MKTG 3650 Exam 1 Study Guide
MKTG 3650 Exam 1 Study Guide MKTG 3650
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MKTG 3650 Foundations of Marketing Practice Exam 1 Study Guide Chapter 1: Core Concepts And Principles Marketing success comes easier for people who consistently demonstrate three abilities: o “Standout” rather than “fitin” o Make “oldthingsseemnew” or “newthingsknown.” o Develop and deliver new things. Human brains are wired to operate at one and only of three levels at any given point in time: o I will, I won’t, or I want Four things in this world are never satisfied, according to the Bible: fire, leech, empty grave, empty womb The easiest path to marketing success is to provide people what they want, even if what they want is not good for them, rather than what they actually need. A Market Full of Paradox A paradox exists whenever two competing and often contradictory ideas, assertions or positions hold equal claim to the truth. Many US consumers live on a “hedonic treadmill” o Hedonic means pleasure seeking Holes, Problems, and Solutions: Each Begets Success Whichever Firm or person delivers the best solution is the Firm or person that will close the sale and create or strengthen customer relationships. Marketers view themselves a want and needs satisfiers, or problem solvers Marketing Principles/Fundamentals and Laws Nine Marketing Laws o Law 1: Leadership This law suggest Firms, or their products and brands, must be “first to market” for them to secure a good chance of remaining “first in the mind” of the market. o Law 2: Category This law suggests that if your Firm cannot be “first to market”, then they should establish a category in which they or their product can be first. o Law 3: The Mind This is synonymous with having “top of the mind” awareness. Be the first people think of when thinking of your Firm’s category o Law 4: Perceptions This law suggests that marketing is a war, battle or competition that is waged and won or lost in the minds of the customers in the marketplace based on customers’ perceptions. Marketers can shape perceptions in their best interests. o Law 5: Focus Law of Focus is also the Law of Ownership, as in “owning something.” Owning the “what” and the “where” in the mind. o Law 6: Attributes and the Law of the Opposite. Attributes deliver benefits and value and without perceived or actual benefits or value there can be no product. Value in turn, contributes to the problemsolving capacity of any product. Opposite, a creative marketing competitor could emphasize an opposing attribute. o Law 7: Concentration Concentrate your strengths against the opponents’ comparative weaknesses. o Law 8: Candor The law of candor suggests that when bad stuff happens, or individuals or Firms should react by taking responsibility when they are to blame. o Law 9: Unpredictability Making predictions about competitors, customers, or the environment is difficult but Firms should still try to predict, through marketing research and other informationgathering tools that are available to marketers. What is Marketing? The Marketing Mix, which is often called the “Four P’s of Marketing includes: o Product: Conceptualizing, planning, and designing the products or services that will be sold o Price: Setting and managing the prices of products or services to deliver value to customers o Promotion: Developing the integrated communications program required to communicate the product or service to intended customers o Place (Distribution) Disseminating products or services through appropriate “channels of distribution” to make them available to customers. What is a “Product”? o Any bundle of attributes that is capable of satisfying customer wants and needs o Can be services, ideas, places, people, and even “causes” are marketed as products o Products encompass anything that is deemed valuable by actual or potential buyers that can be marketed and purchased in a buyerseller exchange process. Marketing Defined Marketing is a social and managerial process through which individuals and groups obtain what they need or want by creating and exchanging value with others. (Best definition) “Social” o Implies that marketing is an activity that involves people, both individually and collectively, and that marketing activity itself entails human interaction. “Process” o Implies that marketing activities are ongoing, essentially never ending, in nature. “Individual” o Implies that marketing exists to satisfy the wants and needs, and in the process solves the problems, of individual consumers. o When marketers target consumers, they are engaged in Businessto Consumer or B2C marketing. “Groups” o Implies that marketing also exists to satisfy the wants and needs, and solve the problems, of customer groups. o When marketers target groups, they are typically involved in Businessto Business or B2B marketing. “Needs” o States (or conditions) of felt deprivation “Wants” o The shape (or form) that needs take as the need is influenced by individual personalities and the environment o Wants, over time, can transmogrify into needs. “Exchange” o “A get and a give” “Value” o The ratio between the benefits that a customer gets and the costs that a customer incurs in order to obtain those benefits. o Products deliver benefits, benefits provide solutions, and solutions have value because they solve customers’ problems, or satisfy their wants or needs. The Marketing Concept The marketing concept is a business philosophy that places an emphasis on the customer—and the ID and satisfaction of the customers wants, needs, and problems—as the focal point of all business operations. 3 Fundamental premises o Firm is customeroriented Firms should strive first to determine what the market wants and needs, and then tailor their marketing mix offerings such that they satisfy those customers wants and needs. o A total company effort is required o Effort must be profitable Alternative business philosophies Societal Marketing o Asks Firms to consider the ethical and societal consequences of their actions as they identify and satisfy customer needs Relationship Marketing o Builds stronger, longerterm, more mutually beneficial relationships with consumers and business partners. o Treats everyone as if they were customers How and Why Marketing Works (So Well) Marketing Firms succeed by creating valued exchanges between themselves and the market segments they target and serve. Chapter 2: Marketing Strategies: A Philosophical And Historical View The Two Levels of Business Strategy (Corporate level) The general strategic intention of toplevel, overarching organizationallywide plans is to: o Meet and beat competitive threats, and o Ensure the longterm survival and eventual growth of the Firm. At the second (functional level) strategic marketing planning level, tactical decisions are made about: o Which products to produce or update (change in some manner), and o How to promote price, and distribute these products effectively. Firms must simultaneously determine the: o Market (i.e. target segments) they will enter and in which they will compete o Types of customer wants, needs, and ultimately problems they will satisfy or solve o Competitors against which they will compete. Ten Universal Strategic Laws Strategic planning process requires that senior leadership carefully examine and analyze where their Firms have been (the past), where their Firms are now in terms of their current Strengths and Weaknesses (the Present), and where their Firms logically should go given the Opportunities and Threats that they soon may face (Future). Strategic Law 1: Remain Grounded in Logic o Strategists, operating in any decision making setting, should always pursue logical marketing solutions. o Know when to stop, when to declare victory, with the strategic intention of introducing some other product that offers alternative value to new or existing marketing segments. Strategic Law 2: Always Account for Technology. o Technology remains the incredibly fertile mother of myriad changes, opportunities and threats, and growing/shrinking strengths/weaknesses for myriad Firms. Strategic Law 3: Accept but Accommodate Certain Uncontrollable(s) o Strategists should allocate more time to thinking and doing something about factors they can control. o Marketers cannot control the preexisting beliefs and attitudes of customers. o Still must attempt to account and make accommodations for uncontrollable factors. Strategic Law 4: Gold Rules. o When developing strategies plans, marketers should usually dance close to revenue and/or cost lines. o Goals and tasks should prioritize goals and tasks based on their anticipated contributions to revenue (growth), costs (savings), and, ultimately, profits (enjoy them). Strategic Law 5: Manage Two Types of Risk o When planning, marketers should consider two types of risk. “Sinking the boat.” Risk of ruining a Firm by making a bad strategic bet “Missing the boat” Entails the risk of permitting a great strategic opportunity to cruise by because strategists missed, ignored, or were unwilling to shoulder the risk necessary to pursue it. o If you or your Firm does not embrace the possibility of great failure you and it are far less likely to ever experience great success. Strategic Law 6: Distinguish between Uncertainty and Risk. o Risk Describes a situation where planners have a sense of the range and likelihood of possible outcomes. o Uncertainty Describes a situation where not only is it unclear what might happen, it is also unclear how likely all the various outcomes are. Strategic Law 7: Accept that Some Problems are Wicked o Wicked strategic problems include challenges so persistent, pervasive, or slippery that strategies often deem them insoluble. o Examples of wicked strategic problems include: Balancing longterm goals with shortterm demands (pressures) Balancing the pursuit of profits with the desire to be socially responsible. Finding completely unclaimed new market space. Determining how best to multiply success and creativity by leveraging diversity of opinion and expertise through cross functional collaboration. Protecting profit margins and sustaining market shares within increasingly commoditized business sectors. Balancing the need for higher manufacturing quality with the desire for lower production costs. Strategic Law 8: Often No One Best Solution Exists o When attempting to strategically solve truly wicked problems, the solutions agreed upon are rarely right or completely wrong. o “Contentious strategic problems are best solved not by imposing a single point of view at the expense of others, but by striving for a higher order solution that integrates the diverse perspectives of all relevant constituencies.” Strategic Law 9: Watch Those Assumptions. o In business or in life, often it is not what we don’t know that hurts us. Instead it is what we assumed we knew for certain. Strategic Law 10: Relationships are Huge. o Everything that Firms or individuals might do strategically in order to achieve or sustain marketing success relates directly or indirectly to relationships and exchange. o Firms always owe strategic commitments to create and deliver something of value to customer that they perceive is worth paying for; that’s exchange, the basis for marketercustomer relationship. Strategy is useful because (among other values that are created): the process, the act 1) Forces firms to engage in systematic, forwardlooking planning 2) Forces planners to prioritize goals 3) Leads to more efficient utilization of the 3Ts inside firms. 4) Helps Firms respond more quickly to opportunities and threats as they arise in the environment. 5) Establishes clear performance metrics, benchmarks 6) Increases the likelihood that the Firm is working on the right things and doing the right things right. Not a cliché. (What’s the point of doing the wrong thing right 7) Provides a safe harbor for possibility thinking; creating and considering new ideas, new approaches SMART o Specific (precision and clarity matters) o Measurable (b/c what gets measured is what gets done) o Actionable (Steps can be identified to achieve the objectives) o Realistic (the goals may stretch the Firm’s collective abilities and resources, but are still reasonably attainable) o Timesensitive (a timeline for completion of the objectives is always present) Accounting for Porter’s “Five Strategic Forces” The five forces are: o The competitors or rivals that the Firm currently faces o The threat of new competitors o The threat of substitutes for the Firm’s current products o The bargaining power of suppliers o The bargaining power of customers Firms can achieve uniqueness by: o Earning low cost advantage in the minds of the segments they target o Differentiating greater customer intimacy within the segments they target, or o Dominating a niche or market segment by establishing technological advantage Chapter 3: Developing and Executing Strategic Marketing Plans The marketing planning process features the following steps: o Analyzing marketing opportunities What and where are the best opportunities? No product has ever been made or marketed that everyone wants and needs and can also afford o Selecting target markets (or selecting market segments) This step entails deciding how to manage the groups or market segment(s) that the Firm is best equipped to target and pursue; these customer groups represent the best marketing opportunities. o Developing and eventually executing the marketing effort: This step entails deciding how best to manage the Firm’s marketing mix in order to create and deliver the most appealing sorts of value to target markets. Target markets: The groups or market segments of customers that the Firm is best prepared to pursue because of differentiating value that is able to deliver. Marketing Mix: o Product Features, benefits, quality, style o Price Base price, discounts, allowances, credit terms o Promotion Advertising, personal selling, sales management, sales promotion o Place Selection of middlemen, warehousing, transportation modes, inventory So What’s a Marketing Strategy? A target market, a soughtafter and desirable market position, and the marketing mix used to reach this target market with differentiating values are collectively referred to as a marketing strategy. The Firm’s objectives, its marketing strategies, and its associated implementation and control activities are referred to as the Firm’s marketing program. Marketing managers must identify attractive target markets to serve and guide the Firm as it develops and implements marketing mix activities that will convert target market segments into profitable customer groups. The Strategic Marketing Planning Process Identify and Select Market Opportunities A potential market opportunity exists anywhere there is an unfilled need or unsolved problem in the marketplace that the Firm believes it can profitably satisfy or solve. When a Firm conducts a Market Opportunity Analysis (MOA) it is attempting to identify a customer group that possesses a specific need (problem) that can be satisfied by offering these customers a particular marketing mix. o The MOA activity itself is subsumed under the more general SWOT analyses. SWOT Analysis SWOT (Strengths, Weaknesses, Opportunities, Threats) Strengths and weaknesses determine price, promotion, and distribution Threats and Market opportunities (MOA) = productmarket selection o Identify productmarket o Determine product/service mix o These opportunities and threats would exist even if the Firm did not exist Strengths and weaknesses = internal; opportunities and threats = external These strategies then lead to implementation and then control SWOT analyses focus on analyzing the current state of the Firm’s marketing efforts along with current and future environmental trends that pose as threats as well as present opportunities to any Firm. The SWOT should consist of: o Industry and competitor analyses o Environmental analyses o Market and customer analyses o Current marketing programs analyses o Demand analyses o Critical resources analyses The Importance of Mission and Goals The range of market opportunities examined by any Firm should be constrained by its mission. A Firm’s mission specifically designates and directs the sort of opportunities the Firm should or should not pursue. The mission statement guides the Firm toward opportunities that are consistent with what it currently pursues or could pursue in the future. Good mission statements tend to have the following elements in common. They: o Focus on satisfying customers’ needs o Indicate a distinctive competency “owned” by the Firm. o Are neither overly broad nor too narrow. o Are realistic, specific, suitable for the environment in which the Firm operates, and motivating. A mission statement should: o Define in the fewest words possible the Firm’s reason for existence o Embody the philosophies, ambitions, and more for the Firm. Goals ensure that the Firm does what is necessary and appropriate to secure the resources and establish the means and methods necessary to measure progress toward achieving its mission. o Distinctive competencies can equip firms to become or be perceived as the: Lowcost provider, Technological leader, or The best at customer intimacy These are the three and only three ways for firms to differentiate First introduced during C2. Goals can be stated qualitatively; Objectives should be stated quantitatively; o Goals should come first; firms should only pursue minimal numbers of goals. o Each Goal, however, should feature several associated objectives. o As firms achieve their Objectives they should be making progress toward achieving their Goals. o Goals and Objectives each must also feature timelines. o Establish metrics, measure progress or absence of progress toward these strategically prescribed objectives and goals. The Product-Market Expansion Grid Market Penetration Opportunities Market penetration is a strategy whereby the Firm continues to sell its existing products to its existing customers. It is an attempt to penetrate a market in greater depth; an attempt to gain market share, generally at the expense of competitors. Market Development Opportunities A market development opportunity is a search for new markets for a Firm’s existing products. The most logical and common application of market development is illustrated with geographic expansion; looking for new geographic areas in which the sell the Firm’s existing product. Product development Opportunities A product development opportunity entails developing entirely new products, or at least modifying and upgrading existing products, that deliver new and useful value that increases the desirability of the products within existing market segments. This strategy often involves making minor changes to existing products and marketing them as new. Diversification Opportunities Diversification opportunities are those in which a new product is targeted to a new market. Imply a departure from the typical products and markets targeted in the past. Most risky growth alternative. Often assume the form of brand extensions BCG Growth-Share Matrix Relative market share o The Firm’s proportion of the sales for specific products/brands sold by a Firm relative to total sales for the industry Growth rate o The annual growth rate of the market in which the product/brand competes. The matrix is composed of four quadrants o Stars Those products/brands which possess high market and compete in a market that is growing at an above average rate. Require continued investment to nurture their growth. If they perform well, they evolve into cash cows o Cash Cows Products that possess high market share but exist in lower growth markets. Continued viability of these markets and the substantial market share possessed by cash cows mean that these products/brands will generate substantial resources for the Firm that can be reinvested into other products. o Question Marks Those products that exist in attractive markets, but possess limited market share. There is some doubt as to the product’s longerterm viability. o Dogs Exist in low growth markets and possess relatively little market share. Dogs are doomed to be phased out and the resources previously dedicated to them will be transferred to other products in either the star or question mark quadrants. Planning the Product and Service Mix Firms must develop a quality product/service that is capable of generating customer need/want satisfaction in a manner that distinguishes the product/service from competing offers. Marketing managers must focus on the “total product.” The total product often includes the tangible physical dimensions of the product as well as its more intangible servicerelated aspects. The Scope of the Product Management Decision o Benefits The benefits the product provides to customers that fulfill their needs and expectations o Attributes The specific attributes or characteristics of the product must possess to provide customers with the desired benefits o Branding Family brand vs. individual brand Specific brand name to use Brand mark or logo o Legal protection Trade marking Copyrights Licenses o Packaging Desired functions of the package Package design and costs Package labeling Legal obligations with labels Package disposition and recycling o Quality level Desired level of quality the product should possess o Product Safety: Design and build in safety features Test to ensure safe to use o Warranties and Guarantees Warrantee coverage for the life of the product o Life Cycle Management How the product should be managed over its life cycle in terms of features, services, quality levels, branding, pricing, etc. Identifying the Desired Market (Product) Position A key to success in today’s extremely competitive markets is the ability to position products and services in prospect customers’ minds such that those products are perceived by customers as being distinct from and better than competing products and services. It is the mental picture customers form about the Firm’s product in terms of its characteristics or features, the benefit it delivers, and what it offers relative to competing substitutes. Firms generate positioning or image statements that are intended to guide strategy development by communicating to customers and company employees how the Firm wants its products to be perceived in the collective mind of the market. Developing Pricing, Promotional and Distribution Programs Each marketing mix factor must be consistent with what is happening with each of the others in order to generate a synergistic effect that sets apart effective marketing strategies from less effective alternatives. Pricing Element of the Marketing Mix Pricing decisions fundamentally revolve around setting the list or base price for the product/service. Factors included in price determination: o The Firm’s pricing objectives, customers’ perceptions of value, competitors’ prices, and the costs of production and marketing o Discount and allowance schedules o The use of any pricing promotions o How shipping and handling should be charged and how it will affect the final price for the product o Legal constraints that may affect pricing activities Promotion Element of the Marketing Mix Promotion essentially entails communicating to customers about the product and its merits. The major promotion tools available to marketing managers, referred to as the promotion mix, include advertising, personal selling, sales promotion, and public relations Advertising is the dissemination of information through nonpersonal paid media, such as radio, TV, newspapers, magazines, outdoor billboards, etc. o An advertising campaign is the collection of specific ads and media used to reach specific target audiences. o The advertising decisions that must be addressed during the marketing planning process range from determining the role that advertising should play in the total promotion mix and the appropriate advertising objectives, to deciding on specific advertising themes, copy, media scheduling, and associated budgets. Sales promotions consist of special types of promotion tools that are intended to encourage sales of a product or service. o Tend to be short term in use and supplement advertising and personal selling efforts through the targeted provision of incentives to customers and prospective customers. Public relations and publicity are closely interrelated. o Publicity is typically subsumed under the Firm’s public relations efforts. o Public relations efforts require deliberate planning efforts on the Firm’s public relations efforts on the part of Firms to obtain goodwill and/or promote a positive image for the Firm and its products with various publics. o The major public relations tools available to marketing planners include news releases, speeches, sponsored special events, written materials including annual reports, brochures, and newsletters, audiovisual materials such as films as well as public service activities. Distribution Element of the Marketing Mix A distribution channel is the set of organizations responsible for moving the product and its ownership from one end of the channel (producers) to the other end. (consumers). o AKA supply chain Decisions must occur in several major areas including setting distribution objectives, determining the range of distribution functions that must be performed, deciding on the basic form of the supply chains—distribution channel(s)—to be used to reach the target of the market, and how the goods should be physically distributed to customers. Chapter 4: The Marketing Environment Managing the Horizon Marketers should live their professional lives on the horizon. Horizons provide vantage points from which people can look back (or around) to see what has happened and what worked well or failed miserably. o From the vantage point, people can also look forward to determine what their Firm has the capacity to make happen next o This is called environmental scanning. Environmental Opportunities and Threats, Defined An environmental opportunity entails any environmental trend that is moving in ways that support the best interests of a Firm and its current strategy and mission. An environmental threat entails any environmental trend that is moving against the best interests of the Firm and its current strategy and mission. Is It Opportunity or Threat? Firms should ask five questions during the environmental scanning process: o First, is this environmental trend an opportunity or threat? o Second, why is this trend an opportunity or threat? o Third, for whom (which business unit) inside our Firm is this trend an opportunity or threat? o Fourth, should our Firm respond strategically to this opportunity or threat? o Finally, how should our firm respond, if the preceding answer was yes? Micro- and Macro- Environments Every Firm faces a series of microenvironments, which include: o An internal environment consisting of all entities (departments and functions) within the Firm o Customers and prospective customer relationships o Relationships with suppliers, other supply chain intermediaries or resellers, which could include retailers. o Relationships with various publics, which could include investors (shareholders) or public interest groups, such as the media or regulatory agencies, who may or may not support the general mission and goals of the Firm o The Firm’s competitors Every Firm simultaneously operates in macroenvironment, consisting strictly of environments external to the Firm. The Firm’s macroenvironment consists of: o Cultural trends o Demographic trends o Technological trends o Governmental/regulatory trends Key Macro-Environments and Trends Cultural and Environmental Trends While there may be products that everyone would love to own, consume, or experience, not everyone can afford them. So the fact that each human being is in some ways like every other person on earth is of little interest to marketers as they engage in segmentation, targeting, and positioning efforts. A culture emerges whenever a group of people who share one, two, or possibly, three or more characteristics in common establish a pattern of interaction with each other. These people collectively determine those norms, beliefs, or behaviors that are deemed right or wrong, appropriate or inappropriate, within their group or culture. Culture influences how individuals behave and that’s what important to marketers Culture is a social force that influences consumers’ behaviors and marketers’ key success factors in more ways than can be easily imagined. Culture and its Effects on Marketing Practice Subcultures frequently exist in readymade market segments. Once discrete subcultures are identified, Firms might decide to determine a unique and uniquely desirable marketing mix and then target its unique value to the respective subcultures. Three important Cultural Trends Attitudes about the role of men and women in the workplace are actually converging. Attitudes toward gay and lesbian marriage have changed US consumers have become increasingly valueconscious Demographic Environment and Trends Demographics is destiny, particularly for the category of marketers called politicians and their handlers, brand managers, communication directors, and spokespeople. “Demographic” should be viewed as a description and a measurement of some key aspect of a particular population at a given point in time. These demographic forces should influence the Firm’s strategies and certainly will influence the fortunes of entire industries. Gen X demonstrate middle ground with respect to their views on political and social issues. Major US firms frequently develop unique customized marketing mixes that are specifically targeted at various foreign markets. Economic Environment and Trends The economic conditions that prevail within a given market, in both present and predicted future forms, should instruct and inform most important marketing decisions Firms make. Emergent market systems are simultaneously bottomup and topdown and should be studied differently, as autonomous, distinct wholes and as nested networks of relationships. Continue to invest in Promotion and NPD Firms that maintain or even increase their marketing expenditures despite the presence or threat of economic distress have gained significant market share vs. competitors who cut their promotional and/or new product developments. Innovative Promotions Hyundai was first to market with clever innovative promotions such as “if you buy a car and then lose your job, we will take it back” Scan the Environment Identify the economic trend as a friend or foe. Get ahead of it and stay ahead. Technological Environment and Trends Technology encompasses all the inventions and innovations that emerge form various sources and enter cultures, economies, and markets. o Inventions can be defined as something that is new. o Innovations can be defined as something that is new and useful—useful particularly in terms of their ability to solve existing or new problems. One thing to understand about thus still emergent technological systems is that they have made the world of information far more dominant than it once was. Every successive wave of new technologies threatens and actually often destroys existing products, business models, Firms and at times entire Industries. Creative destruction unfolds naturally as existing problems, services, ideas, or processes are replaced or quickly become outmoded as new, superior technologies are introduced. New technological environmental trends are often creates myriad opportunities for newtotheworld Firms to thrive. Governmental and Regulatory Environments and Trends One thing to understand from the start about the environmental role played by the Federal government is that it does not produce anything. o The government only takes, aggregates, and redistributes value that it receives, in the form of taxes, from the productivity of businesses and citizens. The “it depends” portion of this proposition depends on who the Firm is and in what industry of business or educational or organizational sphere a Firm operates. The government also exists to protect the free and fair interests of various Firms and individuals whose interests genuinely need to be protected. o The government eliminates or regulates monopolies o Price discrimination and collusion are both illegal. o Government supports consumerism Exists to elevate the influence rights and power of consumers in relation to the influence, right and power of the marketers o Government elevates the welfare of, and provides a safety net for, consumers needing such values at particular points in time in their lives. o Allows consumers, who otherwise would lack the resources to continue, to purchase necessary goods and services Competitive Environment Forms of Competition Monopoly: exists when a single competitor virtually owns the entire market Oligopolies: occur in industries where there exist a handful of large competitors, each with substantial market share Monopolistic competition: exists in industries characterized by a large number of competitors all vying with each other for market share Perfect competition: exists in industries characterized by many small companies each producing and selling essentially the same product or service. The Nature and Intensity of Competitive Interaction Marketers often and inappropriately believe that the only important source of competition is from other Firm’s that produce the same kinds of products i.e., rivalry between alternative brands within the same product category. Threat of a New Entry The likelihood that new competitors will enter a given industry is a function of the industry’s relative appeal in terms of such things as growth potential, profitability, ability to acquire market share; the likelihood of retaliation by existing competitors; and any barriers to entry in place in that industry. Threat from Substitute Products A substitute product performs the same or a similar function as an industry’s product by a different means. Substitutes are alternative products or services that essentially satisfy the same customer needs or provide the same solutions. Changes in product performance, quality and/or changes in the marketing programs are essential. Bargaining Power of Suppliers Some factors that provide suppliers with power include: o Buyers face very high switching costs should they attempt to change suppliers o There are no viable substitute products to which buyers can switch o The supplier’s products are highly differentiated from other sources in terms of quality and/or function Bargaining Power of Buyers Some factors that provide buyers with power include: o Buyer purchases in large quantities from the supplier, accounting for a significant proportion of that seller’s revenue o Other sources of supply exist to which buyers can readily switch o Buyer poses a credible threat of backward integration i.e. can easily become its own supplier o Few switching costs for changing suppliers exist Rivalry among Existing Competitors Intense competitive rivalry generally translates into lower prices and higher costs The intensity of competitive interactions is a function of: o Stage of the product life cycle. Competitive rivalry increases as products move through the growth stage into maturity and the number of competitors increases. There are strong incentives to “steal” business from one another, meaning that further growth for a single Firm is at the expense of its competitors. o Firms face high exit barriers, meaning that it is difficult to leave the industry. This situation arises when firms haves significant funds tied up in assets that cannot be easily liquidated. The Natural Environment Marketers have to recognize their social responsibility to help conserve precious resources. Concern about the environment has spurred the current “green” (aka environmental sustainability) movement and its concomitant marketing opportunities. Accepting and Exploiting Environmental Change While change does not always represent progress, change is always necessary for progress to occur. While engaging in environmental scanning, managers should step outside their Firms and ask: o What customer wants, needs, and/or problems do we satisfy now? o What customer wants, needs, and/or problems could satisfy now or in the future? o Given our changing environment, what is the gap between those needs we could satisfy in the future and what we do now, and how we bridge the gap? o What sustainable competitive advantages do we currently possess? o Given our changing environment, what sustainable advantages do we need to create? o Given our changing environment, what old competencies do we need to deemphasize and what new competencies do we need to create? 1. Explain ‘Glaciers’ …. Remember– Every single environmental change/trend eventually may prove a marketing opportunity in disguise. o On the other hand, those same environmental changes may eventually prove a marketing threat, in disguise. o Most notably, trends that represent horrific threats for some Firms may represent golden opportunities for others. In large part, the outcome; i.e., marketing opportunity or marketing threat, depends on what marketing Firm is being considered and how wellprepared that Firm is to confront the changes. Chapter 5: Marketing Ethics and Corporate Social Responsibility The Three factors that will contribute most directly to most people’s future professional success are: o The family circumstances into wich they were born. o Their IQ. o Their selfcontrol Self control is the only controllable factor Each motivation—our selfcenteredness and desire to have more than the other— drives so many consumer and business decisions. Human moral (ethical) decisions or leanings are rarely driven by their morals or even rational thought What is Ethics? Ethics, as a concept, entails moral principles that govern an individual’s or a group’s behavior. Ethics provides guidelines that should govern decisionmaking. Ethics also provide insights about the sorts of issues that should be evaluated by decisionmakers when they seek to identify the rights (moral) or wrongs (immoral) choice. Ethical standards also act as curbs against our moral faults. Ethical standards offer snapshots of how a moral life should look. Truth tellers are often secondguessed by someone, so they need to feel comfortable doing what they know is the right thing. What Ethical Issues Typically Arise in Marketing? Reputation definitely has a measurable value to marketers. The more marketers and/or their Firms and brands earn, the more sales and loyalty will be captured. Where ethical issues arrive: o Ethical Firms should give to other local or national causes to the extent that “the give” does not detract from the value they provide to customers, employees, and investors o Firms do not always face an absolute moral obligation to tell the truth o The use of animals in product testing o Degree of safety into product design o Donations to good causes o The extent to which a Firm accepts responsibilities for mishaps, mistakes, or spillages associated with the Firm. o The marketing of addictive products such as tobacco, sleeping pills (Ambien), highfat or overlysweet or extremely salty foods o Involvement in arms trade or the socalled “military industrial complex,” a phrase that introduced to the American consciousness by President and General Dwight Eisenhower back in 1960. o Trading with repressive regimes or regimes that generally act against the best interests of the US as a whole Still, Does Everybody Cheat? The answer is yes, basically everyone does cheat, at least some of time, subject to the simultaneous presence of two “cheatinducing” conditions According to the popular book Freakonomics, the conditions are: o The stakes (rewards or incentives) that accrue to the “cheater”, if s/he gets away with it, are deemed sufficiently high by the prospective cheater and o The “cheater” perceives that the risk of getting caught is sufficiently low Where Will Ethical Dilemmas Most Likely Arise? Ethical standards provide a higher standard for morality than do legal standards Legal standards simply reflect society’s agreement about what represents a moral or immoral act. The areas in which ethical dilemmas, unethical allegations and unethical guilt will most likely arise are: Pricing, specifically, price fixing, price discrimination, price skimming, anticompetitive practices, marketing communications, and poor product quality and safety. Price Fixing o Price fixing is illegal and unethical o Price fixing arises when the owners visit and collude with each other, and jointly agree that prices will be set at given levels. Price Discrimination o Is legal and illegal; ethical and unethical o Characterized by nuance, and comparatively little black and white clarity o Entails charging different prices for the same product to different customers or customer groups absent any justification to charge different prices due to higher or lower costs of doing business with the customer Price Skimming o Typically legal and ethical o Firms that engage in price skimming are generally about to do so because they have managed the value generated by the rest of their marketing mix so well that pricing levels have become a less important consideration in the minds of their targeted market segments. Anticompetitive Practices o Anticompetitive practices, specifically, situations where Firms knowingly engage in activities that eliminate or lessen competition. o Dumping: Situations where one marketing Firm or national industry consciously prices below its costs to injure another Firm or domestic industry and/or eventually eliminate that Firm or industry as a competitor. (unethical and illegal) Marketing Communications Specific forms of marketing promotional strategies, including green washing, pinkwashing, bait and switch, and pyramid schemes can be unethical in nature. o Green Washing When marketers promise that their particular product is especially beneficial, or at least not harmful, to the environment. (often, lies) o Pinkwashing An unethical practice of overpromising and underdelivering when the subject is how much of a percentage of their pink product’s selling price actually ends up going to support the cause in question o Bait and switch Occurs when retailers promote the fact that the hottest product is available at a discount for a certain time period but they don’t have enough to ethically advertise it to enough people o A pyramid scheme is a business model able to lure new participants and their monetary investment into the scheme by promising unsustainable payments or returns in exchange for those participants’ commitment to bring other people into the scheme. Three Perspectives on Marketing Ethics Consumer-Related Ethical Criticisms Criticism 1: Consumers are harmed through excessively high prices. o Consumers generally opt for more expensive brands because the marketer has done a great job of convincing them that the higher prices are wroth it or because consumers want to elevate themselves above the “masses” who cannot afford the prestigious brand. Criticism 2: Marketers Engage in Deceptive Practices o If marketers honor the principals of the marketing mix, they would never deceive. o Relationships, based on an honored promise to deliver truly differentiating value, are critical to sustainable marketing success. Criticism 3: Marketers engage in highpressure selling. o Every US state features “Cooling Off” laws. When consumers contract to purchase expensive items such as homes or automobiles, and then change their minds they can return the item. Criticism 4: Marketing firms market shoddy or unsafe products. o Everyone thing should be taken in moderation Criticism 5: Marketers pursue a strategy called “planned obsolescence.” o Consumers are never forced to buy new versions of existing products as they are introduced to the market. New products deliver new and highly appealing value. Socio-Cultural Related Ethical Criticisms Criticism 1: Marketers create false needs and excessive materialism in American society o Consumers emotionally live or die based on whether they can acquire the latest hottest product. “False needs.” o Materialism: a belief that arises among some people that material things are more important than spiritual values. Criticism 2: Marketers create too much cultural degradation o Promotional and advertising clutter, too many assaults on consumers privacy, and too much sexual content being present in marketing messages or content (tv program, music, fashion) Criticism 3: Marketing creates situations in which excessive power ends up in the hands of those few people, Firms, or institutions o People or Firms should be rewarded what doing what do better than others in the market. Criticism 4: Marketers are successfully marketing stuff that harms consumers. o Fact 1: Adjusting for population growth, recent US increases in rates of diabetes, cancer, leukemia, heart disease, and obesity are both astounding and disturbing. o Fact 2: Part of this growth follows from the fact that people currently live longer o Fact 3: People are living longer in part because of breakthrough pharmaceutical products and medical advances that innovative marketers created and introduced to the world. o Fact 4: Marketers have gotten better at understanding consumers and how to best manipulate/ persuade them into eating too much of a few products that genuinely degrade the health of those consumers. o By providing these products, marketers are acting rationally and ethically by offering and promoting things and outcomes that consumers simply crave based on their natural, instinctive responses Business/ Economic Related Criticisms Criticism 1: Marketers acquire their competitors o Acquisitions of competitors are often initiated as part of broader strategies aimed at acquiring new products, markets, or professional expertise. o There is nothing unethical about one Firm acquiring another unless they are two extremely large Firms Criticism 2: Marketing Firms grow so powerful or their brands become so wellknown that either outcomes creates barriers to entry. o Barrierstoentry is an economics term that reflects what can happen when existing Firms become so large, powerful and/or well known that new competitors’ ability to enter the industry or market is impeded. o Barrierstoentry might arise because one dominant Firm enjoys insurmountable competitive advantages. These advantages include name recognition, branding power, superior technology or superior managerial talent, or sole access to key resources. o Yet few to no barrierstoentry have ever existed that were not penetrated by competitors who developed superior marketing strategies, built better and new products, used exceptional technology, or demonstrated relentless commitment to innovation or lower costs Criticism
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