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OSU / Business / Bus 390 / How do we spend money?

How do we spend money?

How do we spend money?


School: Oregon State University
Department: Business
Course: Marketing
Professor: Toombs
Term: Winter 2016
Tags: Marketing, price, and business
Cost: 25
Name: BA 390 Week 3
Description: Decided to combine the weeks notes to make it easier, and cheaper, for everyone. I hope they work better for everyone!
Uploaded: 01/24/2016
15 Pages 55 Views 1 Unlocks

How do we spend money?

How do we spend money?

∙ Depends on whose money it is (source)

∙ Depends on who we spend the money on (use)

On Whom the Money is Spent

(Whose money is spent)


Someone Else


Economize & Seek the Highest  value (McDonalds, value)

Economize & Don’t Seek the  Highest Value (Pearl necklace)

Someone Else’s

Don’t Economize & Seek the  Highest Value (Lobster, Cost  doesn’t matter)

Don’t Economize & Don’t Seek  the Highest Value (Healthcare,  $500 hammer, inefficient)

How branding started?

If you want to learn more check out What causes a solute to be dissolved?

Don’t Economize & seek the highest Value: Example: American airlines was the first airline to offer  frequent flier miles. AS a consequence of this, businessmen began booking more often with American  airlines because the points went directly to the individual instead of the company. American airlines  began to fill up, so they raised prices. However, even though other airlines had lower prices, the  businessmen kept booking American Airlines for the miles.  

Chapter Six

Business Markets and Business Buying Behavior

Business Markets

∙ Business buyer behavior refers to the buying behavior of the organizations that buy goods and  serviced for use in production of other products and services that are sold, rented, or supplied  to others.

What is a good brand?

∙ Business buying process: the process where business buyers determine where business buyers  determine which products and services are need to purchase, and then find, evaluate, and  choose among alternative brands.  Don't forget about the age old question of Define homeostasis.

∙ Market Structure and Demand

o Fewer and larger buyers

o Derived demand

▪ Inelastic demand

▪ Fluctuating demand

Business Markets Decision Process

∙ More complex

∙ More decision participants

∙ More professional purchasing effort

∙ Buyer and seller more dependent

Business Markets

∙ Decision Process

o Supplier development is the systematic development of networks of supplier-partners  to ensure an appropriate and dependable supply of products and materials that  companies will use in making their own products or reselling to others. If you want to learn more check out How did the atomic bomb affect society?

Business Buyer Behavior


∙ Major Types of Buying Situations 

o Straight rebuy: is a routine purchase decision such as reorder without any modification  ▪ OSU and Pepsi have a relationship; on average OSU buys a certain amount of  cases each week. The Pepsi company sends these to OSU each week, and they  will get them every week.

o Modified rebuy: is a purchase decision that requires some research where the buyer  wants to modify product specification, price , terms ,or suppliers

▪ Instead of a certain number of cases, we’ll do half in bottles and half in cans  because of the recession not as many students can afford the bottles.

o New task: is a purchase decision that requires thorough research such as a new product ▪ Pepsi finds out that 5-hour energy is capturing a lot of market share on campus  and Pepsi wants to see how a more energy focused product would do (ie Pepsi  Maxx)

o Systems selling: involves the purchase of a packaged solution from a single seller ∙ Participants in the Business Buying Process

o Buying center is all of the individuals and units that participate in the business decision making process

▪ Users: those that will use the product or service

▪ Influencers: help define specifications and provide information for evaluating  alternatives. We also discuss several other topics like What was a tribe that came from the clovis group after settlement?

▪ Buyers: have formal authority to select the supplier and arrange terms of  


▪ Deciders: have formal or informal power to select and approve finals suppliers ▪ Gatekeepers: control the flow of information

o Buying center provides a major challenge

o Who participates in the process

▪ Their relative authority

▪ What evaluation criteria each participant uses

▪ Informal participants

∙ The Model of Business Buyer Behavior

o Environmental

▪ Economic developments

▪ Supply conditions

▪ Technological change

▪ Political and regulatory developments

▪ Competitive developments

▪ Culture and customs

▪ Competition

▪ Demand for product

o Organizational

▪ Objectives

▪ Policies

▪ Procedure

▪ Organizational structure

▪ Systems

o Interpersonal If you want to learn more check out Who argues for civil disobedience in the face of unjust or immoral laws?

▪ Authority  

▪ Status

▪ Empathy

▪ Persuasiveness

o Individual

▪ Age

▪ Income

▪ Education

▪ Job position

▪ Personality

▪ Risk attitudes

▪ Motivates

▪ Perceptions

▪ Preferences

o Buyers

∙ Major influences on business buyers

o Economic factors: Price and Service

o Personal factors: Emotion

∙ The buying process

o Problem recognition ???? General need description ???? Product specification ???? Supplier  search ???? proposal solicitation ???? Supplier selection ???? order-routine specification  ????Performance review

o Problem recognition: occurs when someone in the company recognizes a problem or  need

▪ Internal stimuli

∙ Need for new product or production equipment Don't forget about the age old question of What is the biological medium on earth?

▪ External stimuli

∙ Idea from a trade show or advertising

o General need: describes the characteristics and quantity of the needed item o Product specifications: describes the technical criteria

o Value analysis: approach to cost reduction where component are studied to determine  if they can be redesigned, standardized, or made with less costly methods of  


o Supplier search: involves compiling a list of qualified suppliers

o Proposal solicitation: the process of requesting proposals from qualified suppliers. o Supplier selection: the process when the buying center creates a list of desired supplier  attributes and negotiates with preferred suppliers for favorable terms and conditions. o Order-routine specifications: the final order with the chosen supplier and list all of the  specifications and terms of the purchase.

∙ GlenDimplex example:

o World’s largest manufacturers of electric heaters

o Private company

o Headquartered Dublin, Ireland

o Primary Market Europe  

o Wanted to Expand into the US market

o Walmart

▪ Large publicly traded company

▪ US only

▪ Wants to Expand to Europe  

o Went to Hong Kong to meet with some Walmart officials, they were disappointed  because they wanted help breaking into the European market, not to help Dimplex  break into the US. But both of them could help each other—so “Chuck” became the go  between with dimplex and Walmart and made $1 million sale that day.

Chapter Seven

Customer-Driven Marketing Strategy:

Creating Value for Target Customers

Market Segmentation

∙ Select customers to serve

o Segmentation: Divide the total market into smaller segments

o Targeting: Select the segment of segments to enter

∙ Decide on a value proposition

o Differentiation: Differentiate the market offering to create superior customer value o Positioning: Position the market offering in the minds of target customers

∙ ???? Create value for targeted customers

∙ Market Segmentation: requires dividing a market into smaller segments with distinct needs,  characteristics, or behavior that might require separate marketing strategies or mixes o Segmenting consumer markets

▪ Geographic segmentation: divides that market into different geographical  means such as nations, states, cities, etc.

∙ Ex: In Cincinnati, Chile comes on pasta with cheese, onions, and beans— very different from the rest of the USA’s perception of chile.

∙ Snow shoes in Alaska, flip flops in Florida/California

▪ Demographic segmentation: divides the market on the basis of age, gender,  family, income, occupation, race, generation, education, etc.

∙ Ex: Caviar v. Canned Tuna

∙ Age and life-cycle stage segmentations: is the process of offering  

different products or using different marketing approaches for different  

age and life-cycle groups

∙ Gender segmentation: divides the market based on sex.

∙ Income segmentation: market divided into upper, middle, or low  

income consumers

▪ Psychographic segmentation: divides based on social class, lifestyle choices, or  personality traits.

▪ Behavioral segmentation: buyers into groups based on their knowledge,  attitudes, uses, or responses to a product

∙ Occasions: Birthday, anniversary, etc

∙ Benefits sought

∙ User status

∙ Usage rate  

∙ Loyalty status

▪ Using multiple segmentation bases

∙ Multiple segmentation: used to identify smaller, better-defined target  


∙ PRIZM NE classifies every American household into 66 unique segments  organized into 14 different social groups

o Segmenting business markets

▪ Consumer and business marketers use many of the same variables to segment  their markets

∙ Additional Variables:

o Customer operating characteristics

o Purchasing approaches

o Situational factors

o Personal characteristics

o Segmenting international markets

▪ Geographic Location

▪ Economic factors

▪ Political-legal factors

▪ Cultural factors

▪ Intermarket segmentation: divides consumers into groups with similar needs  and buying behaviors even though they are located in different countries.

o Requirements for effective segmentation

▪ To be useful, market segments must be:

∙ Measurable

∙ Accessible

∙ Substantial

∙ Differentiable

∙ Actionable

Market Targeting

∙ Evaluating Market segments

o Segment size and growth

o Segment structural attractiveness

o Company objectives and resources

∙ Selecting Target market segments

o Target market: consists of a set of buyers who share common needs or characteristics  that the company decides to serve.

∙ Target Marketing Strategies

o Undifferentiated marketing targets the whole market with one offer

▪ Mass Marketing

▪ Focuses on common needs rather than what’s different

o Differentiated marketing: targets several different market segments and designs  separate offers for each

▪ Goal is to achieve higher sales and stronger position

▪ More expensive than undifferentiated marketing

o Concentrated marketing: targets a small share of a large market

▪ Limited company resources

▪ Knowledge of the market

▪ More effective and efficient

o Micromarketing: the practice of tailoring products and marketing programs to suit the  tastes of specific individuals and locations

▪ Local marketing

▪ Individual marketing

▪ Ex: Amazon Prime

o Local marketing: involves tailoring brands and promotion to the needs and wants of  local customer groups

▪ Cities

▪ Neighborhoods

▪ Stores

o Individual marketing: involves tailoring products and marketing programs to the needs  and preferences of individual customers

▪ Also known as:

∙ One-to-one marketing

∙ Mass customization

o Depends on:

▪ Company resources

▪ Product variability

▪ Product life-cycle stage

▪ Market variability

▪ Competitor’s marketing strategies

Differentiation and Positioning

∙ Product position: the way the product is defined by consumers on important attributes—the  place the product occupies in consumers’ minds relative to competing products o Perceptions

o Impressions

o Feelings

∙ Positioning maps show consumer perceptions of their brands versus competing products on  important buying dimensions.

∙ Choosing a differentiation and positioning strategy

o Identifying a set of possible competitive advantages to build a position

▪ By providing superior value from

∙ Product differentiation

∙ Service differentiation

∙ Channel differentiation

∙ People differentiation

∙ Image differentiation

o Choosing the right competitive advantages

▪ Difference to promote should be:

∙ Important

∙ Distinctive

∙ Superior

∙ Communicable

∙ Preemptive

∙ Affordable

∙ Profitable

o Selecting an overall positioning strategy

▪ Value proposition is the full mix of benefits upon which a brand is positioned. o Communicating and delivering the chosen position to the market

∙ Identifying possible value differences and competitive advantages

o Competitive advantage: advantage over competitors gained by offering consumers  greater value, either through lower prices or by providing more benefits that justify  higher prices.


Creating Product Equity

How branding started

∙ 300 years ago, from old norse language

o Brandr: Means to burn

∙ Permanent mark to identify a product

Brand Evolution

∙ Industrial Revolution

o Assembly Lines (Ford)

o Low Marginal Cost

o High Volume

∙ How did this happen?

o Just in time delivery

o Quick change tooling

o Different products, same marginal cost

o Expand selection

o Technology advanced  

What is a Brand?

∙ Differentiator: Ex: Coke v. Pepsi Can

∙ Value Association: Ex: Walmart (cheap) v. Neiman Marcus (expensive) ∙ Pride: Ex: school mascots (ie. The OSU Beavers)

What is a Good brand?

∙ Commands a premium price: Jordan’s bball shoes & Converse

∙ Sells more units at a higher price

∙ Attract and retain stronger employees: Nike

What a Brand is Not

∙ A trademark

∙ A mission statement

∙ A logo or a slogan

∙ A product or service

What a brand is

∙ A point of view: Walmart and Target

o They source almost exactly the same products but are positioned differently o Walmart POV

▪ Kills the local economy

▪ Replaces good paying jobs with part time work

▪ Exploits low cost labor in Asia

▪ Free rides on social programs

o Or….

▪ Lowest prices

▪ Best value

▪ Open 24 hours

▪ Great selection

o Amazon POV

▪ Free 2 day shipping (prime members)

▪ Great selection  

▪ Good Prices Easy to shop



Replaces local high paying jobs with low paying  jobs

Replaces local low paying jobs with no local jobs

Place to touch and feel the merchandise

Have to go to Wal-Mart for that

Buys cheap imported merchandise

Buys the same amount of imported merchandise

Hostile to unions

Automated storage and retrieval systems means  no people, no unions

∙ Customer Values

o Sustainable

o Healthy

o Wholesome

o Fresh

o Ex: Whole Foods, Disney

∙ Competitive Advantage

o Faster

o Cooler  

o State of the art

o Cutting edge

∙ Engineered into the strategic planning process

o All product decisions

o All price decisions

o All distribution decisions

o All promotion decisions

Cheating in a Free Market

What is cheating? (Caveat Emptor)

∙ Promising one thing, delivering another

o Ex: Fake brand watches in China

Common Acts of Cheating

∙ “Tourist Traps” (positioned one way but delivers another quality)

∙ Used cars (Salesmen try to convince you that the car is in good condition, breaks down a few  miles down the road)

∙ Buying a time share (have a negative value for the most part; maintenance fees tend to go up) ∙ University of Phoenix (for profit, pretends to be an academic institution, but are nowhere close  to other universities; they won’t be treated the same way as graduates from other schools)

Economics of Cheating (Rolex)

∙ There has to be a monopoly in something for cheating to be facilitated

When is it hard to cheat?

∙ Local Grocery store (people can simply change stores if one store makes you sick/offer low  quality)

∙ Local Restaurant (Yelp and other sites can destroy a reputation, and there are many other  restaurants)

∙ Local Hardware store  

∙ Nordstrom (they take everything back no questions asked)

Why does it pay to cheat?

∙ One period world

∙ Single transaction

∙ Never see customer again

Why does the USDA grade meat?

∙ Protect the consumer

∙ Inform the consumer

∙ IS the USDA grading meat a public good?

o Not everyone eats meat (Can’t check a box on a tax return to not support the grading of  meat)

o Not everyone who eats meet can afford it (Same example with the tax return) o If Fred Meyer does sell tainted meat, doe the government insure us? (no)

o What if there was a market for tainted meat? (yes, chickens about the expire are  roasted)

o It doesn’t give Fred Meyer more or less of an incentive to cheat people by selling tainted  meat because they wouldn’t sell tainted meat even without the USDA regulating it.

The First P: Product


∙ Anything that can be offered to a market for attention, acquisition, use, or consumption that  might satisfy a want or need.

∙ Services: Activities, benefits, or satisfactions offered for sale

o Intangible and do not result in ownership of anything

Products, Services, and Experiences

∙ Market offerings include both tangible goods and services.

∙ Companies create and manage customer experiences with their brands or companies o To differentiate their offers from that of the competitors

∙ Ex: Starbucks founder originally wanted to sell espresso machines to restaurants, but this was  before espresso was introduced to the USA and restaurants just wouldn’t buy into because they  couldn’t buy a $2 cup of coffee. So he started his own business and….voila! $5 cups of coffee as  a norm.

Three Levels of Product

∙ Core customer value

∙ Actual product

o Brand Name

o Quality level

o Packaging

o Design

o Features

∙ Augmented product

o Delivery and credit

o Product support

o Warranty

o After-sale service

Product and Service Classifications  

∙ Consumer products: Bought by final consumers for personal consumption

∙ Industrial products: Bought by individuals and organizations for further processing or for use in  conducting a business

o Materials and parts, capital items, and supplies and services.

Marketing Considerations for Consumer Products







Customer buying  behavior


purchase; little  

comparison or  

shopping effort;  low customer  


Less frequent  

purchase; much  planning and  

shopping effort;  comparison of  

brands on price,  quality, and style

Strong brand  

preference and  loyalty; special  

purchase effort;  little comparison  of brands; low  

price sensitivity

Little product  

awareness or  

knowledge (or if  aware, little or  

even negative  



Low price

Higher price

High price








distribution in  

fewer outlets


distribution in  

only one or a few  outlets per  

market area



Mass promotion  by the producer

Advertising and  personal selling  by both the  

producers and  


More carefully  


promotion by  

both the producer  and resellers


advertising and  personal selling  by the producer  and resellers



magazines, and  laundry detergent

Major appliances,  televisions,  

furniture, and  


Luxury goods,  

such as Rolex  

watches or fine  crystals

Life insurance and  Red Cross blood  donations

Other marketable entities

∙ Organization marketing

o Ex: Oregon State University

∙ Person Marketing

o Ex: New football coach from Wisconsin; keeping up a personal brand

∙ Place Marketing

o Ex: Sports Authority Field at Mile High; Denver Broncos stadium

∙ Social marketing

o Ex: Green Peace

Individual Product Decisions

∙ Product Attributes

∙ Branding

∙ Packaging

∙ Labeling

∙ Product support services

Product Line Decisions

∙ Product line: Closely related products that:

o Have similar functions and customer groups

o Are sold through similar outlets or fall within given price ranges

∙ Product line length: Number of items in the product line

o Product line filling

o Product line stretching

Product Mix (or Product Portfolio)  

∙ Set of all product lines and items that a particular seller offers for sale

∙ Product mix decisions

o Width

▪ Number of different product lines the company carries

o Length

▪ Total number of items a company carries within its product lines

o Depth

▪ Number of versions offered for each product in the line

o Consistency

▪ Relativity of the various product lines in end use, production requirements,  distribution channels, or some other aspect.

Brand Equity

∙ The differential effect that knowing the brand name has on customer response to the product or  its marketing

∙ With positive brand equity, consumer react more favorably to the brand than to an unbranded  version of the same product

∙ With negative brand equity, consumers react less favorably to the brand than to an unbranded  version.

∙ Consumer perception dimensions include:

o Differentiation

o Relevance

o Knowledge

o Esteem

∙ Brand valuation is the estimation of the total financial value of a brand.  

∙ Customer equity is the value of customer relationships that the brand creates. Major Brand Strategy Decisions

∙ Brand Positioning Strategy Decisions

o Brand Positioning

▪ Attributes

▪ Benefits

▪ Beliefs and value

o Brand name selection

▪ Selection

▪ Protection

o Brand sponsorship

▪ Manufacturer’s brand

▪ Private brand

▪ Licensing

▪ Co-branding

o Brand development

▪ Line extensions

▪ Brand extensions

▪ Multibrands

▪ New brands

Brand Positioning and Brand Name Selection

∙ Marketers should establish a mission and vision for the brand when positioning it. ∙ Desirable qualities for a brand name should:

o Be based on the product’s benefits and qualities

o Be easy to pronounce, recognize, and remember  

o Be distinctive and extendable

o Translate easily into foreign languages

o Be capable of registration and legal protection

∙ Brand Sponsorship

o National brands

▪ Marketed under the manufacturer’s own name

▪ Ex: Whole Foods 365 brand

o Store brands

▪ Created and owned by a reseller of a product or service

o Licensing

▪ Use names and symbols created by other companies or well-known movie  characters or celebrities for a fee

o Co-branding

▪ Use the established brand names of two different companies on the same  


▪ Ex: people pairing with Sriracha sauce to make other products.

Brand Development strategies




Line extension

Brand extension



New brands

Managing brands

∙ Communicate the brand’s positioning ∙ Manage all brand touch points

∙ Train employees to be customer centered ∙ Audit the brands’ strengths and weaknesses

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