Principles of Marketing
Exam 1 Study Guide
NEED TO KNOW:
Marketing: the science of profitably changing consumer behavior
Marketing Mix: the marketer’s strategic toolbox – the essential interrelated components to create, communicate, and deliver value; the four P’s
What are the Four P’s? product, price, promotion, place (these are entirely interdependent)
1. Product: a good, service, or idea that satisfies a consumer through the exchange process
2. Price: the assignment of value, or the amount the consumer must exchange to receive the offering; most flexible of the four P’s; easiest to change, quickest to see results; can be a competitive weapon
3. Promotion: includes all activities marketers undertake to inform consumers about their product; goal is to bring out exchanges by informing, educating, persuading and reminding; includes integrated marketing communications (marcom) of personal selling, and advertising
4. Place (distribution): the availability of the product to the consumer at the desired time and location; closely tied to the supply chain – the set of firms that work together to get a product from a producer to a consumer
*********A CHANGE IN ONE P AFFECTS AT LEAST ONE OTHER P******** MEMORIZE THESE:
Consumer: the entity (person or business) who converts the product to value Consumption: process where products are transformed into value
Don't forget about the age old question of m408d davis
Exchange: acting out the decision to give up something to get something of greater value Product: a good, service, or idea (ex. place or person)
Costs: negative results of consumption
Benefits: positive results of consumption
NEEDS VS. WANTS
NEEDS: a gap between the actual and desired state
( ex. you are hungry (which is not ideal), so you decide to grab something to eat – which is an action designed to move you to your desired state)
WANTS: a specific desire representing a way a consumer may go about addressing a recognized need; are often socially or culturally influenced
(ex. many people in America need a car – so many people decide to buy a four door Camry because they NEEDED it although they WANTED a fun,
sports car like a Porsche)
Demand: when a consumer has the desire for a specific product (want) and the buying power to acquire it
Marketing Concept (aka market orientation): a management orientation that focuses on identifying and satisfying consumer needs to ensure the organization’s longterm profitability If you want to learn more check out chem 118
a. Stakeholders are buyers, sellers, investors, community residents,
citizens and consumers.
b. Consumers are defined as the ultimate user of a good or service.
c. Products and services are sold to satisfy both consumers’ and
marketers’ needs—thus consumers need items that provide value while
marketers need to earn profits.
MARKET VS. MARKETPLACE
MARKET: consists of all consumers who share a common need that can be satisfied by a specific product WHO have the resources, willingness and authority to a purchase. MARKETPLACE: any location or medium used to facilitate an exchange a. example: meeting facetoface – an openair market, or a street corner where people sell fruits and vegetables, malls, retail stores, farmer’s markets
b. Information technology has altered marketplace’s by now making it not just facetoface. Such as eBay, mailorder, TV shopping networks
TIPLE BOTTOM LINE
Management seeks to maximize financial, social, and environmental bottom lines (ex: Societal Marketing Concept, ROI measurement across all three areas)
1. Financial Bottom Line: building longterm bonds with customers which emphasize financial profits to stakeholders
2. Social Bottom Line: contributing to the communities in which the firm operates We also discuss several other topics like tejas dhadphale
3. Environmental Bottom Line: creating sustainable business practices that minimize damage to the environment or that even improve it
Sustainability (aka Cradle to Cradle): describes the ideal condition where a product is made from natural materials and is full reusable, recyclable, or biodegradable leading to net resource depletion rate of zero; applies to the main aspects of business; examines the environmental impact of the product Don't forget about the age old question of psych 60 ucsd
VALUE = What you get (benefit) – What you give (costs)
BENEFITS: quality, convenience, emotions, prestige, experiences, scarcity, nostalgia COSTS: time, money, effort, opportunity, emotions, image
Value: personal assessment of the net worth obtained from an activity; in the eye of the beholder – it is subjective perception
While some customers find convenience a very important benefit and would pay more for it, others would not
A major task faced by marketers is convincing consumers their brand’s value proposition is superior to the competition’s. We also discuss several other topics like behavioral neuroscience exam 1
Perspectives of value differ between customers, sellers, and society We also discuss several other topics like What is the difference between lava and magma?
Value propositions sum up the value customers will realize through purchase and consumption of market offering.
The marketing environment is influenced by five micro categories:
1. Economic: related to use of resources to produce income and wealth
2. Competitive: opportunities and threats posed by other firms
3. Political/legal: which results in regulation
4. Sociocultural: trends in demographics
5. Technology: which you may think of as just computers – “information
technology” – but includes medical, communication, transportation,
External Factors: elements outside the firm that may affect it either positively or negatively must be constantly monitored by businesses on an ongoing basis as part of their strategic planning process. In particular, marketers seek to identify trends in the categories here, because they manifest as opportunities or threats to the business; marketers cannot control these, but can respond to them by planning for them
There are two general concepts for understanding the economic environment: 1. MEASURES OF ECONOMIC HEALTH:
a. Gross Domestic Product (GDP), which is the total dollar value of
goods and services it produces within its borders in a year.
b. Foreign exchange rate (forex), which the price of a nation’s currency in terms of another currency.
c. Economic infrastructure: (quality of infrastructure such as
distribution, access to capital and financial transactions,
communications, property rights).
d. the Economist magazine has developed its Big Mac Index based on the theory that with purchasing power parity, the exchange rate would
equalize prices for goods and services. For instance, the
BMI shows that a McDonald’s Big Mac, which costs an average of $4.62 in the United States would cost nearly $8.00 in Norway, over $5.00 in Brazil, and $2.16 in South Africa
2. BUSINESS STAGE CYCLE: Also of note is the stage we are in in the business cycle from the peak, to downturns toward recession to recovery. What is about to happen matters a lot to companies and how they plan their investments in products for the marketplace.
Looked at in three ways…
1. Brand competition: when firms offering similar goods or services compete on the basis of their brand’s reputation or perceived benefits
ex. Coke vs Pepsi; Apple and Samsung
2. Product competition: when firms offering alternate products compete to satisfy the same consumer needs and wants
ex. person trying to get in shape joining a health club vs. buying a fitness machine on eBay; Diet Coke or Diet Pepsi
3. Competition for discretionary income: the portion of income people have left over after paying for necessities such as housing, utilities, food, and clothing; include ALL possible uses for these funds
ex. what do we do with our left over money? Options: buy a new computer, donate, join a gym, etc.
US excels at basic and applies research
Many firms use the marketing concept to guide research rather than inventing for its own sake.
New inventions may create a longterm competitive advantage (e.g., owned patents). External technology (can by licensed) by competitors
a. Creates more efficient operation or better products.
b. May render existing products obsolete
The main thing to know/consider about technology advances is that:
a. The can come very quickly and with little warning. Apple had worked on the original iPhone for three to four years (at least) and none of their competitors had much knowledge of the development.
b. It can dramatically change how a product is perceived by consumers. Nokia, try though it did, went from 50% of the market to 5% in five years.
POLITICAL AND LEGAL ENVIRONMENT
Refers to the local, state, national and global laws and regulations that effect business Making sure everyone plays fair in the market
Protects consumer from harm by companies
Various legislation and agencies protect consumers from firms who are bad actors Other legislation protects firms from unfair competition
Agencies enforce these laws
Examining statistics that measure observable aspects of the population, including its size, age, gender, ethnicity, income, education, occupation, and family structure is the first step in this process, as it is helpful in predicting the size of markets for many products
Changes in demographics can portend new needs, or at least growing/ shrinking of demand for current needs. Marketers, as you might imagine, would care to know of these changes.
SOCIAL FACTORS AFFECTING MARKETING
Cultural Values: A society’s deeply held beliefs about right and wrong ways to live. Ex. differences in “collectivist” countries (Japan, Greece) and “individualist” countries (US, Australia)
Social Norms: Specific rules dictating what is right or wrong, acceptable or unacceptable. Ex. horse meat is available in some super markets in France
Custom: Similar to social norms but less often socially enforced.
Ex. dinner is eaten much later in the evening (e.g., 10 PM) in Spain.
Language: literal translations often fail and idioms (and humor) in languages are important cultural clues.
Ex. “Turn it Loose” translates to “Suffer from Diarrhea” in Spanish.
Consumer Ethnocentrism: A tendency to believe products from your culture are better than those from other countries.
(THESE ALL FIT UNDER: Time, Lifestyles, Values, and Role Changes
Business planning is an ongoing process that guides short and longterm decisions. Some terms:
Strategy: a general term (not just business) for a long term plan to
achieve, and therefore, measure progress toward a goal.
Business strategy: a system of activities that provide sustainable
Marketing strategy: how a company creates value for customers.
Tactics: methods of implementing the strategy (e.g., 4Ps).
Operations: daily execution of tactics.
Business Plan: an ongoing process that guides shortterm and longterm decisions. It starts with a strategy, a general term (not just for business) for a long term plan to achieve a goal; a plan that includes the decisions that guide the entire organization or its business units
Business strategy: a system of activities that provide sustainable competitive advantage Marking strategy: how a company creates value for customer
Marketing Plan: a document that describes the marking environment, outlines the marketing objectives and strategy, and identifies how the company will implement and control the strategies embedded in the plan
the managerial decision process that matches the firm’s resources (such as its financial assets and workforce) and capabilities (the things it is able to do well because of its expertise and experience) to its market opportunities for longterm growth (usually 5 years). The mission, objectives, business portfolio, and growth strategy decisions “set the stage” and flow through to the functional and operational planning levels
top management defines firms purpose and set objectives
many large firms have separate strategic business units (SBUs)
Disney has four SBUs for theme parks, TV networks, film studios, and cruise lines, each with their own presidents
STRATEGIC PLANNING PROCES
Step 1: Define the Mission
A mission statement is a formal statement of the firm’s overall purpose and what it hopes to achieve in terms of its customers, products, and resources
Key questions in determining mission:
1. What business are we in?
2. What customers should we serve?
3. How should we develop the firm’s capabilities and focus its efforts?
Good mission statements are not too broad or narrow, and are not shortsighted. A mission statement is the ruler by which the firm measures if it is working on the right things
Step 2: Evaluate the Internal and External Environment
this process is referred to as a situation analysis (also sometimes called environmental analysis, or a business review)
situation analysis: an assessment of a firm’s internal and external environments internal environment: the controllable elements inside an organization, including its peoples, facilities, and how it does things that influence the operations of the organization
external environment: uncontrollable elements outside an organization that may affect its performance either positively or negatively
SWOT analysis: provides a clear focus on the meaningful strengths (S) and weaknesses (W) in the firm’s internal environment, and on the opportunities (O) and threats (T) coming from the external environment
a. Strength and weaknesses are internal to the company and can be controlled (improved).
b. Opportunities and threats are outside the company and cannot be controlled. c. In planning, companies will use their strengths to take advantage of
opportunities and avoid threats.
d. But they also must be aware that weaknesses open them up to threats and reduce their ability to take advantage of opportunities.
Step 3: Set Organizational or SBU Objectives
Organizational goals (ex: “increase sales”) and objectives (ex: a specific outcome) should reflect the mission and be based on environmental assessment
Objectives should be SMART (specific, measurable, achievable, relevant, time bound)
If you are in marketing, the goals should be externallyfacing (ex: increased sales, satisfaction, not “spend more on ads.”)
Step 4: Establish the Business Portfolio
A portfolio represents the different business line a large firm operates a. Apple’s for example, manages its business by product (iPhone, iPad, Mac, services, etc.) and by geography (Americas, Europe, China, Japan, etc.)
BCG growthmarket share matrix: a portfolio analysis model that assesses the potential of successful products to generate cash that a firm can then use to invest in new products; best used for existing businesses, not startups
Portfolio analysis assesses the growth potential for a firm’s SBUs and product lines a. ex: BCG GrowthShare Matrix & GE Model
Step 5: Develop Growth Strategies
Productmarket growth matrix characterizes different growth strategies based on a product and market types. Four choices:
1. Market penetration: growth strategies designed to increase sales of existing products to current customers, nonusers, and users of competitive brands in served markets
ex. McDonalds making a better value menu, or promotions like “McPick 2” and any size soft drink for $1.
2. Market development: growth strategies that introduce existing products to new markets
ex. Expanding U.S airlines into Havana from several key Florida cities
3. Product development: growth strategies that focus on selling new products in existing markets
ex. Diet Coke launching new flavors like Ginger Lime, Feisty Cherry,
Twisted Mango, etc.
4. Diversification: growth strategies that emphasize both new products and new markets
ex. Amazon bringing in Whole Foods products to their site – this brings in a whole wave of customers that are looking for convenient access to a wider selection of healthy and organic food items
MARKET PLANNING PROCESS
Step 1: Situation Analysis:
Performing a marketing environmental analysis
Conduct SWOT analysis
Step 2: Set Marketing Objectives:
Specific to the firms marketing mix elements (the four P’s)
Marketing objectives help achieve the overall business objectives
Relate directly to the strategic goals
Step 3: Develop Marketing Strategies
Identify target market(s)
Adjust marketing mix (four P’s) for each target market
a. product strategies: essential to achieve marketing objectives; include decisions such as product design, packaging, branding, support services; if there will be variations of the product, etc.
b. pricing strategy: determines how much a firm charges for a product
c. promotional strategy: how marketers communicate a product’s value
proposition to the target market; used to develop the product’s message and the mix of advertising, sales promotion, public relations and publicity, direct marketing, and personal selling that will deliver the message
d. distribution strategies: outline how, when, and where the firm will make the product available to targeted customers (the place component)
Step 4: Implement and Control the Marketing Plan
During implementation process, firms follow formal process to determine progress toward marketing objectives – these three steps are called control:
1. Measure actual performance
2. Compare performance to established objectives
3. Make adjustments to objectives or strategies based on this analysis