Principles of Marketing: An SEO-Optimized Title

Principles of Marketing
Assignment
Group Members
Hailey College of Commerce

University of the Punjab Lahore
Table of Contents
Acknowledgment……………………………………………………………………..
Executive Summary…………………………………………………………………..
Introduction…………………………………………………………………………..
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ACKNOWLEDGEMENT
In the name of Allah, the most Gracious and Merciful who gave us the strength and
determination to complete this project within due time.
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We feel great pleasure in expressing our deepest appreciation and heartiest gratitude to Mr.
Arshad, the former employee of Polka for his time and corporation through out our project and at
the same time our respected Professor Mr. Zia Ur Rehman for his guidance and great help
during the course.
We would also like to express gratitude towards our families for their never-fading and constant
support; and appreciate and acknowledge the patience, understanding and love provided by them.
It is of course the reward of their good wishes and kind blessings.
The acknowledgement will remain incomplete without special thanks to our friends for their
excellent cooperation and nice companionship. With out this bolster it was impossible to ever even
conceive a completed project.
EXECUTIVE SUMMARY
The main Focus of this report is on the Ice-cream. The current objective of product is
to expand its market, to strengthen and position and to capture new markets. We
conducted market survey by using different research methodologies The strategy of
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product is for the obtainment of these objectives is delivery of customer segments of

ice-cream market. The main stress of is to change the customer behavior towards the
ice-cream which is to make it an impulse item which initially it wasn’t.
Organization Hierarchy
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Company profile:
Contact Information
Address: Bund Road, Lahore-Pakistan
Phone: 111-007-007
Fax: 111-007-008
Key People
• Chairman:
• President, and CEO:
• Directors:
Industry Information
Sector: Consumer Goods

Industry: Ice Cream
Top Competitors
• Wall’s
• Yummy
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We are introducing for the very first time great variety novelty
sticks of sugar free ice creams.
Introduction of Marketing
A market-focused, or customer-focused, organization first determines what its potential
customers desire, and then builds the product or service. Marketing theory and practice is justified in
the belief that customers use a product or service because they have a need, or because it provides a
perceived benefit.
Two major factors of marketing are the recruitment of new customers (acquisition) and the
retention and expansion of relationships with existing customers (base management). Once a
marketer has converted the prospective buyer, base management marketing takes over. The process
for base management shifts the marketer to building a relationship, nurturing the links, enhancing the
benefits that sold the buyer in the first place, and improving the product/service continuously to
protect the business from competitive encroachments.
Definition:
“Marketing is a total system of business activities
designed to plan, price, promote and distribute want
satisfying products to target markets in order to achieve
Organizational objectives”.
This definition has two significant implications:
 Focus: The entire system of business activities should be customer-oriented. Customer’s

wants must be recognized and satisfied.
 Duration: Marketing should start with an idea about a want satisfying product and should
end until the customer‘s want are completely satisfied, which may b sometime after the
exchange is made.
Nature and scope of Marketing
Marketing can occur anytime a person or organization strives to exchange something of value with
another person or organization. Thus, at its core Marketing is a transaction of exchange. In this broad
sense, marketing consist of activities designed to generate and facilitate exchanges intended to
satisfy human or organizational needs or wants.
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Evolution of Marketing
Marketing as we all know it today began in the 1970s with the birth of the "marketing
orientation"
 During the first stage of capitalism business had a production orientation. Business was
concerned with production, manufacturing, and efficiency issues.
 By the mid 1950s a second stage emerged, the sales orientation stage. Business's prime
concern was to sell what it produced.
 By the early 1970s a third stage, the marketing orientation stage emerged as businesses came
to realize that consumer needs and wants drove the whole process. Marketing research
became important. Businesses realized it was futile putting a lot of production and sales
effort into products that people did not want.
 Some commentators claim that we are now on the verge of a fourth stage, one of a personal
marketing orientation. They believe that the technology is available today to market to people
on an individual basis (see personalized marketing, permission marketing, and mass
customization). They feel it is no longer necessary to think in broad aggregated terms like
market segments or target markets. Marketing has become an academic discipline in itself,
with tertiary degrees in the field now routinely awarded. Masters and Doctrinal degrees can
be obtained in numerous subcategories of marketing including: Marketing Research,
Consumer Behavior, International Marketing, Industrial Marketing (also called b-to-b
marketing), Consumer Marketing (also called b-to-c marketing), Product Management, and
e-Marketing.
The Marketing Concept
Managers who adopt a market orientation recognize that Marketing is vital to the success of their
organizations. This realization is reflected in a fundamental approach to doing business that gives the
customer the highest priority. Called the marketing concept, it emphasizes customer orientation and
coordination of marketing activities to achieve the organization’s performance objectives.
Ethics and Marketing
Marketing is the activity of creating a product/service, packaging it, and selling it over and over. One
hopes that one is marketing something that is useful to society — that way society improves or
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survives better. Things go better for everyone, and you personally feel better about yourself because
you obtain customers and gain friends — and are helping society to grow.
If you are marketing something that is not so good for society, things don't get better, society does
not survive so well, and things get worse. And things get worse for you, too. One loses customers
and gains enemies. There are laws that had to be written and put into effect in society in order to
right the wrongs caused by those who produced and sold products/services that did harm. The harm
was actually too much! And thus the laws.
Ideally, it is best if you ask yourself if the product or service you offer is something that will
improve things or improve society. If it does, that will certainly help when you go to sell it to
society.
If you try to sell a product or service to society that is harmful, or try to sell it by deception or
misrepresentation, or if you have to destroy your competition in order to try to dominate by way of
the false premise of "survival of the fittest" — or if you hire a company to do the above actions for
you — you reap a whirlwind of trouble from society.
Importance of Marketing
Domestic marketing:
A company marketing only within its national boundaries only has to
consider domestic competition. Even if that competition includes companies from foreign markets, it
still only has to focus on the competition that exists in its home market. Products and services are
developed for customers in the home market without thought of how the product or service could be
used in other markets. All marketing decisions are made at headquarters.
The biggest obstacle these marketers face is being blindsided by emerging global marketers.
Because domestic marketers do not generally focus on the changes in the global marketplace, they
may not be aware of a potential competitor who is a market leader on three continents until they
simultaneously open 20 stores in the Northeastern U.S. These marketers can be considered
ethnocentric as they are most concerned with how they are perceived in their home country.
Export marketing:
Generally, companies began exporting, reluctantly, to the occasional
foreign customer who sought them out. At the beginning of this stage, filling these orders was
considered a burden, not an opportunity. If there was enough interest, some companies became
passive or secondary exporters by hiring an export management company to deal with all the
customs paperwork and language barriers. Others became direct exporters, creating exporting
departments at headquarters. Product development at this stage is still focused on the needs of
domestic customers. Thus, these marketers are also considered ethnocentric.
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International marketing:
If the exporting departments are becoming successful but the
costs of doing business from headquarters plus time differences, language barriers, and cultural
ignorance are hindering the company’s competitiveness in the foreign market, then offices could be
built in the foreign countries. Sometimes companies buy firms in the foreign countries to take
advantage of relationships, storefronts, factories, and personnel already in place. These offices still
report to headquarters in the home market but most of the marketing mix decisions are made in the
individual countries since that staff is the most knowledgeable about the target markets. Local
product development is based on the needs of local customers. These marketers are considered
polycentric because they acknowledge that each market/country has different needs.
Multinational marketing:
At the multi-national stage, the company is marketing its
products and services in many countries around the world and wants to benefit from economies of
scale. Consolidation of research, development, production, and marketing on a regional level is the
next step. An example of a region is Western Europe with the US. But, at the multi-national stage,
consolidation, and thus product planning, does not take place across regions; an egocentric approach.
Globally:
Today, businesses around the world, both large and small, cannot ignore the impact that
the global economy is having on their performance. Globalization, the internet, and information
transparency have led to an increasingly mobile workforce, ever more fickle customers, and rapidly
changing technologies and business models. One result of this seemingly inexorable trend is that
companies are less able to predict - let alone control - the short-term shape of their own markets.
As a result, more and more organisations are choosing to adopt a marketing-led philosophy to enable
them to win market share and capture and retain the hearts and minds of current and prospective
customers. Marketing is becoming more important as organisations around the world strive to
develop products and services that appeal to their customers and aim to differentiate their offering in
the increasingly-crowded global marketplace.
These complex issues heighten the need for effective marketing whilst expanding its scope
beyond the ‘marketing function’. Put simply, marketing is no longer the sole prerogative of a single
‘function’, even if the leadership on marketing comes from that function, together with the
framework within which marketing strategies are conceived, developed, planned, executed, reviewed
and improved.
It used to be that a company could rise to the top of its industry and deliver superior
shareholder returns by doing one thing well. Not anymore. Marketing’s perceived ability to
orchestrate collaboration across an organisation (and its role in driving demand in markets that suffer
from low rates of consumption) indicates that marketing is becoming increasingly important, even in
organisations and sectors where it has, perhaps, traditionally taken a back seat.
Environmental scanning:
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Environmental scanning is a concept from business management

by which businesses gather information from the environment, to better achieve a sustainable
competitive advantage. To sustain competitive advantage the company must also respond to the
information gathered from environmental scanning by altering its strategies and plans when the need
arises.
Definition
Environmental Scanning refers to the organizational practice of scanning, identifying, analyzing the
external environmental (e.g. issues, trends, threats, opportunities) as part of a larger process of
strategic decision making. The practice can be compared to horizon scanning, which focuses more
explicitly on longer-term, less immediate issues.
Methods:
There are three ways of scanning the business environment:
 Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis

 Regular scanning - Studies done on a regular schedule (say, once a year)
 Continuous scanning - (also called continuous learning) - continuous structured data
collection and processing on a broad range of environmental factors
Most commentators feel that in today's turbulent business environment the best
scanning method available is continuous scanning. This allows the firm to act quickly, take
advantage of opportunities before competitors do, and respond to environmental threats before
significant damage is done.
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Economic
conditions
Demo-
graphics Competition
Companies
Marketing
Program
Social and
cultural Technolog
forces y
Political
and legal
forces
Market segmentation
Market segmentation is the identification of portions of the market that are different from one
another. Segmentation allows the firm to better satisfy the needs of its potential customers.
The Need for Market Segmentation
The marketing concept calls for understanding customers and satisfying their needs better than the
competition. But different customers have different needs, and it rarely is possible to satisfy all customers by
treating them alike.
Mass marketing refers to treatment of the market as a homogenous group and offering the same
marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass
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production, mass distribution, and mass communication. The drawback of mass marketing is that customer
needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. If firms
ignored the differing customer needs, another firm likely would enter the market with a product that serves a
specific group, and the incumbent firms would lose those customers.
Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them
with the same offering. The first step in target marketing is to identify different market segments and their
needs.
Requirements of Market Segments
In addition to having different needs, for segments to be practical they should be evaluated against the following
criteria:
 Identifiable: the differentiating attributes of the segments must be measurable so that they can be
identified.
 Accessible: the segments must be reachable through communication and distribution channels.
 Substantial: the segments should be sufficiently large to justify the resources required to target them.
 Unique needs: to justify separate offerings, the segments must respond differently to the different
marketing mixes.
 Durable: the segments should be relatively stable to minimize the cost of frequent changes.
A good market segmentation will result in segment members that are internally homogenous and externally
heterogeneous; that is, as similar as possible within the segment, and as different as possible between segments.
Bases for Segmentation in Consumer Markets
Consumer markets can be segmented on the following customer characteristics.
 Geographic
 Demographic
 Psychographic
 Behavioralistic
Geographic Segmentation:
The following are some examples of geographic variables often used in segmentation.
 Region: by continent, country, state, or even neighborhood

 Size of metropolitan area: segmented according to size of population
 Population density: often classified as urban, suburban, or rural
 Climate: according to weather patterns common to certain geographic regions
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Demographic Segmentation:
Some demographic segmentation variables include:
 Age
 Gender
 Family size
 Family lifecycle
 Generation: baby-boomers, Generation X, etc.
 Income
 Occupation
 Education
 Ethnicity
 Religion
 Social class
Many of these variables have standard categories for their values. For example, family lifecycle often is
expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or
solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on
the age of the children.
Psychographic Segmentation:
Psychographic segmentation groups customers according to their
lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some
psychographic variables include:
 Activities
 Interests
 Opinions
 Attitudes
 Values
Behavioralistic Segmentation:
Behavioral segmentation is based on actual customer behavior toward
products. Some behavioralistic variables include:
 Benefits sought
 Usage rate
 Brand loyalty
 User status: potential, first-time, regular, etc.
 Readiness to buy
 Occasions: holidays and events that stimulate purchases
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Behavioral segmentation has the advantage of using variables that are closely related to the product
itself. It is a fairly direct starting point for market segmentation.
Bases for Segmentation in Industrial Markets
In contrast to consumers, industrial customers tend to be fewer in number and purchase larger
quantities. They evaluate offerings in more detail, and the decision process usually involves more than one
person. These characteristics apply to organizations such as manufacturers and service providers, as well as
resellers, governments, and institutions.
Many of the consumer market segmentation variables can be applied to industrial markets.
Industrial markets might be segmented on characteristics such as:
 Location
 Company type
 Behavioral characteristics
Location:
In industrial markets, customer location may be important in some cases. Shipping costs may be a
purchase factor for vendor selection for products having a high bulk to value ratio, so distance from the vendor
may be critical. In some industries firms tend to cluster together geographically and therefore may have similar
needs within a region.
Company Type:
Business customers can be classified according to type as follows:
 Company size
 Industry
 Decision making unit
 Purchase Criteria
Behavioral Characteristics
In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such
behavioral characteristics may include:
 Usage rate
 Buying status: potential, first-time, regular, etc.
 Purchase procedure: sealed bids, negotiations, etc.
Importance of Marketing Research
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Research, as a general concept, is the process of gathering information to learn about

something that is not fully known. Nearly everyone engages in some form of research. From the
highly trained geologist investigating newly discovered earthquake faults, to the author of best
selling spy novels gaining insight into new surveillance techniques, to the model train hobbyist
spending hours hunting down the manufacturer of an old electric engine, each is driven by the quest
for information.
For marketers, research is not only used for the purpose of learning, it is also a critical
component needed to make good decisions. Market research does this by giving marketers a picture
of what is occurring (or likely to occur) and, when done well, offers alternative choices that can be
made. For instance, good research may suggest multiple options for introducing new products or
entering new markets. In most cases marketing decisions prove less risky (though they are never
risk free) when the marketer can select from more than one option.
Using an analogy of a house foundation, marketing research can be viewed as the foundation of
marketing. Just as a well-built house requires a strong foundation to remain sturdy, marketing
decisions need the support of research in order to be viewed favorably by customers and to stand up
to competition and other external pressures. Consequently, all areas of marketing and all marketing
decisions should be supported with some level of research.
While research is key to marketing decision making, it does not always need to be elaborate to
be effective. Sometimes small efforts, such as doing a quick search on the Internet, will provide the
needed information. However, for most marketers there are times when more elaborate research
work is needed and understanding the right way to conduct research, whether performing the work
themselves or hiring someone else to handle it, can increase the effectiveness of these projects.
Examples of Research in Marketing

Marketing research is undertaken to support a wide variety of marketing decisions. The table
below presents a small sampling of the research undertaken by marketing decision area
Marketing Types of Research

Decision
Target sales, market size; demand for product, customer

Markets characteristics, purchase behavior, customer satisfaction,
website traffic
Product product development; package protection, packaging

awareness; brand name selection; brand recognition, brand
preference, product positioning
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Distribution distributor interest; assessing shipping options; online

shopping, retail store site selection
Promotion advertising recall; advertising copy testing, sales promotion

response rates, sales force compensation, traffic studies
(outdoor advertising), public relations media placement
Pricing price elasticity analysis, optimal price setting, discount

options
External competitive analysis, legal environment; social and cultural

Factors trends
Other company image, test marketing
Doing Research Right:

Marketing research is a process that investigates both
organizations and people. Of course, organizations are made up of people so when it comes down to
it, marketing research is a branch of the social sciences. Social science studies people and their
relationships and includes such areas as economics, sociology and psychology. To gain
understanding into their fields, researchers in the social sciences use scientific methods that have
been tested and refined over hundreds of years. Many of these methods require the institution of
tight controls on research projects. For instance, many companies survey (i.e., ask questions) a small
percentage of their customers (called a sample) to see how satisfied they are with the company’s
efforts. For the information obtained from a small group of customers to be useful when evaluating
how all customers feel, certain controls must be in place including controls on who should be
included in the sample.
Thus, doing research right means the necessary controls are in place to insure it is done
correctly and increase the chance the results are relevant. Relying on results of research conducted
incorrectly to make decisions could prove problematic if not disastrous. Thousands of examples
exist of firms using faulty research to make decisions, including many dot-com companies that failed
between 1999 and 2002.
As one might expect, the trade-off for doing research right is the increase in cost and time
needed to conduct the research. So a big decision for marketers, when it comes to doing research, is
to determine the balance between the need for obtaining relevant information and the costs involved
in carrying out the research.
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Research Validity and Reliability:

As we discussed, not all research requires undertaking an elaborate study. But even
marketers conducting small, informal research should know that any type of research performed
poorly will not yield relevant results. In fact, all research, no matter how well controlled, carries the
potential to be wrong. There are many reasons why research may not yield good results (a full
discussion being beyond the scope of this tutorial), however, most errors can be traced to problems
with how data is gathered. In particular, many research mistakes occur due to problems associated
with research validity and research reliability.
Research Validity:
This problem with data gathering represents several concepts that to the non-
researcher may be quite complex. But basically validity boils down to whether the research is really
measuring what it claims to be measuring. For instance, if a marketer is purchasing a research report
from a company claiming to measure how people prefer the marketer’s products over competitors’
products, the marketer should understand how the data was gathered to help determine if the
research really captures the information the way the research company says it does.
While research validity is measured in several ways, those evaluating research results should
keep asking this simple question: Is the research measuring what it is supposed to measure? If the
marketer has doubts about the answer to this question then it is possible the results should also be
questioned.
Research Reliability:
This problem relates to whether research results can be applied to a wider

group than those who took part in a study. In other words, would similar results be obtained if
another group containing different respondents or a different set of data points were used? For
example, if 40 salespeople out of 2,000-person corporate sales force participate in a research study
focusing on company policy, is the information obtained from these 40 people sufficient to conclude
how the entire sales forces feels about company policies? What if the same study was done again
with 40 different salespeople, would the responses be similar?
Reliability is chiefly concerned with making sure the method of data gathering leads to
consistent results. For some types of research this can be measured by having different researchers
follow the same methods to see if results can be duplicated. If results are similar then it is likely the
method of data gathering is reliable. Assuring research can be replicated and can produce similar
results is an important element of the scientific research method.
Risk in Marketing Research
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Doing research right shows that good marketing research, especially when it involves
formal research projects, requires strict controls in order to produce relevant information. Being
relevant means the probability is high that the research results reflect what is happening now or
might happen in the future. But following the right procedures to produce a relevant study does not
insure the results of research will be 100% correct as there is always the potential that results are
wrong.
Because of the risks associated with research, marketers are cautioned not to use the
results of marketing research as the only input in making marketing decisions. Rather, smart
marketing decisions require considering many factors, including management’s own judgment of
what is best. But being cautious with how research is used should not diminish the need to conduct
research. While making decisions without research input may work sometimes, long-term success is
not likely to happen without regular efforts to collect information.
Additionally, risk in research extends to research produced by others, the research process
often includes using information initially gathered by other sources, such as market research firms.
However, in many instances the methods for collecting this information is not be fully disclosed,
thus questions exist regarding research validity and reliability. Marketers using research collected
by third-party sources should do so with a reasonable level of skepticism. In fact, it is wise for
marketers to always make an effort to locate multiple information sources that address the same
issue (e.g., two or more sales forecasts reports). A good rule-of-thumb for all marketers is never to
rely on one source for making definitive statements about a market.
Trends in Marketing Research

In recent years the evolution of marketing research has been dramatic with marketers
getting access to a wide variety of tools and techniques to improve their hunt for information. Below
we discuss a few important trends shaping the marketing research field:
Gaining an Information Advantage:
In its role as the foundation of marketing, marketing

research is arguably marketing’s most important task. Today marketers not only view research as a
key ingredient in making marketing decisions they also consider information to be a critical factor in
gaining advantage over competitors. Because organizations recognize the power information has in
helping create and maintain products that offer value, there is an insatiable appetite to gain even
more insight into customers and markets. Marketers in nearly all industries are expected to direct
more resources to gathering and analyzing information especially in highly competitive markets.
Many of the trends discussed below are directly related to marketers’ quest to acquire large amounts
of customer, competitive and market information.
What is a Customer?
Definition:
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“A customer is a person or organization that a

marketer believes will benefit from the goods
and services offered by the marketer’s organization”.
As this definition suggests, a customer is not necessarily someone who is currently

purchasing from the marketer. In fact, customers may fall into one of three customer groups:
• Existing Customers – Consists of customers who have purchased or otherwise used an

organization’s goods or services, typically within a designated period of time. For some
organizations the timeframe may be short, for instance, a coffee shop may only consider
someone to be an Existing Customer if they have purchased within the last three months.
Other organizations may view someone as an Existing Customer even though they have not
purchased in the last few years (e.g., television manufacturer). Existing Customers are by far
the most important of the three customer groups since they have a current relationship with a
company and, consequently, they give a company a reason to remain in contact with them.
Additionally, Existing Customers also represent the best market for future sales, especially if
they are satisfied with the relationship they presently have with the marketer. Getting these
Existing Customers to purchase more is significantly less expensive and time consuming than
finding new customers mainly because they know and hopefully trust the marketer and, if
managed correctly, are easy to reach with promotional appeals (i.e., emailing a special
discount for new product).
• Former Customers – This group consists of those who have formerly had relations with
the marketing organization typically through a previous purchase. However, the marketer no
longer feels the customer is an Existing Customer either because they have not purchased
from the marketer within a certain timeframe or through other indications (e.g., a Former
Customer just purchased a similar product from the marketer’s competitor). The value of
this group to a marketer will depend on whether the customer’s previous relationship was
considered satisfactory to the customer or the marketer. For instance, a Former Customer
who felt they were not treated well by the marketer will be more difficult to persuade to buy
again compared to a Former Customer who liked the marketer but decided to buy from
someone else who had a similar product that was priced lower.
• Potential Customers – The third category of customers includes those who have yet to
purchase but possess what the marketer believes are the requirements to eventually become
Existing Customers. The requirements to become a customer include such issues as having a
need for a product, possessing the financial means to buy, and having the authority to make a
buying decision. Locating Potential Customers is an ongoing process for two reasons. First,
Existing Customers may become Former Customers (e.g., decide to buy from a competitor)
and, thus, must be replaced by new customers. Second, while we noted above that Existing
Customers are the best source for future sales, it is new customers that are needed in order for
a business to significantly expand. For example, a company that sells only in its own country
may see less room for sales growth if a high percentage of people in the country are already
Existing Customers. In order to realize stronger growth the company may seek to sell their
products in other countries where Potential Customers may be quite high.
Customers and the Organization
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For most organizations understanding customers is the key to success while not
understanding them is a recipe for failure. It is so important that the constant drive to satisfy
customers is not only a concern for those responsible for carrying out marketing tasks; satisfying
customers is a concern of everyone in the entire organization.
Whether someone’s job involves direct contact with customers (e.g., salespeople, delivery
drivers, telephone customer service representatives) or indirect contact (e.g., production,
accounting), all members of an organization must appreciate the role customers play in helping the
organization meets its goals. To ensure everyone understands the customer’s role, many
organizations continually preach a “customer is most important” message in department meetings,
organizational communication (e.g., internal emails, website postings), and corporate training
programs. To drive home the importance of customers, the message often contains examples of how
customers impact the company. These examples include:
 Source of Information and Ideas - Satisfying the needs of customers requires
organizations maintain close contact with them. Marketers can get close to customers by
conducting marketing research (e.g., surveys) and other feedback methods (e.g., website
comments forms) that encourage customers to share their thoughts and feelings. With this
information marketers are able to learn what people think of their present marketing efforts
and receive suggestions for making improvements. For instance, research and feedback
methods can offer marketers insight into new products and services sought by their
customers.
 Affects Activities Throughout Organization - For most organizations customers
not only affect decisions made by the marketing team but they are the key driver for
decisions made throughout the organization. For example, customer’s reaction to the design
of a product may affect the type of raw materials used in the product manufacturing process.
With customers impacting such a significant portion of a company, creating an environment
geared to locating, understanding and satisfying customers is imperative.
 Needed to Sustain the Organization - Finally, customers are the reason an
organization is in business. Without customers or the potential to attract customers, a
company is not viable. Consequently, customers are not only key to revenue and profits they
are also key to creating and maintaining jobs within the organization.
The Importance of Good Customers

For marketers simply finding customers who are willing to purchase their goods or
services is not enough to build a successful marketing strategy. Marketers should look to manage
customers in a way that will “identify, create and maintain satisfying relationships with customers.”
By using marketing efforts that are designed to “maintain satisfying relationships” rather than simply
pursuing a quick sale, the likelihood increases that customers will be more trusting of the marketer
and exhibit a higher level of satisfaction with the organization. In turn satisfied customers are more
likely to become “good” customers.
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For our purposes we define a “good” customer as one who holds the potential to
undertake activities that offer long-term value to an organization. The activities performed by
customers not only include purchasing products, these also include such things as:
 offering feedback on company performance
 making prompt payment
 offering suggestions for new products
 voluntarily promoting the company’s products to others
These activities along with many others (including profit from product sales) represent the
value (i.e., benefits for costs spent) an organization receives from its customers. In the case of
“good” customers their potential for providing value should be a signal for marketers to direct
additional marketing efforts in building, strengthening and sustaining a relationship with these
customers.
The fact that we place the descriptive term “good” in front of customers should not be
taken lightly. Not all customers who currently have relationships with an organization (i.e., Existing
Customers) should be treated on an equal level. Some consistently spend large sums to purchase
products from an organization; others do not spend large sums but hold the potential to do so; and
still others use up a large amount of an organization’s resources but contribute little revenue.
Clearly there are lines of demarcation between those in the Existing Customer category. As we will
see later, identifying this line is critical for marketing success.
Challenge of Managing Customers

While on the surface the process for managing customers may seem to be intuitive and
straightforward, in reality organizations struggle to accomplish this. One reason for the struggle is
that no two customers are the same. What is appealing to one customer may not necessarily work
for another.
For instance, a marketer may change how it issues coupons to customers by reducing the
frequency of issuing coupons by regular mail and instead directing customers to electronic coupons
found on its website. The marketer makes this move to encourage customers to visit the website
more often with the hope it will lead to cost savings (e.g., sending out traditional coupons by mail
requires postage expense), allow the marketer to acquire more customer information (e.g., monitor
their activities when they visit the website), and give the marketer the opportunity to sell more
product to the customer (e.g., special promotional messages on the website). However, some long
time customers may view electronic coupons as requiring more work on their part compared to
coupons delivered through regular mail. In this example the introduction of a new feature may
satisfy some customers while irritating others.
Customer Contact Points
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Another problem is that customers may interact with organizations at different contact
points. A contact point is the method a customer uses to communicate with a company. For
instance, consider the different ways customers may interact with an organization:
 In-Person – Customers seek in-person assistance for their needs by visiting retail stores
and other outlets, and also through discussion with company salespeople who visit customers
at their place of business or in their home.
 Telephone – Customers seeking to make purchases or have a problem solved may find it
more convenient to do so through phone contact. In many companies a dedicated department
called a call center handles all incoming customer inquiries.
 Internet – The fastest growing contact point is through the Internet. The use of the
Internet for purchasing (called electronic commerce) has exploded and is now the leading
method for purchasing certain types of products including music. The Internet is also a key
area where customers look for help with their purchases.
 Kiosks – A kiosk is a standalone, interactive computer, often equipped with a touch-screen,
that offers customers several service options including product information, ability to make a
purchase, and review of a customer’s account. Kiosks are now widely used for airline check-
in, retail job applications, and banking.
 In-Person Product Support – Some in-person assistance is not principally intended to
assist with selling but is designed to offer support once a purchase is made. Such services are
handled by delivery people and service/repair technicians.
 Financial Assistance – Customer contact may also occur through company personnel
who assist customers with financial issues. For instance, credit personnel help customers
arrange the necessary funds to make a purchase while personnel in accounts receivable work
with customers who are experiencing payment problems.
The challenge of insuring that customers are handled properly no matter the contact
point they use is daunting for many companies. For some organizations the customer contact points
cited above operate independently of others. For instance, retail stores may not be directly
connected to telephone customer service. The result is that for different contact points many
companies have developed different procedures and techniques for handling customers. And for
some firms there exists little integration between the contact points so customers communicating
through one point one day and another point the next day may receive conflicting information. In
such cases customers are likely to become frustrated and question the company’s ability to service
its customers.
The business market is comprised of organizations that, in some form, are involved in the
manufacturer, distribution or support of products or services sold or otherwise provided to other
organizations. The amount of purchasing undertaken in the business market easily dwarfs the total
spending by consumers. Because the business market is so large it draws the interest of millions of
companies worldwide that market exclusively to business customers. For these marketers
understanding how businesses make purchase decisions is critical to their organizations’ marketing
efforts.
In some ways understanding the business market is not as complicated as understanding the
consumer market. For example, in certain business markets purchase decisions hinge on the
outcome of a bidding process between competitors offering similar products and services. In these
cases the decision to buy is often whittled down to one concern – who has the lowest price. Thus,
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unlike consumer markets, where building a recognizable brand is very important, for many purchase
situations in the business market this is not the case.
However, in many other ways business buying is much more complicated. For instance, the demand
by businesses for products and services is affected by consumer purchases (called derived demand)
and because so many organizations may have a part in creating consumer purchases, a small swing
in consumer demand can create big changes in business purchasing. Automobile purchases are a
good example. If consumer demand for cars increases many companies connected with the
automobile industry will also see demand for their products and services increase (we will later refer
to these companies as supply chain members). Under these conditions companies will ratchet up
their operations to ensure demand is met, which invariably will lead to new purchases by a large
number of companies. In fact, it is conceivable that an increase of just one or two percent for
consumer demand can increase business demand for products and services by five or more percent.
Unfortunately, the opposite is true if demand declines. Trying to predict these swings requires
businesses to not only understand their immediate customers but also the end user, which as we will
discuss, may be well down the supply chain from where the business operates.
Who Makes Up the Business Market

There are millions of organizations worldwide selling their products and services to other
businesses. They operate in many industries and range in size from huge multinational companies
with thousands of employees to one-person small businesses. With such a large number of
organizations and industries contained within the business market, a marketer can obtain a better
picture of who is involved by looking at popular business classification systems set up by
international governments, such as the North American Industrial Classification System (NAICS),
which covers Canada, Mexico and the United States and the International Standard Industrial
Classification (ISIC), which is widely used in Europe. These reports provide descriptions of
hundreds of industry classifications. For instance, the table below shows how US operators of “Golf
Pro Shops” are listed in the NAICS coding system. Note the numeric sequence that occurs as one
“drills down” in order to locate individual industry groups.
Level NAICS Description

Code
Sector 45 Retail Trade
Subsector 451 Sporting Goods, Hobby, Book, and Music Stores
Industry 4511 Sporting Goods, Hobby, and Musical Instrument
Group Stores
Industry 45111 Sporting Goods Stores
US Industry 451110 Golf Pro Shops
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Once industry codes are known these can be used within various government and industry research
reports to locate specific industry information such as number of firms operating in the industry,
total industry sales, number of employees and more.
For the purposes of this tutorial, however, we will use a broader approach to categorizing businesses
choosing to categorize based on the general business function an organization performs rather then
by industry. We break the business market down into two broad categories - Supply Chain Members
and Business User Markets.
Supply Chain Members

The supply chain consists of mostly for-profit companies engaged in activities involving
product creation and delivery. Essentially the chain represents major steps needed to manufacture a
product that will eventually be sold as a final product. Each member of the supply chain purchases
products and services enabling them to carry out its business objectives. When making purchase
decisions supply chain members may be motivated by such factors as: product cost, return on
investment (i.e., benefits obtained exceed price paid), assurance of consistent supply (i.e., product is
available and delivery is on-time), reciprocity with supplying firm (i.e., we buy from you and you
buy from us), and much more. Examples of purchasing occurring in the supply chain include:
manufacturing and plant equipment, information technology, office supplies, professional business
services, etc.
In the table below we arbitrarily identify five main categories of supply chain members primarily
based on the stage at which they contribute to the manufacturing process. However, it is conceivable
that these categories can be further divided in order to flush out more specific activities.
Supply Chain What They Do Example

Member
Raw Material These companies are generally Copper is mined and extracted
Suppliers considered the first stage in the supply from copper ore. Copper is then
chain and provide basic products refined to remove impurities.
through mining, harvesting, fishing,
etc., that are key ingredients in the
production of higher-order products.
Processed Firms at this level use raw materials to Copper is purchased by electrical
Materials or Basic produce more advanced materials or wire manufacturers.
Component products contained within more
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Manufacturers advanced components.
Advanced These companies use basic Electrical wire is purchased by a

Component components to produce products that manufacturer of electrical power
Manufacturers offer a significant function needed supplies.
within a larger product.
Product This market consists of companies that Power supplies are purchased by
Manufacturers purchase both basic and advanced manufacturers of desktop
components and then assemble these computers.
components into a final product
designated for a user. These products
may or may not be sold as stand-alone
products. Some may be included
within larger products.
Support Service These companies offer services at Distribution companies, such as

Firms almost any point in the supply chain truck firms and storage facilities,
and also to the business user market. assist in moving products from one
Some services are directly related to supply chain member to another.
the product while others focus on areas However, in most cases they do
of the business not directly related to not take ownership of products
production. that pass through the supply chain.
Business User Markets

Besides selling final products and services to supply chain companies, several additional
user markets also make purchases either for their own consumption or they buy with the intention of
redistributing to others. In these purchase situations the buyer generally does not radically change
the product from its form when it was purchased from a Product Manufacturer. While technically
these markets are also part of the supply chain, members of the business user market do not, in most
cases, engage or directly assist in production activities.
Market What They Do Considerations When What They Buy

Buying
Government Made up of Federal, State, Mostly require suppliers to Defense equipment, heavy
Local and International be approved, meet equipment for public works projects,
governments. They use specifications and to bid for office supplies, pharmaceuticals, etc.
purchases to assist with purchases.
the functioning of the
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government that may

include redistributing to
others.
Not-For-Profit Organizations whose tax Look for purchases that will Office equipment and supplies, office
structure precludes fit within tight budgetary rental, professional services, etc.
earning profits from restrictions and also within
operations and whose the mission of the
missions tend to be organization.
oriented to assisting
others.
Reseller Also called distributors, Seek products that are of Consumer and industrial products to
these companies operate interest to the reseller’s be redistributed to other businesses
in both the consumer and customers. Other issues and consumers.
the business markets. include how delivery is
Their function involves handled and whether the
purchasing large volumes supplier offers incentives to
of products from help the reseller promote the
manufacturers (and product.
sometimes from other
resellers) and selling these
products in smaller
quantities. Includes
wholesalers, retailers and
industrial distributors.
How Business Markets Compare to Consumer Markets

For marketers, the selling environment of business markets present uniquely different
circumstances when compared to selling to consumers. At the beginning of this tutorial we saw two
ways in which consumer and business markets differ: 1) business markets are more likely to be price
driven than brand driven, and 2) demand in business markets tends to be more volatile than
consumer markets. However, the two markets are dissimilar in other ways requiring marketers to
take a different approach when selling to business customers than to consumers. These differences
include:
 How Decisions Are Made
 Existence of Experienced Purchasers
 Time Needed to Make Buying Decision
 Size of Purchases
 Number of Buyers
 Type of Promotional Effort Needed to Reach Buyer
A further discussion of each of these differences is presented below:
In the consumer market a very large percentage of purchase decisions are made by a single
person. There are situations in which multiple people may be involved in a consumer purchase
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decision, such as a child influencing a parent to choose a certain brand of cereal or a husband and
wife deciding together to buy a house, but most of the time purchases are individual decisions. The
business market is significantly different. While single person purchasing is not unusual, especially
within a small company, a significant percentage of business buying, especially within larger
organizations, requires the input of many. In the marketing literature those associated with the
purchase decision are known to be part of a Buying Center, which consists of individuals within an
organization that perform one or more of the following roles:
 Buyer – responsible for dealing with suppliers and placing orders (e.g., purchasing agent)
 Decider – has the power to make the final purchase decision (e.g., CEO)
 Influencer – has the ability to affect what is ordered such as setting order specifications (e.g.,
engineers, researchers, product managers)
 User – those who will actually use the product when it is received (e.g., office staff)
 Initiator – any Buying Center member who is the first to determine that a need exists
 Gatekeeper – anyone who controls access to other Buying Center members (e.g.,
administrative assistant)
For marketers confronting a Buying Center it is important to first identify who plays what
role. Once identified the marketer must address the needs of each member, which may differ
significantly. For instance, the Decider, who may be the company president wants to make sure the
purchase will not negatively affect the company’s bottom line while the Buyer wants to be assured
the product will be delivered on time. Thus, the way each Buying Center member is approached and
marketed to requires careful planning in order to address the unique needs of each member.
Experienced Purchasers
Organizations often employ purchasing agents or professional buyers whose job is to negotiate
the best deals for their company. Unlike consumers, who often lack information when making purchase
decisions, professional buyers are generally as knowledgeable about the product and the industry as the
marketer who is selling to them.
Decision Making Time

Depending on the product, business purchase decisions can drag on for an extensive
period. Unlike consumer markets where impulse purchasing is rampant, the number of people
involved in business purchase decisions results in decisions taking weeks, months or even years.
Larger Purchases
For products that are regularly used and frequently purchased, businesses will often
buy a larger volume at one time compared to consumer purchases. Because of this business
purchasers often demand price breaks (e.g., discounts) for higher order levels.
Number of Buyers
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While there are several million companies worldwide that operate in the overall
business market, within a particular market the number is much smaller. For example, while in the
United States there are over 95 million households who may shop at a grocery store, there are only a
few thousand grocery stores with many of these centrally controlled as part of a chain of stores.
Additionally, within some industries buyers are highly concentrated in certain geographic areas.
Consequently, compared to consumer products, marketing efforts are confined to a smaller targeted
group.
Promotional Focus
Companies who primarily target consumers often use mass advertising methods to reach
an often widely dispersed market. For business-to-business marketers the size of individual orders, along
with a smaller number of buyers, makes person-to-person contact by sales representatives a more
effective means of promotion.
Types of Business Purchase Decisions

While it would appear business customers face the same four purchase situations faced by
consumers (Minor New Purchase, Minor Re-Purchase, Major New Purchase, Major Re-Purchase),
the nature of the business market noted above has led many marketing academics to group business
purchase situations into only three categories. The reason is that the idea of a minor order may not
hold as well in the business market, where buyers tend to place larger orders and where suppliers’
marketing efforts are directed toward the most profitable buyers.
 Straight Re-Purchase - These purchase situations involve routine ordering. In most
cases buyers simply reorder the same products or services that were previously purchased. In
fact, many larger companies have programmed re-purchases into an automated ordering
system that initiates electronic orders when inventory falls below a certain pre-determined
level. For the supplier benefiting from the re-purchase this situation is ideal since the
purchaser is not looking to evaluate other products. For competitors who are not getting the
order it may require extensive marketing efforts to persuade the buyer to consider other
product or service options.
 Modified Re-Purchase – These purchases occur when products or services previously
considered a straight re-purchase are for some reason now under a re-evaluation process.
There are many reasons why a product is moved to the status of a modified re-purchase.
Some of these reasons include: end of purchase contract period, change in who is involved in
making the purchase, supplier is removed from an approved suppliers list, mandate from top
level of organization to re-evaluate all purchasing, or strong marketing effort by competitors.
In this circumstance the incumbent supplier faces the same challenges they may have faced
when they initially convinced the buyer to make the purchase. For competitors the door is
now open and they must work hard to make sure their message is heard by those in charge of
the purchase decision.
 New Task Purchase – As the name suggests, these purchases are ones the buyer has
never or rarely made before. In some ways new task purchases can be considered as either
minor or major depending on the total cost or overall importance of the purchase. In either
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case the buyer will spend considerably more time evaluating alternatives. For example, if
faced with a major new task purchase, which often involves complex items, such as computer
systems, buildings, robotic assembly lines, etc., the purchase cycle from first recognizing the
need to placement of the order may be months or even years.
How Businesses Buy

Business purchasing follows the same five-step buying process faced by consumers:
1. Need Recognition
2. Search
3. Evaluate Options
4. Purchase
5. After-Purchase Evaluation.
While the steps are the same as consumer purchasing, the activities occurring within each
step are quite different as we discuss below.
1. Need Recognition
In a business environment needs arise from just about anywhere within the
organization. The Buying Center concept shows that Initiators are the first organizational members
to recognize a need. In most situations the Initiator is also the User or Buyer. Users are inclined to
identify the need for new solutions (i.e., new products) while Buyers are more likely to identify the
need to re-purchase products. But marketers should also understand that more companies are
replacing human involvement in re-purchase decisions with automated methods, thus making it more
challenging for competitors to replace currently purchased products. In straight re-purchase
situations, whether there is human intervention or not, the purchasing process often jumps from
Need Recognition to Purchase and little search activity is performed.
As part of this step, a specifications document may be generated that lays out the requirements of the
product or service to be purchased. Several members of the Buying Center may be involved in
creation of the specifications. For the marketer, establishing close contact with those who draw up
the specifications may help position the marketer’s product for inclusion in the search phase.
Search
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The search for alternatives to consider as potential solutions to recognized needs is one of the most
significant differences between consumer and business purchasing. Much of this has to do with an
organization’s motive to reduce costs. While a consumer will probably not search hard to save two
cents a gallon on gas, a company that has a large fleet of cars or trucks certainly will. In fact, this
step in the purchase process is where professional buyers make their mark. The primary intention of
their search efforts is to identify multiple suppliers who meet product specifications and then,
through a screening process, offer a selected group the opportunity to present their products to
members of the Buying Center. Although in some industries, such as chemicals, online
marketplaces and auction sites offer buyers another option for selecting suppliers that may not
include supplier presentations.
For suppliers, the key to this step of the purchase process is to make sure they are included within
the search activities of the Buyer or others in the Buying Center. In some instances this may require
that a supplier work to be included within an approved suppliers list. In the case of online
marketplaces and auction sites, suppliers should work to be included within relevant sites.
Evaluate Option
Once the search has produced options, members of the Buying Center may then choose among the
alternatives. In more advanced purchase situations, members of the Buying Center may evaluate
each option using a checklist of features and benefits sought by the buyer. Each feature/benefit is
assigned a weight that corresponds to its importance to the purchase decision. In many cases,
especially when dealing with Government and Not-For-Profit markets, suppliers must submit bids
with the lowest bidder often being awarded the order, assuming products or services meet
specifications.
Purchase
To actually place the order may require the completion of paperwork (or electronic documents) such
as a purchase order. Acquiring the necessary approvals can delay the order for an extended period of
time. And for very large purchases, such as buildings or large equipment, financing options may
need to be explored.
2. After-Purchase Evaluation
After the order is received the purchasing company may spend time reviewing the results of the
purchase. This may involve the Buyer discussing product performance issues with Users. If the
product is well received it may end up moving to a straight re-purchase status thus eliminating much
of the evaluation process on future purchases.
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What is a Market?
The simplest way to define a market is to think of it as consisting of all the people or
organizations that may have an interest in purchasing a company’s products or services. In other
words, a market comprises all customers who have needs that may be fulfilled by an organization’s
offerings. Yet just having a need is not enough to define a market. Many people may say they have
a need for a California mansion that overlooks the Pacific Ocean but most would not be considered
potential customers of a real estate agent who is attempting to sell such a property. So other factors
come into play when defining a market.
The first factor is that markets consist of customers who are qualified to make a purchase.
Qualified customers are defined as those who:
 Seek a solution to a need, and

 Are eligible to make a purchase, and
 Possess the financial ability to make the purchase, and
 Have the authority to make the decision.
For some markets the customer may have a surrogate who will handle some of these
qualifications for a targeted customer. For instance, a market may consist of pre-teen customers who
have a need for certain clothing items but the actual purchase may rest with the pre-teens’ parents.
So the parents could possibly assume one or more surrogate roles (e.g., financial ability, authority)
that will result in the pre-teen being a qualified customer.
A second factor for defining a market rests with the company’s ability to service the market.
To an organization a market can only exist if the solutions sought by customers are ones that the
company can satisfy with their offerings. If a company identifies a group of customers who are
qualified to make purchases they only become a market for the company once the company is in a
position to execute marketing activities designed to service those customers.
Thus, for the purposes of this tutorial, a market is defined as a group of customers who are
qualified to make purchases of products or services that a marketer is able to offer. However, even if
an organization can offer products and services to a market, not all markets will fit an organization’s
goals and objectives. With this in mind, we now turn our attention to examining the process
marketers follow to choose which markets are best to target with their marketing effort.
Selecting Target Markets through Market Segmentation

The market selected by a company as the target for their marketing efforts (i.e., target
market) is critical since all subsequent marketing decisions will be directed toward satisfying the
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needs of these customers. But what approach should be taken to select markets the company will
target?
One approach is to target at a very broad level by identifying the market as consisting of qualified
customers who have a basic need that must be satisfied. For example, one could consider the
beverage market as consisting of all customers that want to purchase liquid refreshment products to
solve a thirst need. While this may be the largest possible market a company could hope for (it
would seem to contain just about everyone in the world!) in reality there are no commercial products
that would appeal to everyone in the world since individual nutritional needs, tastes, purchase
situations, economic conditions, and many other issues lead to differences in what people seek to
satisfy their thirst needs.
Because people are different and seek different ways to satisfy their needs, nearly all organizations,
whether for-profits or not-for-profits, industrial or consumer, domestic or international, must use a
Market Segmentation approach to target marketing. This approach divides broad markets, consisting
of customers possessing different characteristics, into smaller market segments in which customers
are grouped by characteristic shared by others in the segment.
To successfully target markets using a segmentation approach, organizations should engage in the
following three-step process.
 Identify segments within the overall market

 Choose the segment(s) that fits best with the organization’s objectives and
goals
 Develop a marketing strategy that appeals to the selected target market(s)
Identify Market Segments

The first step in targeting markets is to separate customers who make up large, general
markets into smaller groupings based on selected characteristics or variables (also referred to as
bases of segmentation) shared by those in the group. General markets are most often associated with
basic product groups, such as automobile, beverage, footwear, home entertainment, etc. The
purpose of segmentation is to look deeper within the general market in order to locate customers
with more specific needs within the product group (e.g., seek hybrid automobiles) AND who also
share similar characteristics (e.g., college educated, support environmental issues, etc.). When
grouped together these customers may form a smaller segment of the general market. By focusing
market research on these smaller segments the marketer can learn a great deal about these customers
and with this information can begin to craft highly targeted marketing campaigns.
We take the approach that the variables used to segment markets can be classified into a
three-stage hierarchy with higher stages building on information obtained from lower stages in order
to reach greater precision in identifying shared characteristics. Yet, the more precise a marketer
wishes to be with their segmentation efforts the more this process requires sufficient funding and
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strong research capabilities. For instance, a marketer entering a new market may not have the ability
to segment beyond the first two stages since the precision available in Stage 3 segmentation may
demand an established relationship with customers in the market.
The three-stage segmentation process presented below works for both consumer and
business markets (e.g., manufacturers, reseller, etc.), though, as one might expect, the variables used
to segment these markets may be different. Each segmentation stage includes an explanation along
with suggestions for variables the marketer should consider. This is not meant to be an exhaustive
list, as other variables are potentially available, but for marketers who are new to segmentation these
will offer a good starting point for segmenting markets.
Stage 1 Segmentation Variables
Stage 1 segmentation consists of variables that can be easily identified through

demographics (i.e., statistics that describe a population), geographics (i.e., location issues) and
financial information. For both consumer and business segmentation this information focuses
mostly on easy to obtain data from such sources as government data (e.g., census information),
examining secondary data sources (e.g., news media), trade associations and financial reporting
services. While Stage 1 segmentation does not offer the segmentation benefits available with
higher-level stages, the marketer benefits from accomplishing the segmentation task in a short time
frame and at lower cost.
Segmentation Variables Segmentation Variables

Consumer Markets Business Markets
Demographics Demographics
age group (e.g., teens, retirees, young adults), type (e.g., manufacturer, retailer, wholesaler), industry, size (e.g., sales
gender, education level, ethnicity, income, volume; number of retail outlets), age (e.g., new; young growth, established
occupation, social class, marital status growth, mature)
Geographic Geographic
location (e.g., national, regional, location (e.g., national, regional, urban/suburban/rural, international), climate
urban/suburban/rural, international), climate Business Arrangement
ownership (e.g.,. private versus public, independent versus chain), financial
condition (e.g., credit rating, income growth, stock price, cash flow)
Stage 2 Segmentation Variable
Some firms, especially companies with limited funds or those who feel they need to
move quickly to get their product to market will stop the search for segmentation variables at the
Stage 1 level. However, moving beyond Stage 1 segmentation offers a rich amount of customer
information that will allow marketers to more effectively and efficiently target customers’ needs. To
segment using Stage 2 variables marketers must use market research techniques that help gain
insight into customers’ current purchase situation and the environment in which the customer
operates. Information at this stage includes learning what options customers have chosen to satisfy
their needs, what circumstances within customers’ environment could affect how purchases are
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made, and understanding local conditions that could impact purchase decisions. Marketers might
locate some of this information through the same sources used in Stage 1 (e.g., may find out brands
most frequently purchased) but most of these variables require the marketer to engage in at least
casual contact with customers in the market. This can be done through primary research methods,
such as surveying the market, having sales personnel contact customers, purchasing research reports
from commercial research firms or hiring consultants to undertake research projects. The cost and
time needed to acquire this information may be significantly greater than that of Stage 1
segmentation.

Current Purchasing Situation Current Purchasing Situation

brands used, purchase frequency, current suppliers brands used, purchase frequency, current suppliers
Purchase Ready Purchase Ready
possess necessary equipment, property, knowledge possess necessary equipment, property, knowledge and
and skill sets skill sets
Local Environment Local Environment
cultural, political, legal cultural, political, legal
Customers Served by the Business
identify the business’ market
Business’ Perceived Image
identify how targeted businesses are perceived by their
customers
Stage 3 Segmentation Variables
Marketers choosing to segment at the Stage 3 level face an enormous challenge in

gathering useful segmentation information but, for those who do commit to segmenting at this level,
the rewards may include gaining competitive advantage over rivals whose segmentation efforts have
not dug this deep. However to reach the reward the marketer must invest significant time and money
to amass the detailed market intelligence needed to achieve Stage 3 segmentation. Additionally
much of what is needed at Stage 3 is information that is often well protected and not easily shared by
customers. In fact, many customers are unwilling to share certain personal information (e.g.,
psychological) with marketers with whom they are not familiar. Consequently, segmenting on Stage
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3 variables is often not an option for marketers new to a market unless they purchase this access via
other means (e.g., hire a consultant who knows the market to undertake customer research). To get
access to this information, marketers who already serve the market with other products may be able
to use primary research such as focus groups, in-depth interviews, observation research and other
high level market research techniques.

Benefits Sought Benefits Sought

price, overall value, specific feature, ease-of-use, price, overall value, specific feature, services, profit
service, etc. margins, promotional assistance; etc.
Product Usage Product Usage
how used, situation when used, etc. how used (e.g., raw material, component product, major
Purchase Conditions selling item at retail level), situation when used, etc.
time of day/month/year when purchased, credit terms, Purchase Conditions
trade-in option, etc. length of sales cycle, set product specifications, bid
Characteristics of Individual Buyer pricing, credit terms, trade-in option, product handling, etc.
purchase experience, how purchase is made, Characteristics of Buying Center
influencers on purchase decision, importance of purchase experience, number of members, make-up of key
purchase influencers, willingness to assume risk;
Psychographics
personality, attitudes, and lifestyle combined with
demographics
Choosing Market Segments

The second step in selecting target markets requires the marketer to critically evaluate the
segments identified in Step 1 in order to select those which are most attractive. For small firms this
step may not be very involving since they may lack the resources needed to do it effectively. So
they are often left with using their own intuition or judgment to determine which segments are the
most promising. For companies with the time and money to commit to this step, the results may
identify the segments that are primary candidates for current marketing efforts and also present
segments that are future targets for the company’s offerings.
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In determining whether a segment is worthy of being a target market, the marketer needs to address
the following questions:
 Is the segment large enough to support the marketer’s objectives? This is an especially
critical question if the marketer is entering a market served by many competitors.
 Is the segment showing signs of growth? One of the worst situations for a marketer is
to enter a market whose growth is flat or declining, especially if competitors already
exist.
 Does the company have the necessary skills, knowledge and expertise to service the
segment? The company should understand and be able to communicate with the
customers in the segment, otherwise they may face a significant learning curve in
understanding how to effectively market to a segment.
 Does the segment meet the mission of the company? The segment should not extend too
far beyond the direction the company has chosen to take.
Once one or more segments have been identified the marketer must choose the most attractive
option(s) for their marketing efforts. At this point the choice becomes the firm’s target market(s).
Develop Marketing Strategy to Appeal to Target Market(s)

The result of analyzing market segments leads the marketer to consider one of the
following target marketing strategies.
 Undifferentiated or Mass Marketing – Under this strategy the marketer attempts to
appeal to one large market with a single marketing strategy. While this approach offers
advantages in terms of lowering development and production costs, since only one product is
marketed, there are few markets in which all customers seek the same benefits. While this
approach was very popular in the early days of marketing (e.g., Ford Model-T), few
companies now view this as a feasible strategy.
 Differentiated or Segmentation Marketing – Marketers choosing this strategy try
to appeal to multiple smaller markets with a unique marketing strategy for each market. The
underlying concept is that bigger markets can be divided into many sub-markets and an
organization chooses different marketing strategies to reach each sub-market it targets. Most
large consumer products firms follow this strategy as they offer multiple products (e.g.,
running shoes, basketball shoes) within a larger product category (e.g., footwear).
 Concentrated or Niche Marketing –This strategy combines mass and segmentation
marketing by using a single marketing strategy to appeal to one or more very small markets.
It is primarily used by smaller marketers who have identified small sub-segments of a larger
segment that are not served well by larger firms that follow a segmentation marketing
approach. In these situations a smaller company can do quite well marketing a single product
to a narrowly defined target market.
 Customized or Micro-Marketing - This newest target marketing strategy attempts to
appeal to targeted customers with individualized marketing programs. For micro-marketing
segmentation to be effective the marketer must, to some degree, allow customers to “build-
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their-own” products. This approach requires extensive technical capability for marketers to
reach individual customers and allow customers to interact with the marketer. The Internet
has been the catalyst for this target marketing strategy. As more companies learn to utilize
the Internet micro-marketing is expected to flourish.
Product Positioning
No matter which target marketing strategy is selected, the overall marketing strategy
should involve the process of positioning the firm’s offerings in ways that will appeal to targeted
customers. Positioning is concerned with the perception customers hold regarding a product or
company. In particular, it relates to marketing decisions an organization undertakes to get customers
to think about a product or company in a certain way compared to its competitors. The goal of
positioning is to convince customers to believe the marketer’s offerings are different in some way
from its competitors on an important benefit sought by the market. For instance, if a customer has
discovered she has a need for an affordable laptop computer, a company such as Dell may come to
mind since their marketing efforts position their products as offering good value at a reasonable cost.
To position successfully the marketer must have thorough knowledge of the key benefits
sought by the market. Obviously the more effort the marketer expends on segmentation (i.e.,
reached Stage 3) the more likely they will know the benefits sought by the market. Once known, the
marketer must: 1) tailor marketing efforts to ensure their offerings satisfy the most sought after
benefits, and 2) communicate to the market in a way that differentiates the marketer’s offerings from
competitors.
For firms that seek to appeal to multiple target markets (i.e., segmentation marketing),
positioning strategies may differ for each market. For example, a marketer may sell the same
product to two different target markets, but in one market the emphasis is on styling while in another
market the emphasis is on ease-of-use benefits. The important point is that the overall market
strategy must be evaluated for each target market since what works well in one market may not work
as well in another market.
Product Decisions
Marketing starts with the product since it is what an organization has to offer its target
market. As we’ve stressed many times in this tutorial, organizations attempt to provide solutions to
a target market’s problems. These solutions include tangible or intangible (or both) product
offerings marketed by an organization.
In addition to satisfying the target market’s needs, the product is important because it is how
organizations generate revenue. It is the “thing” that for-profit companies sell in order to realize
profits and satisfy stakeholders and what non-profit organizations use to generate funds needed to
sustain itself. Without a well-developed product strategy that includes input from the target market,
a marketing organization will not have long-term success.
Categories of Business Products
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Categories of Business Products

The amount spent on business purchasing far exceeds consumer purchasing. Products sold within
the b-to-b market fall into one of the following categories:
 Raw Materials – These are products obtained through mining, harvesting, fishing, etc.,
that are key ingredients in the production of higher-order products.
 Processed Materials – These are products created through the processing of basic raw
materials. In some cases the processing refines original raw materials while in other cases
the process combines different raw materials to create something new. For instance, several
crops including corn and sugar cane can be processed to create ethanol which has many uses
including as a fuel to power car and truck engines.
 Equipment – These are products used to help with production or operations activities.
Examples range from conveyor belts used on an assembly line to large buildings used to
house the headquarters staff of a multi-national company.
 Basic Components – These are products used within more advanced components. These
are often built with raw material or processed material. Electrical wire is an example.
 Advanced Components – These are products that use basic components to produce
products that offer a significant function needed within a larger product. Yet by itself an
advanced component does not stand alone as a final product. In computers the motherboard
would be an example since it contains many basic components but without the inclusion of
other products (e.g., memory chips, microprocessor, etc.) would have little value.
 Product Component – These are products used in the assembly of a final product
though these could also function as stand alone products. Dice included as part of a
children’s board game would be an example.
 MRO (Maintenance, Repair and Operating) Products – These are products

used to assist with the operation of the organization but are not directly used in producing
goods or services. Office supplies, parts for a truck fleet and natural gas to heat a factory
would fall into this category.
Components of a Product
On the surface it seems a product is simply a marketing offering, whether tangible or
intangible, that someone wants to purchase and consume. In which case one might believe product
decisions are focused exclusively on designing and building the consumable elements of goods,
services or ideas. For instance, one might think the key product decision for a manufacturer of floor
cleaners is to focus on creating a formula that cleans more effectively. In actuality, while decisions
related to the consumable parts of the product are extremely important, the Total Product consists of
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more than what is consumed. The total product offering and the decisions facing the marketer can
be broken down into three key parts:
1. Core Benefits
2. Actual Product
3. Augmented Product
1. Core Benefits:
While many needs are addressed by the consumption of a product or service,
some needs are not. For instance, customers may need to be perceived highly by other members of
their group or need a product that is easy to use or need a risk-free purchase; people make buying
decisions that satisfy their needs. While many needs are addressed by the consumption of a product
or service, some needs are not. For instance, customers may need to be perceived highly by other
members of their group or need a product that is easy to use or need a risk-free purchase. In each of
these cases, and many more, the core product itself is the benefit the customer receives from using
the product. In some cases these core benefits are offered by the product itself (e.g., floor cleaner)
while in other cases the benefit is offered by other aspects of the product (e.g., the can containing the
floor cleaner that makes it easier to spread the product). Consequently, at the very heart of all
product decisions is determining the key or core benefits a product will provide. From this decision,
the rest of the product offering can be developed.
2. Actual Product:
The core benefits are offered through the components that make up the actual
product the customer purchases. For instance, when a consumer returns home from shopping at the
grocery store and takes a purchased item out of her shopping bag, the actual product is the item she
holds in her hand. Within the actual product is the consumable product, which can be viewed as the
main good, service or idea the customer is buying. For instance, while toothpaste may come in a
package that makes dispensing it easy, the Consumable Product is the paste that is placed on a
toothbrush. But marketers must understand that while the consumable product is, in most cases, the
most critical of all product decisions, the actual product includes many separate product decisions
including product features, branding, packaging, labeling, and more. Full coverage of several of
these important areas is provided later in this tutorial.
3. Augmented Product:
Marketers often surround their actual products with goods and services
that provide additional value to the customer’s purchase. While these factors may not be key
reasons leading customers to purchase (i.e., not core benefits), for some the inclusion of these items
strengthens the purchase decision while for others failure to include these may cause the customer
not to buy. Items considered part of the augmented product include:
 Guarantee – This provides a level of assurance that the product will perform up to
expectations and if not the company marketing the product will support the customer’s
decision to replace, have it repaired or return for a refund.
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 Warranty – This offers customers a level of protection that often extends past the
guarantee period to cover repair or replacement of certain product components.
 Customer Service – This consists of additional services that support the customer’s
needs including offering training and assistance via telephone or online.
 Complementary Products – The value of some product purchases can be enhanced

with add-on products, such as items that make the main product easier to use (e.g., laptop
carry bag), enhance styling (e.g., cell phone face plates) or extend functionality (e.g., portable
keyboard for PDAs).
 Accessibility – How customers obtain the product can affect its perceived value depending
on such considerations as how easy it is to obtain (e.g., stocked at nearby store, delivered
directly to office), the speed at which it can be obtained, and the likelihood it will be
available when needed.
Product Management Responsibilities

The reader should understand that no two marketing situations are the same. Yet while
some concepts and strategies important to one marketer may not hold the same weight with another,
in general, the basic principles of marketing (e.g., satisfying target markets, support decisions using
research, etc.) hold no matter the type of industry, type of company or type of product being sold.
What is often different between two marketing situations is the level of complication and challenge
that arises as a marketer’s scope of responsibility increases. For our purposes a marketer’s level of
responsibility is measured in terms of:
• the number and variety of tasks that must be performed (i.e., what has to
be done)
• the value these tasks represent to the organization (i.e., how important
marketing is perceived within the company)
• The overall financial stake the marketing position holds (i.e., total sales
volume and profit generation).
For instance, with regard to product decisions, as a marketer’s responsibilities become

greater her or his day-to-day job shifts from being involved in specific product issues (e.g., finding a
graphics design company to create a new label) to decisions concerning many products and focusing
on setting the future marketing direction of the company (e.g., developing marketing plans for
numerous products). We can see this in greater detail by examining the responsibilities associated
with four different marketing management levels:
 Product Item Level – At this level responsibilities are associated with marketing a single
product or brand. By “single” we are limiting the marketer’s responsibility to one item. For
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instance, a startup software development company may initially market just one product. In
some organizations the person in charge has the title Product Manager, though in smaller
companies this person may simply be the Marketing Manager.
 Brand Product Line Level – At this level responsibilities are associated with managing
two or more similar product items. By “similar” we are referring to products carrying the
same brand name that fit within the same product category and offer similar solutions to
customers’ needs. Procter & Gamble, one of the largest consumer products companies in the
world, markets Tide laundry detergent in several different packaging sizes (e.g., 50oz.,
100oz., 200oz.), in different forms (e.g., powder, liquid) and with different added features
(e.g., softener, bleach). Tide’s product line consists of over 100 different versions of the
product. Differences in the product offerings indicate these are targeted to different segments
within the larger market (e.g., those preferring liquid vs. those preferring powder), however,
it may also represent a choice for the same target market who may seek variety. A product
line is often measured by its depth, relative to competitors, with deep product lines offering
extensive product items. Brand product lines are often managed by a Brand or Product Line
Manager.
 Category Product Line Level – At this level responsibilities are associated with
managing two or more brand product lines within the same product category. In this
situation the marketer may manage products that offer similar basic benefits (e.g., clean
clothes) but target their offerings to slightly different needs (e.g., product for tough to clean
clothing vs. product to clean delicate clothing). Multiple brand product lines allow the
marketer to cover the needs of more segments and, consequently, increase their chance to
generate sales. Often in larger companies category product lines are the responsibility of the
Product Category or Divisional Marketing Manager who may have Brand Product Managers
reporting to him/her.
 Product Mix Level – At this level responsibilities include two or more category product
lines that are directed to different product categories. In some cases the category product
lines may yield similar general solutions (e.g., cleaning) but are aimed at entirely different
target markets (e.g., cleaning dishes vs. cleaning automobiles). In large companies, the
product lines are very diverse and offer different solutions. For example, BIC sells writing
instruments, shaving products, and lighters. This diversification strategy cushions against an
“all-eggs-in-one-basket” risk that may come if a company directs all resources to one product
category. A product mix can be classified based on its width (how many different category
product lines) and its depth (how many different brand product lines within a category
product line). Generally responsibility for this level belongs to a company’s Vice President
for Marketing.
Mellow
We made an ice cream which is genuinely a consumer product and it is perishable..
Branding Strategy
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By branding approach we are referring to different product identification strategies that can
be deployed to establish a product within the market. As we will see, the purpose of these
approaches is to build a brand that will exist for the long term. Making smart decisions up front is
crucial since a company may have to live with the decision for a long time.
What are Channels of Distribution?

We describe a supply chain as consisting of all parties and their supplied activities that help
a marketer create and deliver products to the final customer. For marketers, the distribution decision
is primarily concerned with the supply chain’s front-end or channels of distribution that are designed
to move the product (goods or services) from the hands of the company to the hands of the
customer. Obviously when we talk about intangible services the use of the word “hands” is a
figurative way to describe the exchange that takes place. But the idea is the same as with tangible
goods. All activities and organizations helping with the exchange are part of the marketer’s channels
of distribution.
Activities involved in the channel are wide and varied though the basic activities revolve around
these general tasks:
• Ordering
• Handling and shipping
• Storage
• Display
• Promotion
• Selling
• Information feedback
Type of Channel Members

Channel activities may be carried out by the marketer or the marketer may seek specialist
organizations to assist with certain functions. We can classify specialist organizations into two
broad categories: resellers and specialty service firms.
Resellers:
These organizations, also known within some industries as intermediaries, distributors or
dealers, generally purchase or take ownership of products from the marketing company with the
intention of selling to others. If a marketer utilizes multiple resellers within its distribution channel
strategy the collection of resellers is termed a Reseller Network. These organizations can be
classified into several sub-categories including:
Retailers – Organizations that sell products directly to final consumers.
Wholesalers – Organizations that purchase products from suppliers, such as manufacturers or other wholesalers,
and in turn sell these to other resellers, such as retailers or other wholesalers.
Industrial Distributors – Firms that work mainly in the business-to-business market selling products obtained
from industrial suppliers.
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Specialty Service Firms:

These are organizations that provide additional services to help with the exchange of products but
generally do not purchase the product (i.e., do not take ownership of the product):
Agents and Brokers – Organizations that mainly work to bring suppliers and buyers together in
exchange for a fee.
Distribution Service Firms – Offer services aiding in the movement of products such as
assistance with transportation, storage, and order processing.
Others – This category includes firms that provide additional services to aid in the distribution
process such as insurance companies and firms offering transportation routing assistance.
Importance of Distribution Channels

As noted, distribution channels often require the assistance of others in order for the marketer
to reach its target market. But why exactly does a company need others to help with the distribution
of their product? Wouldn’t a company that handles its own distribution functions be in a better
position to exercise control over product sales and potentially earn higher profits? Also, doesn’t the
Internet make it much easier to distribute products thus lessening the need for others to be involved
in selling a company’s product?
While on the surface it may seem to make sense for a company to operate its own distribution
channel (i.e., handling all aspects of distribution) there are many factors preventing companies from
doing so. While companies can do without the assistance of certain channel members, for many
marketers some level of channel partnership is needed. For example, marketers who are successful
without utilizing resellers to sell their product (e.g., Dell Computers sells mostly through the Internet
and not in retail stores) may still need assistance with certain parts of the distribution process (e.g.,
Dell uses parcel post shippers such as FedEx and UPS). In Dell’s case creating their own
transportation system makes little sense given how large such a system would need to be in order to
service Dell’s customer base. Thus, by using shipping companies Dell is taking advantage of the
benefits these services offer to Dell and to Dell’s customers.
Benefits Offered by Channel Members

 Cost Savings in Specialization – Members of the distribution channel are specialists in
what they do and can often perform tasks better and at lower cost than companies who do not
have distribution experience. Marketers attempting to handle too many aspects of
distribution may end up exhausting company resources as they learn how to distribute,
resulting in the company being “a jack of all trades but master of none.”
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 Reduce Exchange Time – Not only are channel members able to reduce distribution
costs by being experienced at what they do, they often perform their job more rapidly
resulting in faster product delivery. For instance, consider what would happen if a grocery
store received direct shipment from EVERY manufacturer that sells products in the store.
This delivery system would be chaotic as hundreds of trucks line up each day to make
deliveries, many of which would consist of only a few boxes. On a busy day a truck may sit
for hours waiting for space so they can unload their products. Instead, a better distribution
scheme may have the grocery store purchasing its supplies from a grocery wholesaler that
has its own warehouse for handling simultaneous shipments from a large number of
suppliers. The wholesaler will distributes to the store in the quantities the store needs, on a
schedule that works for the store, and often in a single truck, all of which speeds up the time
it takes to get the product on the store’s shelves.
 Customers Want to Conveniently Shop for Variety – Marketers have to

understand what customers want in their shopping experience. Referring back to our grocery
store example, consider a world without grocery stores and instead each marketer of grocery
products sells through their own stores. As it is now, shopping is time consuming, but
consider what would happen if customers had to visit multiple retailers each week to satisfy
their grocery needs. Hence, resellers within the channel of distribution serve two very
important needs: 1) they give customers the products they want by purchasing from many
suppliers (termed accumulating and assortment services), and 2) they make it convenient to
purchase by making products available in single location.
 Resellers Sell Smaller Quantities – Not only do resellers allow customers to purchase
products from a variety of suppliers, they also allow customers to purchase in quantities that
work for them. Suppliers though like to ship products they produce in large quantities since
this is more cost effective than shipping smaller amounts. For instance, consider what it
costs to drive a truck a long distance. In terms of operational expenses for the truck (e.g.,
fuel, truck driver’s cost) let’s assume it costs (US) $1,000 to go from point A to point B. Yet
in most cases, with the exception of a little decrease in fuel efficiency, it does not cost that
much more to drive the truck whether it is filled with 1000 boxes containing the product or
whether it only has 100 boxes. But when transportation costs are considered on a per product
basis ($1 per box vs. $10 per box) the cost is much less for a full truck. The ability of
intermediaries to purchase large quantities but to resell them in smaller quantities (referred to
as bulk breaking) not only makes these products available to those wanting smaller quantities
but the reseller is able to pass along to their customers a significant portion of the cost
savings gained by purchasing in large volume.
 Create Sales – Resellers are at the front line when it comes to creating demand for the
marketer’s product. In some cases resellers perform an active selling role using persuasive
techniques to encourage customers to purchase a marketer’s product. In other cases they
encourage sales of the product through their own advertising efforts and using other
promotional means such as special product displays.
 Offer Financial Support – Resellers often provide programs that enable customers to
more easily purchase products by offering financial programs that ease payment
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requirements. These programs include allowing customers to: purchase on credit; purchase
using a payment plan; delay the start of payments; and allowing trade-in or exchange options.
 Provide Information – Companies utilizing resellers for selling their products depend
on distributors to provide information that can help improve the product. High-level
intermediaries may offer their suppliers real-time access to sales data including information
showing how products are selling by such characteristics as geographic location, type of
customer, and product location (e.g., where located within a store, where found on a
website). If high-level information is not available, marketers can often count on resellers to
provide feedback as to how customers are responding to products. This feedback can occur
either through surveys or interviews with reseller’s employees or by requesting the reseller
allow the marketer to survey customers.
Costs of Utilizing Channel Members

Loss of Revenue – Resellers are not likely to offer services to a marketer unless they see
financial gain in doing so. They obtain payment for their services as either direct payment (e.g.,
marketer pays for shipping costs) or, in the case of resellers, by charging their customers more than
what they paid the marketer for acquiring the product (termed markup). For the latter, marketers
have a good idea of what the final customer will pay for their product which means the marketer
must charge less when selling the product to resellers. In these situations marketers are not reaping
the full sale price by using resellers, which they may be able to do if they sold directly to the
customer.
Loss of Communication Control – Marketers not only give up revenue when using resellers,
they may also give up control of the message being conveyed to customers. If the reseller engages
in communication activities, such as personal selling in order to get customers to purchase the
product, the marketer is no longer controlling what is being said about the product. This can lead to
miscommunication problems with customers, especially if the reseller embellishes the benefits the
product provides to the customer. While marketers can influence what is being said by training
reseller’s salespeople, they lack ultimate control of the message.
Loss of Product Importance – Once a product is out of the marketer’s hands the importance
of that product is left up to channel members. If there are pressing issues in the channel, such as
transportation problems, or if a competitor is using promotional incentives in an effort to push their
product through resellers, the marketer’s product may not get the attention the marketer feels it
should receive.
Retailing
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In an ideal business world, most marketers would prefer to handle all their distribution
activities by way of the corporate channel arrangement. Such an arrangement provides the marketer
with two important benefits. First, being responsible for all distribution means the marketing
organization need only worry about making decisions concerning their product. When others, such
as resellers, are involved in distribution attention is not given to a single supplier but is stretched
across all products the reseller carries. Second, having control on all distribution means the marketer
is always in direct contact with buyers of their products, which can make it easier to build strong,
long-term relationships with customers.
Unfortunately, as we saw in the last tutorial, for many marketing organizations a corporate
channel arrangement is not feasible. Whether due to high cost or lack of experience needed to run a
channel efficiently, the majority of marketing organizations rely on third parties to get their products
into the hands of customers.
Now we examine the key parties through which marketers seek distribution assistance.
Choosing which parties to aid in product distribution is important since a distributor’s actions can
affect how customers view the marketer and the products they offer. As we discussed a customer’s
perception of a product affects how they mentally position the product in relation to competitive
products. How a product is distributed, including where it is located (e.g., reputation of resellers
from whom they purchase) and customer experience with the purchasing process (e.g., how long to
receive, condition when received), will impact a customer’s feelings about the product which in turn
affects how a customer positions the product in their mind.
What is Retailing?
Retailing is a distribution channel function where one organization buys products from
supplying firms or manufactures the product themselves, and then sells these directly to consumers.
A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a
consumer purchases products. In the US alone there are over 1,100,000 retailers according to the
2002 US Census of Retail Trade.
In the majority of retail situations, the organization from which a consumer makes purchases is
a reseller of products obtained from others and not the product manufacturer. But as we discussed
some manufacturers also operate their own retail outlets in a corporate channel arrangement. While
consumers are the retailer’s buyers, a consumer does not always buy from retailers. For instance,
when a consumer purchases from another consumer (e.g., eBay) the consumer purchase would not
be classified as a retail purchase. This distinction can get confusing but in the US and other
countries the dividing line is whether the one selling to consumers is classified as a business (e.g.,
legal and tax purposes) or is selling as a hobby without a legal business standing.
For consumers the most important benefits relate to the ability to purchase small quantities of a
wide assortment of products at prices that are considered reasonably affordable. For suppliers the
most important benefits relate to offering opportunities to reach their target market, build product
demand through retail promotions, and provide consumer feedback to the product marketer.
Concerns of Retailers
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Retailers are faced with many issues as they attempt to be successful. The key issues
include:
 Customer Satisfaction – Retailers know that satisfied customers are loyal customers.
Consequently, retailers must develop strategies intended to build relationships that result in
customers returning to make more purchases.
 Ability to Acquire the Right Products – A customer will only be satisfied if they
can purchase the right products to satisfy their needs. Since a large percentage of retailers do
not manufacture their own products, they must seek suppliers who will supply products
demanded by customers. Thus, an important objective for retailers is to identify the products
customers will demand and negotiate with suppliers to obtain these products.
 Product Presentation – Once obtained products must be presented or merchandised to

customers in a way that generates interest. Retail merchandising often requires hiring
creative people who understand and can relate to the market.
 Traffic Building – Like any marketer, retailers must use promotional methods to build
customer interest. For retailers a key measure of interest is the number of people visiting a
retail location or website. Building “traffic” is accomplished with a variety of promotional
techniques such as advertising, including local newspapers or Internet, and specialized
promotional activities, such as coupons.
 Layout– For store-based retailers a store’s physical layout is an important component in

creating a retail experience that will attract customers. The physical layout is more than just
deciding in what part of the store to locate products. For many retailers designing the right
shopping atmosphere (e.g., objects, light, sound) can add to the appeal of a store. Layout is
also important in the online world where site navigation and usability may be deciding
factors in whether of a retail website is successful.
 Location – Where to physically locate a retail store may help or hinder store traffic. Well
placed stores with high visibility and easy access, while possibly commanding higher land
usage fees, may hold significantly more value than lower cost sites that yield less traffic.
Understanding the trade-off between costs and benefits of locations is an important retail
decision.
 Keeping Pace With Technology – Technology has invaded all areas of retailing
including customer knowledge (e.g., customer relationship management software), product
movement (e.g., use of RFID tags for tracking), point-of-purchase (e.g., scanners, kiosks,
self-serve checkout), web technologies (e.g., online shopping carts, purchase
recommendations) and many more.
Promotion
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What is promotion?
Promotion is a form of corporate communication that uses various methods to reach a
targeted audience with a certain message in order to achieve specific organizational objectives.
Nearly all organizations, whether for-profit or not-for-profit, in all types of industries, must engage
in some form of promotion. Such efforts may range from multinational firms spending large sums
on securing high-profile celebrities to serve as corporate spokespersons to the owner of a one-person
enterprise passing out business cards at a local businessperson’s meeting.
Like most marketing decisions, an effective promotional strategy requires the marketer
understand how promotion fits with other pieces of the marketing puzzle (e.g., product, distribution,
pricing, target markets). Consequently, promotion decisions should be made with an appreciation
for how it affects other areas of the company. For instance, running a major advertising campaign
for a new product without first assuring there will be enough inventory to meet potential demand
generated by the advertising would certainly not go over well with the company’s production
department (not to mention other key company executives). Thus, marketers should not work in a
vacuum when making promotion decisions. Rather, the overall success of a promotional strategy
requires input from others in impacted functional areas.
In addition to coordinating general promotion decisions with other business areas, individual
promotions must also work together. Under the concept of Integrated Marketing Communication
marketers attempt to develop a unified promotional strategy involving the coordination of many
different types of promotional techniques. The key idea for the marketer who employs several
promotional options to reach objectives for the product is to employ a consistent message across all
options. For instance, salespeople will discuss the same benefits of a product as mentioned in
television advertisements. In this way no matter how customers are exposed to a marketer’s
promotional efforts they all receive the same information.
Targets of Marketing Promotions

The audience for an organization’s marketing communication efforts is not limited to
just the marketer’s target market. While the bulk of a marketer’s promotional budget may be
directed at the target market, there are many other groups that could also serve as useful target of
a marketing message.
Targets of a marketing message generally fall into one of the following categories:
 Members of the Organization’s Target Market – This category would include

current customers, previous customers and potential customers, and as noted, may receive the
most promotional attention.
 Influencers of the Organization’s Target Market – There exists a large group of

people and organizations that can affect how a company’s target market is exposed to and
perceives a company’s products. These influencing groups have their own communication
mechanisms that reach the target market and the marketer may be able utilize these
49
influencers to its benefit. Influencers include the news media (e.g., offer company stories),
special interest groups, opinion leaders (e.g., doctors directing patients), and industry trade
associations.
 Participants in the Distribution Process – The distribution channel provides

services to help gain access to final customers and are also target markets since they must
recognize a product’s benefits and agree to handle the product in the same way as final
customers who must agree to purchase products. Aiming promotions at distribution partners
(e.g., retailers, wholesalers, distributors) and other channel members is extremely important
and, in some industries, represents a higher portion of a marketer’s promotional budget than
promotional spending directed at the final customer.
 Other Companies – The most likely scenario in which a company will communicate
with another company occurs when the marketer is probing to see if the company would have
an interest in a joint venture, such as a co-marketing arrangement where two firms share
marketing costs. Reaching out to other companies, including companies who may be
competitors for other products, could help create interest in discussing such a relationship.
 Other Organizational Stakeholders – Marketers may also be involved with
communication activities directed at other stakeholders. This group consists of those who
provide services, support or, in other ways, impact the company. For example, an industry
group that sets industry standards can affect company products through the issuance of
recommended compliance standards for product development or other marketing activities.
Communicating with this group is important to insure the marketer’s views of any changes in
standards are known.
Objectives of Marketing Promotions

The most obvious objective marketers have for promotional activities is to convince
customers to make a decision that benefits the marketer (of course the marketer believes the decision
will also benefit the customer). For most for-profit marketers this means getting customers to buy an
organization’s product and, in most cases, to remain a loyal long-term customer. For other
marketers, such as not-for-profits, it means getting customers to increase donations, utilize more
services, change attitudes, or change behavior (e.g., stop smoking campaigns).
However, marketers must understand that getting customers to commit to a decision, such as a
purchase decision, is only achievable when a customer is ready to make the decision. Customers
often move through several stages before a purchase decision is made. Additionally before turning
into a repeat customer, purchasers analyze their initial purchase to see whether they received a good
value, and then often repeat the purchase process again before deciding to make the same choice.
The type of customer the marketer is attempting to attract and which stage of the purchase
process a customer is in will affect the objectives of a particular marketing communication effort.
And since a marketer often has multiple simultaneous promotional campaigns, the objective of each
could be different.
50
Types of Promotion Objectives

The possible objectives for marketing promotions may include the following:
Build Awareness – New products and new companies are often unknown to a market, which means
initial promotional efforts must focus on establishing an identity. In this situation the marketer must
focus promotion to: 1) effectively reach customers, and 2) tell the market who they are and what
they have to offer.
 Create Interest – Moving a customer from awareness of a product to making a purchase

can present a significant challenge. As we saw with our discussion of consumer and business
buying behavior, customers must first recognize they have a need before they actively start to
consider a purchase. The focus on creating messages that convince customers that a need
exists has been the hallmark of marketing for a long time with promotional appeals targeted
at basic human characteristics such as emotions, fears, sex, and humor.
 Provide Information – Some promotion is designed to assist customers in the search
stage of the purchasing process. In some cases, such as when a product is so novel it creates
a new category of product and has few competitors, the information is simply intended to
explain what the product is and may not mention any competitors. In other situations, where
the product competes in an existing market, informational promotion may be used to help
with a product positioning strategy. Marketers may use promotional means, including direct
comparisons with competitor’s products, in an effort to get customers to mentally distinguish
the marketer’s product from those of competitors.
 Stimulate Demand – The right promotion can drive customers to make a purchase. In
the case of products that a customer has not previously purchased or has not purchased in a
long time, the promotional efforts may be directed at getting the customer to try the product.
This is often seen on the Internet where software companies allow for free demonstrations or
even free downloadable trials of their products. For products with an established customer-
base, promotion can encourage customers to increase their purchasing by providing a reason
to purchase products sooner or purchase in greater quantities than they normally do. For
example, a pre-holiday newspaper advertisement may remind customers to stock up for the
holiday by purchasing more than they typically purchase during non-holiday periods.
 Reinforce the Brand – Once a purchase is made, a marketer can use promotion to help
build a strong relationship that can lead to the purchaser becoming a loyal customer. For
instance, many retail stores now ask for a customer’s email address so that follow-up emails
containing additional product information or even an incentive to purchase other products
from the retailer can be sent in order to strengthen the customer-marketer relationship.
Advertising
What is Advertising?
51
Advertising is a non-personal form of promotion that is delivered through selected

media outlets that, under most circumstances, require the marketer to pay for message placement.
Advertising has long been viewed as a method of mass promotion in that a single message can
reach a large number of people. But, this mass promotion approach presents problems since many
exposed to an advertising message may not be within the marketer’s target market, and thus, may be
an inefficient use of promotional funds. However, this is changing as new advertising technologies
and the emergence of new media outlets offer more options for targeted advertising.
Advertising also has a history of being considered a one-way form of marketing communication
where the message receiver (i.e., target market) is not in position to immediately respond to the
message (e.g., seek more information). This too is changing. For example, in the next few years
technologies will be readily available to enable a television viewer to click a button to request more
details on a product seen on their favorite TV program. In fact, it is expected that over the next 10-
20 years advertising will move away from a one-way communication model and become one that is
highly interactive.
Another characteristic that may change as advertising evolves is the view that advertising does
not stimulate immediate demand for the product advertised. That is, customers cannot quickly
purchase a product they see advertised. But as more media outlets allow customers to interact with
the messages being delivered the ability of advertising to quickly stimulate demand will improve.
Selling
Academically, selling is thought of as a part of marketing [, however, the two disciplines
are completely different. Sales often forms A separate grouping in a corporate structure, employing
separate specialist operatives known as salespeople (singular: salesperson). Selling is considered by
many to be a sort of persuading "art". Contrary to popular belief, the methodological approach of
selling refers to a systematic process of repetitive and measurable milestones, by which a
salesperson relates his or her offering of a product or service in return enabling the buyer to
achieve their goal in an economic way.
While the sales process refers to a systematic process of repetitive and measurable milestones,
the definition of the selling is somewhat ambiguous due to the close nature of advertising, promotion,
public relations, and direct marketing
Sales departments often form a separate grouping in a corporate structure, employing

individuals who specialize in sale specific roles.
Selling involves sales which are the pinnacle act of completed of a purchasing activity.
Selling also involves salespeople who are the primary agents of facilitating sales.
Selling is the profession-wide term, much like marketing defines a profession. Recently,
attempts have been made to clearly understand who is in the sales profession, and who is not. There
are many articles looking at marketing, advertising, promotions, and even public relations as ways to
create a unique transaction.
52
Many believe that the focus of selling is on the human agents involved in the exchange
between buyer and seller. Effective selling also requires a systems approach , at minimum involving
roles that sell, enable selling, and develop sales capabilities. Selling also involves salespeople who
possess specific set of sales skills and knowledge are required to facilitate the exchange of value
between buyers and sellers that is unique from marketing, advertising,etc.
Within these three tenets the following definition of profession selling is offered by the American
Society for Training and Development (ASTD):
Professional Selling is defined as

"The holistic business system required to effectively develop,
manage, enable, and execute a mutually beneficial,
interpersonal exchange of goods and/or services for equitable value.”
Many sales positions do not include a strong emphasis on generating customer sales,
rather these positions help meet promotional objectives in other ways, such as communicating with
people who influence the final buyer, responding to customer-initiated inquiry (e.g., customer
carrying product to a retail counter) or serving as support for the organization’s sales team.
Yet, for a large percentage of marketers seeking the benefits of personal selling as a promotional
tool, success is measured in terms of products sold as a direct result of personal selling efforts (i.e.,
order getters). For this reason it is important that all marketers fully understand how order-generated
selling occurs.
Additionally, understanding the selling process is beneficial for many others who do not
view themselves in sales roles. For instance, a product manager must convince the VP of Marketing
to fund a major market research study. Though what the product manager must do may seem far
removed from what most people perceive as selling, the key is whether one person is persuading
another person to make a decision. Whether it is convincing someone to make a purchase, accept a
point-of-view, change attitudes or an infinite number of other behavioral decisions, it all comes
down to mastering persuasive communication or selling.
The Selling Process

Many sales positions do not include a strong emphasis on generating customer sales,
rather these positions help meet promotional objectives in other ways, such as communicating with
people who influence the final buyer, responding to customer-initiated inquiry (e.g., customer
carrying product to a retail counter) or serving as support for the organization’s sales team.
Yet, for a large percentage of marketers seeking the benefits of personal selling as a
promotional tool, success is measured in terms of products sold as a direct result of personal selling
53
efforts (i.e., order getters). For this reason it is important that all marketers fully understand how
order-generated selling occurs.
Additionally, understanding the selling process is beneficial for many others who do not view
themselves in sales roles. For instance, a product manager must convince the VP of Marketing to
fund a major market research study. Though what the product manager must do may seem far
removed from what most people perceive as selling, the key is whether one person is persuading
another person to make a decision. Whether it is convincing someone to make a purchase, accept a
point-of-view, change attitudes or an infinite number of other behavioral decisions, it all comes
down to mastering persuasive communication or selling.
Activities in the Selling Process

The selling process is a set of activities undertaken to successfully obtain an order and
begin building long-term customer relations. While the activities we discuss apply to all forms of
selling and can be adapted to most selling situations (including non-product selling such as selling an
idea), we will mainly concentrate on the activities carried out by professional salespeople. For our
purposes, we define professional salespeople as those whose principle occupation involves selling
products (i.e., goods and services) to buyers and do so for organizations that appreciate and support
sellers who are well-trained and ethically responsible.
The selling activities undertaken by professional salespeople include:
1. Generating Sales Leads

2. Qualifying Leads
3. Preparation for the Sales Call
4. The Sales Meeting
5. Handling Buyer Resistance
6. Closing the Sale
7. Account Maintenance
It should be noted that while we present these activities in an order that is suggestive of a
step-by-step approach (i.e., one activity must be carried out before the next), in many selling
situations this will not be the case. For example, a buyer for a large retailer may have observed a
salesperson’s product being used while visiting a competitor’s store. The buyer, anxious to obtain
the product for use in her own stores, contacts the salesperson immediately upon returning to the
office. After addressing a few questions from the salesperson confirming the buyer’s status at the
retail company and without much prodding by the salesperson, the buyer places an order and agrees
to meet the salesperson for lunch the next day. In our example, only activities #2 – Qualifying the
Lead, #6 – Closing the Sale and #7 – Account Maintenance are carried out in order to obtain the sale
and to begin building a long-term relationship.
Additionally, salespeople often find circumstances in which all activities are required but the
order these are carried out may be disrupted. For instance, salespeople are often confronted with a
54
buyer who is resistant to making a purchase even before the salesperson has made a presentation
(e.g., “I don’t think I’m interested in what you’re selling”). This will likely force the salesperson to
adjust his or her selling process. In this example it will require the salesperson address the buyer’s
resistance before beginning to present the product.
Generating Sales Leads

Selling begins by locating potential customers. A potential customer or “prospect” is first
identified as sales lead, which simply means the salesperson has obtained information to suggest that
someone exhibits key characteristics that lend them to being a prospect. For certain sales positions,
locating leads may not be a major task undertaken by the sales force as these activities are handled
by others in company. For instance, salespeople may receive a list of sales leads based on inquiries
through the company’s website.
However, for a large percentage of salespeople lead generation consumes a significant portion
of their everyday work. For salespeople actively involved in generating leads, they are continually
on the look out for potential new business. In fact, for salespeople whose chief role is that of order
getter, there is virtually no chance of being successful unless they can consistently generate sales
leads.
Sales leads can come from many sources including:
 Prospect Initiated – Includes leads obtained when prospects initiate contact such as
when they fill out a website form, enter a trade show booth or respond to an advertisement.
 Profile Fitting – Uses market research tools, such as company profiles, to locate leads
based on customers that fit a particular profile likely to be a match for the company’s
products. The profile is often based on the profile of previous customers.
 Market Monitoring – Through this approach leads are obtained by monitoring media
outlets, such as news articles, Internet forums and corporate press releases.
 Canvassing – Here leads are gathered by cold-calling (i.e., contacting someone without
pre-notification) including in-person, by telephone or by email.
 Data Mining – This technique uses sophisticated software to evaluate information (e.g., in
a corporate database) previously gathered by a company in hopes of locating prospects.
 Personal and Professional Contacts – A very common method for locating sales
leads uses referrals. Such referrals may come at no cost to the salesperson or, to encourage
referrals, salespeople may offer payment for referrals. Non-paying methods including asking
acquaintances (e.g., friends, business associates) and networking (e.g., joining local or
professional groups and associations). Paid methods may include payment to others who
direct leads that eventually turn into customers including using Internet affiliate programs
(i.e., paid for website referrals).
55
 Promotions – The method uses free gifts to encourage prospect to provide contact
information or attend a sales meeting. For example, offering free software for signing up for
a demonstration of another product.
Qualifying Sales Leads

Not all sales leads hold the potential for becoming sales prospects. There are many reasons
for this including:
 Cannot be Contacted – Some prospects may fit the criteria for being a prospect but
gaining time to meet with them may be very difficult (e.g., high-level executives).
 Need Already Satisfied - Prospects may have already purchased a similar product
offered by a competitor and, thus, may not have the need for additional products.
 Lack Financial Capacity - Just because someone has a need for a product does not
mean they can afford it. Lack of financial capacity is major reason why sales leads do not
become prospects.
 May Not Be Key Decision Maker - Prospects may lack the authority to approve the
purchase.
 May Not Meet Requirements to Purchase - Prospects may not meet the
requirements for purchasing the product (e.g., lack other products needed for seller’s product
to work properly).
The process of determining whether a sales lead has the potential to become a prospect
is known as “qualifying” the lead. In some cases, a sales lead can be qualified by the seller prior to
making first contact. For instance, this can be done through the use of research reports, such as an
evaluation of a company’s financial position using publicly available financial reporting services.
More likely, sellers will not be in a position to qualify leads until they establish contact with a lead,
which may occur in activities associated with either Preparation for the Sales Call or The Sales
Meeting.
Activities in the Selling Process

The selling process is a set of activities undertaken to successfully obtain an order and
begin building long-term customer relations. While the activities we discuss apply to all forms of
selling and can be adapted to most selling situations (including non-product selling such as selling an
idea), we will mainly concentrate on the activities carried out by professional salespeople. For our
purposes, we define professional salespeople as those whose principle occupation involves selling
products (i.e., goods and services) to buyers and do so for organizations that appreciate and support
sellers who are well-trained and ethically responsible.
56
The selling activities undertaken by professional salespeople include:
1. Generating Sales Leads

2. Qualifying Leads
3. Preparation for the Sales Call
4. The Sales Meeting
5. Handling Buyer Resistance
6. Closing the Sale
7. Account Maintenance
It should be noted that while we present these activities in an order that is suggestive of a
step-by-step approach (i.e., one activity must be carried out before the next), in many selling
situations this will not be the case. For example, a buyer for a large retailer may have observed a
salesperson’s product being used while visiting a competitor’s store. The buyer, anxious to obtain
the product for use in her own stores, contacts the salesperson immediately upon returning to the
office. After addressing a few questions from the salesperson confirming the buyer’s status at the
retail company and without much prodding by the salesperson, the buyer places an order and agrees
to meet the salesperson for lunch the next day. In our example, only activities #2 – Qualifying the
Lead, #6 – Closing the Sale and #7 – Account Maintenance are carried out in order to obtain the sale
and to begin building a long-term relationship.
Additionally, salespeople often find circumstances in which all activities are required but the
order these are carried out may be disrupted. For instance, salespeople are often confronted with a
buyer who is resistant to making a purchase even before the salesperson has made a presentation
(e.g., “I don’t think I’m interested in what you’re selling”). This will likely force the salesperson to
adjust his or her selling process. In this example it will require the salesperson address the buyer’s
resistance before beginning to present the product.
Generating Sales Leads

Selling begins by locating potential customers. A potential customer or “prospect” is first
identified as sales lead, which simply means the salesperson has obtained information to suggest that
someone exhibits key characteristics that lend them to being a prospect. For certain sales positions,
locating leads may not be a major task undertaken by the sales force as these activities are handled
by others in company. For instance, salespeople may receive a list of sales leads based on inquiries
through the company’s website.
However, for a large percentage of salespeople lead generation consumes a significant portion
of their everyday work. For salespeople actively involved in generating leads, they are continually
on the look out for potential new business. In fact, for salespeople whose chief role is that of order
getter, there is virtually no chance of being successful unless they can consistently generate sales
leads.
57
Sales leads can come from many sources including:
 Prospect Initiated – Includes leads obtained when prospects initiate contact such as
when they fill out a website form, enter a trade show booth or respond to an advertisement.
 Profile Fitting – Uses market research tools, such as company profiles, to locate leads
based on customers that fit a particular profile likely to be a match for the company’s
products. The profile is often based on the profile of previous customers.
 Market Monitoring – Through this approach leads are obtained by monitoring media
outlets, such as news articles, Internet forums and corporate press releases.
 Canvassing – Here leads are gathered by cold-calling (i.e., contacting someone without
pre-notification) including in-person, by telephone or by email.
 Data Mining – This technique uses sophisticated software to evaluate information (e.g., in
a corporate database) previously gathered by a company in hopes of locating prospects.
 Personal and Professional Contacts – A very common method for locating sales
leads uses referrals. Such referrals may come at no cost to the salesperson or, to encourage
referrals, salespeople may offer payment for referrals. Non-paying methods including asking
acquaintances (e.g., friends, business associates) and networking (e.g., joining local or
professional groups and associations). Paid methods may include payment to others who
direct leads that eventually turn into customers including using Internet affiliate programs
(i.e., paid for website referrals).
 Promotions – The method uses free gifts to encourage prospect to provide contact
information or attend a sales meeting. For example, offering free software for signing up for
a demonstration of another product.
Qualifying Sales Leads

Not all sales leads hold the potential for becoming sales prospects. There are many reasons
for this including:
 Cannot be Contacted – Some prospects may fit the criteria for being a prospect but
gaining time to meet with them may be very difficult (e.g., high-level executives).
 Need Already Satisfied - Prospects may have already purchased a similar product
offered by a competitor and, thus, may not have the need for additional products.
58
 Lack Financial Capacity - Just because someone has a need for a product does not
mean they can afford it. Lack of financial capacity is major reason why sales leads do not
become prospects.
 May Not Be Key Decision Maker - Prospects may lack the authority to approve the
purchase.
 May Not Meet Requirements to Purchase - Prospects may not meet the
requirements for purchasing the product (e.g., lack other products needed for seller’s product
to work properly).
The process of determining whether a sales lead has the potential to become a prospect is
known as “qualifying” the lead. In some cases, a sales lead can be qualified by the seller prior to
making first contact. For instance, this can be done through the use of research reports, such as an
evaluation of a company’s financial position using publicly available financial reporting services.
More likely, sellers will not be in a position to qualify leads until they establish contact with a lead,
which may occur in activities associated with either Preparation for the Sales Call or The Sales
Meeting.
Pricing Decisions
What do the following words have in common? Fare, dues, tuition, interest, rent, and fee. The
answer is that each of these is a term used to describe what one must pay to acquire benefits from
another party. More commonly, most people simply use the word price to indicate what it costs to
acquire a product.
The pricing decision is a critical one for most marketers, yet the amount of attention given to
this key area is often much less than is given to other marketing decisions. One reason for the lack
of attention is that many believe price setting is a mechanical process requiring the marketer to
utilize financial tools, such as spreadsheets, to build their case for setting price levels. While
financial tools are widely used to assist in setting price, marketers must consider many other factors
when arriving at the price for which their product will sell.
What is Price?
In general terms price is a component of an exchange or transaction that takes place
between two parties and refers to what must be given up by one party (i.e., buyer) in order to obtain
something offered by another party (i.e., seller). Yet this view of price provides a somewhat limited
explanation of what price means to participants in the transaction. In fact, price means different
things to different participants in an exchange:
 Buyers’ View – For those making a purchase, such as final customers, price refers to what
must be given up to obtain benefits. In most cases what is given up is financial consideration
(e.g., money) in exchange for acquiring access to a good or service. But financial
consideration is not always what the buyer gives up. Sometimes in a barter situation a buyer
may acquire a product by giving up their own product. For instance, two farmers may
59
exchange cattle for crops. Also, as we will discuss below, buyers may also give up other
things to acquire the benefits of a product that are not direct financial payments (e.g., time to
learn to use the product).
 Sellers’ View - To sellers in a transaction, price reflects the revenue generated for each
product sold and, thus, is an important factor in determining profit. For marketing
organizations price also serves as a marketing tool and is a key element in marketing
promotions. For example, most retailers highlight product pricing in their advertising
campaigns.
Price is commonly confused with the notion of cost as in “I paid a high cost for buying
my new plasma television”. Technically, though, these are different concepts. Price is what a buyer
pays to acquire products from a seller. Cost concerns the seller’s investment (e.g., manufacturing
expense) in the product being exchanged with a buyer. For marketing organizations seeking to make
a profit the hope is that price will exceed cost so the organization can see financial gain from the
transaction.
Finally, while product pricing is a main topic for discussion when a company is examining its
overall profitability, pricing decisions are not limited to for-profit companies. Not-for-profit
organizations, such as charities, educational institutions and industry trade groups, also set prices,
though it is often not as apparent. For instance, charities seeking to raise money may set different
“target” levels for donations that reward donors with increases in status (e.g., name in newsletter),
gifts or other benefits. While a charitable organization may not call it a price in their promotional
material, in reality these donations are equivalent to price setting since donors are required to give a
contribution in order to obtain something of value.
Price vs. Value

For most customers price by itself is not the key factor when a purchase is being
considered. This is because most customers compare the entire marketing offering and do not
simply make their purchase decision based solely on a product’s price. In essence when a purchase
situation arises price is one of several variables customers evaluate when they mentally assess a
product’s overall value.
As we discussed back, value refers to the perception of benefits received for what someone
must give up. Since price often reflects an important part of what someone gives up, a customer’s
perceived value of a product will be affected by a marketer’s pricing decision. Any easy way to see
this is to view value as a calculation:
Value = perceived benefits received

perceived price paid
For the buyer value of a product will change as perceived price paid and/or perceived benefits
received change. But the price paid in a transaction is not only financial it can also involve other
60
things that a buyer may be giving up. For example, in addition to paying money a customer may
have to spend time learning to use a product, pay to have an old product removed, close down
current operations while a product is installed or incur other expenses. However, for the purpose of
this tutorial we will limit our discussion to how the marketer sets the financial price of a transaction.
Importance of Pricing
When marketers talk about what they do as part of their responsibilities for marketing
products, the tasks associated with setting price are often not at the top of the list. Marketers are
much more likely to discuss their activities related to promotion, product development, market
research and other tasks that are viewed as the more interesting and exciting parts of the job.
Yet pricing decisions can have important consequences for the marketing organization and the
attention given by the marketer to pricing is just as important as the attention given to more
recognizable marketing activities. Some reasons pricing is important include:
 Most Flexible Marketing Mix Variable – For marketers price is the most adjustable
of all marketing decisions. Unlike product and distribution decisions, which can take months
or years to change, or some forms of promotion which can be time consuming to alter (e.g.,
television advertisement), price can be changed very rapidly. The flexibility of pricing
decisions is particularly important in times when the marketer seeks to quickly stimulate
demand or respond to competitor price actions. For instance, a marketer can agree to a field
salesperson’s request to lower price for a potential prospect during a phone conversation.
Likewise a marketer in charge of online operations can raise prices on hot selling products
with the click of a few website buttons.
 Setting the Right Price – Pricing decisions made hastily without sufficient research,
analysis, and strategic evaluation can lead to the marketing organization losing revenue.
Prices set too low may mean the company is missing out on additional profits that could be
earned if the target market is willing to spend more to acquire the product. Additionally,
attempts to raise an initially low priced product to a higher price may be met by customer
resistance as they may feel the marketer is attempting to take advantage of their customers.
Prices set too high can also impact revenue as it prevents interested customers from
purchasing the product. Setting the right price level often takes considerable market
knowledge and, especially with new products, testing of different pricing options.
 Trigger of First Impressions - Often times customers’ perception of a product is

formed as soon as they learn the price, such as when a product is first seen when walking
down the aisle of a store. While the final decision to make a purchase may be based on the
value offered by the entire marketing offering (i.e., entire product), it is possible the customer
will not evaluate a marketer’s product at all based on price alone. It is important for
marketers to know if customers are more likely to dismiss a product when all they know is its
61
price. If so, pricing may become the most important of all marketing decisions if it can be
shown that customers are avoiding learning more about the product because of the price.
 Important Part of Sales Promotion – Many times price adjustments are part of sales
promotions that lower price for a short term to stimulate interest in the product. However, as
we noted in our discussion of promotional pricing in the , marketers must guard against the
temptation to adjust prices too frequently since continually increasing and decreasing price
can lead customers to be conditioned to anticipate price reductions and, consequently,
withhold purchase until the price reduction occurs again.
Factors Affecting Pricing Decision

For the remainder of this tutorial we look at factors that affect how marketers set price. The
final price for a product may be influenced by many factors which can be categorized into two main
groups:
 Internal Factors - When setting price, marketers must take into consideration several
factors which are the result of company decisions and actions. To a large extent these factors
are controllable by the company and, if necessary, can be altered. However, while the
organization may have control over these factors making a quick change is not always
realistic. For instance, product pricing may depend heavily on the productivity of a
manufacturing facility (e.g., how much can be produced within a certain period of time). The
marketer knows that increasing productivity can reduce the cost of producing each product
and thus allow the marketer to potentially lower the product’s price. But increasing
productivity may require major changes at the manufacturing facility that will take time (not
to mention be costly) and will not translate into lower price products for a considerable
period of time.
 External Factors - There are a number of influencing factors which are not controlled by
the company but will impact pricing decisions. Understanding these factors requires the
marketer conduct research to monitor what is happening in each market the company serves
since the effect of these factors can vary by market.
62

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Principles of Marketing

Hailey College of Commerce

product is for the obtainment of these objectives is delivery of customer segments of

Sector: Consumer Goods

This definition has two significant implications:

 Focus: The entire system of business activities should be customer-oriented. Customer’s

Nature and scope of Marketing

The Marketing Concept

Ethics and Marketing

Environmental scanning is a concept from business management

There are three ways of scanning the business environment:

 Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis

Consumer markets can be segmented on the following customer characteristics.

 Region: by continent, country, state, or even neighborhood

Importance of Marketing Research

Research, as a general concept, is the process of gathering information to learn about

Examples of Research in Marketing

Marketing Types of Research

Target sales, market size; demand for product, customer

Product product development; package protection, packaging

Distribution distributor interest; assessing shipping options; online

Promotion advertising recall; advertising copy testing, sales promotion

Pricing price elasticity analysis, optimal price setting, discount

External competitive analysis, legal environment; social and cultural

Other company image, test marketing

Doing Research Right:

Research Validity and Reliability:

This problem relates to whether research results can be applied to a wider

Risk in Marketing Research

Trends in Marketing Research

Gaining an Information Advantage:

In its role as the foundation of marketing, marketing

“A customer is a person or organization that a

As this definition suggests, a customer is not necessarily someone who is currently

• Existing Customers – Consists of customers who have purchased or otherwise used an

Customers and the Organization

The Importance of Good Customers

Challenge of Managing Customers

Customer Contact Points

Who Makes Up the Business Market

Level NAICS Description

Supply Chain Members

Supply Chain What They Do Example

Manufacturers advanced components.

Advanced These companies use basic Electrical wire is purchased by a

Support Service These companies offer services at Distribution companies, such as

Business User Markets

Market What They Do Considerations When What They Buy

government that may

How Business Markets Compare to Consumer Markets

A further discussion of each of these differences is presented below:

Decision Making Time

Types of Business Purchase Decisions

How Businesses Buy

 Seek a solution to a need, and

Selecting Target Markets through Market Segmentation

 Identify segments within the overall market

Identify Market Segments

Stage 1 Segmentation Variables

Stage 1 segmentation consists of variables that can be easily identified through

Segmentation Variables Segmentation Variables

Stage 2 Segmentation Variable