According to the American Marketing Association, marketing is the process of planning and

executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create
exchanges that satisfy individual and organizational objectives.

The external marketing environment has a significant influence on marketing strategy and decision-
making. The five key elements of the external environment are:
 Political-Legal Environment
 Socio-Cultural Environment
 Technological Environment
 Economic Environment
 Competitive Environment

Market segmentation is the process of dividing the market into mutually exclusive categories of
customers using geographic, demographic, or psychographic variables. In order to increase the
effectiveness of marketing, most businesses focus their efforts on target markets: groups of customers
with similar wants and needs.

Consumer behavior is the study of why people choose to consume products. Key influences on
consumer behavior include personal, psychological, social, and cultural factors. When making
buying decisions, consumers recognize a problem or need and then collect as much information as
they think necessary before making a purchase. After making a purchase, their post-purchase
evaluations play a critical role in future buying decisions.

Organizational markets fall into three categories: industrial market, reseller market, and the
government/institutional market. Organizational buyers differ from consumer in that they are more
likely to be professionals, specialists, and experts.

Across every type of market, products are an organization’s reason for being. Products must include
relevant features and benefits to succeed. Consumer products are designed for direct sale to
individual consumers and can be classified as convenience goods, shopping goods, or specialty
goods. Industrial goods are designed for sale to other firms and can be classified as expense items or
capital items.

Branding and packaging help to create a product’s identity, with the goal of generating brand loyalty
– consumer preference for a product with a particular brand name. There are national brands,
licensed brands, and private brands.

Chapter Objectives

1. Explain the concept of marketing and describe the five forces that constitute the external
marketing environment.
2. Explain the purpose of a marketing plan and identify the four components of the marketing
mix.
3. Explain market segmentation and show how it is used in target marketing.
4. Describe the key factors that influence the consumer buying process.
5. Discuss the three categories of organizational markets.

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6. Explain the definition of a product as a value package.
7. Explain the importance of branding and packaging.

REFERENCE OUTLINE

Opening Case: XBox Spots the Market

I. What Is Marketing?
A. Providing Value and Satisfaction
1. Value and Benefits
2. Value and Utility
B. Goods, Services, and Ideas
C. Relationship Marketing
D. The Marketing Environment
1. Political and Legal Environment
2. Social and Cultural Environment
3. Technological Environment
4. Economic Environment
5. Competitive Environment
E. Strategy: The Marketing Mix
1. Product
2. Pricing
3. Place
4. Promotion
a. Advertising
b. Personal Selling
c. Sales Promotion
d. Public Relations

II. Target Marketing and Market Segmentation

A. Identifying Market Segments
1. Geographic Variables
2. Demographic Variables
3. Psychographic Variables
III. Understanding Consumer Behavior
A. Influences on Consumer Behavior
B. The Consumer Buying Process
C. Data Warehousing and Data Mining
1. The Use of Data Mining

IV. Organizational Marketing and Buying Behavior

A. Organizational Markets
1. Industrial Market
2. Reseller Market
3. Government and Institutional Market
B. Organizational Buying Behavior
1. Differences in Buyers

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 2. Differences in the Buyer-Seller Relationship

V. What Is a Product?
A. The Value Package
B. Classifying Goods and Services
1. Classifying Consumer Products
a. Convenience Goods
b. Shopping Goods
c. Specialty Goods
2. Classifying Industrial Products
a. Expense Items
b. Capital Items
C. The Product Mix—Product Lines

VI. Developing New Products

A. The New-Product Development Process
B. Product Mortality Rates
C. Speed to Market
D. The Product Life Cycle—Stages in the Product Life Cycle

VII. Identifying Products

A. Branding Products
1. E-Business Branding
2. Types of Brand Names
a. National Brands
b. Licensed Brands
c. Private Brands
B. Packaging Products

VIII. The International Marketing Mix

A. International Products
B. International Pricing
C. International Distribution
D. International Promotion
IX. Small Business and the Marketing Mix
A. Small-Business Products
B. Small-Business Pricing
C. Small-Business Distribution
D. Small-Business Promotion

LECTURE OUTLINE

I. What Is Marketing? (Use PowerPoint 10.3.)

Marketing is the process of planning and implementing the conception, pricing,

promotion, and distribution of ideas, goods, and services to create exchanges that satisfy
individual and organizational objectives.

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A. Providing Value and Satisfaction

Limited financial resources force most of us to be selective in our goods and services
purchases.

1. Value and Benefits. Value compares a product’s benefits with its costs;
benefits include the product’s functions and emotional satisfactions
associated with owning, experiencing, or possessing it.

2. Value and Utility. Products provide utility, which is the product’s ability to
satisfy a human want or need.

B. Goods, Services, and Ideas (Use PowerPoint 10.4.)

Consumer goods are products that consumers purchase for final consumption; firms
that sell these goods are engaged in consumer marketing. Industrial goods are
products that are purchased by companies to be used in further production of goods;
firms that sell products to other businesses are engaged in industrial marketing.

C. Relationship Marketing

Relationship marketing focuses on long-lasting relationships between customers and

suppliers.

D. The Marketing Environment (Use PowerPoint 10.5, 10.6.)

Marketing decisions are affected by various influences in the external environment.

1. Political and Legal Environment. Political activities may result in

favorable laws and regulations that may open new international business
opportunities.

2. Social and Cultural Environment. Elements from this segment of the

external environment include changing demographics, values and religion,
buying behaviors, preferences, and activities as well as many other factors.

3. Technological Environment. Technological change happens so quickly in

some industries that existing products become obsolete very quickly, while
new-product introductions replace them.

4. Economic Environment. Economic conditions affect many facets of

marketing, including consumer spending patterns and marketers’ plans for
product offerings, pricing, and promotional strategies.

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 5. Competitive Environment. All marketers compete for the purchasing
power of consumers. This sometimes occurs through product differentiation
and consumer segmentation. Substitute products are dissimilar from those
of competitors but can fulfill the same need; brand competition occurs
between similar products; international competition matches domestic
products against foreign products.

E. Strategy: The Marketing Mix (Use PowerPoint 10.7, 10.8.)

The marketing mix consists of the “four Ps” of marketing: product, pricing, place,
and promotion.

1. Product. The product is a good, service, or idea designed to fill a consumer

need. Meeting consumer needs often requires that marketers change existing
products. Product differentiation is the development of a product or the
creation of a product image that differs from existing products to attract
consumers.

2. Pricing. Pricing must be set to support a variety of costs, yet prices cannot
be so high that consumers turn to competing products.

3. Place. Distribution activities are concerned with getting the product from
the producer to the consumer.

4. Promotion. Promotion refers to techniques of communicating information

about products. Promotion includes a combination of personal selling and/or
non-personal selling, including advertising, sales promotion, and public
relations.

a. Advertising. Advertising is any paid form of non-personal

communication that persuades or informs consumers.

b. Personal Selling. Personal selling involves face-to-face, person-to-

person sales.

c. Sales Promotions. These include any premiums, coupons, contests,

games, etc.

d. Public Relations. Public Relations includes all efforts directed at

goodwill-building.

Notes:
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 II. Target Marketing and Market Segmentation (Use PowerPoint 10.9.)

Target markets are groups of people with similar wants and needs and/or similar buying
behaviors. Market segmentation divides a market into categories of consumer types,
based on geographic, demographic, and psychographic variables.

A. Identifying Market Segments (Use PowerPoint 10.10.)

Members of a market segment must share common traits that will affect their
purchasing decisions.

1. Geographic Variables. Consumers in certain geographic regions exhibit

characteristics and buying patterns that are typical of those regions.

2. Demographic Variables. Demographic variables describe populations,

including such traits as age, income, gender, ethnic background, marital
status, race, religion, and social class.
3. Psychographic Variables. Psychographic variables include life styles,
opinions, interests, and attitudes.

Notes:
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III. Understanding Consumer Behavior (Use PowerPoint 10.11.)

Consumer behavior focuses on “why people buy.”

A. Influences on Consumer Behavior

Influences on consumer behavior can include psychological, personal, social, and/or

cultural elements. When consumers exhibit brand loyalty, they regularly purchase
products because they are satisfied with the products’ performance or benefits.

B. The Consumer Buying Process (Use PowerPoint 10.12.)

Various models have been constructed to help marketers understand how consumers
come to purchase products; marketers eventually use this information to develop
marketing plans. A typical model includes: (a) problem/need recognition, when the
consumer recognizes a problem or need; (b) information seeking, in which consumer
seek information from personal sources, marketing sources, public sources, and
experience; (c) evaluation of alternatives; (d) purchase decision, based on rational
motives which involve the logical evaluation of product attributes, and/or emotional
motives, which involve non-objective factors and lead to irrational decisions; and (e)
post-purchase evaluations, in which consumers are satisfied, dissatisfied, or dissonant.

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 C. Data Warehousing and Data Mining

The collection, storage, and retrieval of large groups of data pertaining to individuals
is data warehousing. Data mining involves the processing and use of consumer
data.

Notes:
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IV. Organizational Marketing and Buying Behavior

Organizational markets and buying behaviors are quite different from consumer markets
and consumer behaviors.

A. Organizational Markets (Use PowerPoint 10.13.)

Organizational markets fall into three categories: industrial, reseller, and

government/institutional markets.

1. Industrial Market. The industrial market includes businesses that buy

goods that are either converted into other products or goods that are used up
during production.

2. Reseller Market. The reseller market consists of marketing intermediaries,

such as wholesalers and retailers that buy products and resell them.

3. Government/Institutional Market. In addition to federal and state

governments, the institutional market consists of non-government
organizations, such as hospitals, churches, and museums that also comprise a
substantial market for goods and services.

B. Organizational Buying Behavior (Use PowerPoint 10.14.)

Demand for industrial products is stimulated by differences in buyers and buyer-seller

relationships.

1. Differences in Buyers. Organizational buyers are professional, specialized,

and expert.

2. Differences in the Buyer-Seller Relationship. Industrial buying situations

often involve frequent, enduring buyer-seller relationships.

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Notes:
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V. What Is a Product?

In order to develop the marketing mix and plan their strategies effectively, marketers must
consider what consumers buy when they purchase products; marketers must begin by
understanding product features and benefits.

A. The Value Package

Product features are the tangible and intangible qualities that are built into products;
product benefits include what products can do emotionally or physically for
consumers.

B. Classifying Goods and Services (Use PowerPoint 10.15.)

Goods and services may be classified according to their prospective buyers; buyers
may be classified as buyers of consumer products or buyers of industrial products.

1. Classifying Consumer Products.

a. Convenience Goods. These goods are consumed rapidly and

regularly; they are relatively inexpensive and are purchased frequently.

b. Shopping Goods. These goods are more expensive and purchased less
frequently; consumers often compare brands and evaluate alternatives.

c. Specialty Goods. These goods are purchased infrequently and are

expensive; consumers are very specific about what they want and will
accept no substitutes.

2. Classifying Industrial Products.

a. Expense Items. These are materials and services consumed within one
year by other suppliers of services or producers of goods.

b. Capital Items. These items are permanent, long-lasting goods and

services that have expected lives of more than one year.

C. The Product Mix (Use PowerPoint 10.16.)

The product mix is the total assortment of all goods and/or services that a marketer
makes available for sale. The product mix consists of a number of product lines,

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 which are groups of similar products intended for specific purpose for a similar group
of buyers.

Notes:
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VI. Developing New Products (Use PowerPoint 10.17.)

To expand or diversify to survive, marketers must develop and successfully introduce

streams of new products. Competition and shifting consumer preferences cause marketers
to continually monitor and frequently change their offerings.

A. The New-Product Development Process

Product development is a long, complex process. New products usually involve

carefully planned and sometimes risky commitments of time and resources.

B. Product Mortality Rates

Estimates indicate that it takes 50 new product ideas to generate

one product that reaches the marketplace; only a few of the
survivors become successful.

C. Speed to Market

The more quickly a product enters the marketplace, the more likely it is to survive.
Introducing new products ahead of competitors allows companies to become market
leaders.

D. The Product Life Cycle

Every product passes through a series of stages during its limited profit-producing life.

1. Stages in the Product Life Cycle. The product life cycle is a natural
process in which products are born, grow, mature, decline, and die. The
stages include: introduction, which begins when the product enters the
marketplace; growth, when sales and profits climb; maturity, when sales
growth begins to slow; and decline, when sales and profits continue to fall.

Notes:
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 VII. Identifying Products

Branding and packaging are two tools that allow consumers to identify products in the
marketplace.

A. Branding Products (Use PowerPoint 10.18.)

Brand names are symbols for characterizing products and distinguishing them from
one another; branding is the process of using symbols to communicate the features
and qualities of products.

1. E-Business Branding. Reliability and innovation are the keys to global

brand recognition; costs are often prohibitive.

2. Types of Brand Names.

a. National Brands. These are brand-name products produced by, widely

distributed by, and carrying the name of a manufacturer.

b. Licensed Brands. These are brand-name products that carry the name
of an organization or individual.

c. Private Brands. These are brand-name products that a wholesaler or

retailer has commissioned from a manufacturer.

B. Packaging Products (Use PowerPoint 10.19.)

A product’s package serves several purposes; the package can serve as an in-store
advertisement, a display for the brand name, an identifier of product features and
benefits, and can reduce the risk of damage and increase the difficulty of stealing.

Notes:
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VIII. The International Marketing Mix (Use PowerPoint 10.20.)

Foreign consumers differ from domestic buyers in language, customs, business practices,
and consumer behavior. Marketing products internationally means mounting a strategy to
support global business operations.

A. International Products

Some products can be marketed internationally without modifications, whereas, some

products need to be modified to fit the needs of a local market.

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 B. International Pricing

Many factors that affect domestic pricing also affect international pricing; additional
factors affecting global market pricing are the costs of transportation and selling
abroad.

C. International Distribution

Distribution networks in other countries may be costly. Many domestic marketers hire
foreign agents to assist with selling, advertising, and providing information about local
markets.

D. International Promotion

Many American promotional tactics do not succeed in other countries. Marketers

must consider differences in language and culture when promoting products abroad.

Notes:
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IX. Small Business and the Marketing Mix (Use PowerPoint 10.21.)

Far more small businesses fail than succeed. The successful small businesses have
learned skillful application of the marketing mix and careful consideration of each
element in the marketing mix.

A. Small-Business Products

Understanding the target market and the targeted group’s wants is critical.
B. Small-Business Pricing

Profits are often determined by accurately assessing costs from the start.

C. Small-Business Distribution

The most critical aspect of distribution for small businesses is facility location.

D. Small-Business Promotion

Understanding promotional costs, as well as benefits of chosen promotional tools, may

be the most critical steps involved.

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Notes:
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Answers to Questions and Exercises

Questions for Review

1. What are the key similarities and differences between consumer buying behavior and
organizational buying behavior?

Both deal with the way people purchase and consume products. However, organizational
buyers are professional, specialized, and expert, relying less on product image. Buyer-seller
relationships tend to be longer lasting.

2. Why and how is market segmentation used in target marketing?

Market segmentation is a method of breaking consumers into mutually exclusive groups

based on similar characteristics that are likely to affect consumption. By identifying and
targeting segments that are most likely to purchase its products, an organization can tailor its
marketing efforts in terms of product features and benefits, pricing, packaging, promotion,
and distribution.

3. How are data mining and data warehousing useful in finding new information for
marketing to consumers?

These processes involve the collection and storage of vast amounts of consumer information,
including demographic, psychographic, and geographic information. That information can, in
turn, be used to determine where future needs and wants of consumers may fall. In addition,
storage of such data may allow a researcher to monitor trends in behavioral changes among a
specific market niche.

4. What are the various classifications of consumer and industrial products? Give an
example of a good and a service for each category other than those in the text.

Consumer Products

Convenience goods and services – candy, ATM services

Shopping goods and services – clothing, car repair
Specialty goods and services – houses, interior design

Industrial Products

Expense items – inventory, repair bills

Capital items – computer servers, long-term maintenance contracts

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Questions for Analysis

5. Select an everyday product. Show how different versions of your product are aimed
toward different market segments. Explain how the marketing mix differs for each
segment.

Answers will vary, but students should focus on product and package characteristics, price
levels, promotional tools, and distribution options. They should also discuss demographics
and psychographics of the target market and the way they influence marketing mix decisions.

6. Select a second everyday product and describe the consumer buying process that
typically goes into its purchase.

Answers will vary but should include need recognition, search for information, evaluation of
information, purchase decision, and post-purchase evaluation.

7. If you were starting your own small business, which of the forces in the external
marketing environment would you believe to have the greatest potential impact on your
success?

Answers will vary.

8. How would you expect the branding and packaging of convenience, shopping, and
specialty goods to differ? Why? Give examples to illustrate your answers.
Convenience goods, such as candy bars, should have very prominent branding and packaging
elements in order to spur impulse purchases. Shopping goods, such as computers and
clothing, should be branded and packaged to clearly communicate their unique features and
benefits since shoppers engage in comparisons. Specialty goods, such as high-end cosmetics
in top department stores, should be branded and packaged in a way that reinforces their
mystique.

Application Exercises

9. Interview the marketing manager of a local business. Identify the degree to which this
person’s job is focused toward each element in the marketing mix.

Answers will vary, but students should address how the person’s job relates to product, price,
promotion, and place, and how the person monitors decisions in each area to determine when
change is necessary.

10. Select a product made by a foreign company and sold in the United States. What is the
product’s target market? What is the basis on which the target market is segmented?
Do you think that this basis is appropriate? How might another approach, if any, be
beneficial? Why?

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 Answers will vary based on the nature of the product and the business.

Answers to Exercising Your Ethics

1. Given the factors involved in the consumer buying process, how would you characterize
the particular ethical issues in this situation?

The key ethical issues are integrity and communication. Matthew has invested enormous
effort in information collecting and evaluating alternatives, expecting that once he had made
the purchase decision the dealer would come through on its end of the bargain. One
possibility is that the sales representative and the sales manager simply had not
communicated, but this becomes an ethical issue when the sales representative has the
responsibility to establish contracts without the authority to deliver results.

2. From an ethical standpoint, what are the obligations of the sales representative and the
sales manager regarding the pricing of the product in this situation?

Since the contract has been signed, the minimal obligation of the car company is to offer the
2002 model at the 2001 price.
3. If you were responsible for maintaining good customer relations at the dealership, how
would you handle this matter?

Answers will vary.

Answers to Building Your Business Skills

1. Which location did you choose? Describe the market segmentation factors that
influenced your decision.

Answers will vary, but students should have specific information for each of the market
segmentation factors.

2. Identify the two most important variables that you believe will have the greatest impact
on the dealership’s success. Why are these factors so important?

Answers will vary.

3. Which factors were least important? Why?

Answers will vary.

4. When equipment manufacturers advertise residential H/AC products, they often show
them in different climate situations. Which market segments are these ads targeting?
Describe these segments in terms of demographic and psychographic characteristics.

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 These ads are likely targeted to middle-to-higher income owners of older homes who need to
replace heating or air conditioning systems or are willing to pay for upgraded equipment for
greater comfort. They may also target affluent buyers who are building a home.

Classroom Activities

1. Break the class into small groups and assign each group a specific industry. Have each group
discuss the marketing strategies that they believe important to the effective marketing of
products in that industry.

2. Divide the class into three-member groups. Ask each group to bring three similar products
(or packages of those products) to class. Examples might include breakfast cereals, soft
drinks, or laundry detergent. Ask each group to analyze the target market for each of their
three products. Then, based on who they have identified as the target market for each
product, ask each group to discuss each element of the marketing mix – explaining how the
marketing mix was “built” for each product.

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