Principles of Marketing Lecture - Prelim PDF

Principles of Marketing
CHAPTER 1: CREATING CUSTOMER RELATIONSHIPS AND VALUE THROUGH MARKETING

LECTURE NOTES
CHAPTER OPENING EXAMPLE
UNIQLO: UNIQUE CLOTHES, UNIQUE SHOPPING EXPERIENCE
Marketing problem: How can change perception of Japanese consumers that casual clothing are either
affordable but poorly made or of good quality but expensive?
Solution: Be innovative and be the trendsetter in product design and development through
collaboration with fashion designers and in marketing through collaboration with fashion magazines
and advertising agencies to revitalize its brand image.
A. Creating a Revolution in the Japanese Fashion Industry
UNIQLO introduced a line of fleece garments that came in a gradient of colors and were sold at an
affordable price of 1900 Yen. Suddenly fleece garments were cool and hip.
To make casual clothing affordable, UNIQLO manufactures its products in China. To make it of good
quality, UNIQLO is strict about quality and employs its team of takumi, expert quality engineers to its
overseas factories to improve production process and to maintain high product quality.
UNIQLO ensures it stays relevant and current as a brand by conducting market research to understand
consumer lifestyle and create concepts for upcoming seasons.
B. Customer Needs and Wants in Casual Clothing
What do customers look for in casual clothing? At the functional level, they want something
comfortable and of good quality.
At an emotional level, they need something perceived as fashionable and cool and of trendy brand
image.
At a financial level, they need something affordable.
Far Eastern University Makati
Professor: Dr. Benedict Eusoof Razon
I. WHAT IS MARKETING? [LO1]
Youre already a marketing expert because you do many marketing activities every day, such as
shopping for products or commenting on an advertisement you have come across.
However, you may not have much experience developing products to reach different groups of people
or segments. Even professionals do not find it easy. UNIQLO did well in Japan but found the UK market
a real challenge.
Test your marketing expertise by answering the following questions:

1. True or False: As long as consumers desire information on computing and Asia Computer Weekly is
able to provide such information effectively, there will always be a demand for the magazine.
Answer: false (p. 8 there is still the need for communication between the parties).
2. True or False: Consumers always know what they want. Answer: false (p. 9 see example of karaoke).
3. What is the 60-year lifetime value of a loyal customer who uses Four Roses tissue paper made by Asia
Paper and Pulp Company from Indonesia? Answer: $900 (p. 13).
4. To ensure they get noticed by UK consumers, UNIQLO launched the UK e-commerce website with the
help of three Lucky campaigns. The campaign generated how many clicks? Answer: three million (p.
5).
A. UNIQLO, Marketing, and You
The marketing strategy of UNIQLO is discussed throughout this chapter.
One key to how well UNIQLO succeed lies in the subject of this book: marketing.
Marketing affects all individuals, corporations, industries, and countries. In this course, you will learn
and do marketing.
B. Marketing: Using Exchanges to Satisfy Needs
An abridged version of the new AMA definition of marketing:
Marketing is the activity for creating, communicating, delivering, and exchanging offerings that benefit the
organization, its stakeholders, and society at large.
Marketing seeks to create, communicate and deliver value. It is not the same thing as advertising or
selling.
Prospective customers include:

a. Individuals buying for themselves and their households.
b. Organizations that buy for their own use or for resale.
The key to discovering and satisfying consumer needs and wants is the idea of exchange, which is the
trade of things of value between buyer and seller so that each is better off after the trade.
C. The Diverse Factors Influencing Marketing Activities
A variety of other people, groups, and forces interact with marketing to shape the nature of its
activities. These include:
a. The organization itself, whose mission and objectives determine what business it is in and what
goals it seeks.
b. Management is responsible for establishing these goals.
c. The marketing department works with other departments to develop products and facilitate
relationships with customers, shareholders, suppliers, and other organizations.
Environmental forces shape an organizations marketing activities and include social, technological,
economic, competitive, and regulatory forces.
Marketing is affected by and impacts society.
The organization must strike a continual balance among competing interests of customers, suppliers,
employees, and shareholders.
D. Requirements for Marketing to Occur
Four factors are required for marketing to occur:

1. Two or more parties with unsatisfied needs.
2. A desire and ability to satisfy these needs.
3. A way for the parties to communicate.
4. Something to exchange. For a transaction to occur between a buyer and seller, money or
something else of value must be exchanged.
LEARNING REVIEW
1. What is marketing?
Answer: Marketing is the activity for creating, communicating, delivering, and exchanging offerings
that benefit the organization, its stakeholders, and society at large.
2. Marketing focuses on _________ and _________ consumer needs.
Answer: discovering; satisfying
3. What four factors are needed for marketing to occur?
Answer: The four factors are: (1) two or more parties (individuals or organizations) with unsatisfied
needs; (2) a desire and ability on their part to be satisfied; (3) a way for the parties to communicate;
and (4) something to exchange.
II. HOW MARKETING DISCOVERS AND SATISFIES CONSUMER NEEDS [LO2]
Discovering and satisfying consumer needs is critical to marketing.
A. Discovering Consumer Needs
Marketings first objective: discover the needs of consumers.

Consumers may not always know or be able to describe what they need or want. Effective marketing
research can help.
1. The Challenge: Meeting Consumer Needs with New Products.
a. About 94% of the 40,000+ new consumable products (food, beverage, health, beauty, etc.)
introduced in the market each year do not succeed over the long run.
b. Three key principles for new product launches:
Focus on the consumer benefit.
Learn from the past.
Find out what consumers need and want and then produce them.
c. What are the potential benefits and showstoppers (factors that might doom the offering) for the
following products:
Dr. Care vanilla-mint-flavored aerosol toothpaste.

Benefits: taste, easy to use, and sanitary.
Showstopper: aerosol application messy.
Hot Pockets Subs microwavable snacks.

Benefits: convenient, variety, and taste.
Showstopper: ice crystals on product.
Terrafugia Transition
Benefits: Flexibility to land in most of 5,200 general aviation airports in US.
Showstoppers: High price of US$250,000 and fender bender on road may make in unsafe to
fly.
Pepsi Max
Benefit: Specially positioned and targeted at men 25 years and older who are health-conscious.
Showstoppers: Women may not buy this drink targeted specifically at men.
d. Firms spend billions of dollars on marketing and technical research to reduce new-product failures.
2. Consumer Needs and Consumer Wants.
a. Should marketers try to discover and satisfy consumer needs and wants? Yes! Its an issue of
freedom.
A need occurs when a person feels physiologically deprived of basic necessities, such as food,
clothing, and shelter.
A want is a felt need that is shaped by a persons knowledge, culture, and personality.
Marketing does not create the need for a product but shapes a persons wants.
MAKING RESPONSIBLE DECISIONS

Cell Phones and Distracted Driving: Just as Dangerous as Drunk Driving
Studies have shown that the distracting effect of using a cell phone exceeded that of a person
with 0.08 blood-alcohol level, the legal limit for drink driving in many Asian countries.
Malaysia is repeating this study in the country. New Delhi court imposed a slew of measures to
deter smoking and use of cell phones while driving.
Should consumers have full freedom to satisfy all their needs and wants? Or do governments
have a role to moderate some needs and wants when they are undesirable? Should responsible
marketers promote the responsible use of products and services?
3. What a Market Is.

a. Potential consumers make up a market, which is people with both the desire and the ability to buy
a specific product.
b. People aware of their unmet needs may have a desire for a product. However, they must also have
the ability to buy, such as the authority, time, and money.
B. Satisfying Consumer Needs
An organization does not have the resources to satisfy the needs of all consumers.
Therefore, it focuses on the needs of its target marketone or more specific groups of
potential consumers toward which an organization directs its marketing program.
1. The Four Ps: Controllable Marketing Mix Factors. [LO3]

After selecting its target market consumers, the firm must take steps to satisfy their needs.
a. A marketing department must develop a complete marketing program to reach consumers by using
the four Ps:
Product. A good, service, or idea to satisfy the consumers needs.
Price. What is exchanged for the product.
Promotion. A means of communication between the seller and buyer.
Place. A means of getting the product to the consumer.
b. The elements of the marketing mix are the marketing managers controllable factorsproduct,
price, promotion, and placethat can be used to solve a marketing problem.
2. The Uncontrollable, Environmental Forces.
a. Environmental forces in a marketing decision are the uncontrollable factors involving social,
economic, technological, competitive, and regulatory forces.
b. Marketers can affect some of these forces, such as technology or competition, and achieve
breakthroughs.
III. THE MARKETING PROGRAM:
HOW CUSTOMER RELATIONSHIPS ARE BUILT [LO4]
A marketing program connects the organization to its customers.
A. Customer Value and Customer Relationships
Intense competition in domestic and global markets has caused massive restructuring of many Asian
industries and businesses.
Many firms now focus on providing customer value, which is the unique combination of benefits
received by targeted buyers that includes quality, convenience, on-time delivery, and both before-sale
and after-sale service at a specific price.
Firms calculate the dollar value of a loyal, satisfied customer. Example: Four Roses Tissue = $900.
Firms cannot succeed by being all things to all people. Instead, they must build long-term customer
relationships that they alone can deliver to its targeted markets.
Three strategies used to deliver customer value include:

a. Best price: Sheng Siong, Tiger Airways and Enzer
b. Best product: Sony, Shiseido, Royal Selangor, Coffee Bean and Tea Leaf
c. Best service: Robinsons, Mandarin Oriental, Singapore Airlines
B. Relationship Marketing
Customer relationships are achieved when an organization creates connections with its customers through
specific marketing mix actions implemented in its marketing program.
1. Relationship Marketing: Easy to Understand.
2.
a. Relationship marketing links the organization to its individual customers, employees, suppliers, and
other partners for their mutual long-term benefits.
b. Relationship marketing is more effective when there is personal ongoing communication between
individuals.
2. Relationship Marketing: Hard to Do.
a. Online purchasing can eliminate the need for personal interaction with employees of an
organization.
b. Consumers are deluged with offers by firms that make it difficult to foster a relationship.
C. The Marketing Program
Product concepts must be converted into a tangible marketing programa plan that integrates the
marketing mix to provide a good, service, or idea to prospective buyers.
The process is continuous: Consumer needs trigger product concepts that are translated into actual
products that stimulate further discovery of consumer needs.
D. A Marketing Program for UNIQLO

UNIQLO achieves superior performance in the market by applying the three steps below:
1. Knowing the Customers and Understanding Their Needs and Wants.
a. Use Web presence to gain insights into customer opinions and complaints.
b. Interactive Web initiative allow UNIQLO to quiz female consumers from around the world on their
lifestyle, personal style as well as their opinion of UNIQLOs new fashion designs such as the
BraTop..
c. Shifted to Movable Type blog management system to allow floor staff at each of the 700 stores
worldwide to respond to customer feedback and other suggestions in real time.
d. UNIQLO Customer Center receives approximately 150,000 comments annually about its products
and these comments helped shape the direction of UNIQLOs textile research and product
development.
e. Divide customers into three main groups: casual household shoppers, discerning fashion conscious
individuals and fashion-forward early adopters. Examine their differing needs and wants.
2. Developing Core Strategy and Concept.
a. Uses cost leadership strategy seek to become low-cost producers within market. It does this by
(1) securing raw materials at low costs from suppliers, (2) producing in low cost countries such as
China and Vietnam, and (3) maximizing efficiency of its production and distribution process.
b. Have broad focus by targeting many market segments.
c. It owns its means of production and brands and sells products directly to customers, thus,
bypassing the middlemen and improving its profit margin.
3. Assembling the Right Mix of Products or Service, Price, Promotion and Place
a. Casual household shoppers Simple essentials in bright colors, perennial favorites; competitively
priced with respect to departmental stores; seasonal promotion and online bargain deals;
ubiquitous roadside stores, famous flagship stores, large floor area format.
b. Discerning fashion-conscious individuals limited edition graphic UTs, fashion collaborations;
competitively priced with respect to high-end fast fashion retailers; new offerings and end of
season clearance sales; UT concept stores, UNIQLO container stores, online e-commerce stores.
c. Fashionistas and Early Adopters Heat Tech, Dry in Motion, Bra Top, UV Cut product lines; slightly
more expensive than the basics; specially designed online marketing campaigns and collaboration
with fashion magazines; major stores and UNIQLO websites.
LEARNING REVIEW
4. An organization cant satisfy the needs of all consumers, so it must focus on one or more subgroups,
which are its _________________.
Answer: target markets
5. What are the four marketing mix elements that make up the organizations marketing program?
Answer: product, price, promotion, place
6. What are environmental forces?
Answer: Environmental forces are those that the organizations marketing department cant control.
These include social, economic, technological, competitive, and regulatory forces.
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IV. HOW MARKETING BECAME SO IMPORTANT
Marketing has become a driving force in the modern global economy.
A. Evolution of the Market Orientation [LO5]
Four distinct stages can be identified in the life of many market-oriented manufacturing organizations:
1. Production Era (until the 1930s). Goods were scarce, and buyers would accept virtually any goods
that were produced.
2. Sales Era (from the 1930s to the 1960s).
a. Firms could produce more goods than their regular buyers could consume and competition
grew.
b. Focus was on hiring salespeople to find new buyers for the firms existing products.
3. The Marketing Concept Era (in the 1960s). The marketing concept is the idea that an organization
should (1) strive to satisfy the needs of consumers (2) while also trying to achieve the
organizations goals.
4. The Customer Relationship Era (the era today).
a. An organization that has a market orientation focuses its efforts on
(1) continuously collecting information about customers needs, (2) sharing this information
across departments, and (3) using it to create customer value.
b. The focus on customers has led to customer relationship management (CRM), the process of
identifying prospective buyers, understanding them intimately, and developing favorable longterm perceptions of the organization and its offerings so that buyers will choose them in the
marketplace.
c. The foundation of customer relationship management (CRM) is customer experience, which is
the internal response that customers have to all aspects of an organization and its offerings.
This internal response includes:
Direct customer contacts (buying, obtaining, and using the product or service.
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Indirect contacts (word-of-mouth, news reports).
d. Sometimes there is a disconnect between what firms think they provide vs. what customers
say they receive.
B. Ethics and Social Responsibility: Balancing the Interests of Different Groups
Today, the standards of marketing practice have shifted from an emphasis on producers interests to
consumers interests and a consideration of the social and environmental consequences of potential
actions.
1. Ethics. Organizations have developed codes of ethics to assist them because existing laws and
regulations do not specifically address many marketing issues.
2. Social Responsibility.
a. Is the idea that organizations are accountable to a larger society.
b. Some marketing experts stress the societal marketing concept, the view that organizations
should satisfy the needs of consumers in a way that provides for societys well-being.
Is directly related to macromarketing, which is the study of the aggregate flow of a nations
goods and services to benefit society.
Macromarketing addresses the broad issues such as whether marketing costs are too much,
advertising is wasteful, effects of pollution that result from marketing efforts.
Micromarketing focuses on how an individual organization directs its marketing activities

and allocates its resources to benefit its customers.
C. The Breadth and Depth of Marketing [LO6]

Marketing affects every person and organization.
1. Who Markets?
a. Every organization markets: profit-making business firms and nonprofit organizations.
b. Places, special causes, and individuals also market.
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2. What is Marketed? Goods (physical objects), services (intangible items), and ideas (thoughts about
actions or causes) are marketed.
3. Who Benefits? Three specific groups benefit:
a. Consumers who buy. Competition ensures that consumers can find value from the best
products, the lowest prices, or exceptional service in the marketplace.
b. Organizations that sell. Effective marketing actions reward organizations that serve consumers.
c. Society as a whole. Marketing enhances competition, improves product quality, lowers prices,
and provides jobs to raise the standard of living for a countrys citizens.
4. Who Buys and Uses What Is Marketed? Two groups do:
a. Ultimate consumers are the people who use the goods and services purchased for a household.
Also called consumers, buyers, or customers.
b. Organizational buyers are those manufacturers, wholesalers, retailers, and government
agencies that buy goods and services for their own use or for resale.
5. How Do Consumers Benefit? Marketing creates utility, the benefits or customer value received by
users of the product. Four different utilities are created:
a. Form utility. The value to consumers that comes from the production of the good or service.
b. Place utility. The value to consumers of having the offering available where needed.
c. Time utility. The value to consumers of having the product or service available when needed.
d. Possession utility. The value to consumers of making an item easy to purchase.
LEARNING REVIEW
7. Many Asian firms have gone through four distinct orientations for their business: starting with the
_______________ era and ending with todays _______________ era.
Answers: production; customer
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8. What are the two key characteristics of the marketing concept?
Answer: An organization should (1) strive to satisfy the needs of consumers (2) while also trying to
achieve the organizations goals.
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CHAPTER 3: SCANNING THE MARKETING ENVIRONMENT
LECTURE NOTES
What is the worlds third largest nation? The social nation created by facebook!
Facebook, founded by mark zuckerberg, is a social nation, smaller than only china and india, with over 770
million members.
The rapid growth of facebook is at least partly due to the changes in the marketing environment.
Facebook and the influence of environmental forces
A. Social forces. Changed as people:
Became more interested in the social aspects of the internet.
Looked for tools for obtaining information, offering opinions, and interacting with friends.
B. Economic forces.
Influenced the demand for facebook as the cost of the technology declined.
Made social networking affordable for consumers.
C. Technological forces. Data storage, server speed, and programming software made social networks fast
and convenient.
D. Competitive forces.
Companies such as friendster provided alternatives and a rush to expand.
Today, google is a major competitor of facebook.
E. Legal and regulatory forces also affected facebook. The company:
Obtained rights to the name, developed privacy guidelines.
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Settled a claim that some of the ideas behind facebook came from others.
Where social networking and facebook are headed

A. The future of social networks is likely to evolve into a sophisticated platform for many activities.
Facebook connect enables any website to connect to facebook users.
Ning allows users to create custom social websites.
Digg allows people to share articles.
Facebook is developing an advanced version of virtual currency to allow payment for purchases of
goods sold on the social network.
B. Future development is likely to include:
Expansion into all international markets.
The inclusion of commercial members.
Many businesses operate in environments where important forces change anticipating and
responding to these changes is key to marketing success and failure.
I. ENVIRONMENTAL SCANNING IN THE NEW MILLENIUM [LO1]

Environmental scanning is the process of continually acquiring information on events occurring outside the
organization to identify and interpret potential trends.
A. Tracking environmental trends
Environmental trends typically arise from five sources: social, economic, technological, competitive,
and regulatory forces.
An environmental scan may uncover a many trends that affect marketing in the future.
Environmental scanning also involves explaining trends.
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B. An environmental scan of todays marketplace
Figure 3-2 identifies key trends from an environmental scan that impacts todays marketplace for the five
environmental forces.
II. SOCIAL FORCES [LO2]
Social forces of the environment include the demographic characteristics of the population and its values.
Changes in these forces can have a dramatic impact on marketing strategy.
A. Demographics
Describing a population according to selected characteristics such as age, gender, ethnicity, income,
and occupation is referred to as demographics.
Organizations such as the population reference bureau and the united nations profile the world
population.
The local statistical department provides information about local population. For example, the
singapore department of statistics provides information about the local singapore population.
1. The world population at a glance.

A. There are about 6.9 billion people in the world. By 2050, the population is likely to grow to 9.4
billion.
The major increases (or population explosion) will occur in the developing countries of africa,
asia, and latin america.
By 2050, india is predicted to have the largest population (1.75 billion) with china a close
second (1.44 billion).
B. The age structure of the worlds population is shifting. The number of people 60 and older will
more than triple in the coming decades and reach 2 billion by 2050.
C. Global income levels and living standards have risen, although wide differences exist between
countries.
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D. Global population trends have many marketing implications.
The relative size of countries like india and china represent huge markets for many product
categories.
Elderly populations in developed countries are likely to save less and spend money on health
care, travel, and other retirement-related products and services.
Economic progress in developing countries will lead to growth in entrepreneurship,
infrastructure, and exports.
2. The asian population. The population of asia reached 4.16 billion in 2010 and will grow to around 5.24
billion by 2050.
A. In 2007, asia had six countries out of the top 10 countries with the highest population.
B. The asian population is relatively youthful. However, the asian population is aging, and the elderly
support ratio of the asian population will reduce from 10 working-age adults per elderly aged 65
and above in 2010 to an estimated four working-age adults per elderly in 2050.
C. Fertility rates in asia were high at 5.04 children per woman in the period 1970-75, compared to
2.16 in europe and 2.01 in north america during the same period. This has declined to 2.34 for the
period 2005-10 and will decline further to 1,90 for the period 2045-50.
D. The life expectancy for asia is forecasted to be 69.0 years in the period 2005-10, which is above the
world average of 67.2 years but below north americas 78.5 and europes 74.6 during the same
period. It will, however, rise 77.4 for the period 2045-50. Japan is the country with the highest life
expectancy globally.
3. Generational cohorts.
A. The age ranges or boundaries identifying generational cohorts are defined differently by different
people. These cohorts are based on factors such as social and economic circumstances, lifestyles,
and buying behaviors, all of which have implications for marketing strategy.
One study identifies four generational cohorts in china based on political and social
circumstances. These refer to those belonging to the republican era, the consolidation era, the
great cultural revolution era, and the social reform era.
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A vietnamese mba graduate suggest four generational cohorts in vietnam based on political and
economic circumstances. These refer to those belonging to the postwar cohort, the transition
cohort, the open economy cohort, and the global cohort.
B. The baby boomersthe generation of children born between 1946 and 1964are growing older.
In singapore, this group represents 30.9 percent of the resident population. In japan, the baby
boomers represent 26.2 percent of the population
Baby boomers future interests will be for travel, health, and retirement, and should be
receptive for products that make them feel younger.
C. Generation x includes those born between 1965 and 1976a period also known as the baby bust
due to the declining number of births.
These consumers tend to be cynical and pessimistic, skeptical of religion, independent, and
entrepreneurial. They value openness and diversity and are technologically literate.
Many in this group are parents at present and thus buy products and services catered to their
children.
D. Generation y includes the cohort born between 1977 and 1994, the years many baby boomers
began having children. This period is also called the echo-boom or baby boomlet.
Generation y exerts influence on music, sports, computers, video games, and cell phones.
The term millennials refers to younger members of generation y born since 1994.
Marketers have developed generational marketing programs for each generational cohort since members of
each generation have distinctive attitudes and consumer behavior.
4. The Asian household.

A. In the 1950s and early 1960s, three generation households, where a child lived with his parents and
grandparents, were quite common in Asia. Today, many households are two-generation
households, with children living with their parents.
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B. The incidence of co-habitation of households composed of unmarried partners is low and the
occurrence of blended family, one formed by two previously separate units merging into a single
household, is also low.
Marketing matters >> a marketing challenge
A. There are about 1.07 billion members of the y generation cohort in asia pacific reaching or
approaching the age of 21. At this time, they make many life decisions for the first time and begin
developing brand loyalties that can last a life time.
B. Generation y is known as a savvy, demanding, and sometimes marketing-skeptical group, so
marketers are eager to better understand them.
C. Marketers are designing unique product and service offerings and maybe a few more ads,
specifically aimed at this cohort.
5. Population shifts.
A. Within asia, migration has generally taken place to regions of rapid sustained economic growth.
Such regions also exhibit declining fertility rates. The three main exporters of contract labor in
asia are the philippines, thailand and indonesia.
The regions of rapid economic growth have also attracted managerial, professional, and
technical manpower from within and outside asia.
B. Populations are also shifting from rural to urban areas.
The percentage of urban households in the asia-pacific region increased from 33.0 percent in
1980 to 49.6 percent in 2010.
Japan has a high level of urbanization at 82.7 percent in 2010 while singapore and hong kong
are virtually 100 percent urbanized.
In urbanized areas, the shift is from city centers to the suburbs as the city center becomes overdeveloped and congested.
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C. The U.S. census bureau has developed a classification system to describe the locations of the
population. The system consists of the 2 types of statistical areas:
A metropolitan statistical area has at least one urbanized area of 50,000 or more people, and
adjacent territory that has a high degree of social and economic integration. There are 362
metropolitan statistical areas that include 83 percent of the population.
A micropolitan statistical area has at least one urban cluster of at least 10,000 but less than
50,000 people and adjacent territory that has a high degree of social and economic integration.
If a metropolitan statistical area has a population of 2.5 million or more, it may be subdivided
into smaller areas called metropolitan divisions.
Adjacent metropolitan and micropolitan statistical areas may be grouped into combined
statistical areas.
6. Racial and ethnic diversity. Racial and ethnic diversity varies across the different asian countries.
A. Some countries tend to be more homogenous while others tend to be more racially
heterogeneous.
B. In countries where ethnicity tends to be relatively homogeneous, marketing efforts may be
simplified as these may be focused on only one group.
C. Single and large ethnic groups, such as the japanese or korean people, tend to conform to one
another and resist changes from external sources.
D. In many countries where there is cultural diversity, marketers are developing multicultural
marketing programs, which are combinations of the marketing mix that reflect the unique
attitudes, ancestry, communication preferences, and lifestyles of different races.
E. Racial and ethnic groups tend to be concentrated in certain geographic regions within the country,
enabling companies to combine their multicultural marketing efforts with regional marketing.
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Culture
Culture incorporates the set of values, ideas, and attitudes that are learned and shared among the
members of a group.
Marketers monitor national and global cultural trends since they influence consumer-buying patterns.
1. The changing attitudes and roles of men and women.

A. One of the most notable cultural changes in the past 30 years has been in the attitudes of men and
women in the market place.
In the 1970s and 1980s, ads began to create a bridge between genders. In the 1990s, marketing
to women focused on the challenge of balancing family and careers.
Today, there is equality in the marketplace. Generation y represents the first generation of
women who have no collective memory of this dramatic change.
B. Several factors have contributed to the change in attitudes:
Many young women had career mothers who provided a reference point for their lifestyle
choices.
There has been increased participation by women in organized sports.
The internet has made gender, race, and ethnicity distinctions disappear.
Many of the 1.05 billion asian generation y women view themselves as confident, strong, and
feminine.
Most adults now believe that men and women should share most responsibilities equally.
Many companies that had a consumer base that was primarily men or primarily women in the
past are preparing for growth from the other gender.
In some Asian countries, gender roles may still be very prevalent.
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2. Asian values
A. Cultural values vary with age but tend to be similar for men and women. Asian values differ from
western values in that Asians tend to be more collectivistic while westerners tend to be more
individualistic.
B. In Asia, power distance (the extent to which less powerful members of society accept that power is
distributed unequally) is generally greater compared to the west.
C. Despite strong economic growth and modernization, superstition still holds sway over some
communities in Asia.
D. Value consciousnessthe concern for obtaining the best quality, features, and performance of a
product or service for a given price that drives consumption behavior.
Learning review
1. Describe three generational cohorts.
Answer: (1) baby boomers are those among the asian population born after world war ii, between
1946 and 1964. (2) generation x are those the asian population born between 1965 and 1976. (3)
generation y are those among the asian population born between 1977 and 1994.
2. Why are many companies developing multicultural marketing programs?
Answer: (1) some countries in asia such as the philippines and indonesia have great diversity in race
and ethnicity (2) an accurate understanding of the culture of each group is essential if marketing
efforts are to be successful.
3. How are important values such as health and fitness reflected in the marketplace today?
Answer: in asian and other parts of the world, there is increasing concern about health and fitness.
Many people are concerned about their weight and bodies. In response, companies have developed
low-calorie, low-fat and healthier types of food to target these consumers.
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III. ECONOMIC FORCES [LO3]
The economy pertains to the income, expenditures, and resources that affect the cost of running a business
and household.
A. Macroeconomic conditions
Companies monitor inflationary or recessionary economic states.
1. In an inflationary economy, the cost to produce and buy goods and services rises as prices increase.
If prices rise faster than consumer incomes, purchases decline.
2. In a recessionary economy, activity is slow. Businesses decrease production, unemployment rises,
and consumers have less money to spend.
Consumer spending is affected by consumer expectations of the future.
1. There are many surveys of consumer expectations. Ac nielsen conducts a global consumer
confidence survey the global consumer confidence index every six months for some 52
countries.
Globally, there is a drop of consumer confidence across the board due to the global financial
crisis. Asian countries that exhibited poor consumer sentiments include taiwan, which had a
score of 71, japan 56, and south korea 46.
2. Manufacturers and retailers of cars, furniture, and major appliances closely monitor these indices
to avoid producing too much or too little.
B. Consumer income
A consumers ability to buy is related to income, which consists of gross, disposable, and discretionary
components.
1. Gross income.
A. Gross income is the total amount of money made in one year by a person, household, or family
unit.
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B. Figure 3-10 shows the household gross income and disposable incomes in 2010 for countries in
the asia pacific.
How similar or different is your country?
The Asian development bank monitors the birth rates, population density, population
growth, age distribution, household size, life expectancy, literacy rate, GDP per capita and
labor force participate rate of various Asian countries.
Visit the Asian Development Bank online statistical database system to make a comparison.
2. Disposable income.
A. Disposable income is the money a consumer has left after paying taxes to use for food, shelter,
clothing, and transportation.
B. If taxes rise faster than incomes, consumer must economize.
C. Consumers disposable income has increased because the marketplace has produced products
that are more durable and use less energy. Some spend it on new necessities such as vitamins
and personal hygiene products.
3. Discretionary income.
A. Discretionary income is money that remains after paying for taxes and necessities and is used
for luxury items like vacations. The problem in defining what is discretionary versus disposable
income is determining what is a luxury and what is a necessity.
B. The percentage of income spent on food and housing declines as incomes rise, which increases
discretionary income.
C. Discretionary expenditures also increase if savings declines.
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IV. TECHNOLOGICAL FORCES [LO4]
Technology refers to inventions or innovations from applied science or engineering research. Each new wave
of technological innovation can replace existing products and companies in our society.
A. Technology of tomorrow
Some of the most recent dramatic technological changes are:
1. Social networks will become social platforms that provide functionality, community, and identity.
2. Natural user interfaces will utilize gesture, touch, and voice to change the way we interact with
and control computers and complicated machines.
3. Green technologies will gain widespread acceptance among American consumers.
4. Biotechnology will be used to develop genetically modified crops to create enough food for a
growing world population.
5. Other technologies include tablet devices (ipads), satellite communications, etc.
B. Technologys impact on customer value
Advances in technology have important effects on marketing:
The cost of technology is decreasing dramatically. As a result, consumers now assess value on the
basis of other dimensions, such as quality, service, and relationships.
Technology also provides value through the development of new products, which may replace
existing ones.
Technology can also change existing products the ways they are produced.
A. Many companies use technological developments to recycle products through the
manufacturing process several times.
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B. Some manufacturers use precycling, efforts by them to reduce waste by decreasing the amount
of packaging they use.
C. Electronic business technologies
The Marketspace is an information- and communication-based electronic exchange environment

mostly occupied by sophisticated computer and telecommunication technologies and digitized
offerings.
Electronic commerce is any activity that uses some form of electronic communication in the
inventory, exchange, advertisement, distribution, and payment of goods and services.
Many companies have adapted internet-based technology to internally support their electronic
business strategies.
A. An intranet is an internet-based network used within the boundaries of an organization.
B. Extranets, which use internet-based technologies used to permit communication between a
company and its suppliers, distributors, and other partners.
Marketing matters >> technology

A. Electronic technologies are going through an incredible transformation. It started when network
engineers were looking for a way to transmit an internet connection without wires.
B. Wi-fi will soon grow beyond internet connections and be found in most consumer electronics devices.
C. The three reasons why the revolution is taking place so quickly: (1) it is inexpensive; (2) the technology
is fast and powerful; (3) it works.
V. COMPETITIVE FORCES [LO5]
Competition refers to the alternative firms that could provide a product to satisfy a specific markets needs.
Each organization must consider its present and potential competitors in designing its marketing strategy.
A. Alternative forms of competition
There are four basic types of competition that follow a continuum:
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Pure competition occurs when every company has similar products. Distribution may be more
important than other marketing mix elements to create a point of difference.
Monopolistic competition occurs when many sellers compete with their products on a
substitutable basis. Coupons or sales are frequently used marketing tactics.
Oligopoly occurs when just a few companies control the majority of industry sales. Price
competition is not desirable because it reduces profits for the few firms involved.
Pure monopoly occurs when only one firm sells the product.
A. Marketing plays a small role because the state or federal government regulates the firms
activities.
B. Governments seek to ensure price protection for buyers, although recently there has been a
movement towards deregulation, which has encouraged price competition.
B. Components of competition
In developing a marketing program, companies must consider the factors that drive competition and
used to create a barrier to entry, increase brand awareness, or intensify a fight for market share.
1. Entry.
A. A firm must assess the likelihood of new entrants since more producers increase industry
capacity and lower prices.
B. Barriers to entry are business practices or conditions that make it difficult for new firms to
enter the market.
Barriers to entry can be in the form of capital requirements, advertising expenditures,

product identity, distribution access, or switching costs.
The higher the expense of the barrier, the more likely it will deter new entrants.
2. Power of buyers and suppliers.

A. Powerful buyers exist when:
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They are few in number;
There are low switching costs; or
The product represents a significant share of the buyers total costs, which leads the buyer
to exert pressure for price competition.
B. A supplier gains power when the product is critical to the buyer and it has built up switching
costs.
3. Existing competitors and substitutes.
A. Competitive pressures among existing firms depend on the rate of industry growth.
B. In slow-growth settings, competition is more heated for any possible gains in market share.
C. High fixed costs also create competitive pressures for firms to fill production capacity.
C. Small businesses as competitors
While large companies provide familiar examples of the forms and components of competition,
small businesses make up the majority of the competitive landscape for most businesses. \
Small in medium enterprises in Malaysia account of 99.1 percent of business establishments, 56

percent of employment of full-time workers, average value add growth rate of 5.7 percent, and
31.2 percent of total output of the country.
There is a strong correlation between national economic growth and the level of new small
business activity.
Learning review
4. What is the difference between a consumers disposable and discretionary income?
Answer: disposable income is the money a consumer has left after paying taxes to use for food, clothing,
and shelter. Discretionary income is the money that remains after paying for taxes and necessities.
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5. How does technology impact customer value?

Answers: (1) consumers assess value on the basis of other dimensions, such as quality, service, and
relationships, due to the decline in the cost of technology. (2) technology provides value through the
development of new products. (3) technology has changed the way existing products are produced
through recycling and precycling.
6. In pure competition there are a number of sellers.
Answer: large
VI. REGULATORY FORCES [LO6]
Regulation consists of restrictions that laws in different asian countries place on business with regard to the
conduct of its activities.
Regulation exists to protect companies as well as consumers.
For consumers, regulation exists for protection against unfair trade practices and ensure safety.
A. Protecting competition
Major legislation in many asian countries has been passed to encourage competition, which is deemed
desirable because it permits the consumer to determine which competitor will succeed or fail.
Japans anti monopoly act was amended to expand the antitrust investigation and enforcement
authority of the fair trade commission of japan.
A. The antimonopoly law serves to promote fair and free competition and show the boundaries
between suitable competition and unfair competition in business activities.
B. The law prohibiting unfair competition applies domestically in japan to activities classified as unfair
under international treaties. Under this low, the consumers or consumer groups cannot make
complaints directly but must depend on the fair trade commission to take action.
B. Product-related legislation
Several laws address the product component of the marketing mix:
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1. Company protection.
A. Patent law. Gives inventors the right to exclude others from making, using, or selling products that
infringe the patented invention.
B. Copyright law. Gives the author of a literary, dramatic, musical, or artistic work the exclusive right
to print, perform, or otherwise copy that work. Copyright is secured automatically when the work is
created.
C. In Singapore, patent act (cap 221), the trade mark act (cap 332) together with subsidiary
legislations, trade mark rules and trade marks (international) rules, and the copy act (cap 63).
Digital technology has necessitated new copyright legislation to improve protection of copyrighted
digital products.
2. Consumer protection.
A. Law relating to food, drugs, and cosmetics:
In Malaysia, amendments were made in 2006 to the malaysian food regulations 1985 for
mandatory nutrition labeling and regulated nutrition claims.
B. Other consumer protection laws have a broader scope:
In Indonesia, law no.8/1999 was passed to protect consumers.

C. Many of these laws came about because of consumerism, a grassroots movement started in
many Asian countries to increase the influence, power, and rights of consumers in dealing with
institutions.
D. Consumers today demand ecologically safe products and ethically and socially responsible
business practices.
3. Both company and consumer protection. Trademarks are intended to protect both the firm selling
a trademarked product and the consumer buying it.
A. Historically, the first user had the exclusive right to use the particular word, name, or symbol.
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B. A company can lose its trademark if it becomes generic, which means that it has primarily
become a common descriptive word for the product. Coca-cola, xerox, and kleenex are
registered trademarks; aspirin and escalator are generic terms that lost trademark protection.
C. Recently, the U.S. supreme court held that a company may obtain trademarks for colors
associated with their products since consumers may associate a particular color with a specific
brand over time (owens-cornings pink insulation).
Pricing-related legislation
The pricing component of the marketing mix is the focus of regulation from two perspectives:
1. Price fixing. Not allowed because it is anti-competitive. In thailand, legislation related to price fixing
is the price fixing and anti-monopoly act 1979.
2. Price discounting. Certain forms are allowed.
A. Quantity discounts, in which buyers can be charged different prices for a product provided
there are differences in manufacturing or delivery costs.
B. Promotional allowances or services may be given to buyers on an equal basis proportional to
volume purchased.
C. A firm can meet a competitors price in good faith.
D. Distribution-related legislation
The government has four concerns:
1. Exclusive dealing is an arrangement a manufacturer makes with a reseller to handle only its
products of one manufacturer and not those of competitors and is illegal under the clayton
act when it substantially lessens competition.
2. Requirement contracts require a buyer to purchase all or part of its needs for a product
from one seller for a period of time. These contracts are not always illegal, depending on a
courts interpretation of their impact on distribution.
3. Exclusive territorial distributorships, a manufacturer grants a distributor the sole rights to
sell a product in a specific geographic area.
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4. Tying arrangements occur when a seller requires the purchaser of one product to also buy
another item in the line. These contracts may be illegal when the seller has such economic
power that it can restrain trade in the tied product.
Making responsible decisions >> ethics
A. A national do not call (ndnc) registry was set up in india to eliminate unsolicited telemarking calls
and unwanted smses.
B. Proponents of the ndnc registry argue that it will give consumers relief from unwanted telephone
solicitation. Others feel that such a registry violates freedom of speech principles.
Advertising- and promotion-related legislation
1. Legislation on advertising and promotion are concerned with deceptive or misleading advertising and
unfair business practices and seek to take corrective actions such as issuing cease and desist orders to
stop practices it considers unfair, or ordering correcting advertising.
2. In china the provisional regulations for advertising administration to protect consumers from false and
misleading advertising and prohibit unfair and monopolistic advertising practices.
3. Telemarketing is subject to a law that created the national do not call registry, which is a list of people
who do not want to receive unsolicited telemarketing calls.
Control through self-regulation
1. An alternative to government control is self-regulation, alternative to government control where an
industry attempts to police itself. However, it has two problems: (1) noncompliance by members and
(2) enforcement.
2. The best known group is the better business bureau (bbb), a voluntary alliance of companies whose
goal is to help maintain fair business practices.
A. Since the bbb has no legal power, it uses moral suasion to get members to comply with its
rulings.
B. Its bbb online provides consumer protection for internet shoppers. Before they can display the bbb
logo on their website, participating companies must:
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Be members of their local better business bureau.
Have been in business for at least 1 year.
Abide by the bbb standards of truth in advertising.
Commit to resolve consumer disputes over goods or services promoted or advertised on their
website.
Learning review
7. Why do companies need protection under the law? In what areas are they protected by the law?
Answer: companies need protection to ensure competition and fair business practices. Companies are
protected with regards to competition, product-related legislation, trademarks, pricing-related
legislation, distribution-related legislation and advertising-and promotion-related legislation.
8. What rights of consumers are protected by the law?
Answer: the law recognizes consumers right to safety and comfort when using products or services,
the right to choose an obtain goods and services, the right to getting correct and honest information
on products and services, and the right to receive compensation.
9. How does the better business bureau encourage companies to follow its standards for commerce?
Answer: companies must agree to follow bbb standards before they are allowed to display the bbb
logo.
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CHAPTER 5: UNDERSTANDING THE CONSUMER BEHAVIOR
LECTURE NOTES
CHINAS LUXURY BRAND CONSUMERS
Chinese luxury good buyers are driven by broader range of factors.
Besides status, they are influenced by emotional factors such as rewarding and pampering oneself
well or reflecting own personality and rational factors such as for value maintenance or appreciation.
They search the internet for information about luxury brands, both from company websites and
from blogs. However, they are reluctant to make purchases online and prefer to purchase big ticket
items from branded stores.
On average, consumers in China recognize 57 luxury brands with consumers in tier one cities
recognizing 61 brands compared to tier two cities of 52 brands. By product categories, country of
origin appears to be critical for luxury goods.
Many Chinese consumers have progressed from purely collecting luxury goods to appreciating
history and meaning of these goods or the brands. Popular products collected by Chinese
consumers are expensive wine, expensive watches, uniquely designed jewelry and antiques and
artwork.
Cartier has been in China for over a decade and operates 37 boutiques in 22 cities. Hiersun Diamond
Group has become the top brand in the industry and has 200 stores across China. To market
successfully to customers, companies like Cartier and Hiersun need to know and understand their
customers well.
Consumer behavior consists of the actions a person takes in purchasing and using products and
services, including the mental and social processes that come before and after these actions.
The behavioral sciences answer questions such as why people choose one product or brand over another, how
they make these choices, and how companies use this knowledge to provide value to consumers.
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I. CONSUMER PURCHASE DECISION PROCESS AND EXPERIENCE [LO1]
The purchase decision process is the stages a buyer passes through in making choices about which
products and services to buy. The five stages are: (1) problem recognition, (2) information search, (3)
alternative evaluation, (4) purchase decision, and (5) post-purchase behavior.
A. Problem Recognition: Perceiving a Need
a. Problem recognition perceives a difference between a persons ideal and actual situations big
enough to trigger a decision.
b. In marketing, advertisements or salespeople can activate a consumers decision process by
showing the shortcomings of competing or currently owned products.
B. Information Search: Seeking Value
After recognizing a problem, a consumer begins to search for information about what product or
service might satisfy the newly discovered need.
a. An internal search involves scanning ones memory for previous experiences with products or
brands. Internal search is often sufficient for frequently purchased products.
b. An external search may be necessary when past experience or knowledge is insufficient, the
risk of making a bad decision is high, and the cost of gathering information is low. The primary
sources of external information are:
i. Personal sources, such as relatives and friends whom the consumer trusts.
ii. Public sources, including various product-rating organizations like Consumer
Reports, government agencies, or consumer-oriented TV programs.
iii. Marketer-dominated sources, such as information from sellers that include advertising,
company websites, salespeople, and point-of-purchase displays in stores.
C. Alternative Evaluation: Assessing Value
a. The information stage clarifies the problem for consumers by:
i. Suggesting criteria, or points to consider, for the purchase.
ii. Providing brand names that might meet the criteria.
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iii. Developing consumer value perceptions.
A consumers evaluative criteria are factors that represent both the objective attributes of a
brand and the subjective ones a consumer uses to compare different products and brands.
These criteria are often mentioned in advertisements.
Consumers often have several criteria for evaluating brands. These criteria establish the
consideration setthe group of brands that a consumer would consider acceptable from
among all the brands in the product class of which he or she is aware.
D. Purchase Decision: Buying Value
Having examined the alternatives in the consideration set, two choices remain:
a. From whom to buy. Determined by the sellers terms of sales, past purchase
experience, return policy, etc.
b. When to buy. Determined by whether the product is on sale, the manufacturer offers a
coupon/rebate, the stores atmosphere, the shopping experience, salesperson
persuasiveness, time pressure, financial terms, etc.
The Internet adds a technological dimension to the consumer decision process by allowing
consumers to gather information, evaluate alternatives, and make buying decisions.
E. Postpurchase Behavior: Value in Consumption or Use
After buying a product, the consumer compares it with his/her expectations and is either
satisfied or dissatisfied.
Customers satisfaction or dissatisfaction with the consumption or use experience affects
their value perceptions and repeat-purchase behavior.
a. Satisfied buyers tell 3 other people about their experience, while dissatisfied ones
complain to 9 people.
b. Satisfied buyers tend to buy from the same seller each time a purchase decision
arises, creating a huge financial impact.
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MARKETING MATTERS
The Value of a Satisfied Customer to the Company
What is the financial value of a loyal customer over time? Marketers attempt to calculate this figure to
demonstrate how much a satisfied customer is worth. Some examples:
If Borneo Motors, the sole distributor for Toyota in Singapore, can keep a customer extremely
happy such that the subsequent car purchase is again a Toyota from Borneo, then over this
customers lifetime, he or she would have spent about S $220,000 (excluding payment for the
COE) on Toyota cars if this customer trades up from Toyota Vios to Toyota Altis to Toyota
Picnic to Toyota Camry.
If the Danone Group can get an Indonesian customer to stay loyal to its A qua brand of bottled
water for 20 years, this customer would have contributed Rp 752,000 to its revenue in the 20
years at constant prices.
The goal of many firms is to increase customer satisfaction, which in turn can lead to increased
retentionresearch shows that a 5 percent improvement in customer retention can increase profits
by 70 to 80 percent!
c. Many firms focus attention on postpurchase behavior to maximize customer satisfaction
and retention by offering toll-free telephone numbers, liberalized return policies, and
engaging in staff training to handle complaints.
Consumers, faced with two or more highly attractive alternatives and purchasing one of them,
may ask the question, Should I have purchased this? This feeling of postpurchase
psychological tension or anxiety is called cognitive dissonance.
a. After a purchase, consumers often seeking information or approval from others or
reading ads or reviews about the brand to affirm their choice.
b. Firms often use ads or follow-up calls from salespeople in this postpurchase stage to
try to comfort buyers that they made the right decision.
F. Consumer Involvement and Problem-Solving Variations [LO2]
Consumers may skip or minimize one or more steps in the purchase decision process
depending on the level of involvement, the personal, social, and economic significance of the
purchase to the consumer.
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For high-involvement purchases:
a. The item to be purchased typically has at least one of three characteristics:
(1) is expensive; (2) can have serious personal consequences; or (3) could reflect on ones
image.
b. Consumers engage in extensive information search, consider many product attributes and
brands, and use word-of-mouth.
There are three general problem-solving variations in the consumer purchase decision
process.
1. Extended problem solving. Is used in:
a. Each stage of the consumer purchase decision process is used, including considerable
time and effort on external information search to identify and evaluate the attributes of
several brands in the consideration set.
b. High-involvement purchases (autos, houses, etc.).
2. Limited problem solving.
a. Consumers seek some information to evaluate alternative brands and attributes.
b. Is used when the buyer has little time or effort to spend.
3. Routine problem solving.
a. The purchase process is habitual and involves little effort seeking external
information and evaluating alternatives.
b. Is used for low-priced, frequently purchased products (salt, milk, etc.).
4. Involvement and marketing strategy.
a. For low-involvement products whose brands are market share leaders, marketers
should:
Maintain product quality.
Avoid stockouts so buyers wont substitute a competing brand.
39
Develop ads that reinforce consumers knowledge or assure buyers that they made
the right choice.
b. For low-involvement products whose brands are market challengers, marketers

should:
Use free samples, coupons, and rebates to encourage trial of their brand to break a
buying habit.
Develop ads that get their brand into a consumers consideration set.
link brand attributes with high involvement issues.
c. For high-involvement products whose brands are market share leaders, marketers
should use advertising and personal selling.
For high-involvement products whose brands are market challengers, marketers

should use comparative ads and novel evaluative criteria for judging competing
brands.
G. Situational Influences
Five situational influences impact the purchase decision process:
a. Purchase task. The reason for engaging in the decision.
b. Social surroundings. Others present when making a purchase decision.
c. Physical surroundings. Store decor, music, and crowding.
d. Temporal effects. Time of day or time available.
e. Antecedent states. The consumers mood or cash on hand.
LEARNING REVIEW
1. What is the first stage in the consumer purchase decision process?
Answer: problem recognition
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2. The brands a consumer considers buying out of the set of brands in a product class
of which the consumer is aware is called the
.
Answer: consideration set
3. What is the term for postpurchase anxiety?
Answer: cognitive dissonance
II. PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR [LO3]
Psychology helps marketers understand why and how consumers behave as they do.
Concepts such as motivation and personality; perception; learning; and values, beliefs and
attitudes are useful for interpreting buying processes and directing marketing efforts.
A. Motivation and Personality

Motivation and personality describe why people do some things and not others.
1. Motivation is the energizing force that stimulates behavior to satisfy a need. Because consumer
needs are the focus of the marketing concept, marketers try to arouse these needs, which are
hierarchical, ranging from basic to learned needs:
a. Physiological needs, such as water, food, and shelter, are basic to survival and must be
satisfied.
b. Safety needs involve self-preservation and physical well-being.
c. Social needs are concerned with love and friendship.
d. Personal needs are represented by the need for achievement, status, prestige, and
self-respect.
e. Self-actualization needs involve personal fulfillment.
2. Personality refers to a persons consistent behaviors or responses to recurring situations.
a. Traits are enduring characteristics within a person or in his or her relationship with others,
such as assertiveness, extroversion, etc. Traits are inherited or formed at an early age and
change little over the years.
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b. Residents of different countries have a national character, or a distinct set of personality
characteristics common among people for a country or society.
c. Personality characteristics are often revealed in a persons self-concept, which is the way
people see themselves and the way they believe others see them.
d. People have an actual (how they see themselves) and ideal (how they want to see
themselves) self-concept, which are reflected in the products and brands they buy.
B. Perception
Perception is process by which an individual selects, organizes, and interprets information to
create a meaningful picture of the world.
1. Selective perception is the process of filtering of exposure, comprehension, and retention by the
human brain to organize and interpret information.
a. Selective exposure occurs:
When people pay attention to messages that are consistent with their own attitudes
and beliefs and ignore messages that are inconsistent.
At the postpurchase stage when consumers read ads for the brand they just bought.
When a need exists, such as being hungry.
b. Selective comprehension involves interpreting information so that it is consistent with a
persons attitudes and beliefs.
c. Selective retention means that consumers do not remember all the information they see,
read, or hear, even minutes after exposure to it. This affects the internal and external
information search stages of the consumer decision process.
c. Subliminal perception means that people see or hear messages without being aware of
them. This is a hotly debated issue, with more popular appeal than scientific support.
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MAKING RESPONSIBLE DECISIONS
The Ethics of Subliminal Messages
The presence of embedded messages and images has been a controversial topic for over 50 years.
Subliminal messages are not illegal in the U.S., but marketers have been criticized for
creating them for use in print and electronic media. Perceived risk represents the
anxieties felt because the consumer cannot
anticipate the outcomes of a purchase but believes that there may be negative consequences.
a. Negative consequences include:
Size of the financial outlay to buy the product.
The risk of physical harm.
The performance of the product.
Psychosocialwhat will other people think or say.
b. Perceived risk affects information search because the greater the perceived risk, the more
extensive the external search is likely to be.
c. Marketers try to reduce a consumers perceived risk and encourage purchases by
using one or more strategies:
Obtaining seals of approval.
Securing endorsements from influential people.
Providing free trials of the product.
Giving extensive usage instructions.
Providing warranties and guarantees.
C. Learning
Much consumer behavior is learned, such as information sources to consult about products,
the evaluative criteria to use to assess alternatives, and how to make purchase decisions.
Learning refers to those behaviors that result from (1) repeated experience and
(2) reasoning.
1. Behavioral learning is the process of developing automatic responses to a type of situation built
up through repeated exposure to it.
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a. Four variables are key to how consumers learn form repeated experience:
A drive is a need that moves an individual to action.
A cue is a stimulus or symbol that one perceives.
A response is the action taken to satisfy the drive.
A reinforcement is the reward.
b. Marketers use two concepts from behavioral learning theory:
Stimulus generalization occurs when a response elicited by one stimulus (cue) is
generalized to another, such as using the same brand name for different products.
Stimulus discrimination refers to ones ability to perceive differences among similar
products.
2. Cognitive learning.
a. Consumers learn through thinking, reasoning, and mental problem solving without direct
experience.
b. It involves making connections between two or more ideas or simply observing the
outcomes of others behaviors and adjusting ones own behavior accordingly.
3. Brand loyalty is a favorable attitude toward and consistent purchase of a single brand over
time.
a. It relates to habit formationthe basis for routine problem solving.
b. It results from positive reinforcement of previous actions.
c. It reduces risk and saves time due to favorable results.
D. Values, Beliefs, and Attitudes
These play a central role in consumer decision making.
1. Attitude Formation.
a. An attitude is a learned predisposition to respond to an object or class of objects in a
consistently favorable or unfavorable way.
Attitudes are shaped by our values and beliefs, which are learned.
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Marketers are concerned with personal values, which affect attitudes by influencing the
importance assigned to specific product attributes.
b. Beliefs are a consumers subjective perception of how a product or brand performs on
different attributes based on personal experience, advertising, and discussions with other
people.
Beliefs are based on personal experience, advertising, and discussions with other
people.
Beliefs about product attributes create the favorable or unfavorable attitudes the
consumer has toward certain products, services, and brands.
2. Attitude Change. Marketers use three approaches to try to change consumer attitudes toward
products and brands:
a. Changing beliefs about the extent to which a brand has certain attributes.
b. Changing the perceived importance of attributes.
c. Adding new attributes to the product.
E. Consumer Lifestyle
Lifestyle is a mode of living that is identified by how people spend their time and resources,
what they consider important in their environment, and what they think of themselves and
the world around them.
Psychographics:
a. Combines consumer psychology, lifestyle, and demographics to uncover motivations for
buying and using products.
b. Provides insights into consumer needs and wants and is useful in segmenting and
targeting consumers for new and existing products and services.
VALS is a psychographic system developed by SRI Consulting Business Intelligence (SRICBI) that identifies eight consumer segments based on
b. (1) their primary motivation for buying and having certain products and services and (2)
their resources.
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GOING ONLINE
Are You an Experiencer? An Achiever?: Identifying Your VALS Profile
The VALS system run by SRI Consulting Business Intelligence has identified eight unique consumer
segments based on a persons primary motivation and resources. To know your and other VALS profiles,
respond to the VALS survey at www.sric-bi.com/vals by clicking VALS Survey.
a. Consumers are inspired by one of three primary motivationsideals, achievement, and
self-expressionthat give meaning to them or the world and govern their activities.
b. A persons resources include psychological, physical, demographic, and material
capacities such as income, self-confidence, and risk-taking.
c. The VALS system seeks to explain why and how consumers make purchase
decisions.
Ideals-motivated groups. Consumers motivated by ideals are guided by knowledge and
principle. Are divided into two segments:
Thinkers are mature, reflective, and educated who value order, knowledge, and
responsibility. They are practical, deliberate information seekers. They value
durability and functionality in products over style and newness.
Believers, with fewer resources, are conservative beliefs regarding family, religion,
community, and the nation. They choose American-made brands and are brand
loyal.
Achievement-motivated groups. Consumers motivated by achievement look for products
and services that demonstrate success to their peers or to a peer group they aspire to.
These include:
Achievers, are busy, goal-directed, and have a deep commitment to career and family.
Image is important to them. They prefer established, prestige products and services
and are interested in timesaving devices.
Strivers are trendy, fun-loving, and less self-confident than achievers. They also have
lower levels of education and household income. Money defines success for them.
They favor stylish products and are as impulsive as their financial circumstances
permit.
46
Self-expression-motivated groups. Consumers motivated by self-expression desire
social or physical activity, variety, and risk. These include:
Experiencers are young, enthusiastic, and impulsive consumers who become
excited about new possibilities. They engage in exercise, sports, outdoor
recreation, and social activities. Their income is spent on fashion items,
entertainment, socializing, and having the latest things.
Makers, with fewer resources, express themselves by working building a house,
raising children, or fixing a car. They are practical, value self-sufficiency, and are
unimpressed by material possessions.
High- and low-resource groups. These include:
Innovators are successful, sophisticated, take-charge people with high self-esteem
and abundant resources. Image is important as an expression of cultivated tastes,
independence, and character. They are receptive to new ideas and technologies and
like variety.
Survivors, with the least resources of any segment, focus on meeting basic needs
rather than fulfilling desires. They are a small market for most products and are loyal
to favorite brands, especially if purchased at a discount.
LEARNING REVIEW
4. What strategies can be used to deal with perceived risk?
Answer:
Obtaining seals of approval.
Securing endorsements from influential people.
Providing free trials of the product.
Giving extensive usage instructions.
Providing warranties and guarantees.
5. What three attitude-change approaches are most common?
Answer: (1) Change beliefs about the extent to which a brand has certain attributes.
(2) Change the perceived importance of the attributes. (3) Add new attributes.
47
6. What does lifestyle mean?
Answer: Lifestyle is a mode of living that is identified by how people spend their time and resources,
what they consider important in their environment, and what they think of themselves and the world
around them.
III. SOCIOCULTURAL INFLUENCES ON CONSUMER BEHAVIOR [LO4]
Sociocultural influences evolve from a consumers formal and informal relationships with other
people and exert a significant impact on consumer behavior.
A. Personal Influence
Aspects of personal influence important to marketing are:
1. Opinion leadership. Individuals who exert direct or indirect social influence over others are
called opinion leaders.
a. They are considered knowledgeable about or users of specific products, so their opinions
influence others choices.
b. Since about 10 percent of U.S. adults are opinion leaders, identifying, reaching, and
influencing them is a challenge.
c. Some firms use celebrities as spokespersons to represent their products hoping they are
opinion leaders. Others promote their products in media believed to reach them.
2. Word of mouth is people influencing each other during conversations and is a powerful and
authentic information source for consumers because it involves friends viewed as trustworthy.
a. According to a recent survey, women in Asia making travel plans are heavily influenced by
word of mouth activities by friends, family members, and working colleagues.
b. Example: teaser advertising campaigns are run in advance of new-product
introductions to stimulate word of mouth.
c. Companies recruit and deploy people to produce buzzpopularity created by consumer
word of mouth.
d. The power of word of mouth has been magnified by the Internet through forums, blogs,
chat rooms, and websites.
48
MARKETING MATTERS
BzzAgentThe Buzz Experience
BzzAgent has a nationwide army of 350,000 natural-born talkers who promote products and services
they deem worth talking about. Our goal is to capture honest word of mouth,
says David Bolter, BzzAgents founder, and to build a network that turns passionate customers into
brand evangelists.
Agents sign up for a buzz campaign and receive a sample product and a training manual for buzzcreating strategies. Agents then file online reports describing the nature of the buzz and its effectiveness.
B. Reference Groups
Reference groups are people to whom an individual looks as a basis for self-appraisal or as a
source of personal standards.
They influence the information, attitudes, and aspiration levels that help set a consumers
standards, such as luxury products but not of necessities.
They exert a strong influence on the brand chosen when its use or consumption is highly visible
to others.
Three groups have marketing implications:
a. A membership group is one to which a person actually belongs, such a fraternities and
sororities, social clubs, etc.
b. An aspiration group is one that a person wishes to be a member of or identified with,
such as a professional society.
c. A dissociative group is one that a person wishes to maintain a distance from due to
differences in values or behaviors.
C. Family Influence
Family influences on consumer behavior result from three sources:
1. Consumer socialization is the process by which people acquire the skills, knowledge, and
attitudes necessary to function as consumers. Children learn how to purchase by:
49
a. Interacting with adults in purchase situations.
b. Engaging in their own purchasing and usage experiences.
2. Family life cycle describes the distinct phases that a family progresses through from formation
to retirement, each phase bringing with it identifiable purchasing behaviors.
a. The traditional family. Consists of married couples with children younger than 18 years
constitutes about 51 percent of all households in the Asia Pacific.
b. Young singles. Buying preferences include prepared foods, clothing, personal care
products, and entertainment. They represent a target market for recreational travel,
automobile, and consumer electronics firms.
c. Young married couples without children. Are typically more affluent than young singles
because usually both spouses are employed. These couples exhibit preferences for
furniture, housewares, and gift items for each other.
d. Young marrieds with children. Are driven by the needs of their children. They are a sizable
market for life insurance, various childrens products, and home furnishings.
e. Single parents with children. Are the least financially secure, whose buying preferences tend
toward convenience foods, childcare services, and personal care items.
f. Middle-aged married couples with children. Are typically better off financially than their
younger counterparts. They are a significant market for leisure products and home
improvement items.
g. Middle-aged couples without children. Have a large amount of discretionary income.
These couples buy better home furnishings, status automobiles, and financial services.
h. Older married and older unmarried. Make up a sizable market for prescription drugs,
medical services, vacation trips, and gifts for younger relatives.
3. Family Decision Making.
a. Two decision-making styles exist:
Spouse-dominant decisions. Are those for which either the husband (home and car
maintenance purchases) or the wife (groceries, childrens toys, clothing, and
medicines) is responsible.
50
Joint decision-making style. Both husband and wife jointly make decisions regarding
cars, vacations, houses, home appliances and electronics, and medical care.
b. Five roles of individual family members exist in the purchase process:
(1) information gatherer, (2) influencer, (3) decision maker, (4) purchaser, and (5) user.
c. Family members assume different roles for different products and services.
89 percent of wives either influence or make outright purchases of mens clothing.
Men spend 40 percent of all food-shopping dollars.
Children under 12 directly influence more than $325 billion in annual family purchases.
Teenagers influence another US$500 billion and spend another US$175 million of their
own money annually.
D. Social Class
a. Social class is defined as the relatively permanent, homogeneous divisions in a society into
which people sharing similar values, interests, and behavior can be grouped.
b. A persons occupation, source of income (not level of income), and education
determine his or her social class.
c. Three major social class categories existupper, middle, and lowerwith subcategories
within each.
d. Persons within social classes exhibit common values, attitudes, beliefs, lifestyles, and
buying behaviors.
e. Lower class people have a short-term orientation, are more emotional than rational, think
in concrete, not abstract terms, and see fewer personal opportunities.
f. Members of the upper classes focus on achievements and the future and think in
abstract or symbolic terms.
g. Firms use social class to identify and reach prospects for their products and services and
also recognize differences in media preferences among classes.
E. Culture and Subculture
Culture refers to the set of values, ideas, and attitudes that are learned and shared among
the members of a group.
51
Subcultures are subgroups within the larger, or national, culture with unique values, ideas,
and attitudes.
The three largest racial/ethnic subcultures in Singapore are Chinese, Malays, and Indians.
Each group exhibits sophisticated social and cultural behaviors that affect buying patterns,
which provides the basis for multicultural marketing programs.
Besides race, subculture can be associated with other variables such as sexual orientation.
Previously regarded as a societal taboo, Thailands gay population is now seen as big spenders.
A recent survey conducted by Nano Search Company has shown that the market for gay
products has become one of the most attractive markets in Thailand. The survey found that
despite the economic slowdown, sales of cosmetics, apparel, and trendy cell phones have
grown, partly due to the demand from homosexual buyers.
Subculture can relate to activities too.
In Japan, a cute subculture has been identified, with young Japanese women as its origin. This
subculture revolves around the consumption of cute goods and services, the wearing of cute
clothes, and the faking of childish behavior and innocent looks.
Three important elements of the cute culture are scarcity, originality, and speed.
LEARNING REVIEW
7. What are the two primary forms of personal influence?
Answer: opinion leadership; word of mouth
8. Marketers are concerned with which types of reference groups?
Answer: membership groups; aspiration groups; dissociative groups
9. What products tend to attract the middle class and what others tend to attract the upper class?
Answer: Upper class financial investments, expensive cars, formal evening wear. Middle class home
improvement, automobile parts, personal hygiene.
52
CHAPTER 6: UNDERSTANDING ORGANIZATIONS AS CUSTOMERS
LECTURE NOTES
THE CEMENT BUSINESS IS NOT GLAMOROUS AND LEAVES NO OBVIOUS LEGACY
PT Semen Gresik (SG) is the largest player in Indonesias cement market with a 43% volume market
share and 37% based on total installed capacity in 2010. SGs market share in Java is 38.2%, Sumatra
44.2%, Sulawesi 61.1% and Kalimantan 54.9%. SG has three production plants: in Java (10 million
tonnes), Sumatra (6.1 million tonnes) and Sulawesi (4.1 million tonnes).
SGs production facilities are supported by 16 large packing plants and many distribution warehouse all
across Indonesia. The company operates four special sea ports in Padang, Tuban, Gresik and
Biringkassi. SGs revenue for 2010 was 14,228 billion rupiahs (US$1.59 billion) with a growth of 13%
and its net income in 2010 was 3,490 billion rupiahs (US$390.3 million) with a growth rate of 28%..
The Indonesian cement industry has an estimated production capacity of 51.3 million tonnes in 2010
with a growth rate of 6.0%. Seventy nine percent of this capacity is used domestically and this
percentage is expected to go up. Cement distribution across the provinces is as follows: Java 53.5%,
Sumatra 23.9%, Sulawesi 7.4%, Kalimantan 7.1%, and others 8.1%. Bagged cement accounts for 80% of
market consumption while bulk accounts for 20%. The key drivers of domestic cement demand are
national economic growth, favourable interest rate, and infrastructure development.
Companies like SG do not market their products and services to consumers and households. They
market to other firms, organizations and institutions. In SGs case, their direct customers and endusers are construction firms and project management firms. In the course of marketing its products
and services, the company may interact with property developers, property owners, government
departments, contractors, architects and engineers. The marketing process to organizations is more
complex and there is usually the need for support and technical services. SG must show a good
understanding of its organizational customers in order to market to them effectively..
53
I. THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS [LO1]
Business marketing is the marketing of goods and services to companies, governments, or notfor-profit organizations for use in the creation of goods and services that they can produce and
market to others.
Organizational buyers are those manufacturers, wholesalers, retailers, and government agencies
that buy goods and services for their own use or for resale.
a. Manufacturers buy raw materials and parts and reprocess them into finished goods.
b. Wholesalers and retailers resell the goods they buy without reprocessing them.
c. Organizational buyers include all buyers except ultimate consumers.
d. Organizational buyers are divided into industrial, reseller, and government markets.
A. Industrial Markets
There are over 41.83 million firms in the industrial, or business, market in India alone, and
many more in other Asian countries.
Industrial firms in some way reprocess a product or service they buy before selling it again
to the next buyer.
B. Reseller Markets
Resellers are wholesalers and retailers that buy physical products and resell them again
without any reprocessing.
C. Government Markets
Government units at the respective levels, such as national or federal government,
state or provincial government, and city, county or local government make purchases
in order to sustain their operations.
An example of government spending, the Singapore government had an operating
expenditure of S$60.4 billion in 2011. Its development expenditure for 2011 was S$20.7
billion.
54
D. Global Organizational Markets
Industrial, reseller, and government markets also exist on a global scale. The largest exporting
industries in the U.S. focus on organizational customers, not ultimate consumers.
The majority of world trade involves exchange relationships that span the globe.
II. MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND GOVERNMENT MARKETS
Though there is no uniform standard industrial classification system used globally, the United
Nations uses the International Standard Industrial Classification (ISIC) system, consisting of one
letter to classify industries into 21 sections; these sections are then categorized as divisions,
groups, and classes.
Different Asian countries use slight different industrial classification systems.
It is important to understand the industrial classification systems used in the different Asian
countries, because national statistical bodies, research institutions and market research firms
often use these systems as a basis for collecting market and statistical data.
Limitations of the industrial classification system:

a. An organization may only be assigned one code, even if it engages in many
different activities that can involve many sectors that are identified by many
different codes.
b. Different countries in Asia and around the world use different classification
systems, so a firm may have different codes in different countries.
LEARNING REVIEW
1. What are the three main types of organizational buyers?
Answer: industrial firms; resellers; government units
2. What are industrial classification systems?
Answer: Industrial classification systems provide common industry definitions for certain countries,
which makes easier the measurement of economic activity in the member countries.
55
III. CHARACTERISTICS OF ORGANIZATIONAL BUYING [LO2]

Unique objectives and policies of an organization put special constraints on how it makes buying
decisions. Key characteristics include:
A. Demand Characteristics
Consumer demand for products and services is affected by their price, availability, as
well as consumers tastes and discretionary income.
Derived demand means that the demand for industrial products and services is driven by, or
derived from, demand for consumer products and services.
B.
Size of the Order or Purchase

The size of the purchase in organizational buying is much larger than that in consumer
buying. The dollar value of a single purchase often runs into the thousands or millions of
dollars.
Most organizations place purchasing constraints on their buyers, who must get competitive bids
from at least three prospective suppliers if the order is above a specific amount.
The size of the order determines who participates in the purchase decision and the time
required to negotiate a purchase agreement.
MARKET MATTERS >> Global

The Airbus A380 Superjumbo Jet Takes Flight
Rapidly expanding demand for intercontinental passenger air traffic and the growth of the global
air freight industry have resulted in the creation of Airbuss A380 Superjumbo Jet.
The demand for the A380 will depend on prospective buyers expectation of future air transport
traffic.
Airbus has orders for the A380 from buyers on five continents, including Singapore Airlines, Qantas
Airways, Lufthansa, Virgin Atlantic Airways, Air France, Emirates Airlines, and Fedex.
56
C.
Number of Potential Buyers

Firms selling consumer products and services try to reach thousands or millions of
individuals or households.
Firms selling to organizations usually have far fewer buyers.
D. Organizational Buying Objectives

For business firms, the buying objective is usually to increase profits through reducing costs or
increasing revenues.
The objectives of nonprofit firms and government agencies are usually to meet the needs of
the groups they serve.
Firms have broadened their objectives to emphasize buying from minority- and women-owned
suppliers and vendors.
Other companies include environmental initiatives in their buying objectives.
E. Organizational Buying Criteria
Organizational buying criteria are the objective attributes of the suppliers products and
services and the capabilities of the supplier itself. These criteria serve the same purpose as the
evaluative criteria used by consumers.
Seven commonly used buying criteria are:
a. Price.
b. Ability to meet the quality specifications required for the item.
c. Ability to meet required delivery schedules.
d. Technical capability.
e. Warranties and claim policies in the event of poor performance.
f. Past performance on previous contracts.
g. Production facilities and capacity.
Organizational buyers who purchase products and services in the global marketplace often
supplement their buying criteria with supplier ISO 9000 standards certification.
57
ISO 9000 standards, developed by the International Standards Organization (ISO) in Geneva,
Switzerland, refer to for registration and certification of a manufacturers quality management
and assurance system based on an on-site audit of practices and procedures.
Reverse Marketing involves the deliberate effort by organizational buyers to build
relationships that shape suppliers products, services, and capabilities to fit a buyers needs
and those of its customers.
With many Asian manufacturers using a just-in-time (JIT) inventory system that reduces the
inventory of production parts to those to be used within hours or days, on-time delivery is
becoming even more important buying criterion and, in some instances, a requirement.
MAKING RESPONSIBLE DECISION >> ETHICS
Scratching Each Others Backs The Ethics of Reciprocity in Organizational Buying
Reciprocity is prohibited by anti-competitive laws in many countries because it restricts the
normal operation of the free market.
Reciprocity buying practices exist in a variety of forms and the extent to which reciprocity is
viewed as an ethical issue varies across cultures.
F. Buyer-Seller Relationships and Supply Partnerships
Organizational buying involves complex and lengthy negotiations concerning delivery

schedules, price, technical specifications, warranties, and claim policies.
Reciprocity is an industrial buying practice in which two organizations agree to purchase each
others products and services.
a. Anti-competitive laws in many countries limit reciprocal buying because it restricts the
normal operation of the free market.
b. However, the practice exists and can limit the flexibility of organizational buyers in
choosing alternative suppliers.
c. Long-term contracts are also prevalent.
58
A supply partnership is a relationship that exists when a buyer and its supplier adopt mutually
beneficial objectives, policies, and procedures for the purpose of lowering the cost or
increasing the value of products and services delivered to the ultimate consumer.
G. The Buying Center: A Cross-Functional Group [LO3]
A buying center is a group of people in an organization who participate in the buying process
and share common goals, risks, and knowledge important to a purchase decision.
In large multi-store chain resellers, the buying center is highly formalized and is called a
buying committee.
Four questions to provide guidance in understanding the buying center in these organizations
include:
a. Which individuals are in the buying center for a particular product or service?
b. What is the relative influence of each member of the group?
c. What are the buying criteria of each member?
d. How does each member perceive the firm, its products, and its salespeople?
1. People in the Buying Center.

a. The composition of the buying center in a given organization depends on the specific item
being bought.
b. The purchasing manager is almost always a member.
c. Individuals from top management and other functional areas are included depending on
the purchase.
2. Roles in the Buying Center. There are five specific roles that an individual in buying center can
play:
a. Users are people in the organization who actually use the product or service.
b. Influencers affect the buying decision, usually by helping define the specifications for
what is bought.
59
c. Buyers have formal authority and responsibility to select the supplier and negotiate the
terms of the contract.
d. Deciders have the formal or informal power to select or approve the supplier that
receives the contract.
e. Gatekeepers control the flow of information in the buying center.
3. Buying Situations and the Buying Center.
a. The number of people in the buying center largely depends on the specific buying situation.
b. There are three types of organizational buying situations, called buy classes, which
vary from the routine reorder to the completely new purchase:
Straight rebuy, where the buyer reorders an existing product or service from the list of
acceptable suppliers.
Modified rebuy, where users, influencers, or deciders in the buying center want to
change the product specifications, price, delivery schedule, or supplier, although the
item purchased is largely the same.
New buy, where the firm is a first-time buyer of the product or service. This involves
greater risks, so the buying center is enlarged to include all who have a stake in the new
buy.
c. The marketing strategies of sellers facing each of these three buying situations can vary
greatly because the participation of personnel from functional areas, such as purchasing,
R&D, engineering, and production, often varies with
(1) the type of buying situation and (2) the stage of the purchasing process.
LEARNING REVIEW
3. What one department is almost always represented by a person in the buying center?
Answer: purchasing department
4. What are the three types of buying situations or buy classes?
Answer: straight rebuy, modified rebuy, and new buy
60
IV. CHARTING THE ORGANIZATIONAL BUYING PROCESS
Organizational buying behavior is the decision-making process that organizations use to establish
the need for products and services and identify, evaluate, and choose among alternative brands and
suppliers.
A. Stages in the Organizational Buying Process
Consumers and organizations use the same five stages of the purchase decision process: (1)
problem recognition, (2) information search, (3) alternative evaluation, (4) purchase decision,
and (5) postpurchase evaluation.
B. Buying a Machine Vision System
The stages of the buying process can be applied to the purchase of components and assemblies
for machine vision systems, which are used for product inspection.
The buying process for machine vision components and assemblies is frequently a new buy
because many machine vision systems contain elements that require some custom design.
1. Problem Recognition.
a. Sales engineers canvass industrial automation equipment users for leads on upcoming
industrial automation projects.
After a contract is won, project personnel must often make a make-buy decisionan evaluation of whether
components and assemblies will be purchased from outside suppliers or built by the company itself.
2. Information Search.
a. Companies employ a sophisticated process for identifying outside, such as a purchasing
databank, which contains information on suppliers and products.
b. Many products in the companys purchasing databank have been assessed using value
analysisa systematic appraisal of the design, quality, and performance of a product to
reduce purchasing costs.
c. New developments in product technology are often found in technical journals, industry
magazines or at international trade shows where suppliers display their most recent
innovations. In some instances, supplier representatives might be asked to make
presentations to the buying center.
61
3. Alternative Evaluation.
a. The main buying criteria used to select suppliers are: price, quality, delivery, assurance
that a supplier will not go out of business, and service during the contractual period.
b. Typically, a few suppliers for each standard component and assembly are identified from a
bidders lista list of firms believed to be qualified to supply a given item.
c. Firms selected from the bidders list are sent a quotation request from the purchasing
agent, describing the desired quantity, delivery date(s), and specifications. Suppliers are
expected to respond within 30 days.
4. Purchase Decision.
a. The period from supplier selection to order placement to product delivery can take several
weeks or even months.
b. Even after bids for components and assemblies are submitted, further negotiation
concerning price, performance, and delivery terms is likely.
c. Sometimes two or more suppliers might be awarded contracts when large orders are
requested.
d. Suppliers who are not chosen are informed why their bids were not selected.
5. Postpurchase Behavior.
a. Companies such as Siemens employ a formalized and sophisticated process for evaluating
the products and services purchased from suppliers.
b. A suppliers performance is monitored and recorded, and will determine its chances of
being asked to bid on future purchases. Poor performance may result in a supplier being
dropped from the bidders list.
c. Four lessons for marketers striving to sell products and services to organizations
are:
Understand the organizations needs.
Get on the right bidders list.
Find the right people in the buying center.
Provide value to organizational buyers.
62
LEARNING REVIEW
5. What is a make-buy decision?
Answer: An evaluation of whether components and assemblies will be purchased from outside
suppliers or built by the company itself.
6. What is a bidders list?
Answer: A list of firms believed to be qualified to supply a given item.
V. ONLINE BUYING IN ORGANIZATIONAL MARKETS [LO4]

Organizational buyers account for 80% of the total worldwide value of all online transactions,
both in volume and dollar value.
U.S. organizational buyers account for about 60% of these online purchases.
A. Prominence of Online Buying in Organizational Markets
Online buying in organizational markets occurs for these reasons:
a. Organizational buyers depend heavily on timely supplier information that describes
product availability, technical specifications, application uses, price, and delivery
schedules.
b. Internet technology has been shown to substantially reduce buyer order processing
costs.
c. Business marketers have found that Internet technology can reduce marketing costs,
particularly sales and advertising expense, and broaden their potential customer base for
many types of products and services.
Organizational buyers can purchase directly from suppliers, through a reseller, or via emarketplaces and online auctions.
63
Web Link
eBay Means Business Too
eBay, Inc., is a true Internet phenomenon. By any measure, it is the predominant person-toperson trading community in the world. eBay recently introduced a trading platform for the nearly 23
million small businesses in the U.S. and even greater numbers around the world. Transactions on
eBayBusiness exceed sales of $20 billion annually.
B. E-Marketplaces: Virtual Organizational Markets
E-marketplaces are online trading communities that bring together buyers and supplier
organizations to make possible the real time exchange of information, money, products, and
services. Also called B2B exchanges or e-hubs.
E-marketplaces can be independent trading communities.
a. Independent e-marketplaces act as a neutral third-party, provide an Internet technology
trading platform and a centralized market that enable exchanges between buyers and
sellers, and charge a fee for their service.
b. E-marketplaces exist in settings that have the following features:
Thousands of geographically dispersed buyers and sellers.
Frequently changing prices caused by demand and supply fluctuations.
Time sensitivity due to perishable offerings and changing technologies.
Easily comparable offerings between a variety of suppliers.
c. Small business buyers and sellers benefit from independent e-marketplaces, which offer
them an economical way to expand their customer bases and reduce costs.
E-marketplaces can be private exchanges.
a. Large companies tend to favor private exchanges, which streamline their purchase
transactions by linking them with their network of qualified suppliers and customers.
b. Private exchanges are not a neutral third party, but represent the interests of their owners.
c. Private exchanges have saved their members billions of dollars due to efficiencies in
purchase transactions.
64
C. Online Auctions in Organizational Markets
Many e-marketplaces offer online auctions. Two types are:
In a traditional auction, a seller puts an item up for sale and would-be buyers are invited to bid
in competition with each other. As more would-be buyers become involved, there is an upward
pressure on bid prices. The auction ends when a single bidder remains and wins the item with
its highest price.
In a reverse auction, a buyer communicates a need for a product or service and would-be
suppliers are invited to bid in competition with each other. As more would-be suppliers
become involved, there is a downward pressure on bid prices for the buyers business. The
auction ends when a single bidder remains and wins the business with its lowest price.
a. Some suppliers favor reverse auctions because they give them a chance to capture business
that they might not have otherwise had because of a long-standing purchase relationship
between the buyer and another supplier.
b. Other suppliers say that reverse auctions put too much emphasis on prices, discourage
consideration of other important buying criteria, and threaten supply partnerships.
LEARNING REVIEW
7. What are e-marketplaces?
Answer: E-marketplaces are online trading communities that bring together buyers and supplier
organizations to make possible the real time exchange of information, money, products, and services.
8. In general, which type of online auction creates upward pressure on bid prices and which type creates
downward pressure on bid prices?
Answer: traditional auction; reverse auction
65

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Principles of Marketing

CHAPTER 1: CREATING CUSTOMER RELATIONSHIPS AND VALUE THROUGH MARKETING

A. Creating a Revolution in the Japanese Fashion Industry

B. Customer Needs and Wants in Casual Clothing

At a financial level, they need something affordable.

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Test your marketing expertise by answering the following questions:

The marketing strategy of UNIQLO is discussed throughout this chapter.

B. Marketing: Using Exchanges to Satisfy Needs

An abridged version of the new AMA definition of marketing:

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Prospective customers include:

C. The Diverse Factors Influencing Marketing Activities

Marketing is affected by and impacts society.

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Four factors are required for marketing to occur:

Marketings first objective: discover the needs of consumers.

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Focus on the consumer benefit.

Learn from the past.

Dr. Care vanilla-mint-flavored aerosol toothpaste.

Hot Pockets Subs microwavable snacks.

Professor: Dr. Benedict Eusoof Razon

MAKING RESPONSIBLE DECISIONS

3. What a Market Is.

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

1. The Four Ps: Controllable Marketing Mix Factors. [LO3]

Product. A good, service, or idea to satisfy the consumers needs.

Price. What is exchanged for the product.

Promotion. A means of communication between the seller and buyer.

Place. A means of getting the product to the consumer.

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Three strategies used to deliver customer value include:

Professor: Dr. Benedict Eusoof Razon

D. A Marketing Program for UNIQLO

Professor: Dr. Benedict Eusoof Razon

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Indirect contacts (word-of-mouth, news reports).

Micromarketing focuses on how an individual organization directs its marketing activities

C. The Breadth and Depth of Marketing [LO6]

Professor: Dr. Benedict Eusoof Razon

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Far Eastern University Makati

Professor: Dr. Benedict Eusoof Razon

Facebook and the influence of environmental forces

A. Social forces. Changed as people:

Became more interested in the social aspects of the internet.

Made social networking affordable for consumers.

Companies such as friendster provided alternatives and a rush to expand.

Today, google is a major competitor of facebook.

E. Legal and regulatory forces also affected facebook. The company:

Obtained rights to the name, developed privacy guidelines.

Far Eastern University Makati