MODULE 2 • Independent customer goods and service review

PART II: Capturing Marketing Insights forums. Independent forums include Web site that
collects millions of consumer reviews of stores and
LEARNING CONTENT 1: COLLECTING INFORMATION AND products each year and feedback from stores that
FORECASTING DEMAND allow the site to collect it directly from their customers
as they make purchases.
❖ COMPONENTS OF A MODERN MARKETING • Distributor or sales agent feedback sites.
INFORMATION Feedback sites offer positive and negative product or
Every firm must organize and distribute a continuous flow of service reviews, but the stores or distributors have
information to its marketing managers. built the sites themselves.
• Combo sites offering customer reviews and
A marketing information system (mis) consists of people, expert opinions. Combination sites are concentrated
equipment, and procedures to gather, sort, analyze, evaluate, in financial services and high-tech products that
and distribute needed, timely, and accurate information to require professional knowledge.
marketing decision makers. It relies on internal company • Customer complaint sites. Customer complaint
records, marketing intelligence activities, and marketing forums are designed mainly for dissatisfied
research. We’ll discuss the first two components here, and the customers.
third one in the next learning content. • Public blogs. Tens of millions of blogs and social
The company’s marketing information system should be a networks exist online, offering personal opinions,
mixture of what managers think they need, what they really reviews, ratings, and recommendations on virtually
need, and what is economically feasible. An internal MIS any topic—and their numbers continue to grow.
committee can interview a cross-section of marketing
managers to discover their information needs. ❖ ANALYZING THE MACROENVIRONMENT
Needs and Trends
❖ INTERNAL RECORDS
To spot important opportunities and potential problems, A fad is “unpredictable, short-lived, and without social,
marketing managers rely on internal reports of orders, sales, economic, and political significance.”
prices, costs, inventory levels, receivables, and payables. A trend is more predictable and durable than a fad; trends
reveal the shape of the future and can provide strategic
• The Order-to-Payment Cycle. The heart of the direction.
internal records system is the order-to-payment cycle. A megatrend is a “large social, economic, political, and
Sales representatives, dealers, and customers send technological change [that] is slow to form, and once in place,
orders to the firm. The sales department prepares influences us for some time—between seven and ten years, or
invoices, transmits copies to various departments, longer.”
and back-orders out-of-stock items. Shipped items
generate shipping and billing documents that go to Identifying The Major Forces
various departments.
• Sales Information Systems. Marketing managers Six major forces in the broad environment:
need timely and accurate reports on current sales.  Demographic
• Databases, Data Warehousing, and Data Mining.  Economic
Companies organize their information into customer,  Socialcultural
product, and salesperson databases—and then  Natural
combine their data. The customer database will
 Technological, and
contain every customer’s name, address, past
 Political-legal.
transactions, and sometimes even demographics and
psychographics (activities, interests, and opinions).
1. The Demographic Environment
- Demographic developments often move at a fairly
❖ MARKETING INTELLIGENCE
predictable pace. The main one marketers monitor is
population, including the size and growth rate of
The Marketing Intelligence System A marketing intelligence
population in cities, regions, and nations; age
system is a set of procedures and sources that managers use
distribution and ethnic mix; educational levels;
to obtain everyday information about developments in the
household patterns; and regional characteristics and
marketing environment. The internal records system supplies
movements.
results data, but the marketing intelligence system supplies
2. The Economic Environment
happenings data. Marketing managers collect marketing
- The available purchasing power in an economy
intelligence in a variety of different ways, such as by reading
depends on current income, prices, savings, debt, and
books, newspapers, and trade publications; talking to
credit availability. As the recent economic downturn
customers, suppliers, and distributors; monitoring social media
vividly demonstrated, trends affecting purchasing
on the Internet; and meeting with other company managers.
power can have a strong impact on business,
especially for companies whose products are geared
A company can take eight possible actions to improve the
to high-income and price-sensitive consumers.
quantity and quality of its marketing intelligence.
3. The Sociocultural Environment
1. Train and motivate the sales force to spot and report
- From our sociocultural environment we absorb,
new developments.
almost unconsciously, a world view that defines our
2. Motivate distributors, retailers, and other
relationships to ourselves, others, organizations,
intermediaries to pass along important intelligence.
society, nature, and the universe.
3. Hire external experts to collect intelligence.
4. The Natural Environment
4. Network internally and externally.
- Environmental regulations hit certain industries hard.
5. Set up a customer advisory panel.
6. Take advantage of government-related data Opportunities await those who can reconcile
resources. prosperity with environmental protection.
7. Purchase information from outside research firms and 5. The Technological Environment
vendors. - It is the essence of market capitalism to be dynamic
8. Collecting marketing intelligence on the Internet. and tolerate the creative destructiveness of
technology as the price of progress. When old
We devote special attention to the eighth, collecting marketing industries fight or ignore new technologies, their
intelligence on the Internet. businesses decline.
6. The Political-Legal Environment
Collecting Marketing Intelligence on the Internet - The political and legal environment consists of laws,
There are five main ways marketers can research government agencies, and pressure groups that
competitors’ product strengths and weaknesses online. influence various organizations and individuals.
Sometimes these laws create new business
opportunities.
 buys three books a year at an average price of $20
each, then the total market potential for books is $6
billion (100 million 3 $20).
• Area market potential. Because companies must
❖ FORECASTING AND DEMAND MEASUREMENT allocate their marketing budget optimally among their
best territories, they need to estimate the market
The Measures of Market Demand potential of different cities, states, and nations.
• Industry sales and market shares. Besides
There are many productive ways to break down the market: estimating total potential and area potential, a
 The potential market is the set of consumers with a company needs to know the actual industry sales
sufficient level of interest in a market offer. However, taking place in its market. This means identifying
their interest is not enough to define a market unless competitors and estimating their sales.
they also have sufficient Income and access to the
product. Estimating Future Demand
 The available market is the set of consumers who • Forecasting is the art of anticipating what buyers are
have interest, income, and access to a particular offer. likely to do under a given set of conditions.
The company or government may restrict sales to • Composite of sales force opinions, when buyer
certain groups; a particular state might ban interviewing is impractical, the company may ask its
motorcycle sales to anyone under 21 years of age. sales representatives to estimate their future sales.
Eligible adults constitute the qualified available market • Expert opinion. Companies can also obtain forecasts
—the set of consumers who have interest, income, from experts, including dealers, distributors, suppliers,
access, and qualifications for the market offer. marketing consultants, and trade associations.
 The target market is the part of the qualified available • Past-sales analysis. Firms can develop sales
market the company decides to pursue. The company forecasts on the basis of past sales.
might concentrate its marketing and distribution effort o Timeseries analysis breaks past time series
on the East coast. into four components (trend, cycle, seasonal,
 The penetrated market is the set of consumers who and erratic) and projects them into the future.
are buying the company’s product. o Exponential smoothing projects the next
period’s sales by combining an average of
A Vocabulary for Demand Measurement past sales and the most recent sales, giving
more weight to the latter.
o Market demand for a product is the total volume that o Statistical demand analysis measures the
would be bought by a defined customer group in a impact of a set of causal factors (such as
defined geographical area in a defined time period in income, marketing expenditures, and price)
a defined marketing environment under a defined on the sales level.
marketing program. o Econometric analysis build sets of
o Market share for a product is the higher level of equations that describe a system and
selective demand for that product. statistically derives the different parameters
o Market forecast. Only one level of industry marketing that make up the equations statistically.
expenditure will actually occur. The market demand • Market-test method. When buyers don’t plan their
corresponding to this level is called the market purchases carefully, or experts are unavailable or
forecast. unreliable, a direct-market test can help forecast new-
o Market potential is the limit approached by market product sales or established product sales in a new
demand as industry marketing expenditures approach distribution channel or territory.
infinity for a given marketing environment.
o Product-penetration percentage, the percentage of LEARNING CONTENT 2: CONDUCTING MARKETING
ownership or use of a product or service in a RESEARCH
population.
o Company demand is the company’s estimated share ❖ THE MARKETING RESEARCH SYSTEM
of market demand at alternative levels of company
marketing effort in a given time period. It depends on Marketing insights provide diagnostic information about how
how the company’s products, services, prices, and and why we observe certain effects in the marketplace, and
communications are perceived relative to the what that means to marketers. Good marketing insights often
competitors’. form the basis of successful marketing programs.
o The company sales forecast is the expected level of
company sales based on a chosen marketing plan We define marketing research as the systematic design,
and an assumed marketing environment. collection, analysis, and reporting of data and findings relevant
o A sales quota is the sales goal set for a product line, to a specific marketing situation facing the company.
company division, or sales representative.
o A sales budget is a conservative estimate of the Marketing research, however, is not limited to large companies
expected volume of sales, primarily for making current with big budgets and marketing research departments. Often at
purchasing, production, and cash flow decisions. It’s much smaller companies, everyone carries out marketing
based on the need to avoid excessive risk and is research— including the customers. Small companies can also
generally set slightly lower than the sales forecast. hire the services of a marketing research firm or conduct
o Company sales potential is the sales limit research in creative and affordable ways, such as:
approached by company demand as company • Engaging students or professors to design and carry
marketing effort increases relative to that of out projects
competitors. The absolute limit of company demand • Using the Internet
is, of course, the market potential. • Checking out rivals
• Tapping into marketing partner expertise
Estimating Current Demand
Marketing executives want to estimate total market potential, Most companies use a combination of marketing research
area market potential, and total industry sales and market resources to study their industries, competitors, audiences, and
shares. channel strategies. Companies normally budget marketing
• Total market potential is the maximum sales research at 1 percent to 2 percent of company sales and spend
available to all firms in an industry during a given a large percentage of that on the services of outside firms.
period, under a given level of industry marketing effort Marketing research firms fall into three categories:
and environmental conditions. A common way to
estimate total market potential is to multiply the • Syndicated-service research firms—These firms
potential number of buyers by the average quantity gather consumer and trade information, which they
each purchase, times the price. If 100 million people sell for a fee.
buy books each year, and the average book buyer
 • Custom marketing research firms—These firms are sensors, brain wave scanners, and full body scanners
hired to carry out specific projects. They design the to get consumer responses. Some researchers study
study and report the findings. eye movements and brain activity of Web surfers to
• Specialty-line marketing research firms—These see which ads grab their attention.
firms provide specialized research services. The best
example is the field-service firm, which sells field
interviewing services to other firms.
❖ THE MARKETING RESEARCH PROCESS Sampling Plan
After deciding on the research approach and instruments, the
Effective marketing research follows the six steps: marketing researcher must design a sampling plan.

Step 1: Define the Problem, the Decision Alternatives, and This calls for three decisions:
the Research Objectives 1. Sampling unit: Whom should we survey?
Marketing managers must be careful not to define the problem 2. Sample size: How many people should we survey?
too broadly or too narrowly for the marketing researcher. To 3. Sampling procedure: How should we choose the
help in designing the research, management should first spell respondents?
out the decisions it might face and then work backward.
Contact Methods
Step 2: Develop the Research Plan Now the marketing researcher must decide how to contact the
The second stage of marketing research is where we develop subjects: by mail, by telephone, in person, or online.
the most efficient plan for gathering the needed information
and what that will cost. To design a research plan, we need to Step 3: Collect the Information
make decisions about the data sources, research approaches, The data collection phase of marketing research is generally
research instruments, sampling plan, and contact methods. the most expensive and the most prone to error.
Step 4: Analyze the Information
Data Sources The next-to-last step in the process is to extract findings by
The researcher can gather secondary data, primary data, or tabulating the data and developing summary measures. The
both. Secondary data are data that were collected for another researchers now compute averages and measures of
purpose and already exist somewhere. Primary data are data dispersion for the major variables and apply some advanced
freshly gathered for a specific purpose or for a specific statistical techniques and decision models in the hope of
research project. discovering additional findings.
Step 5: Present the Findings
Research Approaches As the last step, the researcher presents findings relevant to
Marketers collect primary data in five main ways: the major marketing decisions facing management.
1. Observational Research. Researchers can gather Researchers increasingly are being asked to play a more
fresh data by observing the relevant actors and proactive, consulting role in translating data and information
settings unobtrusively as they shop or consume into insights and recommendations. They’re also considering
products. Ethnographic research is a particular ways to present research findings in as understandable and
observational research approach that uses concepts compelling a fashion as possible.
and tools from anthropology and other social science Step 6: Make the Decision
disciplines to provide deep cultural understanding of Some organizations use marketing decision support systems to
how people live and work. help their marketing managers make better decisions. MIT’s
2. Focus Group Research. A focus group is a gathering John Little defines a marketing decision support system
of 6 to 10 people carefully selected by researchers (MDSS) as a coordinated collection of data, systems, tools,
based on certain demographic, psychographic, or and techniques, with supporting software and hardware, by
other considerations and brought together to discuss which an organization gathers and interprets relevant
various topics of interest at length. information from business and environment and turns it into a
3. Survey Research. Companies undertake surveys to basis for marketing action.
assess people’s knowledge, beliefs, preferences, and
satisfaction and to measure these magnitudes in the
general population. ❖ MEASURING MARKETING PRODUCTIVITY
4. Behavioral Research. Customers leave traces of
their purchasing behavior in store scanning data, Two complementary approaches to measuring marketing
catalog purchases, and customer databases. productivity are:
Marketers can learn much by analyzing these data. 1. Marketing metrics to assess marketing effects. The
Actual purchases reflect consumers’ preferences and set of measures that helps them quantify, compare,
often are more reliable than statements they offer to and interpret their marketing performance.
market researchers. 2. Marketing-mix modeling to estimate causal
5. Experimental Research. The most scientifically valid relationships and measure how marketing activity
research is experimental research, designed to affects outcomes. It analyzes data from a variety of
capture cause-and-effect relationships by eliminating sources, such as retailer scanner data, company
competing explanations of the observed findings. If shipment data, pricing, media, and promotion
the experiment is well designed and executed, spending data, to understand more precisely the
research and marketing managers can have effects of specific marketing activities.
confidence in the conclusions.

Research Instruments
MODULE NO. 3
• Questionnaire consists of a set of questions PART III: Connecting with Customers
presented to respondents. Because of its flexibility, it LEARNING CONTENT 1: CREATING LONG-TERM
is by far the most common instrument used to collect LOYALTY RELATIONSHIPS
primary data. Closed-end questions specify all the
possible answers and provide answers that are easier  BUILDING CUSTOMER VALUE, SATISFACTION,
to interpret and tabulate. Open-end questions allow AND LOYALTY
respondents to answer in their own words and often Creating loyal customers is at the heart of every business. As
reveal more about how people think. marketing experts Don Peppers and Martha Rogers say:
• Qualitative research techniques are relatively The only value your company will ever create is the value that
unstructured measurement approaches that permit a comes from customers— the ones you have now and the ones
range of possible responses. you will have in the future. Businesses succeed by getting,
• Technological Devices. There has been much keeping, and growing customers. Customers are the only
interest in recent years in various technological reason you build factories, hire employees, schedule meetings,
devices. Technology has now advanced to such a lay fiber- optic lines, or engage in any business activity. Without
degree that marketers can use devices such as skin customers, you don’t have a business.
Successful marketing companies invert the chart. At the top are satisfied. If it exceeds expectations, the customer is highly
customers; next in importance are frontline people who meet, satisfied or delighted.
serve, and satisfy customers; under them are the middle Product and Service Quality
managers, whose job is to support the frontline people so Satisfaction will also depend on product and service quality.
they can serve customers well; and at the base is top What exactly is quality? Various experts have defined it as
management, whose job is to hire and support good middle “fitness for use,” “conformance to requirements,” and “freedom
managers. We have added customers alongside to indicate from variation.”
that managers at every level must be personally involved in We will use the American Society for Quality’s definition:
knowing, meeting, and serving customers. Quality is the totality of features and characteristics of a
product or service that bear on its ability to satisfy stated or
Customer Perceived Value implied needs.
Impact of Quality
Customer-perceived value (CPV) is the difference between Product and service quality, customer satisfaction, and
the prospective customer’s evaluation of all the benefits and company profitability are intimately connected. Higher levels of
all the costs of an offering and the perceived alternatives. quality result in higher levels of customer satisfaction, which
support higher prices and (often) lower costs.
Total customer benefit is the perceived monetary value of the
bundle of economic, functional, and psychological benefits  MAXIMIZING CUSTOMER LIFETIME VALUE
customers expect from a given market offering because of the
product, service, people, and image. Customer Profitability
Total customer cost is the perceived bundle of costs
customers expect to incur in evaluating, obtaining, using, and A profitable customer is a person, household, or company
disposing of the given market offering, including monetary, that over time yields a revenue stream exceeding by an
time, energy, and psychological costs. acceptable amount the company’s cost stream for attracting,
selling, and serving that customer.
Applying Value Concepts
Customer Profitability Analysis
Very often, managers conduct a customer value analysis to
reveal the company’s strengths and weaknesses relative to Customer profitability analysis (CPA) is best conducted with
those of various competitors. The steps in this analysis are: the tools of an accounting technique called activity-based
1. Identify the major attributes and benefits costing (ABC). ABC accounting tries to identify the real costs
customers value. Customers are asked what associated with serving each customer—the costs of products
attributes, benefits, and performance levels they look and services based on the resources they consume. The
for in choosing a product and vendors. Attributes and company estimates all revenue coming from the customer, less
benefits should be defined broadly to encompass all all costs.
the inputs to customers’ decisions.
2. Assess the quantitative importance of the  CULTIVATING CUSTOMER RELATIONSHIPS
different attributes and benefits. Customers are
asked to rate the importance of different attributes and Customer Relationship Management
benefits. If their ratings diverge too much, the
marketer should cluster them into different segments. Customer relationship management (CRM) is the process of
3. Assess the company’s and competitors’ carefully managing detailed information about individual
performances on the different customer values customers and all customer “touch points” to maximize loyalty.
against their rated importance. Customers describe
where they see the company’s and competitors’ A customer touch point is any occasion on which a customer
performances on each attribute and benefit. encounters the brand and product— from actual experience to
4. Examine how customers in a specific segment personal or mass communications to casual observation.
rate the company’s performance against a
specific major competitor on an individual Personalizing Marketing
attribute or benefit basis. If the company’s offer
exceeds the competitor’s offer on all important Don Peppers and Martha Rogers outline a four-step framework
attributes and benefits, the company can charge a for one-to-one marketing that can be adapted to CRM
higher price (thereby earning higher profits), or it can marketing as follows:
charge the same price and gain more market share. 1. Identify your prospects and customers. Don’t go after
5. Monitor customer values over time. The company everyone. Build, maintain, and mine a rich customer
must periodically redo its studies of customer values database with information from all the channels and
and competitors’ standings as the economy, customer touch points.
technology, and features change. 2. Differentiate customers in terms of (1) their needs and
(2) their value to your company. Spend
Delivering High Customer Value proportionately more effort on the most valuable
Consumers have varying degrees of loyalty to specific brands, customers (MVCs). Apply activity-based costing and
stores, and companies. Oliver defines loyalty as “a deeply calculate customer lifetime value. Estimate net
held commitment to rebuy or repatronize a preferred product or present value of all future profits from purchases,
service in the future despite situational influences and margin levels, and referrals, less customer-specific
marketing efforts having the potential to cause switching servicing costs.
behavior.” 3. Interact with individual customers to improve your
knowledge about their individual needs and to build
The value proposition consists of the whole cluster of benefits stronger relationships. Formulate customized
the company promises to deliver; it is more than the core offerings you can communicate in a personalized way.
positioning of the offering. 4. Customize products, services, and messages to each
The value delivery system includes all the experiences the customer. Facilitate customer interaction through the
customer will have on the way to obtaining and using the company contact center and Web site.
offering. At the heart of a good value delivery system is a set of Attracting and Retaining Customers
core business processes that help deliver distinctive consumer Too many companies suffer from high customer churn or
value. defection. To reduce the defection rate, the company must:
1. Define and measure its retention rate.
Total Customer Satisfaction 2. Distinguish the causes of customer attrition and
identify those that can be managed better.
In general, satisfaction is a person’s feelings of pleasure or 3. Compare the lost customer’s lifetime value to the
disappointment that result from comparing a product’s costs of reducing the defection rate.
perceived performance (or outcome) to expectations.17 If the
performance falls short of expectations, the customer is Retention Dynamics
dissatisfied. If it matches expectations, the customer is
The marketing funnel identifies the percentage of the Through data mining, marketing statisticians can extract from
potential target market at each stage in the decision process, the mass of data useful information about individuals, trends,
from merely aware to highly loyal. Consumers must move and segments.
through each stage before becoming loyal customers. Some In general, companies can use their databases in five ways:
marketers extend the funnel to include loyal customers who are 1. To identify prospects—Many companies generate
brand advocates or even partners with the firm. sales leads by advertising their product or service.
2. To decide which customers should receive a
Consider this data about customer retention: particular offer—Companies interested in selling, up-
 Acquiring new customers can cost five times more selling, and cross-selling set up criteria describing the
than satisfying and retaining current ones. It requires ideal target customer for a particular offer.
a great deal of effort to induce satisfied customers to 3. To deepen customer loyalty—Companies can build
switch from their current suppliers. interest and enthusiasm by remembering customer
 The average company loses 10 percent of its preferences and sending appropriate gifts, discount
customers each year. coupons, and interesting reading material.
 A 5 percent reduction in the customer defection rate 4. To reactivate customer purchases—Automatic
can increase profits by 25 percent to 85 percent, mailing programs (automatic marketing) can send out
depending on the industry. birthday or anniversary cards, holiday shopping
 Profit rate tends to increase over the life of the reminders, or off-season promotions.
retained customer due to increased purchases, 5. To avoid serious customer mistakes—A major
referrals, price premiums, and reduced operating bank confessed to a number of mistakes it had made
costs to service. by not using its customer database well.

Managing The Customer Base The Downside of Database Marketing and CRM
Winning companies improve that value by excelling at
strategies like the following: Five main problems can prevent a firm from effectively using
 Reducing the rate of customer defection. CRM.
 Increasing the longevity of the customer relationship. 1. Some situations are just not conducive to database
 Enhancing the growth potential of each customer management. Building a customer database may not
through “share of wallet,” cross-selling, and up- be worthwhile when:
selling.  the product is a once-in-a-lifetime purchase (a grand
 Making low-profit customers more profitable or piano);
terminating them.  customers show little loyalty to a brand (there is lots
 Focusing disproportionate effort on high-profit of customer churn);
customers.  the unit sale is very small (a candy bar) so CLV is low;
 the cost of gathering information is too high; and
Developing Loyalty Programs  there is no direct contact between the seller and
ultimate buyer.
Frequency programs (FPs) are designed to reward 2. Building and maintaining a customer database
customers who buy frequently and in substantial amounts. requires a large, well-placed investment in computer
hardware, database software, analytical programs,
Club membership programs can be open to everyone who communication links, and skilled staff.
purchases a product or service, or limited to an affinity group or 3. It may be difficult to get everyone in the company to
those willing to pay a small fee. be customer oriented and use the available
information.
 CUSTOMER DATABASES AND DATABASE 4. Not all customers want a relationship with the
MARKETING company.
5. The assumptions behind CRM may not always hold
A customer database is an organized collection of true.
comprehensive information about individual customers or
prospects that is current, accessible, and actionable for lead LEARNING CONTENT 2: ANALYZING CONSUMER
generation, lead qualification, sale of a product or service, or MARKETS
maintenance of customer relationships.
 WHAT INFLUENCES CONSUMER BEHAVIOR?
Database marketing is the process of building, maintaining,
and using customer databases and other databases (products, Consumer behavior is the study of how individuals, groups,
suppliers, resellers) to contact, transact, and build customer and organizations select, buy, use, and dispose of goods,
relationships. services, ideas, or experiences to satisfy their needs and
wants.
Customer Databases Cultural Factors
 Culture is the fundamental determinant of a person’s
Many companies confuse a customer mailing list with a
wants and behavior.
customer database. A customer mailing list is simply a set of
 Each culture consists of smaller subcultures that
names, addresses, and telephone numbers. A customer
provide more specific identification and
database contains much more information, accumulated
socialization for their members. Subcultures include
through customer transactions, registration information, nationalities, religions, racial groups, and
telephone queries, cookies, and every customer contact. geographic regions. When subcultures grow large
and affluent enough, companies often design
A business database contains business customers’ past specialized marketing programs to serve them.
purchases; past volumes, prices, and profits; buyer team  Social classes, relatively homogeneous and
member names (and ages, birthdays, hobbies, and favorite enduring divisions in a society, hierarchically
foods); status of current contracts; an estimate of the supplier’s ordered and with members who share similar
share of the customer’s business; competitive suppliers; values, interests, and behavior. One classic
assessment of competitive strengths and weaknesses in depiction of social classes: (1) lower lowers, (2)
selling and servicing the account; and relevant customer upper lowers, (3) working class, (4) middle class,
buying practices, patterns, and policies. (5) upper middles, (6) lower uppers, and (7) upper
uppers.
Data Warehouses and Data Mining
Social Factors
These data are collected by the company’s contact center and
 A person’s reference groups are all the groups
organized into a data warehouse where marketers can that have a direct (face to-face) or indirect
capture, query, and analyze them to draw inferences about an influence on their attitudes or behavior.
individual customer’s needs and responses.  Groups having a direct influence are called
membership groups.
 Primary groups with whom the person interacts
 fairly continuously and informally, such as family, @ particular times. 37 His answer is that human
friends, neighbors, and coworkers. needs are arranged in a hierarchy from most to
 People also belong to secondary groups, such least pressing—physiological needs, safety
as religious, professional, and trade-union groups, needs, social needs, esteem needs, and self-
which tend to be more formal and require less actualization needs.
continuous interaction. 3. HERZBERG’S THEORY. Frederick Herzberg
 Aspirational groups are those a person hopes to join. developed a two-factor theory that distinguishes
 Dissociative groups are those whose values or dissatisfiers (factors that cause dissatisfaction) from
behavior an individual rejects. satisfiers (factors that cause satisfaction). The
 An opinion leader is the person who offers informal absence of dissatisfiers is not enough to motivate a
advice or information about a specific product or purchase; satisfiers must be present.
product category, such as which of several brands
is best or how a particular product may be used. Perception is the process by which we select, organize, and
 The family is the most important consumer buying interpret information inputs to create a meaningful picture of
organization in society, and family members the world.
constitute the most influential primary reference Selective attention means that marketers must work hard
group. to attract consumers’ notice. The real challenge is to explain
 Roles and status, a role consists of the activities a which stimuli people will notice. Here are some findings:
person is expected to perform. Each role in turn  People are more likely to notice stimuli that relate to
connotes a status. a current need. A person who is motivated to buy a
computer will notice computer ads and be less likely
Personal Factors to notice DVD ads.
 Age and stage in the life cycle. Our taste in food,  People are more likely to notice stimuli they
clothes, furniture, and recreation is often related to anticipate. You are more likely to notice computers
our age. Consumption is also shaped by the family than radios in a computer store because you don’t
life cycle and the number, age, and gender of expect the store to carry radios.
people in the household at any point in time. In  People are more likely to notice stimuli whose
addition, psychological life-cycle stages may matter. deviations are large in relationship to the normal
Adults experience certain “passages” or size of the stimuli. You are more likely to notice an
“transformations” as they go through life. ad offering $100 off the list price of a computer than
one offering $5 off.
Occupation and Economic Circumstances
Occupation also influences consumption patterns. Marketers Selective distortion is the tendency to interpret information in
try to identify the occupational groups that have above- a way that fits our preconceptions. Consumers will often distort
average interest in their products and services and even information to be consistent with prior brand and product
tailor products for certain occupational groups. beliefs and expectations.
Selective retention, we’re likely to remember good points
Personality and Self-Concept about a product we like and forget good points about
By personality, we mean a set of distinguishing human competing products.
psychological traits that lead to relatively consistent and Learning induces changes in our behavior arising from
enduring responses to environmental stimuli (including experience. Most human behavior is learned, although
buying behavior). We often describe personality in terms of much learning is incidental. Learning theorists believe
such traits as self-confidence, dominance, autonomy, learning is produced through the interplay of drives, stimuli,
deference, sociability, defensiveness, and adaptability. cues, responses, and reinforcement.
 We define brand personality as the specific mix of Emotions. Consumer response is not all cognitive and
human traits that we can attribute to a particular rational; much may be emotional and invoke different kinds
brand. of feelings.
 actual self-concept (how we view ourselves)
 consumer’s ideal self-concept (how we would like to Memory
view ourselves)  short-term memory (STM)—a temporary and limited
 others’ self-concept (how we think others see us). repository of information
Lifestyle and Values  long-term memory (LTM)—a more permanent,
 A lifestyle is a person’s pattern of living in the essentially unlimited repository
world as expressed in activities, interests, and
opinions. It portrays the “whole person” interacting  THE BUYING DECISION PROCESS: THE FIVE-
with his or her environment. STAGE MODEL
 Consumer decisions are also influenced by core 1. Problem Recognition
values, the belief systems that underlie attitudes The buying process starts when the buyer recognizes
and behaviors. Core values go much deeper than
a problem or need triggered by internal or external
behavior or attitude and determine, at a basic level,
stimuli. With an internal stimulus, one of the person’s
people’s choices and desires over the long term.
normal needs—hunger, thirst, sex— rises to a
threshold level and becomes a drive.
 KEY PSYCHOLOGICAL PROCESSES
2. Information Search
Surprisingly, consumers often search for limited
Motivation: Freud, Maslow, Herzberg
amounts of information. Major information sources to
We all have many needs at any given time. Some needs are which consumers will turn fall into four groups:
biogenic; they arise from physiological states of tension
 Personal. Family, friends, neighbors, acquaintances
such as hunger, thirst, or discomfort. Other needs are
psychogenic; they arise from psychological states of  Commercial. Advertising, Web sites, salespersons,
tension such as the need for recognition, esteem, or dealers, packaging, displays.
belonging.  Public. Mass media, consumer-rating organizations
 Experiential. Handling, examining, using the product.
A need becomes a motive when it is aroused to a sufficient 3. Evaluation of Alternatives
level of intensity to drive us to act. Motivation has both How does the consumer process competitive brand
direction—we select one goal over another—and intensity— information and make a final value judgment? No
we pursue the goal with more or less vigor.
single process is used by all consumers, or by one
Three of the best-known theories of human motivation: consumer in all buying situations. There are several
1. FREUD’S THEORY. Sigmund Freud assumed the processes, and the most current models see the
psychological forces shaping people’s behavior consumer forming judgments largely on a conscious
are largely unconscious, and that a person cannot and rational basis.
fully understand his or her own motivations.
Someone who examines specific brands will react 4. Purchase Decision
not only to their stated capabilities, but also to
In the evaluation stage, the consumer forms
other, less conscious cues such as shape, size,
weight, material, color, and brand name. preferences among the brands in the choice set and
2. MASLOW’S THEORY. Abraham Maslow sought to may also form an intention to buy the most
explain why people are driven by particular needs preferred brand. In executing a purchase
 intention, the consumer may make up to five sub programs.
decisions: brand, dealer, quantity, timing, and
payment method. Business marketers contrast sharply with consumer
markets in some ways, however:
A consumer’s decision to modify, postpone, or avoid a
purchase decision is heavily influenced by one or more  Fewer, larger buyers. The business marketer
types of perceived risk: normally deals with far fewer, much larger buyers
than the consumer marketer does, particularly in
a. Functional risk—The product does not perform to
such industries as aircraft engines and defense
expectations. weapons.
b. Physical risk—The product poses a threat to the  Close supplier–customer relationship.
physical well-being or health of the user or others.
Because of the smaller customer base and the
c. Financial risk—The product is not worth the price importance and power of the larger customers,
paid. suppliers are frequently expected to customize
d. Social risk—The product results in embarrassment in their offerings to individual business customer
front of others. needs.
e. Psychological risk—The product affects the mental  Professional purchasing. Business goods are
well-being of the user. often purchased by trained purchasing agents,
f. Time risk—The failure of the product results in an who must follow their organizations’ purchasing
opportunity cost of finding another satisfactory policies, constraints, and requirements. Many of
product. the buying instruments—for example, requests
5. Post purchase Behavior for quotations, proposals, and purchase
After the purchase, the consumer might experience contracts— are not typically found in consumer
dissonance from noticing certain disquieting features buying.
or hearing favorable things about other brands and  Multiple buying influences. More people
will be alert to information that supports his or her typically influence business buying
decisions. Buying committees consisting of
decision.
technical experts and even senior
management are common in the purchase of
major goods.
 BEHAVIORAL DECISION THEORY AND
 Multiple sales calls. In the case of capital
BEHAVIORAL ECONOMICS equipment sales for large projects, it may take
Decision Heuristics many attempts to fund a project, and the sales
cycle—between quoting a job and delivering the
A heuristic is a mental shortcut that allows people to product—is often measured in years.
solve problems and make judgments quickly and efficiently.  Derived demand. The demand for business
(Source: Heuristics and Cognitive Biases - Verywell Mind goods is ultimately derived from the demand for
www.verywellmind.com › Theories › Cognitive Psychology) consumer goods. For this reason, the business
marketer must closely monitor the buying patterns
Other heuristics similarly come into play in everyday of ultimate consumers.
decision making when consumers forecast the likelihood of  Inelastic demand. The total demand for many
future outcomes or events. business goods and services is inelastic—that is,
1. The availability heuristic—Consumers base their not much affected by price changes.
predictions on the quickness and ease with which a  Fluctuating demand. The demand for business
particular example of an outcome comes to mind. goods and services tends to be more volatile than
2. The representativeness heuristic—Consumers the demand for consumer goods and services. A
base their predictions on how representative or given percentage increase in consumer demand
similar the outcome is to other examples. can lead to a much larger percentage increase in
3. The anchoring and adjustment heuristic— the demand for plant and equipment necessary to
Consumers arrive at an initial judgment and then produce the additional output.
adjust it based on additional information.  Geographically concentrated buyers. The
geographical concentration of producers helps to
Framing reduce selling costs. At the same time, business
Decision framing is the manner in which choices are presented marketers need to monitor regional shifts of certain
to and seen by a decision maker. industries.
Mental Accounting  Direct purchasing. Business buyers often
Mental accounting refers to the way consumers code, buy directly from manufacturers rather than
categorize, and evaluate financial outcomes of choices. through intermediaries, especially items that
are technically complex or expensive such as
LEARNING CONTENT 3: ANALYZING BUSINESS mainframes or aircraft.
MARKETS
Buying Situations
 WHAT IS ORGANIZATIONAL BUYING?
 Straight rebuy. In a straight rebuy, the
The Business Market versus the Consumer Market purchasing department reorders supplies such as
office supplies and bulk chemicals on a routine
The business market consists of all the organizations that basis and chooses from suppliers on an
acquire goods and services used in the production of other approved list. The suppliers make an effort to
products or services that are sold, rented, or supplied to maintain product and service quality and often
others. The major industries making up the business market propose automatic reordering systems to save
are agriculture, forestry, and fisheries; mining; time.
manufacturing; construction; transportation; communication;  Modified rebuy. The buyer in a modified
public utilities; banking, finance, and insurance; distribution; rebuy wants to change product
and services. specifications, prices, delivery requirements,
or other terms. This usually requires
Business marketers face many of the same challenges as additional participants on both sides.
consumer marketers.  New task. A new-task purchaser buys a product
1. Understanding deep customer needs in new ways; or service for the first time (an office building, a
2. Identifying new opportunities for organic business new security system). The greater the cost or risk,
growth; the larger the number of participants, and the
3. Improving value management techniques and tools; greater their information gathering—the longer the
4. Calculating better marketing performance and time to a decision.
accountability metrics;
5. Competing and growing in global markets, particularly  PARTICIPANTS IN THE BUSINESS BUYING
China; PROCESS The Buying Center
6. Countering the threat of product and service
commoditization by bringing innovative offerings to The buying center includes all members of the organization
market faster and moving to more competitive who play any of the following seven roles in the purchase
business models; and decision process.
7. Convincing C-level executives to embrace the 1. Initiators—Users or others in the organization who
marketing concept and support robust marketing
 request that something be purchased. poor performance to come up with adjusted costs of
2. Users—Those who will use the product or service. In purchase, including price. The performance review
many cases, the users initiate the buying proposal may lead the buyer to continue, modify, or end a
and help define the product requirements. supplier relationship.
3. Influencers—People who influence the buying
decision, often by helping define specifications and  MANAGING BUSINESS-TO-BUSINESS
providing information for evaluating alternatives. CUSTOMER RELATIONSHIPS
Technical personnel are particularly important
influencers. The Benefits of Vertical Coordination
4. Deciders—People who decide on product A number of forces influence the development of a relationship
requirements or on suppliers. between business partners.57 Four relevant factors are
5. Approvers—People who authorize the proposed availability of alternatives, importance of supply, complexity of
actions of deciders or buyers. supply, and supply market dynamism. Based on these we can
6. Buyers—People who have formal authority to select classify buyer–supplier relationships into eight categories:
the supplier and arrange the purchase terms. Buyers 1. Basic buying and selling—These
may help shape product specifications, but they play are simple, routine exchanges with
their major role in selecting vendors and negotiating. moderate levels of cooperation and
In more complex purchases, buyers might include information exchange.
high-level managers. 2. Bare bones—These relationships
7. Gatekeepers—People who have the power to require more adaptation by the seller
prevent sellers or information from reaching members and less cooperation and information
of the buying center. For example, purchasing agents, exchange.
receptionists, and telephone operators may prevent 3. Contractual transaction—These
salespersons from contacting users or deciders. exchanges are defined by formal
contract and generally have low levels
 THE PURCHASING/PROCUREMENT PROCESS of trust, cooperation, and interaction.
4. Customer supply—In this traditional
Business marketers must therefore ensure that customers custom supply situation, competition
fully appreciate how the firm’s offerings are different and rather than cooperation is the
better. Framing occurs when customers are given a dominant form of governance.
perspective or point of view that allows the firm to “put its
best foot forward”. Framing can be as simple as making 5. Cooperative systems—The partners
sure customers realize all the benefits or cost savings in cooperative systems are united in
afforded by the firm’s offerings, or becoming more involved operational ways, but neither
and influential in the thought process behind how demonstrates structural commitment
customers view the economics of purchasing, owning, through legal means or adaptation.
using, and disposing product offerings. Framing requires 6. Collaborative—In collaborative
understanding how business customers currently think of exchanges, much trust and
and choose among products and services, and then commitment lead to true partnership.
determining how they should ideally think and choose. 7. Mutually adaptive—Buyers and
sellers make many relationship-
 STAGES IN THE BUYING PROCESS specific adaptations, but without
necessarily achieving strong trust or
We’re ready to describe the general stages in the business cooperation.
buying-decision process. Patrick J. Robinson and his 8. Customer is king—In this close,
associates identified eight stages and called them cooperative relationship, the seller
buyphases. adapts to meet the customer’s needs
without expecting much adaptation or
1. Problem Recognition change in exchange.
The buying process begins when someone in the
company recognizes a problem or need that can be Business Relationships: Risks and Opportunism
met by acquiring a good or service. The recognition
can be triggered by internal or external stimuli. Specific investments are those expenditures tailored to a
2. General Need Description and particular company and value chain partner (investments in
3. Product Specification company-specific training, equipment, and operating
Next, the buyer determines the needed item’s general procedures or systems). They help firms grow profits and
characteristics and required quantity. For standard achieve their positioning.
items, this is simple. For complex items, the buyer will Opportunism is “some form of cheating or undersupply
work with others—engineers, users— to define relative to an implicit or explicit contract.” It may entail
characteristics such as reliability, durability, or price. blatant self-serving and deliberate misrepresentation that
Business marketers can help by describing how their violates contractual agreements.
products meet or even exceed the buyer’s needs.
4. Supplier Search  INSTITUTIONAL AND GOVERNMENT MARKETS
The buyer next tries to identify the most appropriate
suppliers through trade directories, contacts with other The institutional market consists of schools, hospitals,
companies, trade advertisements, trade shows, and nursing homes, prisons, and other institutions that must
the Internet. provide goods and services to people in their care. Many of
5. Proposal Solicitation these organizations are characterized by low budgets and
captive clienteles.
The buyer next invites qualified suppliers to submit
In most countries, government organizations are a major buyer
proposals. If the item is complex or expensive, the of goods and services. They typically require suppliers to
proposal will be written and detailed. After evaluating submit bids and often award the contract to the lowest bidder.
the proposals, the buyer will invite a few suppliers to In some cases, they will make allowance for superior quality or
make formal presentations. a reputation for completing contracts on time. Governments will
6. Supplier Selection also buy on a negotiated contract basis, primarily in complex
Before selecting a supplier, the buying center will projects with major R&D costs and risks and those where there
specify and rank desired supplier attributes, often is little competition.
using a supplier-evaluation model.
7. Order-Routine Specification LEARNING CONTENT 4: IDENTIFYING MARKET
After selecting suppliers, the buyer negotiates the final SEGMENTS AND TARGETS
order, listing the technical specifications, the quantity
needed, the expected time of delivery, return policies, Bases for Segmenting Consumer Markets
warranties, and so on.
8. Performance Review A market segment consists of a group of customers who
The buyer periodically reviews the performance of the share a similar set of needs and wants. The marketer’s task
chosen supplier(s) using one of three methods. The is to identify the appropriate number and nature of market
buyer may contact end users and ask for their segments and decide which one(s) to target.
evaluations, rate the supplier on several criteria using
a weighted-score method, or aggregate the cost of The major segmentation variables—geographic, demographic,
psychographic, and behavioral segmentation 5.User or nonuser status: Should we serve
heavy users, medium users, light users, or
1. Geographic Segmentation nonusers?
Geographic segmentation divides the market into 6. Customer capabilities: Should we serve
geographical units such as nations, states, regions, customers needing many or few services?
counties, cities, or neighborhoods.
 Purchasing Approaches
2. Demographic Segmentation
In demographic segmentation, we divide the market
7. Purchasing-function organization: Should
we serve companies with a highly
on variables such as age, family size, family life cycle,
centralized or decentralized purchasing
gender, income, occupation, education, religion, race,
organization?
generation, nationality, and social class.
3. Psychographic Segmentation 8. Power structure: Should we serve
Psychographics is the science of using companies that are engineering dominated,
psychology and demographics to better financially dominated, and so on?
understand consumers. In psychographic 9. Nature of existing relationship: Should we
segmentation, buyers are divided into different serve companies with which we have
groups on the basis of psychological/personality strong relationships or simply go after the
traits, lifestyle, or values. People within the same most desirable companies?
demographic group can exhibit very different 10. General purchasing policies: Should we
psychographic profiles.
serve companies that prefer leasing?
The four groups with higher resources are:
Service contract? Systems purchases?
o Innovators—Successful, sophisticated, active, Sealed bidding?
“take-charge” people with high self- esteem.
Purchases often reflect cultivated tastes for 11. Purchasing criteria: Should we serve
relatively upscale, niche- oriented products and companies that are seeking quality?
services. Service? Price?
o Thinkers—Mature, satisfied, and reflective  Situational Factors
people motivated by ideals and who value order, 12. Urgency: Should we serve companies that
knowledge, and responsibility. They seek need quick and sudden delivery or service?
durability, functionality, and value in products.
13. Specific application: Should we
focus on a certain application of
o Achievers—Successful, goal-oriented people who
focus on career and family. They favor premium our product rather than all
products that demonstrate success to their peers. applications?
o Experiencers—Young, enthusiastic, 14. Size or order: Should we focus on large or
impulsive people who seek variety and small orders?
excitement. They spend a comparatively  Personal Characteristics
high proportion of income on fashion, 15. Buyer-seller similarity: Should we serve
entertainment, and socializing. companies whose people and values are
The four groups with lower resources are: similar to ours?
o Believers—Conservative, conventional, and 16. Attitude toward risk: Should we serve risk-
traditional people with concrete beliefs. They prefer
familiar, U.S.-made products and are loyal to taking or risk-avoiding customers?
established brands. 17. Loyalty: Should we serve companies that
o Strivers—Trendy and fun-loving people who are show high loyalty to their suppliers?
resource-constrained. They favor stylish products Market Targeting
that emulate the purchases of those with greater
material wealth. Effective Segmentation Criteria:
o Makers—Practical, down-to-earth, self-sufficient  Measurable. The size, purchasing power, and
people who like to work with their hands. They
seek U.S.-made products with a practical or characteristics of the segments can be
functional purpose. measured.
o Survivors—Elderly, passive people  Substantial. The segments are large and
concerned about change and loyal to their profitable enough to serve. A segment should
favorite brands. be the largest possible homogeneous group
4. Behavioral Segmentation worth going after with a tailored marketing
In behavioral segmentation, marketers divide program.
buyers into groups on the basis of their  Accessible. The segments can be effectively
knowledge of, attitude toward, use of, or
response to a product. reached and served.
o NEEDS AND BENEFITS. Not everyone who buys a  Differentiable. The segments are
product has the same needs or wants the same conceptually distinguishable and
benefits from it. Needs-based or benefit-based respond differently to different
segmentation is a widely used approach because it marketing-mix elements and programs.
identifies distinct market segments with clear  Actionable. Effective programs can be
marketing implications. formulated for attracting and serving the
o DECISION ROLES. People play five roles in a segments.
buying decision: Initiator, Influencer, Decider, Michael Porter has identified five forces that determine the
Buyer, and User. intrinsic long-run attractiveness of a market or market
o USER AND USAGE—REAL USER AND segment: industry competitors, potential entrants,
USAGE-RELATED VARIABLES. Many marketers substitutes, buyers, and suppliers. The threats these forces
believe variables related to various aspects of pose are as follows:
users or their usage—occasions, user status, 1. Threat of intense segment rivalry—A
usage rate, buyer-readiness stage, and loyalty segment is unattractive if it already contains
status—are good starting points for constructing numerous, strong, or aggressive
market segments. competitors.
2. Threat of new entrants—The most
 BASES FOR SEGMENTING BUSINESS MARKETS attractive segment is one in which entry
barriers are high and exit barriers are low.
Major Segmentation Variables for Business Markets 3. Threat of substitute products—A segment
 Demographic is unattractive when there are actual or
1. Industry: Which industries should we potential substitutes for the product.
serve? 4. Threat of buyers’ growing bargaining
2. Company size: What size companies power—A segment is unattractive if buyers
should we serve? possess strong or growing bargaining
3. Location: What geographical areas should power.
we serve? 5. Threat of suppliers’ growing bargaining
 Operating Variables power—A segment is unattractive if the
company’s suppliers are able to raise prices
4. Technology: What customer technologies
or reduce quantity supplied.
should we focus on?
Evaluating and Selecting the Market Segments

In undifferentiated or mass marketing, the firm ignores