult to replicate on a small scale.

Retailers

Introduction

Retailing comprises all the activities required to market goods and services to consumers seeking to satisfy their individual or families’ needs.

By definition, B2B purchases are not included in the retail channel since they are not made for individual or family needs. In practice this can be confusing because many retail outlets—like Home Depot—serve both consumers and business customers. Generally, retailers that have a significant B2B or wholesale business report those numbers separately in their financial statements, acknowledging that they are separate lines of business within the same company. Those with a pure retail emphasis do not seek to exclude business purchasers; they simply focus their offering to appeal to individual consumers, knowing that some businesses may also choose to purchase.

When we think of a retail sale, we typically think of a store even though retail sales occur in other places and settings. For instance, they can be made by a Pampered Chef salesperson in someone’s home. Retail sales also happen online, through catalogs, by automatic vending machines, and in hotels and restaurants. Nonetheless, despite tremendous growth in both nontraditional retail outlets and online sales, most retail sales still take place in brick-and-mortar stores.

Beyond the distinctions in the products they provide, there are structural differences among retailers that influence their strategies and results. One of the reasons the retail industry is so large and powerful is its diversity. For example, stores vary in size, in the kinds of services that are provided, the assortment of merchandise, and their ownership and management structures.

Department Stores 

Department stores are characterized by their wide product mixes. That is, they carry many different types of merchandise, which may include hardware, clothing, and appliances. The depth of the product mix depends on the store, but department stores’ primary distinction is the ability to provide a wide range of products within a single store.

Chain Stores 

The 1920s saw the evolution of the chain store movement. Because chains were so large, they were able to buy a wide variety of merchandise in large quantity discounts. The discounts substantially lowered their cost compared to costs of single unit retailers. As a result, they could set retail prices that were lower than those of their small competitors and thereby increase their share of the market. Furthermore, chains were able to attract many customers because of their convenient locations made possible by their financial resources and expertise in selecting where to locate.

Supermarkets

Supermarkets evolved in the 1920s and 1930s. For example, Piggly Wiggly, founded by Clarence Saunders around 1920, introduced self-service and checkout counters. In 2018, there were were 38,571 supermarkets—including large, small and warehouse stores—in the United States (Nielsen, 2018). and the average store now carries nearly 44,000 products in roughly 46,500 square feet of space. The supermarket approach is to offer a large assortments goods at each store at a minimal price.

Discount Retailers

Discount retailers, like Ross Stores and Grocery Outlet, focus on price as their main sales appeal. Merchandise assortments are generally broad and include both hard and soft goods, but assortments are typically limited to the most popular items, colors, and sizes. They are usually large, self-service operations with long hours, free parking, and relatively simple decor. Online retailers such as Overstock.com have aggregated products and offered them at deep discounts. Generally, customers sacrifice having a reliable assortment of products to receive deep discounts.

Warehouse Retailers

Warehouse retailers provide a bare-bones shopping experience at very low prices. They streamline all operational aspects of their business and pass on the savings to customers. Costco generally uses a cost-plus pricing structure and provides goods in large quantities.

Franchises

The franchise approach brings together national chains and local ownership. When a buyer purchases a franchise, he or she gains the right to use the firm’s business model and brand for a set period of time. Often, the franchise agreement includes well-defined guidance for the owner, as well as training and ongoing support. The owner, or franchisee, builds and manages the local business. Entrepreneur magazine posts a list each year of the 500 top franchises according to an evaluation of financial strength and stability, growth rate, and size.

Malls and Shopping Centers

Malls and shopping centers provide customers with an assortment of products in different stores, usually with one or more major tenant or anchor store. Strip malls are a common string of stores along major traffic routes, while isolated locations are freestanding sites not necessarily in high-traffic areas. Stores in isolated locations must use promotion or another aspect of their marketing mix to attract shoppers.

Online Retailing

Online retailing is unquestionably a dominant force in the retail industry, but today it accounts for only a small percentage of total retail sales. Companies like Amazon and Geico complete all or most of their sales online. Many other online sales result from traditional retailers, such as Nordstrom.com. Online marketing plays a significant role in preparing the buyers who shop in stores. In a similar integrated approach, catalogs that are mailed to customers’ homes drive online orders. In a survey on its website, Lands’ End found that 75 percent of customers who were making purchases had reviewed its catalog first (Ruiz, 2015).

Estimated US Retail E-Commerce Sales as a Percent of Total Retail Sales

First Quarter 2009 through Second Quarter 2018 (Not Adjusted and Adjusted for Seasonal Variation)

US Census Bureau (2018)

Catalogs 

Catalogs have long been used to drive phone and in-store sales. As online retailing began to grow, it had a significant impact on catalog sales. Many retailers who depended on catalog sales—Sears, Lands’ End, and J.C. Penney, to name a few—suffered as online retailers and online sales from traditional retailers pulled convenience shoppers away from catalog sales. Catalog mailings peaked in 2009 and saw a significant decrease through 2012. In 2013, there was a small increase in catalog mailings. Industry experts note that catalogs are changing, as is their role in the retail marketing process. Despite significant declines, US households still receive 11.9 billion catalogs each year (Geller, 2012).

Nonstore Retailing 

Beyond those mentioned in the categories above, there are a wide range of traditional and innovative retailing approaches. Although the “Avon lady” largely disappeared at the end of the last century, there are still in-home sales from Arbonne facial products, Cabi women’s clothing, WineShop at Home, and others. Many of these models are based on the idea of women using their personal networks to sell products to friends, and friends of friends, often in a party setting.

Also, vending machines and conveniently placed kiosks have long been a popular retail device. Today they are becoming more targeted. Companies now use them in airports to sell sundries to travelers who have forgotten something.

Each of these retailing approaches can be customized to meet the needs of the target buyer or combined to include a range of needs.

Marketing Channels vs. Supply Chains

What Is a Supply Chain?

We have discussed the channel partners, the roles they fill, and the structures they create. Marketers have long recognized the importance of managing distribution channel partners. As channels have become more complex and the flow of business has become more global, organizations have recognized that they need to manage more than just the channel partners; they need to manage the full chain of organizations and transactions, from raw materials through final delivery to the customer—in other words, the supply chain.

The supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end customer (Nagurney, 2006).

The marketing channel generally focuses on how to increase value to the customer by having the right product in the right place at the right price at the moment when the customer wants to buy. The emphasis is on providing value to the customer, and the marketing objectives usually focus on what is needed to deliver that value.

Supply chain management takes a different approach. The Council of Supply Chain Management Professionals (CSCMP) defines supply chain management as follows:

Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers (CSCMP).

Supply Chain vs. Marketing Channels

The supply chain and marketing channels can be differentiated as follows:

· The supply chain is broader than marketing channels. It begins with raw materials and delves deeply into production processes and inventory management. Marketing channels are focused on bringing together the partners who can most efficiently deliver the right marketing mix to the customer in order to maximize value. Marketing channels provide a more narrow focus within the supply chain.

· Marketing channels are purely customer facing. Supply chain management seeks to optimize how products are supplied, which adds a number of financial and efficiency objectives that are more internally focused. Marketing channels emphasize a stronger market view of customer expectations and competitive dynamics in the marketplace.

· Marketing channels are part of the marketing mix. Supply chain professionals are specialists in the delivery of goods. Marketers view distribution as one element of the marketing mix, in conjunction with product, price, and promotion. Supply chain management is more likely to identify the most efficient delivery partner. A marketer is more likely to balance the merits of a channel partner against the value offered to the customer. For instance, it might make sense to keep a channel partner who is less efficient but provides an important benefit in the promotional strategy.

Successful organizations develop effective, respectful partnerships between the marketing and supply chain teams. When the supply chain team understands the market dynamics and the points of flexibility in product and pricing, they are better able to optimize the distribution process. When marketing has the benefit of effective supply chain management—which is analyzing and optimizing distribution within and beyond the marketing channels—greater value is delivered to customers.

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer

Question 1

 ________ is a set of interdependent organizations involved in the process of making a product or service available for use or consumption, as well as providing a payment mechanism for the provider.

The Channel of distribution

A retailer network

A wholesaler co-op

Question 2

When consumers purchase products from Etsy.com or a bake sale at an elementary school, it is an example of ________

retail channel

direct channel

agent channel

Question 3

________ play an important role as intermediaries acting as a link in the distribution process to help move goods between producers and retailers.

Wholesalers

Retailers

Agents

References 

Council of Supply Chain Management Professionals. Retrieved from http://cscmp.org/

Durtschi, S. (2016, February 15). Why McLane is 2016’s General Merchandise Category Captain. Convenience Store News. Retrieved from http://www.csnews.com/industry-news-and-trends/special-features/why-mclane-2016s-general-merchandise-category-captain?nopaging=1

Geller, L. (2012, October 16). Why are printed catalogs still around? Forbes. Retrieved from https://www.forbes.com/sites/loisgeller/2012/10/16/why-are-printed-catalogs-still-around/#5331b2c079c6

Nielsen TDLinx. (2018, April). Progressive Grocer 85th Annual Report of the Grocery Industry. Progressive Grocer (97)1, 30.

Nagurney, Anna (2006). Supply chain network economics: Dynamics of prices, flows, and profits. Cheltenham, UK: Edward Elgar.

Ruiz, R. R. (2015, January 25). Catalogs, after years of decline, are revamped for changing times. The New York Times. Retrieved from http://www.nytimes.com/2015/01/26/business/media/catalogs-after-years-of-decline-are-revamped-for-changing-times.html?_r=0

The Coca-Cola System. Retrieved from http://www.coca-colacompany.com/our-company/the-coca-cola-system/ 

US Census Bureau. (2018, August 17). Quarterly Retail E-Commerce Sales, Second Quarter 2018. U.S. Census Bureau News. Retrieved from https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

Licenses and Attributions

Introduction to Place: Distribution Channels from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Outcome: Place: Distribution Channels. Authored by: Linda Williams and Lumen Learning. License:  CC BY: Attribution

Place: Distribution Channels from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Chapter 10, Chanel Concepts, Distributing the Product, from Introducing Marketing. Authored by: John Burnett. Provided by: Global Text. Located at: http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf. License: CC BY: Attribution

· Channels of Grace. Authored by: Liam Moloney. Located at: https://www.flickr.com/photos/tir_na_nog/5244765107/. License: CC BY: Attribution

· Monster Energy. Authored by: Mike Mozart. Located at: https://www.flickr.com/photos/jeepersmedia/13100200773/. License: CC BY: Attribution

· Chapter 10, Channel Concepts: Distributing the Product, from Introducing Marketing. Authored by: John Burnett. Located at: http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf. Project: Global Text. License: CC BY: Attribution

· Portland Farmer's Market. Provided by: Oregon Department of Agriculture. Located at: https://www.flickr.com/photos/oragriculture/8080735396/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

· Potatoes. Authored by: Olivier Bacquet. Located at: https://www.flickr.com/photos/olibac/10508674534/. License: CC BY: Attribution

· Chapter 10, Channel Concepts: Distributing the Product, from Introducing Marketing. Authored by: John Burnett. Located at: . Project: Global Text. License: CC BY: Attribution

· Bike & Skate. Authored by: Karol Franks. Located at: https://www.flickr.com/photos/karolfranks/6586652573/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

· Piggly Wiggly. Authored by: Steve Snodgrass. Located at: https://www.flickr.com/photos/stevensnodgrass/4702218440/. License: CC BY: Attribution

· Consumerism. Authored by: Denise Rosser. Located at: https://www.flickr.com/photos/foxrosser/1246244086/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

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· Supply Chain. Provided by: Wikipedia. Located at: https://en.wikipedia.org/wiki/Supply_chain. License: CC BY-SA: Attribution-ShareAlike

· Screenshot Supply Chain of Peanut Butter. Provided by: Lumen Learning. License: CC BY: Attribution

Promotion: Integrated Marketing Communication (IMC)

What you’ll learn to do: Explain how organizations use integrated marketing communication (IMC) to support their marketing strategies

The readings in this section cover seven different marketing communication methods that are commonly used today. They will help you become familiar with common tools associated with each method, and the advantages and disadvantages of each one.

Learning Outcomes

· Define integrated marketing communication (IMC)

· Explain the promotion mix

· Describe common marketing communication methods, including advantages and disadvantages

· Discuss how organizations use IMC to support their marketing strategies

What Is Integrated Marketing Communication?

Having a great product available to your customers at a great price has no impact if your customers don’t know about it. That’s where promotion enters the picture: It does the job of connecting with your target audiences and communicating what you can offer them.

In today’s marketing environment, promotion involves integrated marketing communication  (IMC). In a nutshell, IMC involves bringing together various communication tools to deliver a common message and make a desired impact on customers’ perceptions and behavior. As an experienced consumer, you have almost certainly been the target of IMC activities. (Practically every time you “like” a TV show, article, or a meme on Facebook, you are participating in an IMC effort!)

What Is Marketing Communication?

Defining marketing communication is tricky because everything an organization does has communication potential. Even a product’s price communicates a specific message. A company that chooses to distribute its products strictly through discount stores sends a distinct message to the market. Marketing communication refers to activities deliberately focused on promoting an offering among target audiences. It includes all the messages, media, and activities an organization uses to communicate with the market and help persuade target audiences to take action.

IMC is the process of coordinating activities across different communication methods. Note that a central theme is persuading people to believe something, desire something, or do something. Effective marketing communication is goal directed, and it is aligned with an organization’s marketing strategy. The goal is to deliver a particular message to a specific audience with a targeted purpose of altering perceptions, behavior, or both. IMC makes this marketing activity more efficient and effective because it relies on multiple communication methods and customer touch points to deliver a consistent message in more, and in more compelling, ways.

The Promotion Mix: Marketing Communication Methods

The promotion mix refers to how marketers combine a range of marketing communication methods to execute their marketing activities. Different marketing communication methods  have distinct advantages and complexities, and require skill and experience to deploy effectively. Not surprisingly, marketing communication methods evolve over time, as new communication tools and capabilities become available to marketers and their audiences.

These are the seven common marketing communication methods:

· Advertising. This includes any paid form of presenting ideas, goods, or services by an identified sponsor. Historically, advertising messages have been tailored to a group and employ mass media like radio, television, newspapers, and magazines. Advertising may also target individuals according to their profile characteristics or behavior. Examples include the weekly ads mailed by supermarkets to local residents or online banner ads targeted to individuals based on the websites they visit or their Internet searches.

· Public relations (PR). The purpose of public relations is to create goodwill between an organization (or the things it promotes) and the “public” or target segments it is trying to reach. This happens through unpaid or earned promotional opportunities: articles, press and media coverage, awards, presentations at conferences and events, and other favorable attention that is not paid advertising. Although organizations earn rather than pay for this attention, they may spend significant resources on the activities, events, and people who generate it.

· Personal selling. Through personal selling, people develop relationships with target audiences to sell products and services. Personal selling emphasizes face-to-face interaction, understanding the customer’s needs, and demonstrating how the product or service provides value.

· Sales promotion. These are marketing activities that aim to temporarily boost sales of a product or service by adding to the basic value offered, such as “buy one get one free” offers to consumers or “buy 12 cases and get a 10 percent discount” to wholesalers, retailers, or distributors.

· Direct marketing. This method aims to sell products or services directly to consumers, rather than going through a retailer. Direct marketing channels include catalogs, telemarketing, mailed brochure, or other promotional materials, home shopping TV channels, email, and mobile marketing.

· Digital marketing. Digital marketing covers a lot of ground, from websites to search-engine results and social media marketing. Digital marketing tools and techniques evolve rapidly with technology, but this umbrella term covers all the ways digital is used to market and sell organizations, products, services, ideas, and experiences.

· Guerrilla marketing. This newer category of marketing communication involves unconventional, innovative, and usually low-cost marketing tactics to engage consumers, generate attention, and achieve maximum exposure. Generally guerrilla marketing is experiential: It creates a novel situation or memorable experience that consumers connect to a product or brand.

Most marketing initiatives today incorporate multiple methods, hence the need for IMC.

Guerrilla Marketing

Source: http://janjan-design.blogspot.com/2012/06/im-loving-it.html

Marketing Communication Objectives

The three objectives of all marketing communication methods are to (1) communicate, (2) compete, and (3) convince. In order to be effective, organizations should ensure that whatever information they communicate is clear, accurate, truthful, and useful to its audience. Being truthful and accurate in marketing communications is more than a matter of integrity; it’s also a matter of law: Fraudulent marketing communications can lead to lawsuits and costly judgments or settlements.

Marketing communication is key to competing effectively, particularly in markets where competitors sell essentially the same product at the same price in the same outlets. Only through marketing communications can an organization find ways to appeal to certain segments, differentiate its product, and create enduring brand loyalty. Keeping the messages more appealing and convincing than competitors’ is an ongoing challenge.

Ideally, marketing communication persuades: presenting ideas, products, or services in such a compelling way that target segments follow a desired action. This is essential to winning new business as well as reconvincing and retaining customers. Just because a consumer buys a particular brand once or even a dozen times, or for a dozen years, there is no guarantee that he or she will remain a loyal customer. That is why marketers want to make sure customers are constantly reminded of a product’s unique benefits.

Marketing Campaigns and IMC

Determining which marketing communication methods and tools to use and how best to combine them is a challenge for marketers planning a promotional strategy. To facilitate planning, marketing managers often use a campaign approach. A campaign is a planned, coordinated series of marketing communication efforts built around a single theme or idea and designed to reach a particular goal.

Organizations may conduct many types of IMC campaigns, and several may run concurrently. Geographically, a firm may have a local, regional, or national campaign, depending upon the available funds, objectives, and market scope. One campaign may be aimed at consumers and another at wholesalers and retailers. Different marketing campaigns might target different segments simultaneously, delivering messages and using communication tools tailored to each segment. Marketers use a marketing plan (sometimes called an IMC plan) to track and execute campaigns over time.

A campaign revolves around a theme, idea, focal point, or purpose that permeates all IMC efforts and works to unify the campaign. The theme may refer to the campaign’s goals—for example, a capital campaign to help a public radio station raise money for a new facility. A theme may also refer to the shift in customer attitudes or behavior that a campaign focuses on—such as new-member campaigns launched by professional and membership organizations like the PTA. A theme might take the form of a slogan, such as Coca-Cola’s “Taste the Feeling” campaign or DeBeers’ “A diamond is forever.”

Clear Channel is a marketing company specializing in outdoor advertising. Their latest advertising campaign in Switzerland revolved around the slogan, “Where Brands Meet People,” and asked clients to participate in dramatizing it. Dozens of Swiss companies allowed their logos to be used as individual “tiles” in three colorful mosaic portraits displayed on the web and on the streets of Switzerland.

Marketing campaigns may also adopt themes that refer to a stage in the product life cycle, such as McDonald’s 2015 “All-Day Breakfast” rollout. Some organizations use the same theme for several campaigns; others develop a different theme for each one.

In a successful campaign, all activities will be well coordinated to build on one another and increase the overall impact. Following are examples of how various elements might relate to the overall campaign:

· Advertising. A series of related, carefully placed television ads are timed with print advertisements. 

· Direct marketing. Direct mail is sent to target segments in selected geographic areas, reinforcing messages from the ads.

· Personal selling. Sales representatives are prepared for the campaign, so they can explain and demonstrate the product benefits advertised.

· Sales promotions. In-store displays reflect the same messages and design as the ads, emphasizing point-of-sale impact.

· Digital marketing. Promotional information on the organization’s website reflects the messages, design, and offers in the ads, which are placed on its website, YouTube channel, Facebook page, and on other social media. 

· Public relations. A press release announces something newsworthy connected with the campaign focus, objectives, and target segment(s).

For each IMC campaign, new materials must be prepared that reflect common objectives, messages, design, and other elements to maximize impact.

People responsible for delivering the products or services must ensure that the distribution points are well stocked and ready to deliver prior to the campaign. People managing public and media relations should be constantly kept aware of marketing planning, allowing them to identify and coordinate opportunities for earned media. Because public relations deals with media, event organizers, and stakeholders outside of the organization, it is extremely important to provide enough lead time for the public relations effort to develop activities to support the overall campaign.

Advertising

A 1900 advertisement for Pears soap

Advertising is any paid form of communication from an identified sponsor or source that draws attention to ideas, goods, services, or the sponsor. Most advertising is directed toward groups rather than individuals, and advertising is usually delivered through media, such as television, radio, newspapers, and increasingly, the Internet. Ads are often measured in impressions—the number of times a consumer is exposed to an advertisement.

In recent decades, advertising practices have changed enormously as new technology and media have allowed consumers to bypass traditional ads. From the remote control, which allows people to ignore TV advertising without leaving their couch, to recording devices that allow people to skip over ads, conventional advertising is on the wane. Across the board, television viewership has fragmented, and ratings have fallen.

Print media are also in decline, with fewer people subscribing to newspapers and other print media, and more favoring digital sources for news and entertainment. Newspaper advertising revenue has declined steadily since 2000 (Weissmann, 2014).  Advertising revenue in television is also soft, and it is split across a growing number of broadcast and cable networks. Clearly, companies need to move beyond traditional advertising channels to reach consumers. Digital media outlets have happily stepped in to fill this gap. Despite the changing landscape, for many companies advertising remains at the forefront of delivering the proper message to customers and prospective customers.

Purposes of Advertising

Advertising has three primary objectives: inform, persuade, and remind.

· Informative advertising creates awareness of brands, products, services, and ideas. It announces new products and programs and can educate people about the attributes and benefits of new or established products.

· Persuasive advertising tries to convince customers that a company’s services or products are the best, and it works to alter perceptions and enhance the image of a company or product. Its goal is to influence consumers to take action and switch brands, try a new product, or remain loyal to a current brand.

· Reminder advertising reminds people about the need for a product or service, or the features and benefits it will provide when they purchase promptly.

Reminder Advertisement

Informative (left) and Persuasive Ads

When people think of advertising, often product-focused advertisements are top of mind—i.e., ads that promote an organization’s goods or services. Institutional advertising goes beyond products to promote organizations, issues, places, events, and political figures. Public service announcements (PSAs) are in a category of institutional advertising focused on social-welfare issues such as drunk driving, drug use, and practicing a healthy lifestyle. Usually PSAs are sponsored by nonprofit organizations and government agencies with a vested interest in the causes they promote.

Public Service Announcement

Advantages and Disadvantages of Advertising

Advertising has both advantages and disadvantages. Among the advantages, advertising creates a sense of credibility or legitimacy when an organization invests in presenting itself and its products publicly. Ads can convey a sense of quality and permanence—the idea that a company isn’t a fly-by-night. Advertising allows marketers to repeat a message at strategic intervals. Repetition makes it more likely that the target audience will see and recall a message, improving awareness-building.

Advertising can generate drama and human interest by featuring people and situations that are exciting or engaging. It can introduce emotions, images, and symbols that stimulate desire, and it can show how a product or brand compares favorably to competitors. Finally, advertising is an excellent vehicle for brand building, as it can create rational and emotional connections with a company or offering that translate into goodwill.

Digital media increases the sophistication of advertising, with the ability to track consumer behaviors, interests, and preferences. This allows advertisers to better tailor content and offers to individual consumers. Digital media allows memorable or entertaining advertising to be shared among friends and go viral, which dramatically increases impressions.

The primary disadvantage of advertising is cost. Marketers question whether this communication method is really cost-effective at reaching large groups. Of course, costs vary depending on the medium, with television ads being very expensive to produce and place, and print and digital ads less expensive. Along with cost is the question of how many people an advertisement actually reaches. Ads are easily tuned out in today’s crowded media marketplace. Even ads that initially grab attention can grow stale over time. While digital ads are clickable and interactive, traditional advertising media are not. In the bricks-and-mortar world, it is difficult for marketers to measure the success of advertising and link it directly to changes in consumer perceptions or behavior. Because advertising is a one-way medium, there is usually little opportunity for direct consumer feedback and interaction, particularly from consumers who often feel overwhelmed by competing messages.

Developing Effective Ads: The Creative Strategy

Effective advertising starts with the same foundation as any other IMC campaign: identifying the target audience and the objectives for the campaign. When advertising is part of a broader IMC effort, it is important to consider the strategic role advertising will play relative to other marketing communication tools. With clarity around the target audience, campaign strategy, and budget, the next step is developing the creative strategy for compelling advertising. The creative strategy has two primary components: the message and the appeal.

The message comes from the messaging framework: What message elements should the advertising convey? What should the key message be? What is the call to action? How should the brand promise be manifested in the ad? How will it position and differentiate the offering? With advertising, it’s important to remember that the ad can communicate the message not only with words but also with images, sound, tone, and style.

Effective Wordless Advertisement

Marketers also need to consider public perceptions and other advertising and messages the company has placed in the market. Has the prior marketing activity resonated well with target audiences? Should the next round reinforce that, or is it time for a fresh new message, look, or tone?

Along with message, the creative strategy also identifies the appeal, or how the advertising will attract attention and influence a person’s perceptions or behavior. Advertising appeals can take many forms, but they tend to fall into two categories: informational appeal and emotional appeal.

The informational appeal offers facts and information to help the target audience make a purchasing decision. It tries to generate attention using rational arguments and evidence to convince consumers to select a product, service, or brand. For example, quality: “Nothing runs like a Deere” (John Deere).

The emotional appeal targets consumers’ emotional wants and needs rather than logic and facts. It plays on conscious or subconscious desires, beliefs, fears, and insecurities to persuade consumers and influence their behavior. The emotional appeal is linked to the features and benefits provided by the product, but it also creates a connection with consumers at an emotional, rather than rational, level. Most marketers agree that emotional appeals are more powerful and differentiating than informational appeals. However, they must be executed well to be perceived as authentic and credible to the the target audience. A poorly executed emotional appeal can come across as trite or manipulative. Examples of emotional appeals include

· self-esteem: L’Oreal, “Because I’m worth it.”

· achievement: Nike, “Just Do It.”

· freedom: Southwest, “You are now free to move about the country.”

· peace of Mind: Allstate, “Are you in good hands?”

· popularity: NBC, “Must-see TV.”

· germophobia: Clorox, “For life’s bleachable moments, there’s Clorox.”

Public Relations

PR is the process of maintaining a favorable image and building beneficial relationships between an organization and the communities, groups, and people it serves. Unlike advertising, which tries to create favorable impressions through paid messages, public relations does not pay for attention and publicity. Instead, PR strives to earn a favorable image by drawing attention to newsworthy and attention-worthy activities of the organization and its customers. For this reason, PR is often referred to as “free advertising.”

In fact, PR is not without costs. It has human resource, event, and sponsorship costs.

Relationship Building

Like advertising, public relations seeks to promote organizations, products, services, and brands. But PR activities also play an important role in identifying and building relationships with influential individuals and groups responsible for shaping market perceptions in an industry or product category. Public relations efforts strive to

· build and maintain a positive image

· inform target audiences about positive associations with a product, service, brand, or organization

· maintain good relationships with influencers—the people who hold sway over the opinions of target audiences

· generate goodwill among consumers, the media, and other target audiences by raising the organization’s profile

· stimulate demand for a product, service, idea, or organization

· mitigate unfavorable media coverage

When to Use Public Relations

Public relations includes attracting attention from customers, prospective customers, the local community, or other audiences. PR professionals maintain relationships with reporters who cover their company, product category, and industry, so they can alert them when news happens. At times PR creates newsworthy activities like establishing a scholarship program or hosting a science fair for local schools. PR is involved in publishing general information about an organization, such as annual reports, newsletters, articles, white papers, and press kits. PR is also responsible for identifying and building relationships with influencers who help shape public opinion. When an organization faces a public emergency or crisis, PR professionals play an important role—strategizing and managing communications with stakeholders, so organizations can respond effectively and appropriately. The goal is to minimize damage to an organization’s image.

The following are examples of PR opportunities:

· Your organization develops an innovative technology or approach that is different and better than anything else available.

· One of your products wins a “best in category” prize awarded by a trade group.

· You enter into a partnership with another organization to collaborate on providing broader and more complete services to a target market segment.

· You sponsor and help organize a 10K race to benefit a local charity.

· You merge with another company.

· You conduct research to better understand attitudes and behaviors among a target segment, and it yields insights your customers would find interesting and beneficial.

· A customer shares impressive and well-documented results about the cost savings they have realized from using your products or services.

· Your organization is hiring a new CEO or making another significant executive appointment.

· A quality-assurance problem leads your company to issue a recall for one of your products.

It is wise to develop a PR strategy around strengthening relationships with any group that is important in shaping or maintaining a positive public image for your organization: reporters and media organizations, industry and professional associations, bloggers, market and industry analysts, governmental regulatory bodies, customers and, especially, leaders of customer groups. It is wise to maintain regular communication with these groups to keep them informed about your organization and its activities. This helps build a foundation of familiarity and trust, so these relationships will be resilient through the ups and downs.

PR Techniques

Public relations encompasses a variety of marketing tactics that all share a common focus: managing public perceptions. The following table provides examples of the most common PR tools in action.

Public Relations Technique	Description of Role	Examples
Media Relations	Generate positive news coverage about the organization, its products, services, people, and activities	Press release, press kit, and interview leading to a news article about a new product launch; press conference
Influencer/Analyst Relations	Maintain strong, beneficial relationships with individuals who are thought leaders for a market or segment	Product review published by a renowned blogger, company profile by an industry analyst, celebrity endorsement
Publications and Thought Leadership	Provide information about the organization; showcase its expertise and competitive advantages	Annual report, newsletters, white papers focused on R&D, video case study about a successful customer
Events	Engage with a community to present information and an interactive “live” experience with a product, service, organization or brand	User conference, presentation of a keynote address, day-of-community-service event
Sponsorships	Raise the profile of an organization by affiliating with specific causes or activities	Cosponsoring an industry conference, sponsoring a sports team or a race to benefit a charity
Award Programs	Generate recognition for excellence within the organization or among customers	Winning an industry “product of the year” award, nominating a customer for an outstanding achievement award
Crisis Management	Manage perceptions and contain concerns in an emergency	Overseeing customer communication during a service outage or a product recall, executing an action plan in an environmental disaster

Media relations. This is the first thing that many people think of when it comes to public relations: announcements about company news, responding to reporters, and getting articles placed. But media relations is the tip of the iceberg. For many industries and product categories, there are influential bloggers and analysts writing about products and the industry. PR plays an important role in identifying and building relationships with them. Offering periodic conference calls, newsletters, or email updates helps keep them informed about your organization, so you are top of mind.

Publications. PR professionals are also involved in developing and distributing general information about an organization. This may include an annual report, fact sheet, or other pieces, including videos about the company or its customers to convey the company’s identity, vision, and goals. Thought leadership publications assert the company’s expertise or innovation. All of these must be consistent and aligned with the organization’s overall message.

Events. Industry conferences or user group meetings offer opportunities to present the company’s value proposition, products, and services to current and prospective customers. Themed events, such as a community service day or a healthy lifestyle day, raise awareness about causes or issues the organization wants to be affiliated with in the minds of its employees, customers, and other stakeholders. A well-designed and well-produced event also offers opportunities for an organization to provide memorable interaction and experiences with target audiences. An executive leader can offer a visionary speech to generate excitement about a company and the value it provides—now or in the future. Events can help cement brand loyalty by not only informing customers but also forging emotional connections and goodwill.

Sponsorships. These go hand-in-hand with events. Sponsorships may include charitable events, athletes, sports teams, stadiums, trade shows, conferences, contests, scholarships, lectures, and concerts. Marketers should select sponsorships carefully to ensure alignment with the public image their organizations want to cultivate.

A representative of Kenya’s Information and Communication Technology Authority receives an Innovation Award sponsored by IBM and the United Nations Development Program.

Award programs. Organizations can participate in award programs managed by trade groups and media, or they can create programs that target their customer community. Awards provide opportunities for public recognition of great work by both employees and customers. They can also help organizations identify subjects for case studies and draw attention to how customers are benefiting from an organization’s products and services.

Crisis management. PR provides structure and discipline to help company leaders navigate crises using messaging and other communication. A crisis also can be an opportunity for  listening and relationship-building. When handled effectively, crisis communication may help an organization emerge stronger and more resilient.

Advantages and Disadvantages of Public Relations

Because PR recognition is earned rather than paid, it tends to carry more credibility and weight. For example, when a news story profiles a customer’s successful experience with a company and its products, people tend to view the information as more objective (and therefore more credible) than a paid advertisement. The news story has been vetted by a reporter. In contrast, an advertisement or advertorial is viewed with skepticism because the audience knows it is paid for. Keep in mind, however, that when you engage with reporters, there’s no guarantee that your product or organization will be portrayed in a positive light, or that your message will receive the same prominence as a paid advertisement would.

Sales Promotions

Sales promotions are a marketing communication tool for stimulating revenue or providing incentives or extra value to distributors, sales staff, or customers for a limited time. They include special offers, displays, demonstrations, and other nonrecurring promotions. They can be directed at consumers, retailers and other distribution partners, or the manufacturer’s own sales force.

Companies use many forms of media to communicate about sales promotions, such as printed materials like posters, coupons, direct mail and billboards; radio and television ads; and digital media like text messages, email, websites and social media.

Companies use sales promotions to increase demand for their products and services, improve product availability among distribution channel partners, and coordinate selling, advertising, and public relations. A successful sales promotion tries to prompt a target segment to show interest in the product or service, try it, and, ideally, buy it and become loyal customers.

There are two types of sales promotions: consumer and trade. A consumer sales promotion targets the consumer or end-user, while a trade promotion focuses on organizational customers that can stimulate immediate sales.

Consumer Sales Promotion Techniques

Free Samples

Most consumers are familiar with common sales promotion techniques including samples, coupons, point-of-purchase displays, premiums, contents, loyalty programs, and rebates.

Samples. A sample is a sales promotion in which consumers can try a small amount of a product. The motivation is to get people to buy. Although sampling is an expensive strategy, it is usually very effective for food products. The person handing out samples tells consumers about the product, mentions any special pricing or offers, and sometimes gives out coupons.

Coupons. Sample promotions often include coupons. The manufacturer reimburses the retailer for the amount of all coupons redeemed. The retailer also gets a handling fee for accepting coupons. When the economy is weak, more consumers collect coupons and look for retailers who double the value of coupons. While most US consumers still clip paper coupons, more and more are getting them online. Stores may also provide coupons for customers with a loyalty card, and include coupons on their digital apps. Paper coupons still dominate in the United States.

Point-of-purchase displays. Through strategic placement, these displays entice consumers to buy a product immediately. Coupon machines placed in stores are a type of point-of-purchase display. Manufacturers hope easy availability or a discount will convince consumers to buy.

Online promotions. Various sales promotions are conducted online. Common ones include incentives like free items, special pricing for product bundles, free shipping, coupons, and sweepstakes. For example, many online merchants such as Bluefly and Zappos offer free shipping and free return shipping. Some companies have found that response rates for online sales promotions are better than those for traditional sales promotions.

Premiums. Another very popular sales promotion for consumers is a premium—a product or offer a consumer receives when they buy another product. Premiums may be offered free or for a small shipping and handling charge with proof of purchase (sales receipt or part of package). Remember wanting your favorite cereal because there was a toy in the box? The toy is an example of a premium. Some are designed to motivate consumers to a buy product multiple times. What many people don’t realize is that when they pay the shipping and handling charges, they may also be paying for the premium.

Contests and sweepstakes. Games of skill and chance are popular promotions. Cheerios’ Spoonfuls of Stories contest, for example, invited people to submit an original children’s story for a chance to win money and have the story published. Sweepstakes are often a variation of a random drawing. The goal is for entrants to buy more products and, ideally, share personal information for future marketing.

As the following video shows, marketers have become increasingly sophisticated in the way they approach this “gaming” aspect of sales promotions.

https://youtu.be/1nikw1v5Zjo

You can read a transcript of the video  here .

Loyalty programs. These include frequent flier miles, hotel points, and cards used at grocery stores, drugstores, and restaurants.

Rebates. This is a refund of part or all of the purchase price of a product received after proof of purchase. The trick is completing the paperwork on time. Many consumers forget or wait too long, so they don’t get any money back. This is why rebates are also popular with manufacturers. Rebates sound great to consumers—until they forget to mail them in.

Which Sales Promotions Work Best, and When?

The table below lists the types of consumer and B2B sales promotions. Each has its benefits and drawbacks depending on the business, consumer, overall economy, and other factors.

Consumer Sales Promotions	B2B Sales Promotions
Coupons	Trade shows and conventions
Sweepstakes or contests	Sales contests
Premiums	Trade and advertising allowances
Rebates	Product demonstrations
Samples	Training
Loyalty programs	Free merchandise
Point-of-purchase displays	Spiffs

Advantages and Disadvantages of Sales Promotions

In addition to their primary purpose of boosting sales in the near term, companies can use consumer sales promotions to help them understand price sensitivity. Coupons and rebates provide useful information about how pricing influences consumers’ buying behavior. Sales promotions can also be a way to acquire contact information for current and prospective customers. Many offers require consumers to provide their names and other information to participate. Electronically scanned coupons can be linked to other purchasing data and provide information about buying habits. All of this information can be used for future marketing research, campaigns, and outreach.

Consumer sales promotions can generate loyalty and enthusiasm for a brand, product, or service. Frequent flyer programs, for example, motivate travelers to use a preferred airline even if the ticket prices are somewhat higher. If sales have slowed, a promotion such as a sweepstakes or contest can spur renewed interest. Sales promotions are a way to energize and inspire customers to act.

Trade promotions offer distribution channel partners financial incentives that encourage them to support and promote a company’s products. Offering incentives like prime shelf space at a retail store in exchange for discounts on products has the potential to build and enhance business relationships with important distributors or businesses. Improving these relationships can lead to higher sales, encourage retailers to stock an entire product line, and yield other benefits.

Sales promotions can be a two-edged sword: Handing out too many samples and coupons can tarnish a company’s brand or reduce the value of products in the customer’s mind (Stettner, n.d.)

Often businesses rush to grow quickly by offering sales promotions, only to see these promotions fail to reach their sales goals and target customers. The temporary boost in short-term sales may be attributed to highly price-sensitive consumers looking for a deal, rather than the long-term loyal customers a company wants to cultivate. Therefore, sales promotions need to be thought through carefully. They also need to align well with the company’s larger business strategy.

Personal Selling

Personal selling offers a one-to-one connection between a buyer and a company. Salespeople not only inform potential consumers about product or services, they also use their power of persuasion and remind customers of a product’s features and benefits. Besides enhancing customer relationships, personal selling can be a powerful source of customer feedback.

Effective personal selling addresses the buyer’s needs and preferences without making him or her feel pressured. Good salespeople offer advice, information, and recommendations, and they can help buyers save money and time during decision making. The seller should give honest responses to questions or objections the buyer has and show that meeting the buyer’s needs is more important than making a sale. Attending to these aspects of personal selling contributes to trust.

Common Personal Selling Techniques

Common personal selling tools and techniques include

· sales presentations—in-person or virtual presentations to inform prospective customers about a product, service, or organization

· conversations—relationship-building dialogue with prospective buyers for the purposes of influencing or making sales

· demonstrations—showing how a product or service works and the benefits it offers, highlighting benefits as well as features, and how the offering will solve a problem for the customer

· addressing objections—identifying and addressing the concerns of prospective customers to remove any perceived obstacles to making a purchase

· field selling—calls made by a sales representative to connect with target customers in person or via phone

· retail selling—in-store assistance from a sales clerk to help customers find, select, and purchase products that meet their needs

· door-to-door selling—offering products by visiting homes or businesses

· consultative selling—consulting with a prospective customer to learn about problems the customer wants to solve and recommending solutions to the customer’s particular problem

· reference selling—using satisfied customers and their positive experiences to convince target customers to purchase a product or service

Personal selling minimizes wasted effort, promotes sales, and boosts word-of-mouth marketing. Also, personal selling measures the marketing return on investment (ROI) better than most tools, and it can provide insight into customers’ habits and responses to a particular marketing campaign or product offer.

When to Use Personal Selling

Not every product or service is a good fit for personal selling. It’s an expensive technique because the sales proceeds must cover the salary of the sales representative as well as other costs of doing business. Most often companies use personal selling when their products or services are highly technical, specialized, or costly—such as complex software systems, business consulting services, homes, and automobiles.

Certain conditions favor personal selling (Kakati, 2010):

· Product situation. The product is of a high unit value, in the introductory stage of its life cycle, requires personal attention to match consumer needs, or requires demonstration or after-sales services.

· Market situation. The company serves a small number of quantity or volume buyers, or a small or localized market. Also, it can be effective when an indirect channel of distribution, like agents or middlemen, is used.

· Company situation. The business is not in a good position to use impersonal communication media, or it cannot afford a large budget for regular advertising.

· Consumer behavior situation. Purchases are valuable but infrequent, or the competitive environment requires persuasion and follow-up.

It’s important to keep in mind that personal selling is most effective when a company has established an effective sales-force management system and a sales force of the right design, size, and structure. Recruitment, selection, training, supervision, and evaluation play important roles in the effectiveness of this marketing communication method (Kakati, 2010).

Advantages and Disadvantages of Personal Selling

The most significant strength of personal selling is flexibility. Salespeople can tailor their presentations to fit the needs, motives, and behavior of individual customers. A salesperson can gauge the customer’s reaction to an approach and then adjust the message accordingly.

Personal selling also minimizes wasted effort. Advertisers can spend a lot of time and money on a mass-marketing message that reaches many people outside the target market but doesn’t result in additional sales. In personal selling, the sales force pinpoints the target market, makes a contact, and focuses effort that has a strong probability of leading to a sale.

As mentioned above, an additional strength of personal selling is that measuring marketing effectiveness and determining ROI are far more straightforward for personal selling than for other marketing communication tools—where recall or attitude change is often the only measurable effect.

A salesperson is in an excellent position to encourage the customer to act. The one-on-one interaction of personal selling means that a salesperson can effectively respond to and overcome objections (e.g., concerns or reservations about the product) so that the customer is more likely to buy. Salespeople can also offer many customized reasons that might spur a customer to buy, whereas an advertisement offers a limited set of reasons that may not persuade everyone in the target audience.

A final strength of personal selling is the multiple tasks that the sales force can perform. For example, a salesperson can collect payments, service or repair products, return products, and collect product and marketing information. In fact, salespeople are often the best resources when it comes to positive word-of-mouth advertising.

High cost is the primary disadvantage of personal selling. With increased competition, higher travel and lodging costs, and higher salaries, the cost per sales contract continues to rise. Many companies try to control sales costs by compensating sales representatives through commissions alone, thereby guaranteeing that salespeople are paid only if they generate sales. However, commission-only salespeople may become risk averse and only call on clients who have the highest potential return—and they may miss opportunities to develop a broad base of potential customers that could generate higher sales revenues in the long run.

Companies can reduce sales costs by using complementary techniques, such as telemarketing, direct mail, toll-free inbound lines, and online communication with qualified prospects. Telemarketing and online communication can further reduce costs by serving as their own selling vehicles. Both technologies can deliver sales messages, respond to questions, take payment, and follow up.

Besides cost, a second disadvantage of personal selling is the problem of finding and retaining high-quality people. Experienced salespeople sometimes realize that the only way their income can outpace their cost-of-living is to change jobs. Also, because of the push for profitability, businesses try to hire experienced salespeople from competitors (Less experienced sales associates take three to five years to reach the productivity level of more experienced salespeople.) These staffing issues account for the high turnover in many sales forces.

A third weakness of personal selling is message inconsistency. Many salespeople view themselves as independent operators, so sales techniques and strategies may be inconsistent with a company’s image. This can dilute messaging.

A final disadvantage of personal selling is that salespeople have different levels of motivation. They may not meet daily sales call quotas or take full advantage of the technologies available for selling, or they may resist making service calls that do not lead directly to sales.

Direct Marketing

Direct marketing activities bypass intermediaries and communicate directly with consumers. Direct mail is personalized to individuals, based on whatever a company knows about the person’s needs, interests, behaviors, and preferences. Traditional direct marketing activities include mail, catalogs, and telemarketing. The thousands of “junk mail” offers from credit card companies, bankers, and charitable organizations that flood mailboxes every year are artifacts of direct marketing. Telemarketing contacts prospective customers by phone to pitch offers and collect information. Today, direct marketing overlaps heavily with digital marketing, as marketers rely on email and, increasingly, mobile communications to reach and interact with consumers.

Purpose and Uses of Direct Marketing

The purpose of direct marketing is to appeal directly to individual consumers and to use information about them to offer specific products, services and offers. Direct marketing can be designed to support any stage of the AIDA (awareness, interest, desire, action) model. Direct marketing, particularly email, also plays a strong role in post-purchase interaction. Email is commonly used to confirm orders, send receipts or warranties, solicit feedback through surveys, ask customers to post a social media recommendation, and propose new offers.

Direct marketing is the best method for marketing communication in the following situations:

· A company’s primary distribution channel is to sell products or services directly to customers.

· A company’s primary distribution method is direct to the customer, through the mail or other shipping services.

· A company relies heavily on sales promotions or discounts, and it is important to spread the word about these offers. 

· An advertisement cannot sufficiently convey the many benefits of a company’s product or service, so a longer marketing piece is required to express the value proposition effectively.

· A company finds that standard advertising is not reaching its target segments, so better-targeted marketing communications are required to reach the right individuals; for example, using direct mail to reach wealthier people as identified by their zip code.

· A company sells expensive products that require more information and interaction to make the sale.

· A company has a known universe of potential customers, access to their contact information, and other data about them.

· A company is heavily dependent on customer retention, reorders or repurchasing, making it worthwhile to maintain marketing interaction with them.

Data: The Key to Effective Direct Marketing

The effectiveness of direct marketing depends on marketers’ use of databases to capture information about target customers and use it to extend ever-more-personalized offers and share information. Databases record an individual’s residence, geography, family status, and credit history. When a person moves or makes a significant purchase, like a car or a home, these details become part of the criteria marketers use to identify who is a good prospect for their products or services. Electronic media has opened the floodgates for data: Marketing databases capture opens and click-throughs for email messages, so the next email offer will, hopefully, have more relevance for the consumer. Databases also collect credit card information, so marketers can link a person’s purchasing history to shopping patterns—and further tailor communication and offers.

Mobile marketing adds another dimension of personalization in direct-to-consumer communications. It allows marketers to incorporate location-sensitive and even activity-specific information into their communications. When marketers know, thanks to your smartphone, that you are playing a video game at a mall, they can send you time-, location- and activity-specific offers and messages.

Direct Marketing in Action

How does this work in practice? If you’ve ever had an auto loan, you may have noticed a torrent of mail from car dealerships right around the five-year mark. They know from your credit history that you’re nearly done paying off your car and you’ve had the vehicle for several years, so you might be interested in trading up for a newer model. Meanwhile, based on your geography and voter registration information, you may be targeted during election season to participate in telephone polling, or receive robocalls from candidates and political parties.

Virtually any time you share an email address with an organization, it becomes part of a database for future marketing. Although most organizations engaging in email marketing allow you to opt out, once you become a customer, it is easy for companies to justify continuing to contact you via email or text as part of the customer relationship you’ve established. As you continue to engage with the company, your behavior and any other information you share becomes part of its database and is used to extend offers.

Similarly, marketers use SMS (text) for marketing, and direct marketing activity takes place in mobile apps, games, and on websites. All of these tools use the data-rich mobile environment to capture information about consumers and turn it into marketing opportunities. QR codes, another direct-to-consumer mobile marketing tool, allow people to use their mobile phones to scan an image that takes them to a website where they receive information or offers.

Advantages and Disadvantages of Direct Marketing

All this data-driven direct marketing might seem a little creepy or even nefarious, and certainly it can be when marketers are insensitive or unethical in their use of consumer data. However, direct marketing also offers significant value to consumers by tailoring offers to align with their needs and interests. If you’re going to have a baby (and you don’t mind people knowing about it), wouldn’t you rather have Target send you special offers on baby products than on men’s shoes or home improvement goods?

Direct marketing can be a powerful tool for anticipating and predicting customers’ needs and behaviors. Over time, as companies use consumer data to understand their target audiences and market dynamics, they can develop more effective campaigns and offers. Organizations can create offers that are more personalized to consumer needs and preferences, and they can reach these consumers more efficiently through direct contact. Because this approach is so data intensive, it is relatively easy to measure the effectiveness of direct marketing by linking it to outcomes: Did a customer request additional information or use the coupons sent? Did he open the email message containing the discount offer? How many items were purchased and when? Although the cost of database and information infrastructure is not insignificant, mobile and email marketing tend to be inexpensive once the underlying infrastructure is in place. As a rule, direct marketing tactics can be designed to fit marketing budgets.

Among the leading disadvantages of direct marketing are, not surprisingly, concerns about privacy and information security. Target’s massive data breach in 2013 took a hefty toll on customer confidence, company revenue, and profitability. Direct marketing also takes place in a crowded, saturated market in which people toss junk mail in the trash and delete unsolicited email without a second glance. Also, spam filters screen email, so people may never even see it. Heavy reliance on data also leads to the challenge of keeping databases and contact information up to date and complete. Finally, direct marketing implies a direct-to-customer business model that inevitably requires companies to provide an acceptable level of customer service and interaction to win new customers and retain their business.

Digital Marketing

Digital marketing is an umbrella term for using digital tools to promote and market products, services, organizations, and brands. As consumers and businesses rely more on digital communications, the power and importance of digital marketing have increased. The direct marketing section already discussed email and mobile marketing, which are both direct and digital marketing. This section discusses other essential digital marketing tools: websites, content marketing and search-engine optimization (SEO), and social media marketing.

What Makes Digital Marketing Unique?

People use digital technologies frequently, and marketing needs to happen where people are. But digital marketing tools also have other unique capabilities that make them suited to marketing goals. Digital marketing tools are

· Interactive. A primary focus of many digital marketing efforts is to engage target audiences at multiple points. This may happen by navigating to a website, playing a game, responding to a survey, sharing a link, submitting an email address, publishing a review, or even liking a post. Asking consumers to passively view an advertisement is no longer enough: Now, marketers look for ways to interact.

· Mobile and portable. Today’s digital technologies are more mobile and portable than ever. This means digital marketing tools are also mobile and portable: Consumers can access them–and they can access consumers–virtually anytime, anywhere. Digital marketing can reach people in places and ways that simply were not possible in the past. A tired mother stuck in traffic might encourage her child to play a game on her smartphone, exposing both herself and her child to marketing messages in the process. A text message sent to a remote location can remind someone to renew a subscription or confirm an order. Many physical limitations fall away in the digital world.

· Highly measurable and data driven. Digital technologies produce mountains of data about who is doing what, when, how, and with whom. Likewise, digital marketing tools enable marketers to determine very precisely who they want to reach, how to reach them, and what happens when people begin the process of becoming a customers. By tracking and analyzing data, marketers can identify which channels are most productive.

· Shareable. Digital marketing tools make sharing content easy and free for consumers. People routinely share videos, games, websites, articles, images, and brands—which can lead to viral marketing. In fact, the degree to which something is shared has become a key metric to confirm success. Sharing has always been a primary way to spread ideas. Digital marketing tools now facilitate extremely rapid, efficient, and global sharing.

· Synergistic. Digital marketing tools offer quick, easy, and inexpensive ways to repurpose marketing messages and other content. They help amplify and reinforce messages sent through other media. For example, uploading a TV ad to YouTube creates a piece of digital marketing content that can be posted to Facebook, tweeted, embedded in a web page, and shared via email through a sales representative working with a customer.

Website Marketing 

Websites represent an all-in-one storefront, a display counter, and a megaphone for organizations to communicate in the digital world. For digital and bricks-and-mortar businesses, websites are a primary channel for communicating with current and prospective customers as well as other audiences. A good website provides evidence that an organization is real, credible, and legitimate.

The variety of online website-building services now available makes setting up a basic website simple and inexpensive. Once established, a website can also be fairly easy and inexpensive to maintain. On the other hand, sophisticated websites can be expensive to build and maintain, and populating them with fresh, compelling content can devour time and money. But organizations can adjust the scope, scale, and resources required for their websites according to their business objectives and the value they want their websites to deliver.

Common Website Objectives

A website can help accomplish marketing functions:

· Provide general information, such as the value proposition, products and services, and contact information

· Express the brand personality through design and voice

· Demonstrate products, services, and expertise, including the customer experience, features, benefits, and value 

· Offer proof points, using evidence like case studies, product reviews, testimonials, and return on investment data

· Generate leads by capturing information about visitors 

· Host communities and forums to engage with prospects and customers by sharing information, asking questions, and answering inquiries

· Publish value-added content and tools for information or entertainment to draw people in and keep them coming back 

· Communicate company news, views, culture, product developments, and vision through an electronic newsroom or a company blog

· Offer buying opportunities, with tools for customers to research, find, and select products or services 

· Recommend solutions by directing customers to information, products, services, and companies that align with their interests and meet their needs

· Sell, with the ability to conduct sales and transact business online

· Capture customer feedback about the organization, products, services, content, and the website experience 

Before building a website, the marketing manager should meet with other company leaders to envision the website and the functions it should provide. For example, if a business does not plan to handle sales online, there is no need to build in e-commerce. If cultivating lively dialogue with an active customer community is an important business objective, it should be incorporated into the website strategy and design decisions from the outset. The strategy must effectively achieve the organization’s goals, such as to inform, engage, entertain, explore, or support.

Advantages and Disadvantages of Website Marketing

Websites have so many advantages that there is almost no excuse for a business not to have one. Effective website marketing declares to the world that an organization exists, the value it offers, and how consumers can do business with the company. A website can be an engine for generating customer data and new leads. An electronic storefront is often dramatically less expensive than a physical storefront, and it can serve customers virtually anywhere in the world. Websites are flexible and easy to alter. Organizations can try out new strategies, content, and tactics at relatively low cost to see what works and where the changes pay off.

At the same time, websites carry costs and risks. They require investments of time and money to set up and maintain. For many organizations, especially small ones without a dedicated web team, keeping website content fresh and up to date is a continual challenge. Organizations should make, well-researched decisions about information infrastructure and website hosting to ensure their sites remain operational, with good performance and uptime. Companies that capture and maintain customer data through their websites must be vigilant about information security to prevent hackers from stealing sensitive customer data. Some company websites suffer from other types of information security challenges, such as electronic vandalism, trolling, and denial-of-service attacks by hackers.

Search-Engine Optimization and Content Marketing

Search-engine optimization (SEO) is the process of using Internet search engines, such as Google, Bing, and Yahoo, to gain visibility and traffic from people’s online searches. Content marketing takes a strategic approach to developing and distributing valuable content targeted to the interests of a defined audience, with the goal of driving sales or another profitable customer action. In other words, content marketers create worthwhile Internet content aimed at their target audiences. Then, organizations use SEO to get the content noticed, so it will generate traffic and leads.

Together, SEO and content marketing can help boost awareness and brand perceptions about the value a company provides. Content marketing can help an organization gain visibility as an expert or leader among industry peers. Together, these marketing communications tools help organizations get noticed and stay top of mind among those seeking the types of products or services they offer.

How SEO Works

The basic premise of search-engine optimization is this: People conduct Internet searches. The search terms they use bring up lists of results. When a person is searching for content related to what your organization offers, you want your company or organization to appear at the top of the list. By applying SEO and content marketing strategies using the search terms people are typing in, you can push your name higher on the list. It may even be worth paying to get this attention, because people searching for the things you offer are likely to be better-qualified prospects.

Because the supply of Internet content on any given topic is continually expanding, and because search-engine companies regularly fine-tune their search algorithms to deliver ever more helpful results, SEO is not a one-time task. It’s an ongoing process that companies should incorporate into their entire digital marketing approach.

How Content Marketing Works

There is a popular saying among digital marketers: “Content is king.” Good content attracts eyeballs, while poor content does not. Content marketing is based on the premise that marketers can use web content as a strategic asset to attract attention and drive traffic. As a marketer, part of your job is to help the organization publish substantive web content—articles, videos, e-books, podcasts, images, infographics, case studies, games, calculators, etc.—that will interest your target segments. This content should be optimized by using keywords and keyword phrases to generate organic search results—those that are not paid advertising but still appear on the first page of results, if not the top of the list.

It’s also possible to get other web pages to link to your content. That will further boost the perceived relevance of content for the search-engine bots that return the results. Boosting your results creates a virtuous cycle: The more people click on your pages and link to them, the more likely you are to appear in search results.

Examples of digital marketing, including content marketing to boost search results

Advantages and Disadvantages of SEO and Content Marketing

Internet search is critical for both B2B and consumer markets. Practicing the basic tenets of SEO can help an organization become more visible in Internet search results. Marketers can easily track whether these efforts pay off, analyze what works, and adjust strategies to improve outcomes. When organizations generate high-quality content, it can be relatively inexpensive to achieve great SEO results.

While SEO and content marketing are powerful, they need ongoing feeding and care. Both require regular monitoring for effectiveness and freshness. The Internet is a crowded and competitive place. Organizations around the globe compete with one another for attention and customer loyalty. It takes persistence and hard work to move toward the top of search results and stay there.

Social Media Marketing

Social media marketing uses online applications, networks, blogs, wikis, and other collaborative media to communicate brand messaging, and conduct marketing, public relations, and lead generation. Social media applications are distinctive for their networking capabilities: They allow people to reach and interact with one another through interconnected networks. This changes the power dynamic in marketing: No longer is the marketer the central gatekeeper for all communication about a product, service, brand, or organization. Social media allows for organic dialogue and activities between individuals, unmediated by a company. Companies can—and should—listen, learn, and find ways to participate authentically.

Social media marketing focuses on three primary objectives:

· creating buzz—developing and publishing messages in various formats like text, video, and images that are disseminated via user-to-user contact

· fostering community—building ways for fans to engage with one another about a shared interest in a brand, product, or service

· two-way communication—online conversations not controlled by organizations that encourage participation, feedback, and dialogue

How Social Media Marketing Works

Organizations can engage in social media marketing in several ways through paid, earned, and owned social media activity.

· Paid. Paid social media includes advertisements on social media sites, sponsored posts or content, and retargeted advertisements based on a consumer’s previous actions. This type of social media activity is best suited for sales, lead generation, event participation, and incorporation into IMC campaigns.

· Earned. Earned social media involves news organizations, thought leaders, or other individuals creating content about an organization. It is particularly suited to supporting public relations.

· Owned. Owned social media happens through social media accounts that an organization owns on Facebook, Twitter, Instagram or other channels. It is ideal for brand awareness, lead generation, and achieving target audience engagement.

Effective use of social media to reach a target audience requires more effort than traditional marketing. It includes not only unique content and messaging, but also two-way communication. To be effective, follow these guidelines:

· Create unique content often. Unlike traditional methods, social media cannot rely on static content. An organization must regularly publish new, unique content to stay relevant on any social media platform.

· Ask questions. To foster engagement, an organization must solicit feedback from users, customers, and prospects. This is critical to creating conversation, insight, and discussion on social media platforms.

· Create short-form media. Most social media platforms have character limits, and users like to scan, so long posts (even within character limits) tend to underperform. More succinct is better.

· Try different formats. Most social media platforms provide users with the option to add images and video. Social media is visual, so use images and video to get your message across.

· Use a clear, immediate call to action. Social media works best for achieving marketing goals with a clear call to action that a user can respond to immediately. A call to action can be a request to click a link, download content, make a purchase, or comment, like, or share. 

Common Social Media Marketing Tools

The online world is constantly changing and what’s hot on social media is a moving target. The following table lists some popular social media platforms.

Tool	Description
Blog	Long- or short-form medium for communicating with audiences
YouTube	Video-hosting social media site
Twitter	Short-form “microblogging” medium intended for text and image sharing
Facebook	Long-form medium for sharing text, images, videos, and other multimedia content
Instagram	Image-based social network
Google+	Long-form medium for sharing text, images, videos, and other multimedia content
Pinterest	Medium for sharing photos and other visual content categorized by theme
Linkedin	Long- or short-form medium for sharing text, images, videos, and other multimedia in a professional network that includes businesses

Advantages and Disadvantages of Social Media Marketing

The advantages of social media marketing include two-way and even multidirectional communication between customers, prospects, and advocates for your company or brand. By listening and engaging in social media, organizations are better equipped to understand and respond to market sentiment. Social media helps organizations identify and cultivate advocates for products, services, and brand, including customers who can become advocates and help boost sales. Unlike many other forms of marketing, social media results are easy to measure. Organizations can track online customer behavior and audience response to content. Social media offers a virtually unlimited audience for communicating and sharing key messages. It also offers marketers the ability to relatively easily target and test the effectiveness of content using sociographic indicators including location, interests, income range, and industry.

Social media also has inherent challenges. It is a dynamic environment requiring significant effort to monitor and remain up-to-date. Continually creating “share-worthy” content is not easy! The variety of social media tools makes choosing the right platforms for each target audience and call to action a challenge. Crisis communications can be difficult too and mitigating the impact of a crisis on a brand.

One of the biggest challenges is determining who should “own” an organization’s social media platforms. Too few hands can make content creation and maintenance a burden, but having too many involved often results in duplicating efforts or sending conflicting messages.

Guerrilla Marketing

Remember when Microsoft employees donned red shirts and went caroling outside the Apple store in New York City at Christmastime? That was guerrilla marketing. It relies on unconventional, often low-cost tactics to create brand awareness and goodwill toward a brand, product, service, or even a company (Levinson, 1984). Though guerrilla has military connotations, guerrilla promotion strategies often combine wit as well as spectacle to capture attention and engage people. Guerrilla messages are memorable—and unexpected.

Guerrilla marketing has been described as disruptive, antiestablishment, newsworthy, and a state of mind. By its nature, guerrilla marketing defies precise description. Following are a few examples.

Classic Guerrilla: Nike Livestrong at the Tour de France

Although this campaign was a full-blown IMC effort, the heart of it was a memorable guerrilla marketing stunt: painting the streets of France during the world-famous Tour de France bicycle race in 2008. Designed to generate awareness for Nike, the nonprofit Livestrong Foundation, and the cause of fighting cancer, marketers shared inspiring messages of hope with their target audiences: athletes, sports enthusiasts, and people affected by cancer, particularly young people.

Telltale Signs of Guerrilla Marketing 

Guerrilla marketing campaigns use a variety of approaches and tactics. So what do they have in common? Guerrilla marketing often

· is imaginative and surprising in a hip or antiestablishment way

· doesn’t resemble a traditional marketing initiative like a print or TV advertising campaign

· uses different marketing communications tactics in creative ways

· has experiential elements that encourage participation 

· takes risks to reach a goal, even if it ruffles feathers

· will not always be approved by the establishment (i.e., a city, event planners, the powers that be)

Successful guerrilla marketing campaign: Discovery Channel in Australia placed “shark-bitten” surfboards around popular Sydney beaches to create buzz for its documentary.

Source: https://malteholm.wordpress.com/tag/shark-week/

Clever guerrilla marketing campaign: McDonald’s fries crosswalk

When to Use Guerrilla Marketing

This edgy marketing approach focuses on two goals: 1) get media attention, and 2) make a positive and memorable connection with your target audience. Many noteworthy guerrilla campaigns, like Nike Livestrong, focus on creating experiences that embody the spirit of the brand. Often these projects invite people who encounter the campaign to become coconspirators in achieving the campaign’s vision and reach.

Guerrilla marketing experts say this technique can work for virtually any brand or organization, as long as it doesn’t mind taking some risks. The right concept for a guerrilla marketing effort will capture an organization’s authentic voice and express its unique brand identity. Organizers will be held accountable for their actions, so they must believe in what they are doing. Guerrilla marketing is particularly suited to small creative organizations that may not have much money but have a burning desire to make an entrance or a splash with something memorable. Severe budget constraints can encourage creative teams to be very inventive and original (Business Insider, 2010).

Because they are inherently spectacle, guerrilla marketing tactics work very well for building brands and generating awareness and interest in an organization, product, service, or idea. They aim to put a company on the map. It’s interesting that guerrilla marketing often calls on the audience to engage or take action, but turning participants into paying customers may not be the goal. However, successful guerrilla marketing can make audiences undergo a kind of “conversion” experience. If the impact is powerful enough, it can move consumers further along the path toward brand loyalty.

Guerrilla Marketing Tactics

As with the example of the lamppost transformed into a McDonald’s coffeepot and cup, all kinds of spaces and urban environments present opportunities for the guerrilla marketer. And, guerrilla marketing can be executed online too. Some companies feel that an edgy, unexpected online campaign with guerrilla elements is a little safer than executing a project in the bricks-and-mortar world.

It goes against the very notion of guerrilla marketing to establish a set of tactics or practices that are conventional or typical, but besides the previous examples, others that have been used include flash mobs, unusual feats, and fake events.

Although guerrilla marketing is irreverent and unexpected, marketers should use good judgment about seeking permission from building owners, city managers, event planners, or others in a position of authority, to avoid complications or unpleasant consequences. Coordination, or even a heads-up about your plans, can go a long way.

How NOT to Guerrilla Market

Three guerrilla marketing veterans offer this advice (Business Insider):

· Adam Salacuse, founder and president of ALT TERRAIN: “Never aim to upset, scare, or provoke people in a negative way. The goal should be to implement something that people will embrace, enjoy, and share with friends.”

· Brett Zaccardi of Street Attack: “Don’t be contrived or too bland. Don’t try to be something you’re not.”

· Drew Neisser of Renegade Marketing: “Try not to annoy your target. [It] is generally not a good idea to do something that will cause someone on the team to go to jail.”

Advantages and Disadvantages of Guerrilla Marketing

Guerrilla marketing has several notable advantages. It can be inexpensive to execute—often much cheaper than traditional advertising, considering the number of impressions and attention generated. It encourages creativity and inventiveness, since the goal is to create something novel and original. Guerrilla marketing is all about buzz: It is designed for viral sharing, and it taps into the power of word-of-mouth marketing. A guerrilla marketing phenomenon can take on a life of its own and be remembered long after an event is over. Guerrilla tactics are designed with media and publicity in mind. Media attention can snowball and generate a larger-than-expected bounce.

As suggested above, guerrilla marketing also carries some disadvantages and risks. When an (apparently) spontaneous activity springs up in a public space, property owners, the police, and other authorities may try to stop the event. Unexpected obstacles—weather, traffic, current events, timing—can interfere. Some audiences or bystanders may misinterpret what is happening or be offended.

When guerrilla projects are cloaked in secrecy or mystery, they may stoke fear or result in an unintended message. If people feel they have been duped by a guerrilla marketing activity, they may walk away with a negative impression, so there’s a risk of backlash, anger, and frustration.

Intending to guerrilla-market an online gaming site (GoldenPalace.com), this Canadian man jumped into an Olympic pool at the 2004 Athens games. The authorities and official divers weren’t pleased (some divers were so rattled they failed to complete their dives). The man was convicted of various counts of trespassing and creating a disturbance.

Source: http://weburbanist.com/2008/05/06/5-great-examples-of-guerilla-marketing-gone-wrong-from-olympic-fumbles-to-bomb-scares/

Compared with traditional marketing, guerrilla tactics are definitely riskier. Then again, the result can be brilliant when things go as planned.

Check Your Knowledge

Answer the following questions to see how well you understand the topics covered in this section. This short quiz does not count toward your grade, and you can retake it as many times as you wish. Use this quiz to decide whether to study the section further or move on.

Choose the BEST answer.

Question 1

. ________ is the the process of coordinating all of an organization’s messages, media, and marketing activities using different communication methods.

Guerrilla marketing

An advertising campaign

Integrated marketing communication

Question 2

Which of the following are ways an organization may use IMC to support its marketing efforts?

A company may conduct research by asking existing customers about their likes and dislikes.

A company may use social media to promote a new product.

A company may use a coordinated message in advertising, direct marketing, and digital marketing materials.

Question 3

The basic objective of all marketing communication methods is to ________.

generate profits

increase sales

communicate, compete, and convince

References

Business Insider. (2010, April 19). How to pull off a guerrilla marketing campaign. Entrepreneur. Retrieved from http://www.entrepreneur.com/article/206202

Kakati, W. (2010, September 2). Personal selling: When and how? SME Times. Retrieved from http://www.smetimes.in/smetimes/in-depth/2010/Sep/02/personal-selling-when-and-how500001.html

Levinson, J.C. (1984). Guerilla Marketing.

Stettner, M. (2018). How to establish a promotional mix. Cassopolis, MI: Edward Lowe Foundation. Retrieved from http://edwardlowe.org/digital-library/how-to-establish-a-promotional-mix/

Weissman, J. (2014, April 28). The decline of newspapers hits a stunning milestone. Slate. Retrieved from http://www.slate.com/blogs/moneybox/2014/04/28/decline_of_newspapers_hits_a_milestone_print_revenue_is_lowest_since_1950.html

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Putting It Together: Marketing Mix

Synthesis

In this chapter you have seen how businesses use the marketing mix to gain market share, enhance the value of their brands, and attract and retain customers to increase revenue and profit. Let’s take a final look at this from the perspective of a brand recognized among the world’s most valuable: Coca-Cola.

Coca-Cola is sold in more than 200 countries. About 1.7 billion servings of Coke products are consumed every day. The Coca-Cola products that quench the thirst of so many people go far beyond the iconic red can of soda. In fact, Coke makes so many different beverages that if you drank one per day, it would take you more than nine years to try them all. Coca-Cola has a product portfolio of more than 3,500 beverages (and 500 brands)—everything from sodas to energy drinks to soy-based drinks (Coca-Cola).

Coca-Cola uses a “meet-the-competition” pricing strategy: Prices are set around the same level as competitors’, so products will be perceived as different but still affordable. Coca-Cola uses lower price points to penetrate new markets that are especially sensitive to price. The company meets or beats the competition on price to raise brand awareness. Once established in the market, Coca-Cola repositions itself as the premium brand compared with its competitors. One way is by promoting a brand image of bringing intangible benefits in lifestyle, group affiliation, joy, and happiness … but the marketing strategy still focuses on an affordable premium product.

Coca-Cola has won a multitude of advertising industry awards for its innovative and effective promotional strategy. The promotions that Coca-Cola uses to further enhance the brand image and gain market share have included hotel vouchers in Europe, Olympic sponsorship, the National Football League “Red Zone” promotion, and even “peel and win” stickers on Big Gulp cups at 7-Eleven.

Finally, the place, or distribution, of Coca-cola products is truly amazing. If you were to stack up Coke’s 2.8 million vending machines, they would take up 150.2 million cubic feet of space—the size of four Empire State Buildings (Coca-Cola). But it’s not just the vending machines that matter. The company achieves its global reach with local focus because of the strength of the Coca-Cola system, which comprises more than 250 bottling partners worldwide.

Coca-Cola manufactures and sells concentrates, beverage bases, and syrups to bottling operations, while it owns the brands and is responsible for consumer brand marketing initiatives. Bottling partners manufacture, package, merchandise, and distribute the final branded beverages to customers and vending partners, who then sell Coca-Cola products to consumers. All bottling partners work closely with customers—grocery stores, restaurants, street vendors, convenience stores, movie theaters, and amusement parks, among many others—to execute localized strategies developed in partnership with Coca-Cola.

What does is the result of this marketing mix for Coca-Cola? The Coca-Cola brand is worth an estimated $83.8 billion. That’s more than Budweiser, Subway, Pepsi, and KFC combined (SEC, 2015).

Summary

This chapter covered the marketing mix in depth and the strategies companies use to develop effective marketing plans. This chapter covered the following marketing topics:

Product Marketing

Product is the core of the marketing mix. Product defines what will be priced, promoted, and distributed. If you create and deliver a product that provides exceptional value to your target customer, the rest of the marketing mix is easier to manage. A successful product makes every aspect of a marketer’s job more effective.

Pricing Strategies 

When businesses make decisions about pricing, they can adopt profit-oriented pricing, competitor-oriented pricing, or customer-oriented pricing. Customer-oriented pricing focuses on the price-value equation:

Value = Perceived Benefits – Perceived Costs

To increase value, the business can either increase the perceived benefits or reduce the perceived costs. Today’s marketing tends to favor customer-oriented pricing because it prioritizes the customer and the customer’s perception of value.

Place: Distribution Channels

Distribution channels cover all the activities needed to transfer the ownership of goods and move them from the point of production to the point of consumption. These activities can be organized as five important channel flows: product, negotiation, ownership, information, and promotion. While channels can be very complex, there is a set of channel structures that can be identified in most transactions: direct channel, retail channel, the wholesale channel, and agent channel.

Promotion: Integrated Marketing Communication (IMC)

There are many different marketing communication methods that can be used in the promotion mix. Integrated marketing communication is the process of coordinating all the promotional activity across these different methods. In this course you learned about seven common marketing communication channels: advertising, public relations, personal selling, sales promotion, digital marketing, direct marketing, and guerrilla marketing.

References

Retrieved from https://us.coca-cola.com/

Retrieved from SEC Filings, 2015

Licenses and Attributions

Putting It Together: Marketing Mix from Introduction to Business by Linda Williams and Lumen Learning is available under a Creative Commons Attribution 4.0 International license. UMUC has modified this work and it is available under the original license.

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· Putting It Together: Marketing Mix. Authored by: Linda Williams and Lumen Learning. License:  CC BY: Attribution

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· Coca-Cola Bottle Caps. Provided by: Pixaby. Located at:  https://pixabay.com/en/coca-cola-crown-corks-red-1218688/ . License:  CC0: No Rights Reserved