MARKETING MANAGEMENT

Course Objectives:

1. To be able to identify and analyze potential marketing opportunities

2. To enable students to master the skills of Marketing Management in the consumer, service, and industrial settings.
3. To learn a comprehensive and systematic approach to strategic marketing process and to learn to think critically (ask intelligent questions)
and strategically.
4. To develop an appreciation and understanding of marketing's roles and social responsibilities in a global society.
5. Understand how marketing contributes to the well-being of users/consumers, organizations and society.
6. Understand marketing decision-making processes from an organization and user/consumer perspective.
7. Use appropriate tools and techniques for analyzing markets.
8. Contemplate and analyze international marketing opportunities, gain an understanding of international marketing effort related
to the market entry and marketing mix strategies.
9. Apply knowledge paradigms in cross-cultural communication to generate broader understanding of similarities/differences in
order to manage internal, organizational and external levels of communications in a dynamic workplace and marketplace
10. Demonstrate an appreciation and awareness of the complexity of operating in the global marketplace, critically evaluate some
of the major debates occurring in the field of international marketing

I. AN OVERVIEW OF MARKETING AND MARKETING MANAGEMENT

1.1 What is marketing?

Definition of marketing

The American Marketing Association's (AMA) previous definition (2004) of marketing was:
"Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers
and for managing customer relationships in ways that benefit the organization and its stakeholders."

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The new definition of marketing, as of 2008, is: "Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large."
Note that the definition of marketing focuses on the lifetime value of a customer. All the functional areas have to take an "integrated
marketing" approach and work towards the goal of satisfying and delivering value to customers. If you do not truly care about your
customers, you are not a good marketer. Also, note the importance of all stakeholders and society at large. A good marketer is not
only concerned with making money.
Marketing is the process of planning and executing the conception, pricing, promotion, and distribution (4 Ps) of ideas, goods and
services to create exchanges (with customers) that satisfy individual and organizational objectives.
Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely
exchanging products and services of value with others. (Philip Kotler (p. 7))
Marketing is the social process by which individuals and groups obtain what they need and want through creating and exchanging
products and value with others(Kotler).
Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably(The Chartered
Institute of Marketing (CIM)).

Satisfying customer needs (creating utility) through the exchange process.

Create a Marketing Mix (4ps):
 Product.
 Price.
 Promotion.
 Distribution (Place).
To satisfy Target Market(s) (customers)

Marketing is the collection of activities associated with the production, distribution, sale, and consumption of goods and services, between
producers, sellers, and consumers. Furthermore, it includes the following:
•Developing products and services that will meet legitimate consumer needs.
•Understanding consumers so that better products and services can be offered.
•Communicating these products and services to potential consumers.
•Determining where, how, and through whom to distribute these goods and services.
•Establishing prices for these goods and services that take into account production costs, market factors, and consumer ability and willingness to
pay.

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Marketing focuses on the satisfaction of customer needs, wants and requirements.
The philosophy of marketing needs to be owned by everyone from within the organization.
Future needs have to be identified and anticipated.
There is normally a focus upon profitability, especially in the corporate sector. However, as public sector organizations and not-for-
profit organizations adopt the concept of marketing, this need not always is the case.
More recent definitions recognize the influence of marketing upon society

1.2 Why Marketing?

How many of you bought something today?

How many have seen or heard an ad today?
How many of you consumed something today?
How many of you engaged in word of mouth about a product/service today?
Reason #1
Marketing is a fundamental human activity.
Marketing can mean different things to different people. But marketing in its truest sense is the lifeblood of any practice. No matter
what your setting—whether you work in a school, clinic, hospital, or private practice—how you market yourself and your services can
affect all aspects of your professional life. Marketing can help reduce or increase your caseloads; educate colleagues, administrators,
referral sources, and consumers about the role of audiologists or speech-language pathologists in the treatment of communication
disorders; secure funding; improve relationships with colleagues; and build support within institutional settings for the services you
provide.
 it’s ubiquitous in daily life
 it happens around the world
 we can learn to make better consumer decisions
Reason #2
Marketing impacts the economy, allocation of resources for value adding activities.
Reason #3
Marketing management is essential to organizational success. Build a better mousetrap?

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In case you've ever wondered whether it's even necessary to market your business in the first place, I would like to share this simple
story that says it all:

Once there was a couple struggling to make a living with their hot dog stand by the side of the road. Trucks and cars would whiz by
without even a glance despite the fact that their hot dogs were fresh and tasty and their coffee was the best in the entire area. It was
very difficult to support themselves and their young son.
One day the wife got a bright idea. “Why not market ourselves? We can put up a big sign and also put our message on billboards. We
can even spend some money on the local radio stations extolling the virtues of our great food.”
Before they knew it, trucks and cars were stopping by and business was booming. They enlarged the stand and hired many people to
accommodate the traffic. They stayed open seven days a week, 24 hours a day and made more money than they ever thought possible.
Their Dream come true. Business stayed good and they grew the business into a chain. Eventually, their son grew up and went to
college. He studied hard and earned an economics degree. His delighted parents took him into the business with a fancy title and office
to match.
Their clever son studied the general business conditions and surveys of the future by the most reputable people in the nation. He
finally concluded: “We are headed for a recession, and possibly a depression.”
He discussed this with his parents and convinced them that his training would now pay off. “Let’s stop advertising and save the
money, and when things change we’ll be in good shape again.”
The signs came down, radio commercials stopped and trucks and cars whizzed by as they did before the company started promoting.
Business worsened, with the chain dwindling to one stand. Finally, bankrupt, the last stand was also shut down.
As the father sat with his wife one hour before closing he couldn’t help but think to himself: “My son was really right; we are in a
depression.”
Moral: You can’t sell it if you don’t show it or tell anyone about it. It’s been proven again and again that those who market when
business conditions are slow are way ahead when it gets better.
There is no clearer way to say it. If you don’t tell your story - and tell it well - everything else falls apart. Prospects won’t know what
you make, so they won’t buy it. If they don’t buy, there’ll be no floor to sweep. No need to buy coffee cups and no invoices to send
out. Without your marketing (and the requisite second half; the sale) you'll have nothing.
Reason #4
Marketing can contribute to societal well-being

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Reason #5
It’s about people (consumers).
Marketing is awareness, marketing is swaying public opinion, marketing is educating, and marketing is about thinking outside of the
box.
Marketing is to REASON WHY. Give good reasons for three questions—why you, why true, why now? This little secret works like
magic, for all products, in all seasons. If you want to sell like a superstar, just boldly state your reasons:
First, the reason yours is best.
Second, a reason to believe, and
Third, a reason to act right now.
Marketing is to be sensitive to respond to customer needs and to build Integrity
The true character of an organization is often revealed by how well it responds to customer feedback. Doing the right thing for the
customer has always been good business sense, but never more important than today, when business and social media have given
consumers the power to share their experiences with millions of people. It should be the task of marketing to: do the right thing all the
time not part-time, not sometimes always.
Reason #5
Marketing Is Important To Your Direct Sales Business:
 To find new customers- You have great products and offer wonderful service, but if you don’t have any customers in the first
place, who’s going to know how great they are? It doesn’t matter whether you use party plan, public events, the internet or
some other method; all of these marketing methods introduce your business to new people who may be interested in your
products or services.
 To keep current customers happy. Offering some sort of customer loyalty program, monthly promotions and sales keeps those
who have previously done business with you coming back again and again. Repeat customers are satisfied customers and they
are also a good source of referrals.
 Marketing for image. You are not only selling your products, you need to sell yourself as well. Putting forth the right image is
crucial to your success. Big companies often spend a huge portion of their budgets making sure that their image is just right.
Your direct sales businesses may not have the big budget like a large company does, but it’s just as important that you present
yourself in a way that is pleasing to your target market.
 For the buzz. It’s not all about advertising; you can often find other ways to market effectively such as party plan, which can
lead to higher profits. The direct sales stand by, word of mouth marketing is still one of the most effective ways to get
customers, and the costs associated with it are low in comparison to paid advertising. Take the time to examine your customer

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 service and other factors in customer satisfaction that get people saying good things about you and your business. Ask for
testimonials and referrals. This can pay you big dividends in the long run.
 For visibility. You’re not the only kid on the block; there are other direct sellers out there. Good marketing can keep you one
step ahead of your competition. The truth of the matter is, if your competition is running large marketing campaigns and you’re
not doing any marketing, you could be left in the dust. This doesn’t mean that you should try to outspend you competition, but
you do need to make sure that they’re not the only visible player in the game. Remind your customers that you are there for
them and what you have to offer. Make it easy for new customers to find you.
Marketing is the life blood of your business. Without it, no one will know that you exist or what you do. When you stop marketing,
your business stops growing. By making marketing one of your top priorities, you give your direct sales business the opportunity to
grow and prosper.

Criticisms of Marketing
 Marketing communications are not always honest “They can sometimes play on people’s emotions and fears and can cause
them to buy things they really don’t need.”
 It can “psychologically manipulate” consumers (they sell the “sizzle,” not the steak).
 Youth may be targeted by companies selling adult products (e.g. alcohol)
 Marketing sells products that can be harmful. Some ads are crude
 Sometimes minorities are stereotyped.
 Encourages us to find meaning in things.

1.3. What is Marketing Management?

Marketing management is a business discipline focused on the practical application of marketing techniques and the management of
a firm's marketing resources and activities. Marketing managers are often responsible for influencing the level, timing, and
composition of customer demand accepted definition of the term. In part, this is because the role of a marketing manager can vary
significantly based on a business' size, corporate culture, and industry context. For example, in a large consumer products company,
the marketing manager may act as the overall general manager of his or her assigned product.

From this perspective, the scope of marketing management is quite broad. The implication of such a definition is that any activity or
resource the firm uses to acquire customers and manage the company's relationships with them is within the purview of marketing

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management. Additionally, the Kotler and Keller(2002). definition encompasses both the development of new products and services
and their delivery to customers.

Noted marketing expert Regis McKenna expressed a similar viewpoint in his influential 1991 Harvard Business Review article
"Marketing is Everything." McKenna argued that because marketing management encompasses all factors that influence a company's
ability to deliver value to customers, it must be "all-pervasive, part of everyone's job description, from the receptionists to the Board of
Directors."

This view is also consistent with the perspective of management guru Peter Drucker((1993 (reprint))., who wrote: "Because the
purpose of business is to create a customer, the business enterprise has two--and only these two--basic functions: marketing and
innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the
business."

Marketing Management is the” process of planning and executing the conception, pricing, promotion (selling, advertising, public
relations, sales promotions--coupons), distribution, research of ideas, goods, services, organizations and events to create exchanges,
and to maintain relationships that satisfy exchanges that satisfy individual and organizational goals.”( Kotler: 1999, p. G-6.)

The marketing management process requires an understanding of the 4Cs: the company and its mission, strategies, and resources; the
macroenvironmental context in which it operates; customers and their needs and wants; and competitors. Obtaining an objective,
detailed, evidence-based understanding of these factors is critical to effective marketing decision making.

Marketing management process

• Analysis/Audit - where are we now?
• Objectives - where do we want to be?

• Strategies - which way is best?

• Tactics - how do we get there?

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 • Implementation - Getting there!

• Control - Ensuring arrival

Marketing mix

Four Ps
In the early 1960s, Professor Neil Borden at Harvard Business School identified a number of company performance actions that can
influence the consumer decision to purchase goods or services. Borden suggested that all those actions of the company represented a
“Marketing Mix”. Professor E. Jerome McCarthy, also at the Harvard Business School in the early 1960s, suggested that the
Marketing Mix contained 4 elements: product, price, place and promotion.

 Product: The product aspects of marketing deal with the specifications of the actual goods or services, and how it relates to the
end-user's needs and wants. The scope of a product generally includes supporting elements such as warranties, guarantees, and
support.
 Pricing: This refers to the process of setting a price for a product, including discounts. The price need not be monetary - it can
simply be what is exchanged for the product or services, e.g. time, energy, or attention.
 Promotion: This includes advertising, sales promotion, publicity, and personal selling, branding and refers to the various
methods of promoting the product, brand, or company.
 Placement (or distribution): refers to how the product gets to the customer; for example, point-of-sale placement or retailing.
This fourth P has also sometimes been called Place, referring to the channel by which a product or service is sold (e.g. online
vs. retail), which geographic region or industry, to which segment (young adults, families, business people), etc. also referring
to how the environment in which the product is sold in can affect sales.

These four elements are often referred to as the marketing mix, which a marketer can use to craft a marketing plan.

The four Ps model is most useful when marketing low value consumer products. Industrial products, services, high value consumer
products require adjustments to this model. Services marketing must account for the unique nature of services.

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Industrial or B2B marketing must account for the long term contractual agreements that are typical in supply chain transactions.
Relationship marketing attempts to do this by looking at marketing from a long term relationship perspective rather than individual
transactions.

As a counter to this, Morgan, in Riding the Waves of Change (Jossey-Bass, 1988), suggests that one of the greatest limitations of the 4
Ps approach "is that it unconsciously emphasizes the inside–out view (looking from the company outwards), whereas the essence of
marketing should be the outside–in approach".

The four Ps are are the controllable marketing mix factors, i.e., the organization can control and manipulate them. An organization
has little control over such factors as the economy, government regulation (they may try to do some lobbying), or social. Forces over
which an organization has little control are known as environmental factors. For example, if the Ethiopian Government passes
legislation requiring all cars to be nonpolluting, this would be an example of government regulation, an environmental factor. Of
course, this would have a huge impact on automobile sales. Other environmental factors include economic, regulatory (legal),
competitive, social (this includes cultural), technological, etc. Thus, the five major environmental factors are: social, technological,
economic, competitive, and regulatory (legal). Global warming is a controversial area and the government may pass laws to reduce
it-- this may have an impact on many industries. If you think regulation is not an issue, restaurants in Addis may no longer use trans
fats in their products. I am sure this had an impact on many restaurants.

Seven Ps
As well as the standard four P's (Product, Pricing, Promotion and Placement), services marketing calls upon an extra three, totaling
seven and known together as the extended marketing mix. These are:

 People: Any person coming into contact with customers can have an impact on overall satisfaction. Whether as part of a
supporting service to a product or involved in a total service, people are particularly important because, in the customer's eyes,
they are generally inseparable from the total service . As a result of this, they must be appropriately trained, well motivated and
the right type of person. Fellow customers are also sometimes referred to under 'people', as they too can affect the customer's
service experience, (e.g., at a sporting event).
 Process: This is the process(es) involved in providing a service and the behaviour of people, which can be crucial to customer
satisfaction.

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  Physical evidence: Unlike a product, a service cannot be experienced before it is delivered, which makes it intangible. This,
therefore, means that potential customers could perceive greater risk when deciding whether to use a service. To reduce the
feeling of risk, thus improving the chance for success, it is often vital to offer potential customers the chance to see what a
service would be like. This is done by providing physical evidence, such as case studies, testimonials or demonstrations.

1.4 Demand States

The task of marketing depends on the state of demand. Marketing management is in essence demand management. The following are
some of the basic states of demand.

1. Negative demand

A market is in a state of negative demand if a major part of the market dislikes the product and may even pay a price to avoid it.
Vaccinations, dental work, vasectomies, and gallbladder operations, for instance. Employers have a negative demand for ex-convicts
and alcoholics as employees. The marketing task is to analyze why the market dislikes the product and whether a marketing program
consisting of product redesign, lower prices, and more positive promotion can change beliefs and attitudes.

2. No demand

Target consumers may be unaware of or uninterested in the product. Farmers may not be interested in a new farming method, and
college students may not be interested in foreign-language courses. The marketing task is to find ways to connect the benefits of the
product with the person's natural needs and interests.

3. Latent demand

Many consumers may share a strong need that cannot be satisfied by any existing product. There is a strong latent demand for
harmless cigarettes, safer neighborhoods, and more fuel-efficient cars. The marketing tasks are to measure the size of the potential
market and develop goods and services to satisfy the demand.

4. Declining demand

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Every organization, sooner or later, faces declining demand for one more of its products. Churches have seen membership decline;
private colleges have seen applications fall. The marketer must analyze the causes of the decline and determine whether demand can
be restimulated by new target markets, by changing product features, or by more effective communication. The marketing task is to
reverse declining demand through creative remarketing.

5. Irregular demand

Many organizations face demand that varies on a seasonal, daily, or even hourly basis, causing problems of idle or overworked
capacity. Much mass transit equipment is idle during off-peak hours and insufficient during peak travel hours. Museums are under
visited on weekdays and overcrowded on weekends. The marketing task, called synchromarketing, is to find ways to alter the pattern
of demand through flexible pricing, promotion, and other incentives.

6. Full Demand

Organizations face full demand when they are pleased with their volume of business. The marketing task is to maintain the current
level of demand in the face of changing consumer preferences and increasing competition. The organization must maintain or improve
its quality and continually measure consumer satisfaction.

7. Overfull Demand

Some organizations face a demand level that is higher than they can or want to handle. National Park is terribly overcrowded in the
summer. The marketing task, called demarketing, requires finding ways to reduce demand temporarily or permanently, General
demarketing seeks to discourage overall demand and takes such steps as raising prices and reducing promotion and service. Selective
demarketing consists of trying to reduce demand from those parts of the market that are less profitable or less in need of the product.

8. Unwholesome demand
Unwholesome products will attract organized efforts to discourage their consumption. Unselling campaigns have been conducted agai
nst cigarettes, alcohol, hard drugs, handguns, X- rated movies, and large families. The marketing task is to get people who like
something to give it up, using such tools as fear messages, price hikes, and reduced availability.

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Type of organizations that use marketing
 All!!
 Corporations: ie Pepsi, Coke, GM etc.
 Government: promoting the health plan, politicians during elections
 Hospitals competing for maternity patients, offer a steak and champagne dinner (sales promotion) with candlelight for new
parents. In an effort to attract physicians some hospitals install services such as saunas, chauffeurs, and private tennis courts.
 Schools: Addis Ababa University MBA program
 Churches: Many churches are redesigning their service offering to better meet the needs of their target audience so as to keep
members and financial support.
 Ethiopian Army: A marketing plan to attract recruits.
 Postal Service: use stamps as a major media event.

Origins of Marketing
When did marketing first evolve?

 Division of labor.
 Specialization. Led to the Exchange of goods etc.
 Exchange is key to marketing, without an exchange, there is no need to market.

Exchange and Utility

The criteria needed for an exchange to occur:
 Must have something of value to exchange

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  Need to be able to communicate
 Must be able to exchange (under 21 drinking)
 Must want to exchange
 At least 2 people needed for an exchange to occur

The exchange process creates Utility.

Utility is the satisfaction, value, or usefulness a user receives from a good or a service.
When you purchase an automobile, you give up less (in $s) than the value of the car (to you)...the ability to get you from A to B,
safely, in a timely manner etc.

There are four types of utility:

 Form--production of the good, driven by the marketing function. EXAMPLE?? Turning cream, sugar and milk into ice cream.
 Place--make product available where customers will buy the product. EXAMPLE?? Food truck at a construction site.
 Time--make product available when customers want to buy the product. EXAMPLE?? Opening 24 hours a day, 365 days a
year, has time utility
 Possession--once you own the product, do what you want with it, ie. eat it

An example of a service that offers all types of utility:

24 Hour pizza delivery service.

Marketing performs the exchange functions that make the total utility of the product a reality to consumers.

1.5 The Marketing Management Philosophies

Marketing management can be described as carrying out the tasks that achieve desired exchanges, between the corporation, and its
customers.

There are number different philosophies that guide a marketing effort.

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  Production Concept Demand for a product is greater than supply.
o To increase profit, focus on production efficiencies knowing all output can be sold. Also useful concept when
increasing production raises economies of scale etc. to reduce price.

 Selling Concept Demand for a product is equal to supply.

o Emphasis is needed to sell the product to increase profits. Focus on advertising.
o Useful for unsought goods, i.e., encyclopedias, funeral plots. Political candidates, selling important, not post consumer
satisfaction.
o Dominant era: 1920's to Mid 1930's WWII to early 1950's

 Product Concept — Focusing too much on one’s product and trying to make it the best-performing product in the market
via improv ements can also be dangerous. Marketing myopia is a term coined by Theodore Levitt to describe firms that
define themselves in terms of a product rather than in terms of the need that the product satisfies. For example, the public does
not want rail transportation, it wants fast, inexpensive, and convenient transportation. The railroads made a great deal of money
during the latter part of the 19th Century. They made the mistake of thinking that the public wanted rail transportation. Much
of their business was taken away by newer modes of travel (planes stole much of their passenger business; planes and trucks
took away a great deal of their freight shipping business). The railroads should not have focused on rail transportation but on
transportation in general. The goal is to do the best job of satisfying one's customers. Consumers want energy, not necessarily
oil; education, not necessarily in classrooms; communication, not necessarily by telephone; music, not necessarily on cassettes;
and entertainment, not necessarily films or television. A firm that defines itself in terms of a product, e.g., a firm that insists
that it is in the business of providing long-distance telephone service, might become obsolete.

 Marketing Concept Supply for a product is greater than demand, creating intense competition among suppliers.
o Company first determines what the consumer wants, then produces what the consumer wants, then sells the consumer
what it wants.
o Dominant era: 1930's to WWII 1950's to present.

To illustrate the marketing era/concept Peter Drucker, in 1954 said:

"if we want to know what business is we must first start with its purpose...There is only one valid definition of business
purpose: to create a customer. What business thinks it produces is not of first importance-especially not to the future of the

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 business or to its success. What the customer thinks he/she is buying, what he/she considers "value" is decisive-it determines
what a business is, what it produces, and whether it will prosper?"(Peter Drucker, The Practice of Management, 1954, P.37)

If a firm wants to achieve its goals it has to focus on satisfying the needs of its customers. These goals do not necessarily have
to relate to profit since any firm that is involved in a transaction should follow the marketing concept. Libraries, politicians,
colleges, hospitals, and many other kinds of organizations should be marketing-oriented. If a firm focuses on satisfying the
needs of its customers, it does not have to "push" its product. The public will demand the product and "pull" it through the
channel of distribution. Note what happens in a college when a course or program is offered that satisfies students’ needs for
getting a good job. You do not have to beg students to take the course or to major in that program.

As you can see from the above discussion, the two major concerns of marketing-oriented firms that abide by the marketing
concept are discovering consumer needs and then doing everything possible to satisfy those needs. This, in a nutshell, is what
marketing is all about.

 Societal Marketing Concept: unfortunately, satisfying customers’ short-term needs may not be compatible with society’s
needs. For instance, your customers may prefer large automobiles, disposable diapers, hamburgers, no-deposit bottles, etc.
Society is better off if we drive small cars, use cloth diapers, and eat soy burgers. Should a firm worry about its customers’
short-term needs, or consider what is best for society? Think about this. Social responsibility is the belief that organizations
have a responsibility to society as a whole. An organization must think of the effects its actions have on society. Convincing
the public to purchase products that are unhealthy and clog arteries are not in the best interests of society. There is nothing
wrong with making a profit but a firm must also care about society. Societal Marketing Concept focuses on other stakeholders,
as well as the business and its customers. Need to balance 3 items
o Company profits
o Customer wants
o Society's interests

The difference between short term consumers wants and long term consumer welfare.
By now you should realize that the primary objective and first task of marketing is to discover the needs of consumers. A need occurs
when an individual feels that s/he lacks a basic necessity. A want, on the other hand, is something learned; it is shaped by such factors
as culture, experience, social influence, family influence, etc. A market is composed of potential consumers with the desire and ability

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to purchase a specific product. The group or groups towards which a company or organization directs, focuses and concentrates its
marketing program is the target market.

What era are we in now?

We are still essentially in the marketing era, since that is the dominant concept, but increasing pressure is being put on to companies to
adopt the societal concept.

1.6 The Concept of Marketing and its Implications

If a firm wants to achieve its goals it has to focus on satisfying the needs of its customers. These goals do not necessarily have to relate
to profit since any firm that is involved in a transaction should follow the marketing concept. Libraries, politicians, colleges, hospitals,
and many other kinds of organizations should be marketing-oriented. If a firm focuses on satisfying the needs of its customers, it does
not have to "push" its product. The public will demand the product and "pull" it through the channel of distribution. Note what
happens in a college when a course or program is offered that satisfies students’ needs for getting a good job. You do not have to beg
students to take the course or to major in that program.

What do we expect of organizations that abide by the marketing concept?

(1)They use marketing research to ensure that they are indeed performing well. Marketing research is used to help develop new
products and to determine whether the new product will actually satisfy the needs of customers.

(2) They are innovative and constantly improving their products/services to maximize their customers’ satisfaction.

(3)They understand that a market is not monolithic, i.e., not everyone has the same needs. Therefore, they will practice market
segmentation. For instance, the market for soap consists of such segments as: those that want a "pure" soap (mothers for their babies),
those that want an anti-bacterial soap (teenagers), those that want an anti-deodorant soap (people worried about body odors), those that

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want an inexpensive soap (bargain shoppers) , those that want a creamy soap (women who want soft skin), those that want an abrasive
soap (mechanics), and those that want a soap that makes one feel fresh.

(4)They will have a target market. To come up with a marketing strategy, you must select a target market and develop the best
marketing mix to satisfy this target market Thus, a marketing strategy is a target market + an optimum marketing mix to satisfy the
target market. The marketing mix is the 4 Ps of marketing: product, price, promotion, and place.

Importance of the marketing concept

 According to the Customer Service Institute, it costs as much as five times as much to acquire a new customer than it does to
service an existing one.
 Customers tell twice as many people about a bad experience over a good one.
 According to the American Marketing Association (AMA), for an average company, 65% of its business comes from its
presently satisfied customers

What do we expect of organizations that abide by the marketing concept?

(1) They use marketing research to ensure that they are indeed performing well. Marketing research is used to help develop
new products and to determine whether the new product will actually satisfy the needs of customers.
(2) They are innovative and constantly improving their products/services to maximize their customers’ satisfaction.
(3) They understand that a market is not monolithic, i.e., not everyone has the same needs. Therefore, they will practice
market segmentation. For instance, the market for soap consists of such segments as: those that want a "pure" soap
(mothers for their babies), those that want an anti-bacterial soap (teenagers), those that want an anti-deodorant soap
(people worried about body odors), those that want an inexpensive soap (bargain shoppers) , those that want a creamy
soap (women who want soft skin), those that want an abrasive soap (mechanics), and those that want a soap that makes
one feel fresh.
(4) They will have a target market. To come up with a marketing strategy, you must select a target market and develop
the best marketing mix (discussed below) to satisfy this target market Thus, a marketing strategy is a target market +
an optimum marketing mix to satisfy the target market. The marketing mix is the 4 Ps of marketing: product, price,
promotion, and place.

MBA/MM/FA/2010 17
 (5) They do not suffer from "marketing myopia." They define their business in terms of a need (which they will satisfy)
and not in terms of a particular product.
(6) They are concerned about improving the quality of their products. Defective products will not result in customer
satisfaction. Many firms have special procedures for dealing with customer complaints and do everything possible to
resolve problems.

1.7 Strategic Planning and Marketing

It is necessary to discuss strategic market planning and marketing early in the course. A strategic market plan gives direction to a
firm's efforts and better enables it to understand the dimensions of marketing research, consumer analysis, and product, distribution,
promotion, and price planning.

We will look at an overview of the strategic marketing process including the development of:

 SWOT Analysis
 Mission Statement
 Organizational Goals
 Corporate Strategy
 Marketing strategy

The strategic market plan is not a marketing plan, it is a plan of all aspects of an organizations strategy in the market place.

The process of strategic market planning yeilds a marketing strategy(s) that is the framework and the development of the marketing
plan.

A marketing plan deals primarily with implementing the market strategy as it relates to target market(s) and the marketing mix.

1.7.1 Strategic Market Planning

MBA/MM/FA/2010 18
A Strategic marketing plan is an outline of the methods and resources required to achieve organizational goals within a specific target
market(s).

"Describes the direction [an organization] will pursue within its chosen environment and guides the allocation of resources and effort"
(Peter Bennett, Dictionary of Marketing Terms, AMA 1988)

Strategic planning requires a general marketing orientation rather than a narrow functional orientation.

All functional areas must include marketing and must be coordinated to reach organizational goals. It is a hierarchal process, from
company wide to marketing specific. (Marketing concept, implemented from top down.)

Strategic Business Units(SBU’s)

A firm can be broken down into several strategic business units. Each SBU is a division, product line, or other profit center within the
parent company.

An SBU has its own strategic plan and can be considered a separate business entity competing with other SBU's for corporate
resources. e.g. The Faculty of Business and Economics is an SBU of the Addis Ababa University.

A strategic plan gives:

 Direction and better enables the company to understand mkt. function dimensions
 Makes sure that each division has clear integrated goals
 Different functional areas are encouraged to coordinate
 Assesses SW & OT
 Assesses alternative actions
 It is a basis for allocating company resources
 A procedure to assess company performance

The strategic planning process may include the following, although this differs from one organization to another:
 Develop a SWOT analysis

MBA/MM/FA/2010 19
  Develop Mission Statement that evolves from the SWOT analysis
 Develop Corporate Objectives that are consistent with the organization's mission statement.
 Develop corporate strategy to achieve the organization's objectives. [if the organization is made up of more than one SBU,
then follow loop again for each SBU, then proceed]
 Marketing (and other functional objectives) must be designed to achieve the corporate objectives
 Marketing Strategy, designed to achieve the marketing objectives.

The strategic market planning process is based on the establishment of organizational goals and it must stay within the broader limits
of the organizations mission, that is developed taking into consideration the environmental opportunities and threats and the
companies resources and distinct competancies.

A firm can then assess its opportunities and develop a corporate strategy. Marketing objectives must be designed so that they can be
accomplished through efficient use of the firms resources.

Corporate strategy is concerned with issues such as diversification, competition, differentiation, interrelationships between business
units and environmental issues. It attempts to match the resources of the organization with the opportunities and risks of the
environment (SWOT). Corporate strategy is also concerned with defining the scope and roles of the SBU's of the firm so that they are
coordinated to reach the ends desired.

SWOT Analysis
A SWOT Analysis examines the companies:
 Strengths...Internal
 Weaknesses...Internal
 Opportunities...External
 Threats...External

By developing a SWOT analysis, a company can determine what its distinctive competencies are. This will help determine what the
organization should be in business for, what its mission should be.

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Mission Statement
Reason to be? Invisible hand etc.
Product Terms...outdated
Technology Terms...outdated
Market Terms...keep in touch with consumer's needs
i.e. Visa...allows customers to exchange values...not credit cards
3M solves problems by putting innovation to work.
Should not be too narrow...or...too broad
Should be based on distinctive competencies of the corporation, determined from the SWOT analysis

Organizational goals
Organizational goals are derived from the mission, corporate strategy is derived from the organizational goals.

Goals must specify the end results that are desired, that are measurable and within a particular time frame.

SMAC

 Specific
 Measurable
 Achieveable
 Consistent

Corporate Strategy
Issues include:
 Scope of Business-----What Business you are in??
 Resource deployment----How you are going to use your resources??
 Competitive advantage----What are your competitive advantages??
 Coordination of Production, Marketing, Personnel etc.----

MBA/MM/FA/2010 21
  Coordination process??

1.7.2 Tools for strategic market planning

The following are some of the many tools that are used in developing corporate strategy, they are supplements not substitutes for
management's own judgement:
 BCG Product Portfolio Management
o Star
o Cash Cow
o Problem Child (Question Marks)
o Dog
 SWOT analysis
 Product Life Cycle Concept
 GE Matrix
 Value Chain Analysis
 FFF(Five Forces Framework of Porter), etc.

A separate strategy is needed for each SBU

 Intense Growth-mkt penetration/development, product development in related markets.
o Market Penetration...more products to the same market
o Market Development...same product to new markets
o Product Development...new products to same market
 Diversified Growth-new products new markets Horizontal (unrelated products to current markets)/Concentric
 Integrated growth Forward/Backward/Horizontal

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1.7.3 Marketing Planning
Marketing plans vary by:
 Duration
 Scope
 Method of Development, bottom up/top down

Objective is to create a Marketing plan. A plan for each marketing strategy developed.

Marketing strategy encompasses selecting and analysing the target market(s) and creating and maintaining an appropriate marketing
mix that satisfies the target market and company. A Marketing strategy articulates a plan for the best use of the organizations resources
and tactics to meet its objectives. Do not pursue projects that are outside the companies objectives or that stretch the companies
resources.

Plan includes:

 Executive summary
 Situation Analysis
 Opportunity and Threat Analysis
 Environmental Analysis
 Company Resources
 Marketing Objectives
 Marketing Strategies to include:
o Target market (Intended) A target market is group of persons/companies for whom a firm creates and maintains a
Marketing Mix that specifically fits the needs and preferences of that group. Does the company have the resources to
create the appropriate MM and does it meet the company's objectives.
o Develop a marketing mix-how to reach the target market. The marketing mix is designed around the buying motive-
emphasizing the marketing concept. The marketing environment effects the marketing mix, which is only controllable
to a certain extent (the MM). Before developing the MM, need to determine the needs of the target market.
 Financial Projections

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  Controls and Evaluations

Marketing control process consists of establishing performance standards, evaluating the actual performance by comparing it with the
actual standards, and reducing the difference between the desired and actual performance.

Brief description of contents of the marketing plan

I. Executive Summary and Table of Contents

The marketing plan begins with a brief synopsis of the key points and major recommendations. The Table of Contents follows the
executive summary.

II. Environmental Analysis (also known as Situation Analysis)

Before starting this section, the organization might first discuss its mission statement.
Section II provides information about the firm's current situation with regard to the current marketing environment. It is sometimes
referred to as a situation analysis. The marketing environment must be discussed. This section will look at external environmental
factors such as the market, competition, marketing channels, economy, political climate, technology, legal and political climates, and
sociocultural factors. This section will also examine internal environmental factors such as costs, profits, human resources, financial
resources, and the age of plant and equipment. The target markets also have to be studied. Have their needs changed? Is the
company doing a good job of satisfying the needs of its customers? Finally, the organization has to ascertain whether their marketing
objectives are still reasonable given the changing environment. The information in section II is used to help the organization with the
SWOT analysis

III. SWOT Analysis

SWOT has become a buzzword in marketing today: Companies should know their Strengths, Weaknesses, Opportunities, and
Threats. A company has to understand its internal Strengths and Weaknesses and also be cognizant of external opportunities and
threats. To do a SWOT analysis correctly, you must know about your competition and the industry. After the SWOT analysis is
complete, a company has to build on the strengths that is has, do everything possible to eliminate or correct weaknesses, take
advantage of opportunities, and do what it takes to minimize or avoid threats.

IV. Marketing Objectives

MBA/MM/FA/2010 24
Based on the SWOT analysis, The organization's major objectives are stated. This makes it clear to all what the organization is trying
to accomplish through its marketing plan. Objectives are in terms of such factors as market share, profitability, and/or sales volume.
Other factors to be considered include innovation (introduce five new products), image, distribution, etc..

V. Marketing Strategies
A marketing strategy has two key components: a target market and a marketing mix to satisfy the target market. A good marketing
strategy enables a firm to achieve its objectives. A firm will succeed if it can use its strategy to achieve an advantage over the
competition. A successful product offers either a quality advantage and/or price advantage over competing brands. How the product
or service will be positioned is also discussed in this section.

VI. Marketing Implementation/Action Program

This section describes the actual marketing programs that will be undertaken in order to implement the marketing strategy. Some
issues that must be discussed include what specific actions must be taken? Who will do it? When is it going to be done? How much
will it cost?

VII. Financial Projections/Evaluation and Control

Financial projections are required so that the organization can determine whether the marketing plan is actually working. The detailed
financial projections are done on a monthly or quarterly basis. These projections are usually in terms of sales volume, profits, and/or
market share. Costs must also be projected since total profit = total revenue - total cost. If the marketing plan is not working, it is
very important for the organization to be able to pinpoint the cause as soon as possible and have a contingency plan.

Marketing management is the planning, Organizing, Implementing and controlling the marketing activities to facilitate and expedite
exchanges effectively (NEED TO ACHIEVE ORGANIZATIONAL OBJECTIVES) and efficiently (MINIMIZING
ORGANIZATIONAL RESOURCES). Therefore to facilitate highly desirable exchanges and to minimize the cost of doing so,
effective planning reduces/eliminates daily crises.

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Sample Marketing Plan

1 Executive Summary
Our new marketing focus, made explicit in this plan, renews our vision and strategic focus on adding value to our target market
segments, the small business and high-end home office users, in our local market.

Ethiopian Technology will change its focus to differentiate itself from box pushers and improve the business by filling the real need of small business
and high-end home office for reliable information technology including hardware, software, and all related services. Our marketing challenge is to
position our product and service offerings as the high-quality, high value-add alternative to box pushing in a vacuum.

MBA/MM/FA/2010 26
 Product 1997

GEN $1,372,500

Systems $3,293,500

Service $380,000

Software $799,250

Training $113,000

Totals $5,958,250

1.1 Vision

ABC is built on the assumption that the management of information technology for business is like legal advice, accounting, graphic arts, and other
bodies of knowledge, in that it is not inherently a do-it-yourself prospect. Smart business people who aren't computer hobbyists need to find quality

MBA/MM/FA/2010 27
vendors of reliable hardware, software, service, and support. They need to use these quality vendors as they use their other professional service
suppliers, as trusted allies.

ABC is such a vendor. It serves its clients as a trusted ally, providing them with the loyalty of a business partner and the economics of an outside
vendor. We make sure that our clients have what they need to run their businesses as well as possible, with maximum efficiency and reliability. Many
of our information applications are mission critical, so we give our clients the assurance that we will be there when they need us.

MBA/MM/FA/2010 28
1.2 Objectives

1. Increase sales by 20%

2. Increase gross margin to more than 25%.

3. Increase our non hardware sales to 65% of the total.

2.0 Target Markets

ABC focuses on small business in the local market, with special focus on the high-end home office and the 520unit small business
office.

Market 1997 1998 1999 2000 2001 Total

Home Office $25,000,000 $27,500,000 $30,250,000 $33,275,000 $36,602,500 $152,627,500

Small Business $50,000,000 $52,500,000 $55,125,000 $57,881,250 $60,775,313 $276,281,563

Totals $75,000,000 $80,000,000 $85,375,000 $91,156,250 $97,377,813 $428,909,063

MBA/MM/FA/2010 29
2.1 Market Definition and Segmentation

We have broken our markets into groups according to standard classifications used by market research companies: home offices and small business.

Exact definitions of these market segments are not necessary for our marketing planning purposes here; general definitions will suffice. We know our
home office customers tend to be heavy users, wanting high-end systems, people who like computing and computers. The low-end home office people
buy elsewhere. We also know that our small business customers tend to be much less proficient on computers, much more likely to need and want
handholding, and much more likely to pay for it.

MBA/MM/FA/2010 30
2.2 Target Market Segment Strategy

We cannot survive just waiting for the customer to come to us. Instead, we must get better at focusing on the specific market segments whose needs
match our offerings. Focus on targeted segments is the key to our future.

Therefore, we need to focus our marketing message and our product offerings. We need to develop our message, communicate it, and make good on
it.

2.3 Target Market: Home Office

The home offices in Addis are an important, growing market segment. Nationally, there are approximately 30 million home offices, and the number is
growing at 10% per year. Our estimate in this plan for the home offices in our market service area is based on an analysis published four months ago in
the local newspaper.

Home offices include several types. For our plan, the most important are the home offices that serve as the only offices of professional firms. These
are likely to be professional services such as graphic artists, writers, and consultants, also some accountants and the occasional lawyer, doctor, or
dentist. There are also individuals who maintain home offices for part-time use, including "moonlighters" and hobbyists. This segment is not who ABC
wishes to sell to; our marketing focus consists of professionals and entrepreneurs who maintain a full-time office. In this plan, we will refer to
customers in the home office segment as HOs.

MBA/MM/FA/2010 31
2.3.1 Needs and Requirements

Our target HOs are on average as dependent on reliable information technology as any other businesses. They care more about reliable service and
confidence than about the rock-bottom lowest price. They don't want to rely solely on their own expertise, so they choose instead to deal with us with
our promise of service and support when needed.

Our standard HOs will be one system installations, no networks, much more powerful systems than the average small business. Fax modems, voicemail,
and good printers are likely. They tend to be interested in desktop publishing, accounting, Internet, and administration software as well as their job
specific software needs.

It's important that we realize we won't be selling to the price oriented HO buyers. We'll be able to offer an attractive proposition to the service
oriented and security oriented buyers only.

2.3.2 Distribution Channels

Unfortunately our HO target buyers may not expect to buy with us. Many of them turn immediately to the superstores (office equipment, office
supplies, and electronics) and mail order to look for the best price, without realizing that there is an option that provides greater value for money.

2.3.3 Competitive Forces

MBA/MM/FA/2010 32
Our focus group sessions indicated that our target HOs consider price but they would buy on quality service if the offering were positioned correctly.
Price is the message they're exposed to again and again; they have been trained to shop on price. We have very good indications that may would much
rather pay 1020% more for a relationship with a long-term vendor providing backup and quality service and support; they end up in the box pusher
channels because they aren't aware of the alternatives.

Availability is also very important. The HO buyers tend to want immediate solutions to problems. Consequently, they can be subjected to high-
pressure, under-trained salespeople who may not be able to factor in all of a customer's needs.

2.3.4 Communications

One of the best places to reach the target HO is the local newspaper. Unfortunately, that medium is saturated with pure price only messages, and
we'll have to make sure that our message is accurately stated.

Radio is potentially a good opportunity. Our HO target buyers listen to local news, talk shows, and sports. Sponsoring a technology discussion/call in
talk show is a possibility.

Seminars are a tough sell. The target HO buyer rarely has time for seminars. They think most seminars are low content sales pitches, and many times
they are correct. The challenge here is to communicate how our information adds value to their enterprise while selling our organization in a subtle,
indirect fashion.

2.3.5 Keys to Success

MBA/MM/FA/2010 33
The main key to success with HO buyers is making the product and marketing positioning clear. Many potential buyers would much prefer our offering
to the box only offerings of the chain stores and mail order sources, if only they possessed adequate information to conduct a value-add cost/benefit
analysis.

Word of mouth is critical in this segment. We will have to make sure that once we gain a customer, we never lose them. To help accomplish this, we
must work to reinvigorate relationships through successful database marketing, among other means.

We must always remember to sell the company, not the product. They have to understand they are taking on a relationship with AMT, not just buying
boxes. Boxes they can get cheaper elsewhere.

2.4 Target Market: Small Business

Small business in our market includes virtually any business with retail, office, professional, or industrial location outside of someone's home, and
fewer than 30 employees. We estimate 45,000 such businesses in our market area.

The 30employee cutoff is arbitrary. We find that the larger companies turn to other vendors, but we can sell to departments in larger companies, and
we shouldn't be giving up leads when we get them.

2.4.1 Needs and Requirements

Our target SBs is very dependent on reliable information technology. They use the computers for a complete range of functions beginning with the
core administration information such as accounting, shipping, and inventory. They also use them for communications within the business and outside
of the business, and for personal productivity. They are not, however, large enough to have dedicated computer personnel such as the MIS

MBA/MM/FA/2010 34
departments in large businesses. Ideally, they come to us for a long-term alliance, looking to us for reliable service and support to substitute for their
in-house people.

These are not businesses that want to shop for rock-bottom price through chain stores or mail order. They want to be sure they have reliable providers
of expertise.

Our standard SBs will be 520 unit installations, critically dependent on local area networks. Backup, training, installation, and ongoing support are
very important. They require database and administrative software as the core of their systems.

2.4.2 Distribution Channels

The SB buyers are accustomed to buying from vendors who visit their offices. They expect the copy machine vendor, office products vendors, and
office furniture vendors, as well as the local graphic artist, freelance writer, or whoever, to come visit their office to make their sales.

There is usually a lot of leakage in adhoc purchasing through local chain stores and mail order. Often the administrators try to discourage this, but are
only partially successful.

2.4.3 Competitive Forces

The SB buyers understand the concept of service and support, and are much more likely to pay for it when the offering is clearly stated.

There is no doubt that we compete much more against all the box pushers than against other service providers. We need to effectively compete
against the idea that business should buy computers, the heart of their business, as plug-in appliances, that don't need ongoing service, support, and
training.

MBA/MM/FA/2010 35
2.4.4 Communications

One of the best places to reach the target SB is the local newspaper. Unfortunately, that medium is saturated with pure price only messages, and we'll
have to make sure that our message is excellently stated.

Radio is potentially a good opportunity. Our SB target buyers listen to local news, talk shows, and sports. Sponsoring a technology discussion/call-in
talk show is a possibility.

Seminars are a good marketing opportunity with SBs. Employees is often happy to leave their normal routines for a day to learn something new.

2.4.5 Keys to Success

The main key to success is making the product positioning clear. Many potential buyers would much prefer our offering to the box only offerings of the
chain stores and mail order sources, if only they knew the tradeoffs.

Word of mouth is critical in this segment. We will have to make sure that once we gain a customer, we never lose them.

We must always remember to sell the company, not the product. They have to understand they are taking on a relationship with AMT, not just buying
boxes. Boxes they can get cheaper elsewhere.

3.0 Marketing Plan Strategy

ABC will change its focus to differentiate itself from box pushers and improve the business by filling the real need of small business and high-end home
office for reliable information technology including hardware, software, and all related services.

MBA/MM/FA/2010 36
3.1 Emphasize Service and Support

We must differentiate ourselves from the box pushers. We need to establish our business offering as a clear and viable alternative, for our target
market, to the price only kind of buying.

3.2 Emphasize Relationships

We need to focus our offerings on small business as the key market segment we should own. This means the 520unit system, tied together in a local
area network, in a company with 550 employees. Our values training, installation, service, support, knowledge are more cleanly differentiated in this
segment.

MBA/MM/FA/2010 37
As a corollary, the high end of the home office market is also appropriate. We do not want to compete for the buyers who go to the chain stores or
mail order, but we definitely want to be able to sell individual systems to the smart HO buyers who want a reliable full service vendor.

4.0 Expense Budget Summary

The following marketing budget comes to a total of less than $450K. This is actually a decrease over the $485K we spent this year on the marketing
budget. We believe we can get more effective marketing with less money, because we are managing the marketing better with the Marketing Plus
software by Palo Alto Software.

MBA/MM/FA/2010 38
 Type 1997

Ads $285,000

Catalog $25,000

MBA/MM/FA/2010 39
 Mailing $113,300

Promo $16,000

Shows $20,200

Literature $7,000

PR $1,000

Seminar $31,000

Training $60,000

Service $10,250

Totals $568,750

4.1 Expense Budget by Manager

MBA/MM/FA/2010 40
Budget by Manager: As the following table and chart show, the largest budget piece is the $151K (almost entirely advertising budget) managed by
Alemu.

Manager 1997

Alemu $286,000

Aebebe $65,700

Selam $75,000

Mekdes $111,050

MBA/MM/FA/2010 41
 Sami $31,000

Totals $568,750

4.2 Expense Budget by Markets

Most of our budget falls into the general category that applies to both target markets. This is because much of the spending is impossible to divide into
specific market categories. Of the portion of the budget that is specific, by far the largest share falls into the small business market, because this
tends to lead the market.

Markets 1997

GEN $414,200

MBA/MM/FA/2010 42
 SB $118,550

HO $36,000

Totals $568,750

4.3 Expense Budget by Type

Budget by type: The largest single expenditure program is advertising, at $150K This is actually $30K less than we will have spent this year. The second
largest is mailing, which is a priority because of its importance to our database marketing strategy.

MBA/MM/FA/2010 43
 Type 1997

Ads $285,000

Catalog $25,000

Mailing $113,300

MBA/MM/FA/2010 44
 Promo $16,000

Shows $20,200

Literature $7,000

PR $1,000

Seminar $31,000

Service $10,250

Training $60,000

Totals $568,750

MBA/MM/FA/2010 45
4.4 Expense Budget by Product

Budget by product: The nonspecific product spendings amount to the largest total, $235K of the total $423K. The least is the training spending, at only
$26K. The nonspecific spending on product makes sense, because it is related to general training and development of our business expertise.

Product 1997

GEN $371,200

Systems $90,000

Service $59,750

Software $22,000

MBA/MM/FA/2010 46
 Training $25,800

Totals $568,750

5.0 Sales Forecast

The $6 million sales forecast is shown in detail in the tables and charts to follow. This represents a 20% increase over the present year. We believe it is
a conservative forecast, and we are sure we can make our numbers this year as a result of more effective marketing.

Type 1997

MBA/MM/FA/2010 47
 Ads $1,372,500

Shows $82,500

Service $0

Mailing $427,750

Sales $3,693,000

Seminar $272,500

Promo $100,000

Catalog $10,000

Totals $5,958,250

MBA/MM/FA/2010 48
5.1 Sales Forecast by Manager

Sales by Manager: As might be expected, Leslie has by far the largest sales quota to manage. This is suited to our strategy of putting Leslie in charge of
the sales force, and tracking sales through the sales force. Details follow.

Manager 1997

Alemu $1,372,500

Abebe $4,100,750

Selam $110,000

Mekdes $272,500

MBA/MM/FA/2010 49
 Sami $102,500

Totals $5,958,250

5.2 Sales Forecast by Markets

Sales by market: Our most important market, by far, is the small business market. The sales forecast shown in the following table and chart is a superb
reminder of why we need to focus on the specific target markets.

Markets 1997

GEN $2,543,000

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 SB $3,133,750

HO $281,500

Totals $5,958,250

5.3 Sales Forecast by Type

The data shows that we are still unable to attribute our sales in any significant way to our sales and marketing program. The "Sales" type shown here is
the general sales coming in that is not tied to a specific type of program. This is obviously by far the largest portion of our projected sales. Advertising
comes second. This doesn't indicate a problem with the plan or our implementation; it is just a fact of life. Much of our marketing activity generates
sales in ways that don't allow us the luxury of tying it back directly to a specific program.

MBA/MM/FA/2010 51
 Type 1997

Ads $1,372,500

Mailing $427,750

Promo $100,000

Sales $3,693,000

Seminar $272,500

Shows $82,500

Service $0

Catalog $10,000

Totals $5,958,250

MBA/MM/FA/2010 52
5.4 Sales Forecast by Product

Sales by Product: The $6 million sales forecast is shown in the following table and chart. As always, our largest single sales item is the sales of
systems. The next largest item is the general, non-specific sales, which of course will also be mostly systems. The details follow.

Product 1997

GEN $1,372,500

Systems $3,293,500

MBA/MM/FA/2010 53
 Service $380,000

Software $799,250

Training $113,000

Totals $5,958,250

6.0 Measurement and Comparison

Overall, we plan to spend 7.28% of sales on sales and marketing expenses, which seems about in line for our plan, and for our industry. That breaks
down to 3.78% of sales for home offices, 12.79% for small business, and 10.98% for expenses not tied to either one. As broken down by products, we
spend about 3% of sales on software and systems, and 16% on service and 23% on training. This breakdown makes sense for our marketing, because of
the impact on software and systems of better training and better service.

7.0 Marketing Organization

ABC is still a small company, despite our recent growth.

MBA/MM/FA/2010 54
Alemu, President, is responsible for general management. He specifically manages the advertising budget, but otherwise is responsible for sales and
marketing as the head of the organization.

Abebe, our sales manager, is responsible for managing the in-house and the outbound sales forces. We have also put the mailing programs under
Selam, because they must be carefully coordinated with the follow-up of the sales force.

Selam, our marketing manager, is responsible for marketing programs including sales literature, trade shows, the catalog, etc.

Mekdes, who reports to Selam, will take the key role in the seminar marketing programs.

Sami, who manages service, will also manage the marketing programs related to service.

8.0 Critical Issues

1. Tracking and follow-up: will we have the discipline, as an organization, to track results of the marketing plan and make sure that we implement?

2. Market segment focus: how can we be sure we have the discipline to maintain the focus?

3. Saying no: can we say no to special deals that take us away from the target focus? Can we say no to unprofitable deals?

2. The Marketing Environment

Companies depend on environmental change. Governmental, natural, and economic forces affect customers, competitors, and marketing.
Environmental scanning is an essential task of marketing management.

A marketing environment is external, largely uncontrollable, and potentially relevant to marketing decision making.

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 Marketing does not occur in a vacuum. The marketing environment consists of external forces that
directly and/or indirectly impact the organization. Changes in the environment create opportunities and
threats for the organizations. To track these external forces a company uses environmental scanning.
Continual monitoring of what is going on. Environmental scanning collects information about external forces. It is conducted through
the Marketing Information System. Environmental analysis determines environmental changes and predicts future changes in the
environment. The marketing manager should be able to determine possible threats and opportunities from the changing environment.
This will help avoid crisis management.

Successful companies understand the importance of continuously monitoring and adapting to the marketing environment. For example, in 1959,
Mattel recognized that girls want to play with grown up dolls, not just baby dolls. Consequently, the company created Barbie, who has been
changing accordingly with the girls’ dreams and attitudes. Currently, Barbie’s job aspirations range from Stewardess, Fashion Model, and Rock
Singer,” to Astronaut, Nurse, and Presidential Candidate. Mattel introduces new Barbie dolls every year in order to correspond with the latest
definitions of achievement, romance, success, and happiness.

Many companies fail to see changes in the environment as an opportunity. Corporations such as General Motors, IBM, and Sears have
encountered difficult times because they ignored environmental changes for too long.

Successful companies recognize and respond to unmet needs and trends. For instance, companies could make a fortune by developing and
producing a cure for cancer, dietary and tasty nutritious food, practical electric cars, etc.

A trend is a direction of events which has momentum and durability.

More important environmental changes are considered “megatrends”.

Mega trends are large social, economic, political, and technological changes that are slow to form, and influence us for seven to ten years, or
even longer.

Current mega trends include:

 Globalization of economy, lifestyle, and culture

 Leadership of women
 Individualism

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Technological innovations, changing consumer incomes, and shifting consumer values are examples of environmental marketing changes. The
environment includes trends that are largely uncontrollable, changing, constraining, and potentially relevant. It is important to understand that the
marketing environment must be potentially relevant to the marketing decision of a certain organization. For example, the relevant environment for
a producer of electronic devices is very different from that for a producer of soap.

Successful marketers are primary adapters. They adapt their product, price, promotion, and distribution plan to fit the marketplace. In order to
make correct and timely decisions, it is necessary to analyze the changes in the environment in a systematic manner. Although the environmental
analysis alone is not the solution to most problems, the penalty for not monitoring the environment can be severe, if not fatal.

Thus we can see that the analysis of and adaptation to environmental changes are very important for companies. Further, we consider how
managers can (and should) monitor and analyze environmental changes.

To monitor and control the marketing environment effectively, it is necessary to divide the environment into layers. Let’s consider each layer of the
marketing environment step-by-step

Layers of Marketing Environment

Illustration 1: The layers of the marketing environment

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 Exhibit 2.1 The marketing environment

A scheme of the environment surrounding most organizations is shown in Exhibit 2.1. The first part of the environment includes the personnel
within the company — the intraorganizational environment. The most important aspect of the intraorganizational environment is the internal
corporate culture. Corporate culture is the collection of beliefs, expectations, and values shared by the corporation members.

The task environment layer is mediating between the macroenvironment and management layers. Task environment can also be titled micro-
environment, and includes customers, intermediaries (agents, distributors etc.), suppliers, and competitors. These independent parties require
constant attention.

To focus solely on task environment is to ignore changes in the macroenvironment (which causes the task environment to change). It is critical to
understand macrochanges to better predict changes in markets and competitive relationships.

The macroenvironment consists of several elements. These elements are political, economic, social, technological, natural, and demographic
environments. Some companies consider only four elements of macroenvironment; they use the systematic analysis of political, economic,
sociocultural and technological forces. This is better known as PEST analysis.

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2.1 THE EXTERNAL ENVIRONMENT

2.1.1 Elements of the macro-environment

 Governmental (Political, Legal) Environment

Marketing decisions are strongly affected by developments in the political and legal environment. This environment consists of laws, government
agencies, and pressure groups that influence and limit organizations. Any company should consider issues such as:

 The political situation in the country and its stability

 The government’s regulation of the company’s business
 The government’s position on business ethics
 The government’s influence upon economy, culture, and religion

For example, the government can regulate (limit and control) the activity of companies. Business legislation has three main purposes:

 Protect companies from unfair competition

 Protect consumers from unfair business practices
 Protect the interests of society from uncontrolled business behavior

An important force that affects business is the consumerist movement - an organized movement of citizens and government (programs) aimed to
strengthen the rights of buyers in relation to sellers. In response to consumerism, several companies have established consumer affairs
departments to respond to consumer complaints.

Sometimes laws create new opportunities for business. For instance, mandatory recycling laws created dozens of new companies which make
new products from recycled materials.

Marketers should have solid knowledge of the major laws related to competition, consumers, and business. If marketers monitor, analyze, and
forecast political and legal environmental changes consistently, they can find new opportunities in these changes and avoid unexpected problems
with the government.

 Economic Environment

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Different countries have different economic conditions. Primarily, countries vary in industrial structure. There are four types of industrial structures:

 Subsistence economies: The vast majority of people engage in agriculture, consume most of their output, and barter the rest for simple
goods and services. These economies offer few opportunities for marketers.
 Raw-material-exporting economies: Much of these economies’ revenue comes from exporting natural resources. These countries are
good markets for extractive equipment, handling equipment, and transportation. Depending on the number of wealthy people, they are
also a market for many types of commodities and luxury goods.
 Industrializing economies: These countries rely more on imports of raw materials, steel, and heavy machinery; they rely less on imports of
finished textiles, paper products, and processed foods.
 Industrial economies: Industrial economies are major exporters of manufactured goods. They export manufactured goods in exchange for
raw materials. These countries have a sizable middle class, and they are markets for a large variety of products.

As you see, it is clear that the potential of a company’s sales depends on the type of industrial structure in the country.

Marketers differentiate countries with five income-distribution patterns:

 Very low incomes

 Mostly low incomes
 Very low and very high incomes
 Low, medium, and high incomes
 Mostly medium incomes

The analysis of income distribution in the country is very important, and it can aid in the making of non-obvious decisions. Consider the market for
Lamborghinis, automobiles which cost more than $150,000 (maybe it is better to say: automobiles with a price tag exceeding $150,000). The
market for Lamborghinis is very small in countries with type 1 or 2 income patterns. However, one of the largest markets for Lamborghinis is
Portugal (income pattern 3). While it is one of the poorer countries in Western Europe, the sales are successful because of a few wealthy families.

Marketers need to consider the economic situation in a given country. In the short and long-terms, the company needs to look at:

 Interest rates
 The level of inflation
 Employment level
 Long-term prospects for the economy
 Gross Domestic Product (GDP)
 Current incomes and changes in incomes

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  Prices
 Savings
 Credit availability
 Cost of living
 Borrowing patterns

Marketers should thoroughly understand economic conditions of the country of operation. An understanding of the economy and its trends can
help predict changes and perspectives of the company’s activity.

 Social (Social-cultural) Environment

Consumers’ beliefs and values influence their buying behavior and decisions. Consumers’ beliefs, values, norms, and worldview are created by
the society and its culture. The people living in the particular society hold many core beliefs and values. Core beliefs and values are passed on
from parents and are reinforced by social institutions — schools, churches, and government. Secondary beliefs and values are more open to
change. For example, believing in the institution of marriage is a core belief; believing that people ought to get married early is a secondary belief.
Marketers have a chance of changing secondary values, but little chance of changing core values.

Each society contains subcultures, or groups with shared values. The members of a subculture share common beliefs, preferences, and
behaviors. Subcultural groups of consumers have different wants, and a different consumption behavior; consequently, marketers can choose
particular subcultures as target markets.

The degree of social and cultural influences on business varies from country to country. However, in any case, it is very important to consider the
social and cultural factors. They can be outlined by the following list:

 Dominant religion
 Attitudes to foreign products and services
 The roles of men and women within a society
 Age of a population
 Wealth of older generations
 Views of themselves (because people bought products, brands, and services as a mean of self-expression)
 Views of others (because consumers may or may not take into account societal problems)
 Views of organizations (because people vary in their attitudes toward corporations, government, and other organizations, and companies
need to pinpoint ways to gain consumer and employee confidence)
 Views of nature (because people vary in their attitude toward nature)

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 Managers should analyze the features of culture and society in order to understand and predict consumer behavior.

 Demographic Environment

There are several demographic factors that marketers should take into account:

Worldwide population growth: Marketers should monitor the population, because the population consists of consumers.

Population age mix: National populations vary in their age mix. For example, Mexico is a country with a very young population, whereas Japan is a
country with a very old population; marketers should consider age groups and their features to make marketing decisions. In the United States, the
largest age group, the Baby Boomers (born between 1946 and 1964) are very active purchasers, Generation Xers (born between 1965 and 1976)
are typically skeptical about marketing efforts, and the Baby Boomlets (born between 1977 and 1994) have fluency and comfort with computer and
Internet technology.

Ethnic markets: Countries also vary in ethnic and racial makeup. For instance, almost everyone in Japan is Japanese; in the United States or
Canada, however, there are people from almost all nations. Each ethnic group has specific wants and buying habits.

Educational groups: The level of education also influences a company’s marketing activity. For example, in countries with low educational levels,
companies should use simpler product instructions and less veiled advertising messages.

Household patterns: In many countries, the “traditional household” (husband, wife, and children) is no longer popular. Instead, there are many
“nontraditional” families, including single live-alones, adult live-togethers (of one or both sexes), single-parent families, and childless married
couples. Marketers must consider the specific needs of nontraditional households, as each group has a distinctive set of needs and buying habits

Geographical patterns: Location makes a difference in preferences. For example, people in large cities account for most of the sales of expensive
furs, perfumes, and works of art. People living in the suburbs prefer casual garment.

Marketers should consider demographic factors in order to find and describe the target segments in terms of age, ethnic background,
education, geography, lifestyle, and other characteristics; they also want to estimate the potential of every segment. Each demographic
segment has specific preferences and can be reached through specific communication and distribution channels.

 Technological Environment

Companies have to consider technology in order to find opportunities:

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  Does technology allow for a more efficient, less costly, and better quality manufactured product?
 Does the technology offer more innovative products and services?
 How is the distribution of products changed by new technology?
 Does technology offer companies a new way to communicate with consumers?

Marketers should take the following trends in technology development into account:

 The time lag between the creation of a new idea and its successful implementation is decreasing rapidly
 Today scientists are working on a wide range of new technologies which revolutionize products and production processes
 In stead of creating new products, many complanies copy competitors’ products or make minor improvements of their own products
 Significant breakthroughs are being conducted by groups of companies, rather than a single company

Government agencies investigate potentially unsafe new products; safety regulations have increased in the areas of food, automobiles,
clothing, electrical appliances, and construction.

 Natural Environment

An influence upon the natural environment is a matter that many companies have to address.

Marketers need to be aware of the threats and opportunities associated with trends in the natural environment:

 Shortage of raw materials: Companies that require these materials face substantial cost increases
 Increased energy costs: Oil as a finite nonrenewable resource has created serious problems for the world economy
 Increased pollution levels: Smart companies are initiating environment-friendly actions. For example, McDonald’s and Burger King
eliminated their polystyrene cartons and use recyclable paper wrappings

Changing role of governments: Governments increased their efforts to promote a clean environment

2.1. 2 ELEMENTS OF THE TASK ENVIRONMENT

The operating environment is that level of the organization’s external marketing environment made up of components that normally have
relatively specific and more immediate implications for managing the organization. The major components of the operating environment are
customers, competition, labor, suppliers, and international issues.

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The customer component of the operating environment reflects the characteristics and behavior of those who buy goods and services provided by
the organization. Describing in detail those who buy the firm’s products is a common business practice. Developing such profiles helps
management generate ideas about how to improve customer acceptance of organizational goods and services.

The competitive component of the operating environment consists of those with an organization must “do battle” in order to obtain resources.
Understanding competitors is a key factor in developing effective strategy, so analyzing the competitive environment is a fundamental challenge to
marketing management. Basically, the purpose of competitive analysis is to help management appreciate the strengths, weaknesses and
capabilities of existing and potential competitors and predict what strategies they are likely to adopt. Within any given industry, most of this
competition focuses on rivalry among existing firms, the bargaining power of consumers, substitute products being developed, the bargaining
power of suppliers, and new entrants into the market place.

The labour component of he operating environment is made up of factors that influence the supply of workers available to perform needed
organizational tasks. Issues such as the skill levels, trainability, desired wage rates, and average age of potential workers are important to the
operation of the organization. Another important but often overlooked issue is the desirability of working for a particular organization, as
perceived by potential workers.

The supplier component of the operating environment includes all variables related to those who provide resources for the organization. These
resources are purchased and transformed during the production process into final goods and services. How many vendors offer specified resources
for sale, the relative quality of materials offered by vendors, the reliability of vendor deliveries, and the credit terms offered by vendors - all such
issues are important to consider in managing an organization effectively and efficiently.

The international component of the operating environment comprises all factors related to the international implications of organizational
operations. Though not all organizations must deal with international issues, the number that do is increasing dramatically. Significant aspects of
the international component include the laws, political practical practices, culture, and economic environment that prevail in the foreign countries
with which (or in which) the firm does business.

2.2 INTERNAL ENVIRONMENT

The internal environment is that level of an organization’s environment which exists inside the organization and normally has immediate and
specific implications for managing the organization. Unlike components of the general and operating environments, which exist outside the
organization, components of the internal environment exist within it. The internal environment consists of

Financial Aspects Personnel Aspects

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Marketing Aspects Production Aspects

Internal factors affecting a company relate to:

 Resources: Profitability, sales, product quality brand associations, existing overall brand, relative cost of this new product,
employee capability, product portfolio analysis
 Capabilities: To identify internal strategic strengths, weaknesses, problems, constraints and uncertainties

Resources
A good starting point to identify company resources is to look at tangible, intangible and human resources.

Tangible resources are the easiest to identify and evaluate: financial resources and physical assets are identifies and valued in the
firm's financial statements.

Intangible resources are largely invisible, but over time become more important to the firm than tangible assets because they can be a
main source for a competitive advantage. Such intangible recourses include reputational assets (brands, image, etc.) and technological
assets (proprietary technology and know-how).

Human resources or human capital are the productive services human beings offer the firm in terms of their skills, knowledge,
reasoning, and decision-making abilities.

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MBA/MM/FA/2010 66
Capabilities

Resources are not productive on their own. The most productive tasks require that resources collaborate closely together within teams.
The term organizational capabilities are used to refer to a firm's capacity for undertaking a particular productive activity. Our interest
is not in capabilities per se, but in capabilities relative to other firms. To identify the firm's capabilities we will use the functional
classification approach. A functional classification identifies organizational capabilities in relation to each of the principal functional
areas.

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 The external and internal environment may be contrasted in the following figure:

What the Firm Might Do

External Environment
FFF
PEST
Sustainable
Competitive
Advantage

Internal Environment
Resources,
Capabilities and Core
Competencies What the Firm Can Do

Managing the Task Environment:

Boundary Spanners

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Organizational decision-makers rely on a group of people who scan the environment, monitor potentially relevant events, interpret what they see
and communicate the findings to decision makers. Those who perform these functions with an organization are technically referred to as
“Boundary Spanning Personnel.”
e.g. Market Researchers, Public Relations Officers, Shipping and Supplies Managers, Labour Negotiators etc. Their functions are:-

 Representation
Presentation of information about the organization of its environment for the purpose of shaping the opinion of others groups and organizations for
own organizational benefit.

 Scanning
Refers to the search for major discontinuities in the external environment that might provide opportunities or constraints to the organization.

 Monitoring
Involves making continuous assessment of environmental change.
e.g. Demand measurement and forecast

 Protecting the Organization

Refers to warding off environmental influence that otherwise disrupt the on going operations of the focal organization. In a sense boundary role
occupants often serve as shock absorbers.

 Transacting
Refers to the activities necessary for the acquisition of inputs and disposal of outputs.
e.g. On the input side, purchasing agents are employed to ensure a constant flow of needed inputs. On the output boundary, activities of sales
personnel are important in maintaining an uninterrupted supply of outputs, to the market.

 Linking and coordinating

Boundary spanning personnel establish two types of links with the external environment.
a) Establishing and maintaining relationships between the organizations as whole and other individuals groups or organizations.
b) Establishing links between specific units within the organization and outside elements.

Organizational Strategies for Managing Environmental Turbulence

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 Direct Engagement
Organizations enter into long-term contracts with suppliers or customers or customers or even with labor unions. They may also merge or engage
in joint ventures with other organization. The objective of all such attempts is to reduce uncertainty in the task environment.

 Indirect Influence
Indirect influence is exerted though such mechanisms as co-operation and lobbying. In co-operation, a representative of another influential
organization in the task environment is appointed to the board of directors of the local organization thereby partially absorbing environmental
uncertainty.
Indirect influence can also be exerted through third parties such as trade associations. Such groups are used to lobby governmental agencies to
enact desirable legislation or regulatory policies or to change those which are undesirable to the focal organization.

 Co-operation
This strategy involves conformity to industry norms, sharing of information and restraining cut throat composition. For example firms in
oligopolistic industries behave as if they were members of a small group, confirming to group norms and co-coordinating their activities. Under
such circumstances, even competitors use to come to rescue as organization that has suffered severe set back.

 Diversification
This strategy involves movement into a new segment of the market with a different product line. This strategy is normally adopted by an
organization when it finds that all of the above strategies have failed to reduce turbulence in the existing task environment.

 Buffering
Organizations can absorb and cope with environmental uncertainty through buffering, that is, by establishing buffers for both the input and output
sides of organizational activities. Buffers may be departments or programs designed to prevent environmental factors from upsetting the smooth
functioning of the production process. On the input side, this may be achieved by stock piling inventories so that they can be provided to the
production unit at a steady and predictable rate, regardless of fluctuations in resource availability. Other buffering technique may be training
programs for new members to familiarize them with the norms and behaviours of the organization. On the output side, organizations may choose
to “dump” their good or services in markets to prevent the stoppage of activities in production. “Dumping” means selling a good or service at
price below production costs.

 Smoothing

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Organizations that confront fluctuations in the demand for their good or service can cope by adjusting their operations to anticipated change in
demand. Whereas buffering absorbs environmental fluctuations, smoothing or leveling, involves attempts to reduce fluctuations in the
environment. e.g. offering reduced rates for hotel occupancy during off season.

 Rationing
Represents management’s effort to minimize environmental uncertainty by controlling excess demand. Management can resort to rationing its
products or service - i.e. to allocate them on some priority basis, if demand exceeds supply.

Environmental Scanning

We have reviewed the main types of marketing environments; nonetheless, it is also important to know how to analyze all these types
of environments in a systematic manner. In the following section we will see an algorithm and several principles for scanning a
marketing environment. The algorithm of the marketing environment scanning is shown in Illustration 1.

Illustration 1: The algorithm of the environmental scanning

Step 1: Identify potentially relevant environmental changes

The process of identifying potentially relevant changes can be organized in various ways:

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  One of the basic approaches to it is to begin with significant macroenvironmental changes in society and then to assess their potential
future relevance to the organization. This is the “external to internal” (EX ® IN) approach
 The second and more common approach starts with internal parameters of the company and its possible environmental influence. Here,
marketers are trying to analyze real or possible environmental changes that can influence upon these parameters. This is the “internal to
external (IN ® EX) approach”
 Advanced companies use the extensive approach for identifying change forces; it is called the Systematic Procedure for Identifying the
Relevant Environment, or SPIRE. This approach centers on a matrix with likely external changes on one axis and possible strategic
decisions on the other axis. The cells of this matrix are studied, screened, and clustered

Step 2: Monitor change

Once potentially relevant changes have been identified, an organization must decide how to monitor them; this is done by learning more about the
changes’ nature and direction rather than by learning more about their current rate of the change.

Valuable information for monitoring is readily available from government and trade sources, business and non-business magazines. Some
corporations have their own information monitoring systems for analyzing and predicting changes. Most environmental information, however, is
gathered from the aforementioned, readily available data sources. Effective monitoring provides a good basis for forecasting.

Step 3: Forecast impact, timing, and consequences

Any forecast relies on seeking past and present relationships that help predict the future. The process of forecasting includes one or more of the
following:

 Projecting historical trends

 Forecasting the future from related current events
 Basing forecasts on variables that are thought to cause future events

The relative complexity of forecasting varies by environmental sector. Environmental forecasting for social, political, and technological
environments is intuitive and judgmental. The level of complexity depends on the degree to which the processes of change are understood.

The methods of forecasting can be divided to two groups:

 Extrapolation methods: Use of past information to predict the future; the assumption that past trends will continue in the future
 Subjective/ judgmental methods: Use of expert opinion for predicting the future

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Typically used methods for estimation of timing of environmental changes and the likelihood of their impact are considered below:

 Individual judgments: “Best guess” of experts

 The Delphi method: The independent questioning of a panel of experts concerning some future event or trend without group discussion
 Trends extrapolation: Projects historical trends on the assumption that the factors causing change in the future will be similar to those that
caused them in the past
 Cross-impact matrices: Forecasts derived by different methods may be combined in tables to ensure consistency
 Scenarios: Verbal picture of the future. Multiple scenarios are usually developed. Alternative strategic directions are evaluated in terms of
each scenario
 Modeling: Trends are specified in equation form

Step 4: Develop strategic responses

Important environmental changes have been identified and monitored, and their future states have been forecasted. At this point, the marketing
management should be ready to cope with these changes. Marketing managers must decide what to do in the new environmental situation.
Strategic marketing decisions rely on two related assumptions:

 The objective is to effectively match changing markets with a company’s strengths (its special resources)
 The firm’s strengths and resources are difficult to change in the short term
 There are usually only defined periods during which a “strategic window” exists for a given company. The “strategic window” is a period of
time in which a company can react to the environmental change. Out of the “strategic window,” it is too late (or too early) to react

Several guidelines may be used to help organizations cope with changes:

 Focus on probabilities, consequences, and timing: Potentially disastrous consequences must receive attention even though their
probability is low. Highly probable events should be considered even if their consequences are weak
 Stay flexible: If a particular strategy, for example, is appropriate within two future scenarios rather then one, it is the more appropriate
strategy
 Develop counterforce: Sometimes it is easier to change the environment rather than adapt to it.

Tools for Analyzing the Marketing Environment

The external environment can be audited in more detail using SWOT Analysis, Michael Porter's Five Forces Analysis or PEST Analysis.
 PEST Analysis. What is PEST Analysis?

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 It is very important that an organization considers its environment before beginning the marketing process. In fact,
environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up
of:
1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These
are known as PEST factors.

Political Factors.
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other
businesses. You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
Economic Factors.
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for
international marketing. You need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.
Sociocultural Factors.

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 The social and cultural influences on business vary from country to country. It is very important that such factors are considered.
Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
Technological Factors.
Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:
1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new
generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management
(CRM), etc?
 Five Forces Analysis
Analyzing the environment - Five Forces Analysis

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 Five Forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for
environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business
Unit) rather than a single product or range of products. For example, Dell would analyse the market for Business Computers i.e.
one of its SBUs.
Five forces analsysis looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of
substitutes, and competitive rivalry.
The threat of entry.
 Economies of scale e.g. the benefits associated with bulk purchasing.
 The high or low cost of entry e.g. how much will it cost for the latest technology?
 Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up?
 Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own
or learning curve effects.

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 Will competitors retaliate?
 Government action e.g. will new laws be introduced that will weaken our competitive position?
 How important is differentiation? e.g. The Champagne brand cannot be copied. This desensitises the influence of the
environment.

The power of buyers.

 This is high where there a few, large players in a market e.g. the large grocery chains.
 If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery
chains.
 The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another.

The power of suppliers.

The power of suppliers tends to be a reversal of the power of buyers.
 Where the switching costs are high e.g. Switching from one software supplier to another.
 Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.
 There is a possibility of the supplier integrating forward e.g. Brewers buying bars.
 Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places.

The threat of substitutes

 Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste
reduces the need for dentists.
 Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel
companies.
 We could always do without e.g. cigarettes.

Competitive Rivalry

This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and
buyers in the market attempt to control. This is why it is always seen in the center of the diagram.

SWOT Analysis
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats

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SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.

SWOT analysis is a tool for auditing an organization and its marketing environment. It is the first stage of planning
and help marketers to focus on key issues

Why use the tool?

SWOT Analysis is a very effective way of identifying your Strengths and Weaknesses, and of examining the Opportunities and Threats
you face. Carrying out an analysis using the SWOT framework will help you to focus your activities into areas where you are strong,
and where the greatest opportunities lie.

How to use tool:

To carry out a SWOT Analysis writes down answers to the following questions. Where appropriate, use similar questions:

Strengths:

* What are your advantages?

* What do you do well?

* What do other people see as your strengths?

Weaknesses:

* What could you improve?

* What do you do badly?

* What should you avoid?

Opportunities:

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* Where are the good opportunities facing you?

* What are the interesting trends you are aware of?

Useful opportunities can come from such things as:

* Changes in technology and markets on both a broad and narrow scale

* Changes in government policy related to your field

* Changes in social patterns, population profiles, lifestyle changes, etc.

* Local Events

Threats:

* What obstacles do you face?

* What is your competition doing?

* Are the required specifications for your job, products or services changing?

* Is changing technology threatening your position?

* Do you have bad debt or cash-flow problems?

Example:

A start-up small consultancy business might carry out the following SWOT analysis:

Strengths:

* We are able to respond very quickly as we have no red tape, no need for higher management approval, etc.

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* We are able to give really good customer care, as the current small amount of work means we have plenty of time to devote to
customers

* Our lead consultant has strong reputation within the market

* We can change direction quickly if we find that our marketing is not working

* We have small overheads, so can offer good value to customers

Weaknesses:

* Our company has no market presence or reputation

* We have a small staff with a shallow skills base in many areas

* We are vulnerable to vital staff being sick, leaving, etc.

* Our cash flow will be unreliable in the early stages

Opportunities:

* Our business sector is expanding, with many future opportunities for success

* Our local council wants to encourage local businesses with work where possible

* Our competitors may be slow to adopt new technologies

Threats:

* Will developments in technology change this market beyond our ability to adapt?

* A small change in focus of a large competitor might wipe out any market position we achieve.

The consultancy might therefore decide to specialize in rapid response, good value services to local businesses.

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Marketing would be in selected local publications, to get the greatest possible market presence for a set advertising budget.

The consultancy should keep up-to-date with changes in technology where possible.

SWOT ANALYSIS:

Helpful and Internal(Strengths)

• Existing resources that can be used

• Experts in certain fields

• Creative capabilities to create innovative solutions

• Experience in similar projects

• Alignment with long-term strategy

• Clearly identified problem, solutions, and stakeholders

Harmful and Internal(Weaknesses)

• Lack of resources (short-term or long-term)

• No previous experience in the area

• Not well-aligned with the long-term strategy

• Lack of stakeholders (who are interested and responsible)

• Competing with similar in-house project

• Association with failed previous projects

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Helpful and External(Opportunities)

• Differentiating factor with competitors

• General move of the markets in this direction

• Easy integration with related products/solutions

• Regarded as must have on high-level check lists

Harmful and External (Threats)

• Market changes (economic valuation)

• Copyright and licensing issues

• Dependencies on other services/companies

• Technological changes

• Changes in the landscape (devices, customers, players)

SWOT Problems

• No focus on long-term strategic goals

• Little focus on ROI (life after reaching the objective)

• Comparing SWOT analyses can be hard (no metrics)

SWOT Essentials

• SWOT always needs a well-defined objective

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• SWOT analyses are highly subjective

• Structuring tools can be used as personal tools

• SWOT analysis is a framework for analyzing your strengths and weaknesses, and the opportunities and threats you face.

• This will help you to focus on your strengths, minimize weaknesses, and take the greatest possible advantage of opportunities
available.

3. ANALYZING MARKET OPPORTUNITIES

3.1 Marketing Research and Information Systems

3.1.1 What is Marketing Information?

"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 (customer) and organizational objectives". The concept of marketing as a business
philosophy defines marketing as a process that is intended to find, satisfy and retain customers while business makes a profit. But
central to all these definitions is the role of the customer and his relationship to the product (i.e. whether he considers the product or
service to meet a need or want).

Therefore, market research is imperative for a company to know what type of products or services would be profitable to introduce in
the market. Also with respect to its existing products in the market, good market research enables a company to know if it has been
able to satisfy customer needs and whether any changes need to be made in the packaging, delivery or the product itself. This enables
a company to formulate a viable marketing plan or measure the success of its existing plan.

The fact is that you can't have a successful company without having the right data about customers, products and the market in
general. Market research is an essential management tool for a viable business plan enabling any company to survive and thrive in
today's fiercely competitive market conditions.

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3.1.2 The Importance of Marketing Information
Companies need information about their:
Customer needs,

Marketing environment,

Competition.

Marketing managers don’t need more information, they need better information.

Ideally, a marketing information system is valuable for the information tools it provides about:

The marketing environment

Information on each aspect of the environment is crucial to effective market planning. Information gathering can be serendipitous or planned.
While not all environmental information needs can be identified in advance, it is possible to approach research and information systems planning
with an eye to setting up ways of collecting information in an on-going fashion.

Customer needs and wants

If environmental forces cause the company to seek information in a larger context, customer needs and wants focus the attention on the target
market. Without information, identifying need and wants is guesswork.

Through your marketing research, you will learn if there is a market for your product. If there is no one to buy your product
then you will not make any sales. With marketing research, you will discover if there is a need for your product and if there is
anyone willing to pay for it.

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Competitors

Innovative organizations not only identify competitive actions and offerings, they also consume competitors' products -- in small quantities, of
course. For example, to understand the value of a competitor's automobile, it makes sense to drive it for awhile as a customer would and evaluate
it in that fashion.

Supply and demand controls the economy and your business will not be immune from its power. If there is too much supply for
your product and not enough demand, you may have chosen the wrong product. The importance of marketing analysis is
helping you find a product that has a healthy balance of supply and demand.

Dominate your Market

the importance of marketing analysis will also help you strategize your product and marketing to dominate your market. By
figuring out what is missing in the marketplace in regards to your product, you may realize a superior product that will
dominate the market and wipe out your competition.

Strategic decision making

What should we do next? Problem solving depends upon accurate and timely information most of all.

It starts with perception. From the ends of our hair blowing in the wind to the soles of our feet feeling their way over shaky ground, we survive as
an organism because we accurately record the sounds, sights, smells, tastes, and textures of our environment. We work those perceptions into
our systems: neural, digestive, pulmonary, and the others.

To thrive as an organism, we have to work those perceptions into more abstract and complex behavioral systems: problem-solving and decision
making.

To thrive as a species, we have to share. Sometimes, we're good at sharing for mutual benefit.

To thrive as a marketer, you have to answer some basic, practical questions:

 What works?
 How well is it working?

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 How do you know?

To answer those questions well, you need good information. To get it, you're going to have to share, and sometimes, we're not good at sharing for
mutual benefit.

Information and Decision Making

• The Decision Maker’s Black Box

– Objectives

– Criteria or Decision Rules

– Number of Alternatives

– Analysis of Alternatives

– Selected Alternative

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 The Decision-Making Process
Decision Maker

Criteria and
Objectives decision
rules
Input Output
Selected
(information) (decision)
alternative
Number of
alternative Analysis of
decisions alternatives

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 Sources of Marketing Information
Formal Sources Informal Sources
Customers
MIS
MIS Suppliers
Subordinates
Secondary Sources

Primary Sources

Consultants
Marketing
Marketing Books and periodicals
Manager
Manager
Marketing
Marketing Sales Force
Research
Research Superiors
The grapevine

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3.1.3 Marketing Information System
A marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed,
timely, and accurate information to marketing decision makers.

Marketing information system (MIS) is intended to bring together disparate items of data into a coherent body of information. An MIS
is, as will shortly be seen, more than raw data or information suitable for the purposes of decision making. An MIS also provides
methods for interpreting the information the MIS provides. Moreover, as Kotler's1 definition says, an MIS is more than a system of
data collection or a set of information technologies:

A marketing information system is a continuing and interacting structure of people, equipment and procedures to gather, sort,
analyse, evaluate, and distribute pertinent, timely and accurate information for use by marketing decision makers to improve their
marketing planning, implementation, and control.

Figure 2.1 illustrates the major components of an MIS, the environmental factors monitored by the system and the types of marketing
decision which the MIS seeks to underpin.

Figure 2.1 The marketing information systems and its subsystems

The explanation of this model of an MIS begins with a description of each of its four main constituent parts: the internal reporting
systems, marketing research system, marketing intelligence system and marketing models. It is suggested that whilst the MIS varies
in its degree of sophistication - with many in the industrialised countries being computerised and few in the developing countries

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being so - a fully fledged MIS should have these components, the methods (and technologies) of collection, storing, retrieving and
processing data notwithstanding.

Internal reporting systems: All enterprises which have been in operation for any period of time nave a wealth of information.
However, this information often remains under-utilised because it is compartmentalised, either in the form of an individual
entrepreneur or in the functional departments of larger businesses. That is, information is usually categorised according to its nature
so that there are, for example, financial, production, manpower, marketing, stockholding and logistical data. Often the entrepreneur,
or various personnel working in the functional departments holding these pieces of data, do not see how it could help decision
makers in other functional areas. Similarly, decision makers can fail to appreciate how information from other functional areas might
help them and therefore do not request it.

The internal records that are of immediate value to marketing decisions are: orders received, stockholdings and sales invoices.
These are but a few of the internal records that can be used by marketing managers, but even this small set of records is capable of
generating a great deal of information. Below, is a list of some of the information that can be derived from sales invoices.

 Product type, size and pack type by territory

 Product type, size and pack type by type of account
 Product type, size and pack type by industry
 Product type, size and pack type by customer
 Average value and/or volume of sale by territory
 Average value and/or volume of sale by type of account
 Average value and/or volume of sale by industry
 Average value and/or volume of sale by sales person

By comparing orders received with invoices an enterprise can establish the extent to which it is providing an acceptable level of
customer service. In the same way, comparing stockholding records with orders received helps an enterprise ascertain whether its
stocks are in line with current demand patterns.

Marketing research systems: The general topic of marketing research has been the prime ' subject of the textbook and only a little
more needs to be added here. Marketing research is a proactive search for information. That is, the enterprise which commissions
these studies does so to solve a perceived marketing problem. In many cases, data is collected in a purposeful way to address a
well-defined problem (or a problem which can be defined and solved within the course of the study). The other form of marketing
research centres not around a specific marketing problem but is an attempt to continuously monitor the marketing environment.

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These monitoring or tracking exercises are continuous marketing research studies, often involving panels of farmers, consumers or
distributors from which the same data is collected at regular intervals. Whilst the ad hoc study and continuous marketing research
differs in the orientation, yet they are both proactive.

Marketing intelligence systems: Whereas marketing research is focused, market intelligence is not. A marketing intelligence
system is a set of procedures and data sources used by marketing managers to sift information from the environment that they can
use in their decision making. This scanning of the economic and business environment can be undertaken in a variety of ways,
including:

Unfocused The manager, by virtue of what he/she reads, hears and watches exposes him/herself to information that may prove useful. Whilst
scanning the behaviour is unfocused and the manager has no specific purpose in mind, it is not unintentional

Semi-focused Again, the manager is not in search of particular pieces of information that he/she is actively searching but does narrow the range
scanning of media that is scanned. For instance, the manager may focus more on economic and business publications, broadcasts etc. and
pay less attention to political, scientific or technological media.

Informal This describes the situation where a fairly limited and unstructured attempt is made to obtain information for a specific purpose. For
search example, the marketing manager of a firm considering entering the business of importing frozen fish from a neighbouring country
may make informal inquiries as to prices and demand levels of frozen and fresh fish. There would be little structure to this search
with the manager making inquiries with traders he/she happens to encounter as well as with other ad hoc contacts in ministries,
international aid agencies, with trade associations, importers/exporters etc.

Formal search This is a purposeful search after information in some systematic way. The information will be required to address a specific issue.
Whilst this sort of activity may seem to share the characteristics of marketing research it is carried out by the manager him/herself
rather than a professional researcher. Moreover, the scope of the search is likely to be narrow in scope and far less intensive than
marketing research

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Marketing intelligence is the province of entrepreneurs and senior managers within an agribusiness. It involves them in scanning
newspaper trade magazines, business journals and reports, economic forecasts and other media. In addition it involves management
in talking to producers, suppliers and customers, as well as to competitors. Nonetheless, it is a largely informal process of observing
and conversing.

Some enterprises will approach marketing intelligence gathering in a more deliberate fashion and will train its sales force, after-sales
personnel and district/area managers to take cognisance of competitors' actions, customer complaints and requests and distributor
problems. Enterprises with vision will also encourage intermediaries, such as collectors, retailers, traders and other middlemen to be
proactive in conveying market intelligence back to them.

Marketing models: Within the MIS there has to be the means of interpreting information in order to give direction to decision. These
models may be computerised or may not. Typical tools are:

 Time series sales modes

 Brand switching models
 Linear programming
 Elasticity models (price, incomes, demand, supply, etc.)
 Regression and correlation models
 Analysis of Variance (ANOVA) models
 Sensitivity analysis
 Discounted cash flow
 Spreadsheet 'what if models

These and similar mathematical, statistical, econometric and financial models are the analytical subsystem of the MIS. A relatively
modest investment in a desktop computer is enough to allow an enterprise to automate the analysis of its data. Some of the models
used are stochastic, i.e. those containing a probabilistic element whereas others are deterministic models where chance plays no part.
Brand switching models are stochastic since these express brand choices in probabilities whereas linear programming is deterministic
in that the relationships between variables are expressed in exact mathematical terms.

The MIS helps managers to:

1. Assess Information Needs,

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 2. Develop Needed Information,

3. Distribute Information.

A marketing intelligence system is a set of procedures and sources used by managers to obtain everyday information about developments in the
marketing environment.

Developing Information

 Internal data- Electronic Collections of Information from Data Sources (i.e. accounting) Within the Company
 Marketing intelligence- Publicly Available Information about Competitors and the Marketing Environment (i.e. Technological)

 Marketing research- Design, Collection, Analysis, and Reporting of Data about a Specific Marketing Situation

Internal data is gathered via customer databases, financial records, and operations reports.

 Advantages of internal data include quick/easy access to information.

 Disadvantages stem from the incompleteness or inappropriateness of data to a particular situation.

Marketing intelligence is the systematic collection and analysis of publicly available information about competitors and trends in the
marketing environment.

A marketing intelligence system is a set of procedures and sources used by managers to obtain everyday information about
developments in the marketing environment.

A marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute
needed, timely, and accurate information to marketing decision makers.

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 Functions of a MIS:
Assessing Information Needs
Conduct Interviews with Managers to Determine
What Information is
Desired, Needed, and Feasible to Obtain.

Monitor
MonitorEnvironment
Environmentfor
for Examine
ExamineCost/
Cost/Benefit
Benefitof
of
Information Managers
Information Managers Desired
Desired
Should
ShouldHave
Have Information
Information

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 Functions of a MIS:
Developing Information
Obtains Needed Information for Marketing
Managers From the Following Sources:
Internal
InternalData
Data
Collection of Information from Data Sources within the Company
Collection of Information from Data Sources within the Company
From:
From:Accounting,
Accounting,Sales
SalesForce,
Force,Marketing,
Marketing,Manufacturing
Manufacturing
Marketing
MarketingIntelligence
Intelligence
Collection and Analysis of Publicly Available Information about
Collection and Analysis of Publicly Available Information about
Competitors and Developments in the Marketing Environment
Competitors and Developments in the Marketing Environment

From:
From:Employees,
Employees,Suppliers,
Suppliers,Customers,
Customers,
Competitors, Marketing Research
Marketing
Competitors, Marketing Companies
Research
Research Companies
Systematic Design, Collection, Analysis, and Reporting of Data
Relevant to a Specific Marketing Situation Facing an Organization

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 Functions
Functions ofof aa MIS:
MIS:
Distributing
Distributing Information
Information

Information Must be Distributed

to the Right Managers at the Right Time.

Distributes
DistributesRoutine
Routine Distributes
DistributesNonroutine
Nonroutine
Information
Information forRegular
for Regular Information
Information forSpecial
for Special
Decision Making
Decision Making Situations
Situations

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3.1.4 Meaning of Marketing Research
WHAT IS RESEARCH?

Marketing research is a Systematic Design, Collection, Analysis, and Reporting of Data Relevant to a Specific Marketing Situation
Facing an Organization.
Market research and marketing research are often confused. 'Market' research is simply research into a specific
market. It is a very narrow concept. 'Marketing' research is much broader. It not only includes 'market' research, but also areas such
as research into new products, or modes of distribution such as via the Internet. Here are a couple of definitions:
"Marketing research is the function that links the consumer, customer, and public to the marketer through information - information
used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor
marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information
required to address these issues, designs the methods for collecting information, manages and implements the data collection
process, analyzes, and communicates the findings and their implications."
American Marketing association - Official Definition of Marketing Research
Obviously, this is a very long and involved definition of marketing research.
"Marketing research is about researching the whole of a company's marketing process."Palmer (2000).
This explanation is far more straightforward i.e. marketing research into the elements of the marketing mix, competitors, markets,
and everything to do with the customers
Marketing is a restless, changing, and dynamic business activity. The role of marketing itself has changed dramatically due to various
crises—material and energy shortages, inflation, economic recessions, high unemployment, dying industries, dying companies,
terrorism and war, and effects due to rapid technological changes in certain industries. Such changes, including the Internet, have
forced today’s marketing executive to becoming more market driven in their strategic decision-making, requiring a formalized means
of acquiring accurate and timely information about customers, products and the marketplace and the overall environment. The means
to help them do this is marketing research.
Research is a systematic and objective investigation of a subject or problem in order to discover relevant information or principles. It can be considered to be
either primarily fundamental or applied in nature.
Fundamental research, frequently called basic or pure research, seeks to extend the boundaries of knowledge in a given area with no necessary immediate
application to existing problems, for example, the development of a research method that would be able to predict what people will be like x years in the future.
In contrast, applied research, also known as decisional research, attempts to use existing knowledge to aid in the solution of some given problem or set of
problems.
Marketing research assists in the overall management of the marketing function. A marketing manager must prioritize the more important and pressing problems
selected for solution, reach the best possible solution based on the information available, implement the solution, modify the solution when additional
information so dictates, and establish policy to act as a ready-made solution for any recurrence of the problem.

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Market research can be defined as a formal organized effort to acquire specific information for a specific purpose. According to
Warren J. Reagan “Global Marketing Practise Hall 1995“.

Marketing research often focuses on understanding the “Customer” (purchasers, consumers, influencers), the “Company” (product design, promotion, pricing,
placement, service, sales), and can also be expanded toward the environment to include “Competitors” (and how their market offerings interact in the market
environment).
Within this “Company-Customer-Competition” environment, many types of marketing research can be conducted, much of which is focused on using surveys for

• Monitoring customers and markets

• Measuring awareness, attitudes, and image

• Tracking product usage behavior

• Diagnosing immediate business problems

• Supporting strategy development
• Marketing Research, a critical part of Marketing Intelligence helps by providing accurate, relevant and timely (ART) information.
Marketing research is the “function which links the consumer, customer, and public to the marketer
through information--information used to identify and define marketing opportunities and problems;
generate, refine and evaluate marketing actions; monitor marketing performance; and improve
understanding of marketing as a process.”

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 What Information?

Situation Understand the environment and the market

Analysis Identify threats and opportunities
Assess the competitive position

Strategy Define the business scope and served market

Development segments
Establish competitive advantages
Set performance objectives.
Marketing Product and channel decision
Program Communication decisions
Development Pricing
Personal selling decisions

Implementation Performance monitoring

Refining strategies and program

Decision Problems and Research Problems

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Decision Problems Research Problems
Develop package for a new product Evaluate effectiveness of
alternative
package designs
Increase market penetration through
Evaluate prospective locations
opening new stores
Measure current image of the
Increase store traffic store
Increase amount of repeat purchasing Assess current amount of repeat
behavior purchasing behavior
Assess current and potential
Develop more equitable sales territories territories based on potential and
workload.
Allocate advertising budget geographically Determine current level of market
Penetration in the respective
areas
Introduce new product Design a test market to assess
likelihood of acceptance
Expand into other countries Assess market potential for firm’s
products
Select international distribution channels Evaluate channel structures and
Decide which merchandise will be made members
available for purchase over the Determine consumers’ confidence
internet in purchasing, unseen, categories
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 Questions That Need Addressing at the Various
Stages of the Research Process
Stage in the Process Typical Questions

Formulate problem What is the purpose of the study--to solve a problem? Identify an
opportunity? Is additional background information necessary? What
information is needed to make the decision? How will the information be
utilized? Should research be conducted?

Determine research design How much is already known? Can a hypothesis be formulated? What
types of questions need to be answered? What type of study will best
address the research questions?

Can existing data be used to advantage? What is to be measured? How?

What is the source of the data? Can objective answers be obtained by
asking people? How should people be questioned? Should the
Determine data collection questionnaires be administered in person, over the phone, or through the
method and forms mail? Should electronic or mechanical means be used to make the
observations? What specific behaviors should the observers record?
Should structure or unstructured items be used to collect the data? Should
the purpose of the study be made known to the respondents? Should rating
scales be used in the questionnaire?

Source: Churchill and Iacobucci 2005

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 Questions That Need Addressing at the Various
Stages of the Research Process
Stage in the Process Typical Questions

Design sample and collect the Who is the target population? Is a list of population elements available?
data Is a sample necessary? Is a probability sample desirable? How large
should the sample be? How should the sample be selected? Who will
gather the data? How long will the data gathering take? How much
supervision is needed? What operational procedures will be followed?
What methods will be used to ensure the quality of the data collected?

Analyze and interpret the Who will handle the editing of the data? How will the data be coded?
data Who will supervise the coding? Will computer or hand tabulation be
utilized? What tabulations are called for? What analysis techniques
will be used?

Prepare the research report Who will read the report? What is their technical level of
sophistication? Are managerial recommendations called for? What will
be the format of the written report? Is an oral report necessary? How
should the oral report be structured?

Source: Churchill and Iacobucci 2005

The Importance of Research and Decision-Making

The importance of research may vary according to kind, especially whether basic or applied.

Basic Research
Basic research is designed to advance knowledge with no application to existing problems in view. The audience for basic research consists almost
exclusively of other scholars or researchers interested in learning more about a phenomena.
Applied Research

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 Applied research is designed to help solve particular, existing problems so there is a much larger audience eager to support research that is likely to be
profitable or solve problems of immediate concern.
Quite a bit of applied research is survey research or marketing research. This is the art and science of systematically asking questions and observing
behavior to obtain information from a population of interest. Although we may envy natural scientists the simplicity of their study of objects or
properties, behavioral scientists can observe and ask questions. Survey research hopes to gather evidence which will eventually allow behavior to be
predicted and controlled.
Decisions
Decisions are made by managers every day. Ideally, such decisions would be made on the basis of evidence thoughtfully and appropriately gathered.
The more important the decisions and their impact, the more important the research becomes. Some decisions may have consequences resulting in
considerable harm to a large number of people.
Consider how we make decisions:
 Randomly
 Intuition [sometimes called gut decision-making]
 Mystical or supernatural guidance
 Hearsay
 Authority [do as we are told or appeal to authority]
 Evidence gathered by another
 Evidence gathered by self or colleagues
If you use evidence gathered by others, especially those at some distance from your shop, research
methods experience and knowledge is useful because it gives you rules or guidelines helpful in
evaluating the quality and utility of evidence gathered by another. Often, managers and supervisors are
eager to use invalid and unreliable evidence simply because it is easily available.

In some cases, managers want evidence that supports an existing opinion or preference. In other cases,
they want evidence with unambiguous findings and conclusions [which is rarely found]. Managers can
be impatient with the limitations and qualifications of well-done research.

Evidence gathered by yourself or as part of a local group may be the best solution IF no other
appropriate evidence is available. This will be expensive in time and effort and requires some research
knowledge and experience. IT will take some time and effort to gather evidence and the results may
not be what is needed.

Decisions and Evidence Now

In most cases, managers want the evidence NOW and that creates a variety of problems. Decision-
makers must always face the issue of deciding now or waiting until more or better information is
available. This is called the problem of sufficiency. There may never be enough evidence to support a

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 difficult decision.
The manager lives in three time dimensions:

 The past -- accurate sense of what was accomplished and what was not
 The present -- accurate sense of what is being accomplished
 The future -- what should be accomplished
Research may be used to provide evidence on the first two which supports decisions that will have an
impact in the future.

Consider the risks or consequences of making an important decision with inadequate evidence. How
much information is enough? How much information can you afford. It certainly is not true that more
evidence or information is always better. "Information obesity" can be a research problem just as it is a
problem in everyday life. Research is cost-incurring, but also value-producing so that cost and value
must be balanced. Research is of little value if you do not know what evidence is needed or how to get
it. You need the "right" evidence and that requires skill, thought, and experience.

3.1.5 Objectives of Marketing Research

Marketing research is used to identify and define marketing opportunities and problems:

 Generate, refine and evaluate marketing actions

 Monitor marketing performance.

 Improve understanding of marketing.

Marketing Research enables to answer such questions as:

a) What are our weak/strong products, divisions, attitudes etc?

b) Are there gaps/opportunities we can go for?

c) Are there dangers/threats we need protection from?

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 d) Are we strong in the right way to exploit the opportunity where one exists?

Market research helps the marketer to anticipate or respond to customer needs. It helps them to know about their current and
prospective customer and helps them to know about the success of their own practices.

Types of surveys that are of use to marketing researchers include:

1 - Market Description Surveys To determine the size and relative market share of the market. Such studies provide key information about market growth,
competitive positioning and tracking share of market.
2 - Market Profiling-Segmentation Surveys To identify who the customers are, who they are not, and why they are or are not your customers. This is often a
descriptive market segmentation and market share analysis
3 - Stage in the Purchase Process / Tracking Surveys Where is the customer in the adoption process? This information shows market Awareness – Knowledge
– Intention – Trial – Purchase – Repurchase of the product.
4 - Customer Intention - Purchase Analysis Surveys Directed at understanding the current customer. What motivates the customer to move from interest in the
product to actual purchase? This is key to understanding customer conversion, commitment and loyalty.
5 - Customer Attitudes and Expectations Surveys Does the product meet customer expectations? What attitudes have customers formed about the product
and/or company. Used to direct advertising and improve customer conversion, commitment and loyalty.
6 - Customer Trust - Loyalty – Retention Analysis Surveys Especially for high priced consumer goods with long decision and purchase processes (time from
need recognition to purchase), and depth of consumer attitudes formed about the product and/or company.
7 - New Product Concept Analysis Surveys Concept test studies are appropriate in the initial screening of new product concepts. Likes and dislikes about the
concept and evaluation of acceptability and likelihood of purchase are especially useful measures.
8 - New Product Acceptance and Demand Surveys (Conjoint Analysis) Primarily for estimating demand for new products that can be described or have been
developed in drawing or concept, but have not yet been developed physically. Develops develop market share estimates of market potential for the alternative
potential products.
9 - Habits and Uses Surveys Directed at understanding usage situations, including how, when and where the product is used. Habits and uses studies sometimes
include a real or virtual pantry audit.
10 - Product Fulfillment Surveys (Attribute, Features, Promised Benefits) Evaluation of the product’s promised bundle of benefits (both tangible and image).
Are expectations created for the product by advertising, packaging and the produce appearance fulfilled by the product?
11 - Product Positioning Surveys (Competitive Market Position) A “Best Practices” study of “How does the market view us relative to the competition?”
Competitive positioning analyses often compare the attributes and benefits that make up the product using multidimensional preference and scaling analysis.
12 - Brand Equity Analysis Surveys What is psychological value that a brand holds in the market place? Brand equity is a composite of brand awareness, brand
quality, brand associations and brand loyalty measures.
13 - Advertising Value Identification and Analysis Surveys Advertising value analysis focuses on mapping the hierarchical attributes, benefits and values that
are associated with and portrayed by an advertisement. Means-end analysis is often part of this type of study.
14 - Advertising Message Effectiveness Surveys (Media and Message) Message effectiveness testing identifies the impressions, feelings, and effectiveness in
moving the respondent to a desired goal (increased awareness, more product information, trial, repeat purchase).

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15 - Sales Force Effectiveness Surveys A combination of measures that focus on the sales activities, performance and effectiveness in producing the desired and
measurable effect or goal. Often measured as a 360 degree survey completed by the sales person, the client (evaluating the sales call) and the supervisor
responsible for evaluating the sales person.
16 - Sales Lead Generation Surveys Sales lead generation surveys for (1) assuring timely use and follow-up of sales leads, (2) qualifying sales leads (thereby
saving valuable sales force time) and (3) providing more effective tracking of sales leads.
17 - Customer Service Surveys Akin to customer satisfaction surveys, but focus in detail on the actual customer service that was received, the process involved
in receiving that service and the evaluation of the participants in the service process.
18 - Customer Service Representative (CSR) Surveys: Attitudes, Burnout, Turnover and Retention: Customer Service Representatives hold attitudes that
may reflect on their job related activities and interfaces including (1) the allocation of time; (2) solutions to solving customer needs; (3) information or tools to
help improve their job; (4) information and best practices; (5) the evaluation of internal departments that help customers.
Customer Service Representatives must conform to corporate policies and at the same time deal with problems that are sometimes unsolvable. CSR often exhibit
frustration, burnout and high turnover. Surveys focus on retention analysis and reducing costs and increasing the quality of customer relationships.
19 - Sales Forecasting and Market Tracking Surveys Sales forecasting and market tracking studies can take a number of forms and
methodologies, including expert opinion (experts estimate the market), judgmental bootstrapping (rule based decisions derived from
experts that describe how to use available secondary market information), conjoint analysis (estimation of consumer intentions based
on product attributes that are important in the decision), and intentions evaluations (consumer self reported intentions of future
purchases) are to be made.
20 - Price Setting Surveys and Elasticity of Demand Analysis Price surveys estimate the elasticity of demand and show optimal
price points, including prices too low or too high. Price surveys may estimate the demand for different product or service segments, or
different usage situations.

3.1.6 THE RESEARCH PROCESS

We have distinguished between basic and decisional (applied) research. This distinction is important because information is gathered and used differently.
Decisional research gathers information for a pending decision; basic research gathers information to increase the level of knowledge in a given area. No matter
what type of research is conducted, there are essentially four broad determinants of how a research project should be conducted: the nature of the problem, the
researcher, the survey respondent or experimental subject, and the client
Marketing research is gathered using a systematic approach. An example of one follows:
1. Define the problem. Never conduct research for things that you would 'like' to know. Make sure that you really 'need' to know
something. The problem then becomes the focus of the research. For example, why are sales falling in New Zealand?
2. How will you collect the data that you will analyze to solve your problem? Do we conduct a telephone survey, or do we arrange a
focus group? The methods of data collection will be discussed in more detail later.
3. Select a sampling method. Do we us a random sample, stratified sample, or cluster sample?
4. How will we analyze any data collected? What software will we use? What degree of

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accuracy is required?
5. Decide upon a budget and a timeframe.
6. Go back and speak to the managers or clients requesting the research. Make sure that you agree on the problem! If you gain
approval, then move on to step seven.
7. Go ahead and collect the data.
8. Conduct the analysis of the data.
9. Check for errors. It is not uncommon to find errors in sampling, data collection method, or analytic mistakes.
10. Write your final report. This will contain charts, tables, and diagrams that will communicate the results of the research, and
hopefully lead to a solution to your problem. Watch out for errors in interpretation.

How is marketing research actually conducted? What are the general steps in completing a research project? These questions are answered in the steps of the
research process. While the steps are shown as a linear process, some of the steps may be performed simultaneously, such as selecting data collection techniques
and sample design. There are other times when “later” decisions influence decisions that are made early in the research planning process. For example, desired
analysis techniques often influence the selection of data collection techniques (e.g., measurement) and sample design.
Each step in this research process will now be introduced.

STAGE 1: PROBLEM FORMULATION

In a very real sense, problem formulation is the heart of the research process. As such, it represents the single most important step to be performed. From the
researcher’s point of view, problem formulation means translating the management problem into a research problem.
As previously discussed, in order to formulate an appropriate research problem, the researcher must understand the origin and nature of management’s problem
and then be able to rephrase it into meaningful terms from an analytical point of view. This involves timely and clear communication between manager and
researcher.
The end result of problem formulation is a statement of the management problem that is analytically meaningful and that often points
the way to alternative solutions. An accurate problem formulation specifies the types of information needed to help solve the

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management problem. In short, quality thinking about a problem prior to data collection largely determines the quality of data
collection, analysis and problem solving.
Examples of Management Problems and Related Research Problems
Management Problems Research Problems
Allocate advertising budget among media Estimate awareness generated by each media type
Decide whether to keep office open Evaluate use of services on Saturday and determine on Saturday whether customers will shift
usage to weekdays
Introduce a new health service Design a concept test and assess acceptance and use
Change the marketing program Design a test-marketing situation such that the effect of the new program can be estimated
Increase the sales of a product Measure a product’s current image

Closely related to problem formulation is the development of a working hypothesis, or an assertion about a state of nature. While hypotheses are crucial for basic
research because they tell the researcher what to do, the concept of a hypothesis can also be useful in decisional research to direct the development of the
research problem statement. In most cases, the marketing researcher will not explicitly state hypotheses for the research. Kerlinger and Lee (2000, Chapter 2)
suggest that research problems and hypotheses meet the following criteria:
1. The problem statement expresses a relationship between two or more variables.
2. The problem is stated clearly and unambiguously in question form.
3. The problem statement implies possibilities of empirical testing.
Where properties of good hypotheses include the following:
1. The hypothesis is a statement about the relationship between two or more variables in declarative statement form.
2. The hypothesis carries clear implications for testing the stated relationship (i.e., variables must be measurable or potentially measurable).
Problem Formulation Components
Problem formulation consists of specific components:
1. Specify the Research Objectives
Objectives guide the researcher in developing good, useful research, and they help the client evaluate the completed project. Objectives range from the very
general, such as profit maximization, to the highly specific, such as measuring market interest in a new product. It is rare that the objectives are explained fully to
the researcher. The researcher will need to take the initiative in developing a clear statement of objectives.
Each study should have a very limited and manageable set of objectives. Two or three well targeted objectives is preferable to many that are ill-conceived. Fewer
the objectives make it easier to keep track of progress toward the objectives, to ensure that each is properly addressed, and to determine the best methodology. If
there are too many objectives separate studies may be appropriate.
2. The Environment or Context of the Problem
Consider the problem of deciding whether to introduce a new consumer product. The marketing researcher must work closely with the client in transforming the
client’s problem into a workable research problem.
The researcher’s efforts should be oriented toward helping the manager decide whether any investigation is justified based on the potential value of the research
findings versus their cost. The researcher must be aware of, and assist in, the identification of objectives, courses of action, and environmental variables, insofar
as they affect the design of the research investigation. If the research is undertaken and if the resulting findings are to be utilized (i.e., have an influence on the

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user’s decision making), the manager and researcher must have a productive and trusting relationship that is based on the researcher’s ability to perform and
deliver the research as promised.
3. The Nature of the Problem
Every research problem may be evaluated on a scale that ranges from very simple to very complex. The degree of complexity depends on the number of variables
that influence the problem. Understanding the nature of the problem helps a researcher ensure that the right problem is being investigated and that a marketing
plan can be developed to solve the problem. A thorough preliminary investigation using focus groups of consumers, salespeople, managers, or others close to the
problem may produce much needed insight.
4. Alternative Courses of Action
A course of action specifies a behavioral sequence that occurs over time, such as the adoption of a new package design, or the introduction of a new product.
Such a program of action becomes a commitment, made in the present, to follow some behavioral pattern in the future.
It is usually desirable to generate as many alternatives as possible during the problem formulation stage and state them in the form of research hypotheses to be
examined. A hypothesis often implies a possible course of action with a prediction of the outcome if that course of action is followed.
Once the nature of the problem has been agreed upon, the course of action must be specified. This involves:
1. Determining which variables affect the solution to the problem
2. Determining the degree to which each variable can be controlled
3. Determining the functional relationships between the variables and which variables are critical to the solution of the problem.
The following example shows the results of a failure to follow through with these aspects of the problem situation model
EXHIBIT 2.4 “New Coke” Versus Original Coke
In the mid-1980s the Coca Cola Company made a decision to introduce a new beverage product (Hartley, 1995, pp.
129–145). The company had evidence that taste was the single most important cause of Coke’s decline in the market
share in the late 1970s and early 1980s. A new product dubbed “New Coke” was developed that was sweeter than the
original-formula Coke.
Almost 200,000 blind product taste tests were conducted in the United States, and more than one-half of the
participants favored New Coke over both the original formula and Pepsi. The new product was introduced and the
original formula was withdrawn from the market. This turned out to be a big mistake! Eventually, the company
reintroduced the original formula as Coke Classic and tried to market the two products. Ultimately, New Coke was
withdrawn from the market.
What went wrong? Two things stand out. First, there was a flaw in the market research taste tests that were
conducted: They assumed that taste was the deciding factor in consumer purchase behavior. Consumers were not told
that only one product would be marketed. Thus, they were not asked whether they would give up the original formula
for New Coke. Second, no one realized the symbolic value and emotional involvement people had with the original
Coke. The bottom line on this is that relevant variables that would affect the problem solution were not included in the
research.
5. The Consequences of Alternative Courses of Action
A set of consequences always relate to courses of action and even to the occurrence of events not under the control of the manager. One of the manager’s primary
jobs is to anticipate and communicate the possible outcomes of various courses of action that may result from following the research.
6. Degrees of Uncertainty Most marketing problems are characterized by a situation of uncertainty as to which course of action is best. Years of experience may
allow the decision-making manager to assign various “likelihoods of occurrence” to the various possible outcomes of specific courses of action.

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A carefully formulated problem and statement of research purpose is necessary for competent research. The statement of purpose involves a translation of the
decision maker’s problem into a research problem and the derivation of a study design from this problem formulation. The research problem provides relevant
information concerning recognized (or newly generated) alternative solutions to aid in this choice.
STAGE 2: METHOD OF INQUIRY
Market researchers look to the scientific method as the source of their investigative methods. Even though this method is not the only one used, it is the standard
against which other investigative methods are measured. The scientific method makes great use of existing knowledge both as a starting point for investigation
and as a check on the results of the investigations (i.e., a test of validity). Its most distinctive characteristic is its total lack of subjectivity. The scientific method
has evolved objective and rigid procedures for verifying hypotheses or evaluating evidence. It is analytical in its processes and is investigator-independent. Thus,
the scientific method is for the most part logical and objective, and frequently makes extensive use of mathematical reasoning and complicated experiments (see
Exhibit 2.6). The goal of a scientific methodologist, also called an objectivist, is to run a hypothesis test using publicly stated procedures that are investigator-
independent.

• Formulate a problem

• Develop a hypothesis

• Make predictions based on the hypothesis

• Devise a test of the hypothesis

• Conduct the test

• Analyze the results

Even though the terminology used is that associated with basic research, the process described is analogous to that of decision making. Although the steps are the
same, there are differences in the way in which the steps are performed and in the underlying assumptions about behavior. For example, the essential difference
between the objectivist and the subjectivist is the latter’s allowance for use of subjective judgments both when collecting data and when analyzing data (Diesing,
1966). The distinction has very practical meaning, particularly when considering the use of outside research suppliers. There are commercial research firms that
tend to specialize in one or the other method of inquiry. Objectivist-based
research is often called quantitative research, whereas subjectivist-based research is often called qualitative research.

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 The Scientific Method
In structure, if not always in application, the scientific method is simple and consists of the following steps:
1. Observation. This is the problem-awareness phase, which involves observing a set of significant factors that relate to the
problem situation.
2. Formulation of hypotheses. In this stage, a hypothesis (i.e., a generalization about reality that permit prediction) is formed
that postulates a connection between seemingly unrelated facts. In a sense, the hypothesis suggests an explanation of what
has been observed.
3. Prediction of the future. After hypotheses are formulated, their logical implications are deduced. This stage uses the
hypotheses to predict what will happen.
4. Testing the hypotheses. This is the evidence collection and evaluation stage. From a research project perspective this is
the design and implementation of the main study. Conclusions are stated based on the data collected and evaluated. A
simple example will show how the scientific method works. Assume a researcher is performing a marketing research project
for a manufacturer of men’s shirts:
1. Observation: The researcher notices some competitors’ sales are increasing and that many competitors have shifted to a
new plastic wrapping.
2. Formulation of hypotheses: The researcher assumes his client’s products are of similar quality and that the plastic
wrapping is the sole cause of increased competitors’ sales.
3. Prediction of the future: The hypothesis predicts that sales will increase if the manufacturer shifts to the new wrapping.
4. Testing the hypotheses: The client produces some shirts in the new packaging and market-tests them.

STAGE 3: RESEARCH METHOD

Whether a particular method of inquiry is appropriate for a research problem depends in large part on the nature of the problem itself and the extent or level of
existing knowledge. In addition to selecting a method of inquiry, the research planner must also select a research method.
Two broad methodologies can be used to answer any research question–experimental research and non-experimental research. The major advantage of
experimental research lies in the ability to control extraneous variables and manipulate one or more variables by the intervention of the investigator. In non-
experimental research, there is no intervention beyond that needed for purposes of measurement.
STAGE 4: RESEARCH DESIGN
Research design is defined as the specific methods and procedures for acquiring the information needed. It is a plan or organizational framework for doing the
study and collecting the data. Research designs are unique to a methodology.
The design of a research project includes four components:
1. Research methodology. Describe how the investigation is to be made in general terms. Justify selection of the methodology to be used.
2. Research techniques. Describe the methods and procedures to be used in collecting the data in some depth: Who is to be solicited, how contact is to be made,
special techniques to be used, and so on are to be covered. Discuss forms to be used to collect data and, if already developed, include with the plan.

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3. Sample design and selection. State the size of the total sample and any proposed subsamples. Describe in detail the procedure to be used to ensure a
representative (or other appropriate) sample of survey respondents or experimental subjects. Include any technical notes as to how the sample size was
determined in an appendix.
4. Proposed analysis. Describe general tabulation procedures, any cross-analysis tabulations, and the reasons for such tabulations. Include discussion of
proposed methods of statistical analysis together with reasons why such analyses will be used. If possible, show dummy tables with the “stubs” that will be used.
A research design is the specification of methods and procedures for acquiring the information needed to structure and solve problems. The overall operational
design for the project stipulates what information is to be collected, from what sources, and by what procedures. A good design ensures that the information
obtained is relevant to the research problem, and that it was collected by objective and economical procedures. A research design might be described as a series

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of advance decisions that, taken together, form a specific master plan or model for conducting the investigation. Research designs may be classified into three
types:

• Exploratory

• Descriptive

• Causal

Exploratory Studies
The major purposes of exploratory studies are the identification of problems, the precise formulation of problems (including the identification of relevant
variables), and the formulation of new alternative courses of action. An exploratory study is often the first project in a series that culminates in a final project that
answers research questions and produces research findings to be used as the basis of management action. That is, an exploratory study is often used as an
introductory phase of a larger study, and its results are used to develop specific techniques or focus the scope of the larger study.
Despite the need for flexibility in exploratory study design, we can distinguish three separate stages that are usually included in exploratory studies and typically
conducted in the sequence listed:

• A search of secondary information sources

• Interviews with persons knowledgeable about the subject area

• The examination of analogous situations

Search of Secondary Sources

Secondary sources of information are the “literature” on the subject. It is the rare research problem for which there is no relevant information to be found by a
relatively quick and inexpensive search of the literature.
Secondary sources for exploratory studies are not limited to external sources. Searches should also be made of company records.
Obtaining Information from Knowledgeable Persons
Having searched secondary sources, it is usually desirable to talk with persons who are well informed in the area being investigated:

• Company executives

• Experts

• Consumers

• Users outside the organization

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A widely used technique in exploratory research is the focus group. In a focus group interview, a group of knowledgeable people participates in a joint interview
that does not use a structured question-and-answer methodology. The group, usually consisting of 8 to 12 people (but may have as few as 5 or as many as 20), is
selected purposely to include persons who have a common background, or similar buying or use experience, relating to the problem being researched. The
interviewer or moderator of the session works with the client to develop a general discussion outline that typically includes such topics as usage experience,
problems with use, and how decisions are made. The objective is to foster involvement and interaction among the group members during the interview that will
lead to spontaneous discussion and the disclosure of attitudes, opinions, and information on present or prospective buying and use behavior.
Focus groups are used primarily to identify and define problems, provide background information, and generate hypotheses, rather than to provide solutions for
problems. Areas of application include detecting trends in lifestyles, examining new product concepts, generating ideas for improving established products,
developing creative concepts for advertising, and determining effective means of merchandising products.
If the sole purpose is to create ideas, then individual interviews may be a better alternative than focus groups. Limited research on this issue conducted more than
20 years ago suggests that the number and quality of ideas generated may be greater from such interviews (Fern, 1982).
More specific uses of focus groups include identifying how people perceive a product category (e.g., frozen baked goods), detecting the language consumers use
to talk about a product category (e.g., “toilet paper” rather than “bathroom tissue”), determining the wording and structure of an entire questionnaire to be used in
quantitative research, and interpreting new questions that have been raised by quantitative research (Arnold, 1988). An example of the latter situation is when
focus groups are used to determine the reasons for the decline in a product’s overall rating, as reported in a syndicated research report. Exhibit 3.1 shows an
example of an application of focus groups in exploratory research.
Examination of Analogous Situations
It is also logical that a researcher will want to examine analogous situations to determine what else can be learned about the nature of the problem and its
variables. Analogous situations include case histories and simulations.
Descriptive Studies
Much research is concerned with describing market characteristics or functions. A market potential study may describe the number, distribution, and
socioeconomic characteristics of potential customers of a product. A market-share study finds the share of the market received by both the company and its major
competitors. A sales analysis describes sales by territory, type of account, size or model of product, and the like. Descriptive studies are also made in the
following areas:

• Product research: a listing and comparison of the functional features and specifications of competitive products

• Promotion research: the demographic characteristics of the audience being reached by the current advertising program

• Distribution research: the number and location of retailers handling the company’s products that are supplied by wholesalers versus those supplied by the
company’s distribution centers

• Pricing research: competitors’ prices by geographic area

These examples of descriptive research cover only a few of the possibilities. Descriptive designs, often called observational designs by some researchers, provide
information on groups and phenomena that already exist; no new groups are created (Fink, 2003).

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Descriptive studies often involve determining the association between two or more variables. A two-way frequency distribution of sales revenue by membership
in an organization (e.g., a cross-tabulation) is an example. A proprietary study of business involvement in a small community’s Chamber of Commerce reported
the data shown in Table 3.1. This type of information may be used to draw inferences concerning the relationship between the variables involved (revenue and
membership). It may also be used to predict whether a new company in the area will join the Chamber of Commerce.
Although associations can be used only to infer, and not establish, a causal relationship, they are often useful for predictive purposes. It is not always necessary to
understand causal relations in order to make accurate predictive statements. Descriptive information often provides a sound basis for the solution of marketing
problems, even though it does not explain the nature of the relationship involved. The basic principle involved is to find desirable behavior correlates to predict
that are measurable when the predictive statement is made.
Descriptive research, in contrast to exploratory research, is marked by the prior formulation of specific research questions. The investigator already knows a
substantial amount about the research problem, perhaps as a result of an exploratory study, before the project is initiated, and should be able to clearly define
what should be measured and how one should set up appropriate and specific means for the measurements.
One example of a descriptive study is one conducted by a school-employees credit union in order to gain information useful to provide better service to its
members. Management knew very little about the members, other than that they were school employees, family members of employees, or former employees. In
addition, the credit union knew very little about members’ awareness and use of, and attitudes toward individual services available to them. Consequently,
investigators undertook a study to answer the following research questions:
1. What are the demographic and socioeconomic characteristics of primary members?
2. How extensively are existing services being used, and what are members’ attitudes
toward such services?
3. What is the degree of interest in specific new services?
Causal Studies
Although descriptive information is often useful for predictive purposes, where possible we would like to know the causes of what we are predicting—the
“reasons why.” Further, we would like to know the relationships of these causal factors to the effects that we are predicting. If we understand the causes of the
effects we want to predict, we invariably improve our ability both to predict and to control these effects.
Bases for Inferring Causal Relationships
There are three types of evidence that can be used for drawing inferences about causal relationships:
1. Associative variation
2. Sequence of events
3. Absence of other possible causal factors
In addition, the cause and effect have to be related. That is, there must be logical implication
(or theoretical justification) to imply the specific causal relation.
Associative Variation
Associative variation, or “concomitant variation,” as it is often termed, is a measure of the extent to which occurrences of two variables are associated. Two types
of associative variation may be distinguished:
1. Association between two variables: A measure of the extent to which the presence of one variable is associated with the presence of the other
2. Association between the changes of two variables: A measure of the extent to which a change in the level of one variable is associated with a change in the
level of the other It has been argued that two other conditions may also exist, particularly for continuous variables: (a) the presence of one variable is associated
with a change in the level of other; and (b) a change in the level of one variable is associated with the presence of the other (Feldman, 1975).

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Sequence of Events
A second characteristic of a causal relationship is the requirement that the causal factor occur first; the producer must precede the product. In order for the
salesperson retraining to result in an increase in sales, the retraining must have taken place prior to the sales increase.
Absence of Other Possible Causal Factors
A final basis for inferring causation is the absence of any possible causal factors (producers) other than the one(s) being investigated. If it could be demonstrated,
for example, that no other factors present could have caused the sales increase in the third quarter, we could then logically conclude that the salesperson training
must have been responsible.
Obviously, in an after-the-fact examination of a situation such as the detergent sales increase, it is impossible to clearly rule out all other factors. One could never
be completely sure that there were no competitor-, customer-, or company-initiated causal factors that would account for the sales increase.
Conclusions Concerning Types of Evidence
No one of the three types of evidence, or even all three types combined, can ever conclusively demonstrate that a causal relationship exists. However, we can
obtain evidence that makes it highly reasonable to conclude that a particular relationship exists. Exhibit 3.3 shows certain questions that are necessary to answer.
EXHIBIT 3.3 Issues in Determining Causation
Several questions arise when determining whether a variable X has causal priority over another
variable, Y:
1. What is the source of causality—does X cause Y, or does Y cause X?
2. What is the direction of causality—does X positively influence Y, or is the relationship negative?
3. Is X a necessary and sufficient cause—or necessary, but not sufficient cause—of Y? Is X’s causation deterministic or probabilistic?
4. Which value of the believed cause exerts a causal influence—its presence or absence?
5. Are the causes and effects the states themselves or changes in the states? Is the relationship static or dynamic?
In the end, the necessary conditions for causality to exist are a physical basis for causality, a cause that temporally precedes the effect (even for associative
variation), and a logical reason to imply the specific causal relation being examined.

Relationship among Research Designs

Descriptive Research

Exploratory Research

Causal Research

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SOURCES OF MARKETING INFORMATION
There are five major sources of marketing information:

• Secondary sources

• Respondents

• Natural experiments

• Controlled experiments

• Simulation

In this section we briefly describe each as an introduction to subsequent chapters that describe some of these sources in more depth.
Secondary Sources of Information
Secondary information is information that has been collected by persons or agencies for purposes other than the solution of the problem at hand. If a furniture
manufacturer, for example, needs information on the potential market for furniture in the Middle Atlantic states, many secondary sources of information are
available. The federal government collects and publishes information on the numbers of families, family formation, income, and the number and sales volume of
retail stores, all by geographic area. It also publishes special reports on the furniture industry. Many state and local governments collect similar information for
their respective areas. The trade associations in the furniture field collect and publish an extensive amount of information about the industry. Trade journals are
also a valuable source of secondary information, as are special studies done by other advertising media. Private research firms collect specialized marketing
information on a continuing basis and sell it to companies. These so-called syndicated services, particularly those for packaged consumer goods, are becoming
more sophisticated as they are increasingly becoming based on scanner data. Technology advancements have a measurable impact on the availability of
secondary data.
Information from Respondents
A second major source of information is obtained from respondents. Asking questions and observing behavior are primary means of obtaining information
whenever people’s actions are being investigated or predicted. The term respondent literally means “one who responds; answers.” In this book it is useful to
include both verbal and behavioral response in the usage of the term. That is, we shall consider both the information obtained from asking people questions, and
that provided by observing behavior (or the results of past behavior) to comprise information from respondents.
Information from Natural and Controlled Experiments
As described earlier, three types of evidence provide the bases for drawing inferences about causal relationships. Either natural or controlled experimental
designs are capable of providing associative variation and sequence of events, but only controlled experiments can provide reasonably conclusive evidence
concerning the third type of evidence, the absence of other possible producers.
A natural experiment is one in which the investigator intervenes only to the extent required for measurement. That is, there is no manipulation of an assumed
causal variable. The investigator merely looks at what has happened. As such, the natural experiment is a form of ex post facto research. In this type of study, the

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researcher approaches data collection as if a controlled experimental design were used. The variable of interest has occurred in a natural setting, and the
researcher looks for respondents who have been exposed to it and also, if a control group is desired, respondents who have not been exposed.
Measurements can then be made on a dependent variable of interest. For example, if the impact of a television commercial on attitudes were desired, the
investigator would contact a sample of people after the commercial was shown. Those who saw the commercial would constitute the experimental group, and
those who did not see it would be a type of control group. Differences in attitudes could be compared as a crude measure of impact. Unfortunately, one can never
be sure whether the obtained relationship is causal or noncausal, since the attitudes may be affected by the presence of other variables. For a brief discussion of
natural experiments, see Anderson (1971).
In controlled experiments, investigator intervention is required beyond that needed for measurement purposes. Specifically, two kinds of intervention are
required:
1. Manipulation of at least one assumed causal variable
2. Random assignment of subjects to experimental and control groups
Simulation
The expense, time involved, or other problems associated with field experimentation may preclude it as a source of information for a particular operational
situation. In such cases it may be desirable to construct a model of the operational situation and to experiment with it instead of the real-world situation. The
manipulation of such models is called simulation.
Simulation can be defined as a set of techniques for manipulating a model of some real-world process to find numerical solutions useful in the real process being
modeled. Models that are environmentally rich (that is, that may contain complex interactions and nonlinear relationships among the variables, probabilistic
components, time dependencies, etc.) are usually too difficult to solve by standard analytical methods such as calculus or other mathematical programming
techniques. Rather, the analyst views a simulation model as an imitation of the process or system under study and attempts to run the system on a computer to see
what would happen if a particular policy were put into effect.
Simulations may be used for research, instruction, decision-making, or some combination of these applications. During the past 30 – 40 years, simulations have
been developed for such marketing decision- making applications as marketing systems, marketing-mix elements (new-product, price advertising, and sales-force
decisions), and interviewing costs in marketing surveys.
TYPES OF ERRORS AFFECTING RESEARCH DESIGNS
The marketing research process (and research design) involves the management of error. Potential errors can arise at any point from problem formulation through
report preparation. Rarely will a research project be error-free. Consequently, the research designer must adopt a strategy for managing this error. As we shall see
in the next section of this chapter, there are alternative strategies one can follow.
The objective underlying any research project is to provide information that is as accurate as possible. Maximizing accuracy requires that total study errors be
minimized. Total study error has two components—sampling error and non-sampling error—and can be expressed as follows:
Total error = Sampling error + Non-sampling error
Total error is usually measured as total error variance, also known as the mean-squared error (Assael & Keon, 1982):
(Total error)2 = (Sampling error)2 + (Non-sampling error)2
Sampling error refers to the variable error resulting from the chance specification of population from elements according to the sampling plan. Since this
introduces random variability into the precision with which a sample statistic is calculated, it is often called random sampling error. Exhibit 3.4 gives an
illustration of how total error is assessed.
EXHIBIT 3.4 How Errors Add Up

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It is important to know all the sources of error that contribute to inaccuracy, and to assess the impact of each. As an example, consider the figure below, which
shows components of error in a personal computer study designed to estimate the size of the market (Lilien, Brown, & Searls, 1991). When estimating the market,
adjustments are made for each source of error. The components are then combined mathematically to create the total error. For purposes of simplicity, total error
is shown here as the sum of the component errors. In actuality, total error would be smaller, as it is usually based on the square roots of summed squares of
component errors. Assessing the individual components of total error is highly judgmental and subjective, but it is worth the effort.

Non-sampling error consists of all other errors associated with a research project. Such errors are diverse in nature. It is often thought of as resulting in some sort
of bias, which implies systematic error. Bias can be defined simply as the difference between the true value of that which is being measured and the average

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value derived from a number of independent measurements of it. However, there can be a random component of non-sampling error. For example, misrecording
a response during data collection would represent a random error, whereas using a loaded question would be a systematic error. Non-sampling errors arise from
nonresponse and response.
To a large extent these major error components are inversely related. Increasing the sample size to reduce sampling error can increase non-sampling error in that,
for example, there are more instances where such things as recording errors can occur, and the impact of loaded (i.e., nonobjective) questions and other
systematic errors will be greater. Thus, this inverse relationship lies at the heart of our concern for total error.
Ideally, efforts should be made to minimize each component. Considering time and cost limitations this can rarely be done. The researcher must make a decision
that involves a tradeoff between sampling and non-sampling errors. Unfortunately, very little is known empirically about the relative size of the two error
components, although there is some evidence that non-sampling error tends to be the larger of the two. In a study comparing several research designs and data
collection methods, Assael and Keon (1982) concluded that non-sampling error far outweighs random sampling error in contributing to total survey error.
Exhibit 3.5 briefly defines eight major types of errors that can influence research results. Each is discussed in more detail in subsequent chapters.
EXHIBIT 3.5 Types of Errors in the Research Process
Different types of errors can influence research results:

• Population specification: noncorrespondence of the required population to the population selected by the researcher

• Sampling: noncorrespondence of the sample selected by probability means and the representative sample sought by the researcher

• Selection: noncorrespondence of the sample selected by nonprobability means and the sought representative sample

• Frame: noncorrespondence of the sought sample to the required sample

• Nonresponse: noncorrespondence of the achieved (or obtained) sample to the selected sample

• Surrogate information: noncorrespondence of the information being sought by the researcher and that required to solve the problem

• Measurement: noncorrespondence of the information obtained by the measurement process and the information sought by the researcher

• Experimental: noncorrespondence of the true (or actual) impact of, and the impact attributed to, the independent variable(s)

Population Specification Error

This type of error occurs when the researcher selects an inappropriate population or universe from which to obtain data. For example, if Cessna Aircraft wanted
to learn what features should be added to a proposed corporate jet, they might conduct a survey of purchasing agents from major corporations presently owning
such aircraft. However, this would be an inappropriate research universe, since pilots most likely play the key role in the purchase decision. Similarly, packaged
goods manufacturers often conduct surveys of housewives, because they are easier to contact, and it is assumed they decide what is to be purchased and also do
the actual purchasing. In this situation there often is population specification error, for the husband may purchase a significant share of the packaged goods, and
have significant direct and indirect influence over what is bought.
Sampling Error

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Sampling error occurs when a probability sampling method is used to select a sample, but this sample is not representative of the population concern. For
example, a random sample of 500 people composed only of people aged 35 to 55 would not be representative of the general adult population. Sampling error is
affected by the homogeneity of the population being studied and sampled from and by the size of the sample. In general, the more homogeneous the population,
the smaller the sampling error; as sample size increases, sampling error decreases. If a census were conducted (i.e., all elements of the population were included)
there would be no sampling error.
Selection Error
Selection error is the sampling error for a sample selected by a nonprobability method. Consider the case of interviewers conducting a mall intercept study: There
is a natural tendency for investigators to select those respondents who are the most accessible and agreeable whenever there is latitude to do so. Such samples
often comprise friends and associates who bear some degree of resemblance in characteristics to those of the desired population. Selection error often reflects
people who are most easily reached, better dressed, and have better kept homes or more pleasant personalities. Samples of these types rarely are representative of
the desired population.
Frame Error
A sampling frame is the source for sampling that accounts for all the elements in the population. It is usually a listing of the elements, but need not be a printed
list. The sample frame for a study using intercepts at a shopping mall, for instance, includes all shoppers in the mall during the period of data collection. A
perfect frame identifies each population element once, but only once, and does not include elements not in the population. A commonly used frame for consumer
research is the telephone directory. This frame introduces error because many elements of the population are not included in the directory (unlisted phone
numbers, new arrivals), some elements are listed more than once, and nonpopulation elements are also included (businesses, people who have left the area).
Nonresponse Error
Nonresponse error can exist when an obtained sample differs from the original selected sample. There are two ways in which nonresponse can occur: (a)
noncontact (the inability to contact all members of the sample); and (b) refusal (nonresponse to some or all items on the measurement instrument).
Errors arise in virtually every survey from the inability to reach respondents. In telephone surveys, some respondents are inaccessible because they are not at
home (NAH) for the initial call or call-backs. Others have moved or are away from home for the period of the survey. Not-at-home respondents are typically
younger with no small children, and have a much higher proportion of working wives than households with someone at home. People who have moved or are
away for the survey period have a higher geographic mobility than the average of the population. Thus, most surveys can anticipate errors from non-contact of
respondents.
Refusals may be by item or for the entire interview. Income, religion, sex, and politics are topics that may elicit item refusals. Some respondents refuse to
participate at all because of time requirements, past experiences in which an “interviewer” turned out to be a telemarketer, their own ill health, or other reasons.
A kind of refusal specific to the method is the nonresponse to a mail questionnaire. Nonresponse to mail questionnaires sometimes runs as high as 90 percent of
the initial mailing, even after several successive mailings.
The amount of effort involved in data collection is another possible way to affect nonresponse error. However, little research has been done to examine the
impact of effort. In a national telephone survey, a so-called five-day “standard” survey was compared to a “rigorous” survey conducted over an eight-week
period (Keeter, Miller, Kohut, Groves, & Presser, 2000).
Response rates were significantly different; the rigorous survey generated about two-thirds greater response. But the two surveys produced similar results. Most
of the statistically significant differences were for demographic items. Very few differences were found on substantive variables. Nonresponse is also a potential
problem in business-to-business research situations.

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Surveys in this type of situation, for example, are often referred to as organizational surveys. Although specific respondents are individuals, organizations are not,
as they are differentiated and hierarchical. These characteristics may affect organizational response to survey requests.
Tomaskovic-Devey, Leiter, and Thompson (1994) believe the likelihood that an organizational respondent will respond is a function of three characteristics of
the respondent:
1. Authority to respond: The degree to which a designated respondent has the formal or informal authority to respond to a survey request
2. Capacity to respond: Organizational practices and divisions of labor and information that affect the assembly of relevant knowledge to reply adequately
3. Motive to respond: Both individual and organizational motivations to provide information about the organization
Surrogate Information Error
In many problem situations in marketing research, it is necessary to obtain information that acts as a surrogate for that which is required. The necessity to accept
substitute information arises from either the inability or unwillingness of respondents to provide the information needed.
Decision-oriented behavioral research is always concerned with the prediction of behavior, usually nonverbal behavior. This limits most marketing research
projects to using proxy information. Since one cannot observe future behavior, one must use a surrogate. Typically, researchers obtain one or more kinds of
information believed to be useful in predicting behavior.
One may obtain information on past behavior because it is believed that there is sufficient stability in the underlying behavior pattern to give it reasonably high
predictive validity. One may ask about intended behavior as a means of prediction. Or one may obtain information about attitudes, level of knowledge, or
socioeconomic characteristics of the respondent in the belief that, individually or collectively, they have a high degree of association with future behavior.
Since the type of information required is identified during the problem-formulation stage of the research process, minimizing this error requires as accurate a
problem definition as possible.
Measurement Error
Measurement error is generated by the measurement process itself, and represents the difference between the information generated and the information wanted
by the researcher. Such error can potentially arise at any stage of the measurement process, from the development of an instrument through the analysis of the
findings. To illustrate, Figure 3.2 depicts the stages at which errors in eliciting information may arise when interviewing respondents for a survey.
In the transmittal stage, errors may be due to the faulty wording of questions or preparation of nonverbal materials, unintentional interviewer modification of the
question’s wording, or the way in which a respondent interprets the question. In the response phase, errors may occur because the respondent gives incorrect
information, the interviewer interprets it incorrectly, or recording errors occur. One aspect of this regards form; form-related errors concern psychological
orientation toward responding to different item formats and include:
1. Leniency: the tendency to rate something too high or too low
2. Central tendency: reluctance to give extreme scores
3. Proximity: giving similar responses to items that occur close to one another (Yu, Albaum, & Swenson, 2003, p. 217)
In the analysis stage, errors of incorrect editing and coding, descriptive summarization, and inference can contribute substantially to measurement error.
Measurement error is particularly troublesome for the researcher, since it can arise from many different sources and take on many different forms.
Experimental Error
When an experiment is conducted, the researcher attempts to measure the impact of one or more manipulated independent variables on some dependent variable
of interest, while controlling for the influence of all other (i.e., extraneous) variables. Unfortunately, control over all possible extraneous variables is rarely
possible. Consequently, what may be measured is not the effect of the independent variables but the effect of the experimental situation itself.

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METHODS FOR DEALING WITH POTENTIAL ERRORS
For any research project, recognizing that potential errors exist is one thing, but doing something about them is another matter. There are two basic approaches
for handling potential errors:
1. Minimize errors through research design
2. Measure or estimate the error or its impact
Minimize Error
Two different approaches can be taken to minimize total error. The first uses research design to minimize errors that may result from each of the individual error
components. Much of the material in Chapters 5 through 13 of this book discusses effective research methods, and as such, involves techniques designed to
minimize individual errors. This is consistent with our view that research design innately involves error management. However, this approach is often limited by
the budget allotted to a project.
The second approach recognizes that individual error components are not necessarily independent of each other. Thus, attempts to minimize one component may
lead to an increase in another. Reducing sampling error by increasing sample size, for example, leads to potentially greater non-sampling error. This means that
the research designer must trade off errors when developing a research design that minimizes total error. For a fixed project budget, therefore, it may be prudent
for the research designer to choose a smaller sample size (which will increase sampling error) if the cost savings by doing this can develop techniques that will
reduce nonresponse and/or improve the measurement process. If the reduction in these nonsampling errors exceeds the increase in sampling error, there will be a
reduction in total error.
Estimate or Measure Error
Even though the researcher has designed a project to minimize error, it is almost never completely eliminated. Consequently, the error that exists for every
project must be estimated or measured. This is recognized for sampling error when probability samples are used, though non-sampling errors typically are
ignored. Although estimating or measuring errors is better than ignoring them, there may be times when ignoring non-sampling error may not be that bad. For
example, if non-sampling error is viewed as a multiple of sampling error, ignoring non-sampling errors up to an amount equal to one-half of sampling error
reduces a .95 confidence level only to .92 (Tull & Albaum, 1973). However, ignoring a non-sampling error equal in amount to sampling error reduces the .95
level to .83.
Estimating or measuring individual components and total error is not easy, primarily due to the nature of non-sampling errors. There is a body of accepted
sampling theory that allows the researcher to estimate sampling error for a probability sample, but nothing comparable exists for non-sampling errors.
Consequently, subjective or judgmental estimates must be made. For individual error components, many diverse procedures can be used to estimate and measure

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their impact as illustrated in Table 3.3. These are discussed where appropriate in subsequent chapters.

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STAGE 5: DATA COLLECTION TECHNIQUES
Research design begins to take on detailed focus as the researcher selects the particular techniques to be used in solving the problem formulated and in carrying
out the method selected. A number of techniques available for collecting data can be used. Some techniques are unique to a method of inquiry. For example,
many of the qualitative research techniques, such as projective techniques, are used only in subjectivist-type research. In general, data collection uses either
communication or observation. Communication
involves asking questions and receiving responses. This process can be done in person, by mail, by telephone, by e-mail, and over the Internet. In most instances
this constitutes the broad research technique known as the survey. In contrast to this process, data may be obtained by observing present or past behavior.
Regarding past behavior, data collection techniques include looking at secondary data such as company records, reviewing studies published by external sources,
and examining physical traces such as erosion and accretion.
In order to collect data from communication or observation there must be a means of recording responses or behavior. Thus, the process of measurement and the
development of measurement instrument are closely connected to the decision of which data collection technique(s) should be used. The relationship is two-way.
That is, the structure and content of the measurement instrument can depend on the data collection technique, and measurement considerations often influence
technique selection Develop the Research Plan Primary Data
Collection
Research Approaches
Observational
Research Survey Experimental
Research Research
Gathering data
by observing Asking individuals Using groups of
people, about attitudes, people to
actions and preferences or determine
situations buying behaviors cause-and-effect
(Exploratory) (Descriptive) relationships
(Causal)

STAGE 6: SAMPLE DESIGN

Rarely will a marketing research project involve examining the entire population that is relevant to the problem. For the most part, practical considerations (e.g.,
absolute resources available, cost vs. value, etc.) dictate that one use a sample, or subset of the relevant population. In other instances the use of a sample is
derived from consideration of the relevant systematic and variable errors that might arise in a project.
In designing the sample, the researcher must specify three things:
1. Where the sample is to be selected
2. The process of selection
3. The size of the sample
The sample design must be consistent with the relevant population, which is usually specified in the problem-formulation stage of the research process. This
allows the data obtained from the sample to be used in making inferences about the larger population.

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The process of sample selection may be done by probability or nonprobability methods. In probability sampling every element in the population has a known
nonzero probability (chance) of being selected for inclusion in a study. In contrast, a nonprobability sample is one selected on the basis of the judgment of the
investigator, convenience, or by some other means not involving the use of probabilities.
STAGE 7: DATA COLLECTION
Data collection begins after the previous six stages of the research process are complete. Data collection, whether by communication or observation, requires the
use of data collection personnel which then raises questions regarding managing these people. Because data collection can be costly, firms often utilize outside
limited-service research suppliers, particularly when the extent of in-house research activity does not warrant the cost of having permanent data collection
personnel. Also, project design may require specialized data collection, which might best be obtained from an outside supplier.
The working relationship between the data collection agency (a so-called field service) and the research supplier or client is a major factor affecting the quality of
fieldwork and data collection.
A study of marketing research firms found that the major barriers to the communication of information from clients to research suppliers to field service firms
were insufficient information supplied by the client, the research supplier as an intermediary between client and field service firm, and lack of client interest in
data collection (Segal & Newberry, 1983).
The major suggestion for improving communication is for clients to provide more information to both suppliers and field service firms. Another way to
overcome communication barriers is for the field service to be consulted on such major issues as scheduling, costs, and purpose of the study. Finally, it was
suggested that two-way communication with suppliers be established or strengthened. Although this study was conducted more than 20 years ago, these are
enduring problems that exist today.
Sources of Data - Primary and Secondary
There are two main sources of data - primary and secondary. Primary research is conducted from scratch. It is original and collected
to solve the problem in hand. Secondary research, also known as desk research, already exists since it has been collected for other
purposes.
We have given a general introduction to marketing research. Marketing research is a huge topic area and has many processes,
procedures, and terminologies that build upon the points above. (See also lesson on market research, primary marketing research
and secondary marketing research)

Primary - Marketing Research.

Primary marketing research is collected for the first time. It is original and collected for a specific purpose, or to solve a specific
problem. It is expensive, and time consuming, but is more focused than secondary research. There are many ways to conduct
primary research. We consider some of them:

1. Interviews

2. Mystery shopping

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 3. Focus groups

4. Projective techniques

5. Product tests

6. Diaries

7. Omnibus Studies

1.0 Interviews.

This is the technique most associated with marketing research. Interviews can be telephone, face-to-face, or over the Internet.

1.1 Telephone Interview.

Telephone ownership is very common in developed countries. It is ideal for collecting data from a geographically dispersed
sample. The interviews tend to be very structured and tend to lack depth. Telephone interviews are cheaper to conduct than face-
to-face interviews (on a per person basis).

Advantages of telephone interviews

Can be geographically spread

Can be set up and conducted relatively cheaply

Random samples can be selected

Cheaper than face-to-face interviews

Disadvantages of telephone interviews

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 Respondents can simply hang up

Interviews tend to be a lot shorter

Visual aids cannot be used

Researchers cannot behavior or body language

1.2 Face-to-face Interviews.

Face-to face interviews are conducted between a market researcher and a respondent. Data is collected on a survey. Some surveys
are very rigid or 'structured' and use closed questions. Data is easily compared. Other face-to-face interviews are more 'in depth,'
and depend upon more open forms of questioning. The research will probe and develop points of interest.

Advantages of face-to-face interviews

They allow more 'depth'

Physical prompts such as products and pictures can be used

Body language can emphasize responses

Respondents can be 'observed' at the same time

Disadvantages of face-to-face interviews

Interviews can be expensive

It can take a long period of time to arrange and conduct.

Some respondents will give biased responses when face-to-face with a researcher.

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 1.3 The Internet

The Internet can be used in a number of ways to collect primary data. Visitors to sites can be asked to complete electronic
questionnaires. However responses will increase if an incentive is offered such as a free newsletter, or free membership. Other
important data is collected when visitors sign up for membership.

Advantages of the Internet

Relatively inexpensive

Uses graphics and visual aids

Random samples can be selected

Visitors tend to be loyal to particular sites and are willing to give up time to complete the forms

Disadvantages of the Internet

Only surveys current, not potential customers.

Needs knowledge of software to set up questionnaires and methods of processing data

May deter visitors from your website.

1.4 Mail Survey

In many countries, the mail survey is the most appropriate way to gather primary data. Lists are collated, or purchased, and a
predesigned questionnaire is mailed to a sample of respondents. Mail surveys do not tend to generate more than a 5-10% response
rate. However, a second mailing to prompt or remind respondents tends to improve response rates. Mail surveys are less popular
with the advent of technologies such as the Internet and telephones, especially call centers.

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 2.0 Mystery Shopping

Companies will set up mystery shopping campaigns on an organizations behalf. Often used in banking, retailing, travel, cafes and
restaurants, and many other customer focused organizations, mystery shoppers will enter, posing as real customers. They collect
data on customer service and the customer experience. Findings are reported back to the commissioning organization. There are
many issues surrounding the ethics of such an approach to research.

3.0 Focus Groups.

Focus groups are made up from a number of selected respondents based together in the same room. Highly experienced
researchers work with the focus group to gather in depth qualitative feedback. Groups tend to be made up from 10 to 18
participants. Discussion, opinion, and beliefs are encouraged, and the research will probe into specific areas that are of interest to
the company commissioning the research.

Advantages of focus groups

Commissioning marketers often observe the group from behind a one-way screen

Visual aids and tangible products can be circulated and opinions taken

All participants and the research interact

Areas of specific interest can be covered in greater depth

Disadvantages of focus groups

Highly experienced researchers are needed. The are rare.

Complex to organize

Can be very expensive in comparison to other methods

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 4.0 Projective techniques.

Projective techniques are borrowed from the field of psychology. They will generate highly subjective qualitative data. There are
many examples of such approaches including: Inkblot tests - look for images in a series of inkblots Cartoons - complete the
'bubbles' on a cartoon series Sentence or story completion Word association - depends on very quick (subconscious) responses to
words Psychodrama - Imagine that you are a product and describe what it is like to be operated, warn, or used.

5.0 Product tests.

Product tests are often completed as part of the 'test' marketing process. Products are displayed in a mall of shopping center.
Potential customers are asked to visit the store and their purchase behavior is observed. Observers will contemplate how the
product is handled, how the packing is read, how much time the consumer spends with the product, and so on.

6.0 Diaries.

Diaries are used by a number of specially recruited consumers. They are asked to complete a diary that lists and records their
purchasing behavior of a period of time (weeks, months, or years). It demands a substantial commitment on the part of the
respondent. However, by collecting a series of diaries with a number of entries, the researcher has a reasonable picture of
purchasing behavior.

7.0 Omnibus Studies.

An omnibus study is where an organisation purchases a single or a few questions on a 'hybrid' interview (either face-to-face or by
telephone). The organisation will be one of many that simply want to a straightforward answer to a simple question. An omnibus
survey could include questions from companies in sectors as diverse as heath care and tobacco. The research is far cheaper, and
commits less time and effort than conducting your own research.

We have given a general introduction to marketing research. Marketing research is a huge topic area and has many processes,
procedures, and terminologies that build upon the points above. (See also lesson on market research, primary marketing research
and secondary marketing research)

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 Secondary - Marketing Research

Secondary marketing research, or desk research already exist in one form or another. It is relatively cheap, and can be conducted
quite quickly .However, it tends to have been collected for reasons other than for the problem or objective at hand. So it may be
untargeted, and difficult to use to make comparisons (e.g. financial data gather on Australian pensions will be different to data on
Italian pensions). There are a number of such sources available to the marketer, and the following list is by no means conclusive:

Trade associations

National and local press Industry magazines

National/international governments

Websites

Informal contacts

Trade directories

Published company accounts

Business libraries

Professional institutes and organizations

Omnibus surveys

Previously gathered marketing research

Census data

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 Public records

We have given a general introduction to marketing research. Marketing research is a huge topic area and has many processes,
procedures, and terminologies that build upon the points above.

Primary
PrimaryData
DataCollection
CollectionProcess
Process

Strength and Weaknesses of Contact Methods

Mail
Mail Telephone
Telephone Personal
Personal Online
Online
Flexibility
Flexibility Poor
Poor Good
Good Excellent
Excellent Good
Good
Quantity
Quantityofof Good
Good Fair
Fair Excellent
Excellent Good
Good
Data
DataCollected
Collected
Control
Controlofof Excellent
Excellent Fair
Fair Poor
Poor Fair
Fair
Interviewer
Interviewer
Control
Controlofof Fair
Fair Excellent
Excellent Fair
Fair Poor
Poor
Sample
Sample
Speed
SpeedofofData
Data Poor
Poor Excellent
Excellent Good
Good Excellent
Excellent
Collection
Collection
Response
ResponseRateRate Fair
Fair Good
Good Good
Good Good
Good
Cost
Cost Good
Good Fair
Fair Poor
Poor Excellent
Excellent

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STAGE 8: ANALYSIS AND INTERPRETATION
Data that are obtained and presented in the same form as originally collected are seldom useful to anyone. Data must be analyzed. The data must be edited,
coded, and tabulated before performing formal analyses such as statistical tests. The types of analyses that can be properly performed depend upon the sampling
procedures, measurement instruments, and data collection techniques used. Consequently, it is imperative that the techniques of analysis, associated descriptive
or prescriptive recommendation types, and presentation formats be selected prior to data collection.
STAGE 9: THE RESEARCH REPORT
The culmination of the research process is the research report. It includes a clear, accurate, and honest description of everything that has been done and the
results, conclusions, and— whenever possible—recommendations for courses of action. Two critical attributes of the report are that it provides all the
information readers need using language they understand (completeness) and that it contains selective information chosen by the researcher (conciseness). These
attributes are often in conflict with each other.
Two approaches can be taken to ensure that this conflict is not a problem. One approach involves preparing two reports: (1) a technical report that emphasizes the
methods used and underlying assumptions, and presents the findings in a detailed manner; and (2) a popular report that minimizes technical details and
emphasizes simplicity. The second approach is concerned with how the report is communicated. Because people vary a great deal in how they are affected by
different forms of communication, the ideal reporting process should try to encompass all major forms. Thus, a written report, by itself, may be inadequate and
only an invitation to inaction. There are simply a lot of people who, for various reasons, don’t respond to the printed word. There are still more that, although
they may respond, will often misunderstand the meaning of what is written. For these reasons, it is vitally necessary to get management to sit down with the
research manager, or with the researcher and the outside research firm, in a face-to-face reporting situation.
STANDARDS FOR SURVEY RESEARCH
Survey research activities should be required to meet strict standards, and all of the following should apply (Gelb, 2001):
1. The population is properly chosen and precisely (but not too broadly or narrowly) defined.
2. The sample represents that population.
3. The data are accurately reported.
4. The data are analyzed against statistical principles.
5. The questions asked are clear and not misleading.
6. Proper interviewing procedures are followed.
7. The process ensures objectivity; for example, the interviewers are not aware of the purpose of the survey.

Major Ethical Considerations

There are a number of considerations that are ethical in nature that arise in conducting marketing research projects. These are
summarized in Exhibit 1.6, which lists the major issues involved in three main areas of ethical interest: deceptive and fraudulent
practices, invasion of privacy, and lack of consideration for research subjects and respondents.

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 EXHIBIT 1.6 Ethical Considerations in Treatment of Subjects and Respondents
Schneider (1977) enumerated three general areas of ethical concern: deceptive practices, invasion of privacy, and lack
of consideration. Specific examples of each are listed here. Deceptive or fraudulent practices include the following:

• Unrealized promise of anonymity

• Use of disguised questionnaires and interviews

• Faked sponsor identification

• Implication of required response

• Lying about research procedure

• Faked testing in experimental research

• Promise of undelivered compensation

• Sales solicitation

The following are examples of invasions of privacy:

• Observation without informed consent

• Questions concerning people other than the subject

• Projective techniques

• Personal classification data

• Full disclosure and use of “optional” participation

All of the following practices exhibit a lack of consideration for subjects or respondents:

• Overuse of public (i.e., research placing an unreasonable demand on the time and energy of respondents)

• Research in subject areas with a depressing effect on respondents

• Subjects of no immediate interest to respondents

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 Ethical Questions Regarding Subjects’ Rights
Subjects’ Rights Possible Results of Violation of Rights
A. The right to choose
1. Awareness of right 1. Feelings of forced compliance, biased data
2. Adequate information for an informed choice 2. May violate the client’s desire for anonymity, may enable
subjects to enact subject role
3. Opportunity to make a choice 3. Subjects may avoid environments where this right is violate
B. The right to be safe
1. Protection of anonymity 1. Biased data, refusal to participate in future research
2. Subjects’ right to be free from stress 2. Biased data, refusal to participate in future research
C. The right to be informed
1. Debriefing 1. Unrelieved stress, feelings of being used, refusal to participate in future research
2. Dissemination of data 2. Subjects may feel that they gain nothing from and are exploited by participating in
research and consequently may distort their response and decline to participate in future research
3. Right to not be deceived 3. Biased data, refusal to participate in future research
SOURCE: “Ethics in Marketing Research: Their Practical Relevance,” by Tybout, A.M. & Zaltman, G., in Journal of
Marketing, 11, p. 359. November, 1974. Published by the American Marketing Association.

Ethics in Marketing Research

The American Marketing Association, in furtherance of its central objective of the advancement of
science in marketing and in recognition of its obligation to the public, has established these principles of
ethical practice of marketing research for the guidance of its members. In an increasingly complex
society, marketing management is more and more dependent upon marketing information intelligently
and systematically obtained. The consumer is the source of much of this information. Seeking the
cooperation of the consumer in the development of information, marketing management must
acknowledge its obligation to protect the public from misrepresentation and exploitation under the guise
of research. Similarly, the research practitioner has an obligation to the discipline and to those who
provide support for it—an obligation to adhere to basic and commonly accepted standards of scientific
investigation as they apply to the domain of marketing research.
FOR RESEARCH USERS, PRACTITIONERS, AND INTERVIEWERS
1. No individual or organization will undertake any activity which is directly or indirectly represented to be
marketing research, but which has as its real purpose the attempted sales of merchandise or services to
some or all of the respondents interviewed in the course of the research.
2. If respondents have been led to believe, directly or indirectly, that they are participating in a marketing
research survey and that their anonymity will be protected, their names shall not be made known to any
one outside the research organization or research department, or used for other than research purposes.
FOR RESEARCH PRACTITIONERS
1. There will be no intentional or deliberate misrepresentation of research methods or results. An

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 adequate description of methods employed will be made available upon request to the sponsor of the
research. Evidence that fieldwork has been completed according to specifications will, upon request, be
made
available to buyers of the research.
2. The identity of the survey sponsor and/or the ultimate client for whom a survey is being done will be
held in confidence at all times, unless this identity is to be revealed as part of the research design.
Research information shall be held in confidence by the research organization or department and not
used for personal gain or made available to any outside party unless the client specifically authorizes
such release.
3. A research organization shall not undertake marketing studies for competitive clients when such
studies would jeopardize the confidential nature of client-agency relationships.
FOR USERS OF MARKETING RESEARCH
1. A user of research shall not knowingly disseminate conclusions from a given research project or
service that are inconsistent with or not warranted by the data.
2. To the extent that there is involved in a research project a unique design involving techniques,
approaches, or concepts not commonly available to research practitioners, the prospective user of
research shall not solicit such a design from one practitioner and deliver it to another for execution
without the approval of the design originator.
FOR FIELD INTERVIEWERS
1. Research assignments and materials received, as well as information obtained form respondents,
shall be held in confidence by the interviewer and revealed to no one except the research organization
conducting the marketing study.
2. No information gained through a marketing research activity shall be used, directly or indirectly, for the
personal gain or advantage of the interviewer.
3. Interviews shall be conducted in strict accordance with specifications and instructions received.
4. An interviewer shall not carry out two or more interviewing assignments simultaneously, unless
authorized by all contractors or employers concerned. Members of the American Marketing Association
will be expected to conduct themselves in accordance with the provisions of this code in all of their
marketing research activities.
SOURCE: The American Marketing Association.

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 Good Marketing Research:
Contrasting MIS and Marketing
Research
MIS Marketing Research
Handles Both Internal Emphasis on Handling
and External Data External Data

Concerned with
Concerned with Solving Problems
Preventing &
Solving Problems
– Operates on a
Operates Continuously Project-by-Project
Tends to be Future- Basis
Oriented Tends to Focus on
A Computer-Based Past Information
Process Not Computer-Based
Includes other One Source of
Subsystems Besides Information to a
Marketing Research MIS

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 – Is scientific
– Is creative
– Uses multiple methods
– Realizes the interdependence of models & data
– Acknowledges the cost & value of information
– Maintains “healthy” skepticism
– Is ethical

3.2 Consumer Markets: Influences on Consumer Behavior

What is a Market?
A market is an aggregate of people who, as individuals or organizations, have needs for products in a product class and who have the
ability, willingness and authority to purchase such products.
A Market: Exchanges between Buyer & Seller

Something of Value: Money, Credit, Labor, Goods

BUYER SELLER

Something of Value: Goods, Services, Ideas

Types of markets:

1. Consumer Intend to consume or benefit, but not to make a profit.

2. Organizational/Business For:
o Resale

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 o Direct use in production
o or general daily operations.

Consumer Buying Behavior

What is Consumer Buying Behavior?
Definition of Buying Behavior: Consumer Behavior is the mental, emotional and physical activities engaged in when selecting, purchasing,
using and disposing of products and services to satisfy needs. Buying Behavior is the decision processes and acts of people involved in
buying and using products.

Need to understand:

 why consumers make the purchases that they make?

 what factors influence consumer purchases?
 the changing factors in our society.

Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs to analyze buying behavior for:
 Buyers reactions to a firms marketing strategy has a great impact on the firms success.
 The marketing concept stresses that a firm should create a Marketing Mix (MM) that satisfies (gives utility to) customers,
therefore need to analyze the what, where, when and how consumers buy.
 Marketers can better predict how consumers will respond to marketing strategies.

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 Model of Consumer Buyer Behavior
Consumer purchases are influenced strongly by:
Cultural
Social
Personal
Psychological characteristics
The basic stimulus-response model (the “black box”
model)

Marketing Other Buyer’s Black

Product Buyer
Economic Box
Price Technological Responses
Place Political
Buyer Buyer Product Choice
Promotion Cultural Charac- Decision Brand Choice
Dealer Choice
Teristics Process Purchase Timing
Purchase Amount

Describe a food buying decision that you made recently

Why Study Consumer Behavior?

 It is of central importance to developing new products:

segmentation and product positioning
 It is critical to market
 It is critical to product positioning
 It is critical to profitability analysis
 It is critical to pricing decisions

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  It is critical to distribution decisions
 It is critical to promotion decisions
 It is of importance to public policy makers and regulators
 It is of importance to public policy makers and regulators: Hi-octane gasoline
 It is of importance to public policy makers and regulators: nutritional labels
 Interest in symbolism and consumption culture

Consumer Behavior Reflects:

the totality about the of an offering by decision- over time
of decisions consumption making units

Information
Whether Information Hours
Whether gather Hours
What Acquisition Products gather
What
Why Acquisition Products Days
Why Influencer Days
How Services Influencer
How
When Usage Services Weeks
When Usage Decider Weeks
Where Time Decider
Where
How much/ Time Months
Howoften/
much/ Disposition Purchase Months
How Ideas Purchase
How often/
How long Disposition Ideas Years
How long User Years
User

Marketing Strategies and Tactics

Even the smallest changes in consumer confidence and spending can have a massive impact on the economy So how do we monitor these
changes?

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 L
Leading Indicators of the
Health of the Economy
Demand Side Indicators: Supply Side
consumer incomes Indicators:
consumer spending corporate profits
consumer confidence factory orders
retail sales inventory levels

Control
Indicators:
interest rates
inflation

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3.3 Consumer Markets: Stages of the Consumer Buying Process
Six Stages to the Consumer Buying Decision Process (For complex decisions). Actual purchasing is only one stage of the process. Not
all decision processes lead to a purchase. All consumer decisions do not always include all 6 stages, determined by the degree of
complexity..

The six stages are:

1. Problem Recognition (awareness of need)--difference between the desired state and the actual condition. Deficit in assortment
of products. Hunger--Food. Hunger stimulates your need to eat.
Can be stimulated by the marketer through product information--did not know you were deficient? I.E., see a commercial for a
new pair of shoes, stimulates your recognition that you need a new pair of shoes.
2. Information search--
o Internal search, memory.
o External search if you need more information. Friends and relatives (word of mouth). Marketer dominated sources;
comparison shopping; public sources etc.

A successful information search leaves a buyer with possible alternatives, the evoked set.

Hungry, want to go out and eat, evoked set is

o Ethiopian dish
o chinese food
o indian food
o burger king
o klondike kates etc
3. Evaluation of Alternatives--need to establish criteria for evaluation, features the buyer wants or does not want. Rank/weight
alternatives or resume search. May decide that you want to eat something spicy, Ethiopian dish gets highest rank etc.
If not satisfied with your choice then return to the search phase. Can you think of another restaurant? Look in the yellow pages
etc. Information from different sources may be treated differently. Marketers try to influence by "framing" alternatives.

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 4. Purchase decision--Choose buying alternative, includes product, package, store, method of purchase etc.
5. Purchase--May differ from decision, time lapse between 4 & 5, product availability.
6. Post-Purchase Evaluation--outcome: Satisfaction or Dissatisfaction. Cognitive Dissonance, have you made the right decision.
This can be reduced by warranties, after sales communication etc.
After eating an Etioipian meal, may think that really you wanted a chinese meal instead.

A Simple Model of Consumer

Decision Making

Need Info Brand Brand Purchase

Criteria Processing Perceptions Attitudes Behavior

Safety is very important to me in buying a car.

I think Volvo is a very safe car.
Therefore, I like Volvos.
As a result, I would consider a Volvo the next time I am in the
market for a new car.

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Types of Consumer Buying Behavior
Types of consumer buying behavior are determined by:
 Level of Involvement in purchase decision. Importance and intensity of interest in a product in a particular situation.
 Buyers level of involvement determines why he/she is motivated to seek information about a certain products and brands but
virtually ignores others.

High involvement purchases--Honda Motorbike, high priced goods, products visible to others, and the higher the risk the higher the
involvement. Types of risk:
 Personal risk
 Social risk
 Economic risk

The four type of consumer buying behavior are:

 Routine Response/Programmed Behavior--buying low involvement frequently purchased low cost items; need very little
search and decision effort; purchased almost automatically. Examples include soft drinks, snack foods, milk etc.
 Limited Decision Making--buying product occasionally. When you need to obtain information about unfamiliar brand in a
familiar product category, perhaps. Requires a moderate amount of time for information gathering. Examples include Clothes--
know product class but not the brand.
 Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or infrequently bought products. High
degree of economic/performance/psychological risk. Examples include cars, homes, computers, education. Spend alot of time
seeking information and deciding.
Information from the companies MM; friends and relatives, store personnel etc. Go through all six stages of the buying
process.
 Impulse buying, no conscious planning.

The purchase of the same product does not always elicit the same Buying Behavior. Product can shift from one category to the next.
For example:
Going out for dinner for one person may be extensive decision making (for someone that does not go out often at all), but limited

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decision making for someone else. The reason for the dinner, whether it is an anniversary celebration, or a meal with a couple of
friends will also determine the extent of the decision making.

Categories that Effect the Consumer Buying Decision Process

A consumer, making a purchase decision will be affected by the following three factors:
1. Personal
2. Psychological
3. Social
4. Cultural

The marketer must be aware of these factors in order to develop an appropriate MM for its target market.

Personal
Unique to a particular person. Demographic Factors. Sex, Race, Age etc.
Who in the family is responsible for the decision making.
Young people purchase things for different reasons than older people.

Psychological factors
Psychological factors include:

 Motives--

A motive is an internal energizing force that orients a person's activities toward satisfying a need or achieving a goal.
Actions are effected by a set of motives, not just one. If marketers can identify motives then they can better develop a
marketing mix.
MASLOW hierarchy of needs!!

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 o Physiological
o Safety
o Love and Belonging
o Esteem
o Self Actualization

Need to determine what level of the hierarchy the consumers are at to determine what motivates their purchases. Motives often
operate at a subconscious level therefore are difficult to measure.

 Perception--

What do you see?? Perception is the process of selecting, organizing and interpreting information inputs to produce meaning.
IE we chose what info we pay attention to, organize it and interpret it.
Information inputs are the sensations received through sight, taste, hearing, smell and touch.

Selective Exposure-select inputs to be exposed to our awareness. More likely if it is linked to an event, satisfies current needs,
intensity of input changes (sharp price drop).

Selective Distortion-Changing/twisting current received information, inconsistent with beliefs.

Advertisers that use comparative advertisements (pitching one product against another), have to be very careful that consumers
do not distort the facts and perceive that the advertisement was for the competitor.

Selective Retention-Remember inputs that support beliefs, forgets those that don't.
Average supermarket shopper is exposed to 17,000 products in a shopping visit lasting 30 minutes-60% of purchases are
unplanned. Exposed to 1,500 advertisement per day. Can't be expected to be aware of all these inputs, and certainly will not
retain many.

Interpreting information is based on what is already familiar, on knowledge that is stored in the memory.

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  Ability and Knowledge--

Need to understand individuals capacity to learn. Learning, changes in a person's behavior caused by information and
experience. Therefore to change consumers' behavior about your product, need to give them new information re: product...free
sample etc.

When making buying decisions, buyers must process information.

Knowledge is the familiarity with the product and expertise.

Inexperience buyers often use prices as an indicator of quality more than those who have knowledge of a product.
Non-alcoholic Beer example: consumers chose the most expensive six-pack, because they assume that the greater price
indicates greater quality.

Learning is the process through which a relatively permanent change in behavior results from the consequences of past
behavior.

 Attitudes--

Knowledge and positive and negative feelings about an object or activity-maybe tangible or intangible, living or non-
living.....Drive perceptions

Individual learns attitudes through experience and interaction with other people.
Consumer attitudes toward a firm and its products greatly influence the success or failure of the firm's marketing strategy.

Attitudes and attitude change are influenced by consumers personality and lifestyle.

Consumers screen information that conflicts with their attitudes. Distort information to make it consistent and selectively retain
information that reinforces our attitudes. IE brand loyalty.

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 There is a difference between attitude and intention to buy (ability to buy).

 Personality--

all the internal traits and behaviors that make a person unique, uniqueness arrives from a person's heredity and personal
experience. Examples include:

o Workaholism
o Compulsiveness
o Self confidence
o Friendliness
o Adaptability
o Ambitiousness
o Dogmatism
o Authoritarianism
o Introversion
o Extroversion
o Aggressiveness
o Competitiveness.

Traits effect the way people behave. Marketers try to match the store image to the perceived image of their customers.

There is a weak association between personality and Buying Behavior, this may be due to unreliable measures. Consumers buy
products that are consistent with their self concept.

 Lifestyles--

Recent Ethiopian trends in lifestyles are a shift towards personal independence and individualism and a preference for a
healthy, natural lifestyle.

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 Lifestyles are the consistent patterns people follow in their lives.

Social Factors

Consumer wants, learning, motives etc. are influenced by opinion leaders, person's family, reference groups, social class and culture.

 Opinion leaders--

Spokespeople etc. Marketers try to attract opinion leaders...they actually use (pay) spokespeople to market their products.
Michael Jordon (Nike, McDonalds, Gatorade etc.)

 Roles and Family Influences--

Role...things you should do based on the expectations of you from your position within a group.
People have many roles.
Husband, father, employer/ee. Individuals role are continuing to change therefore marketers must continue to update
information.

Family is the most basic group a person belongs to. Marketers must understand:

o that many family decisions are made by the family unit

o consumer behavior starts in the family unit
o family roles and preferences are the model for children's future family (can reject/alter/etc)
o family buying decisions are a mixture of family interactions and individual decision making
o family acts an interpreter of social and cultural values for the individual.

The Family life cycle: families go through stages, each stage creates different consumer demands:

o bachelor stage...
o newly married, young, no children.

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 o full nest I, youngest child under 6
o full nest II, youngest child 6 or over
o full nest III, older married couples with dependant children
o empty nest I, older married couples with no children living with them, head in labor force
o empty nest II, older married couples, no children living at home, head retired
o solitary survivor, in labor force
o solitary survivor, retired
o Modernized life cycle includes divorced and no children

 Reference Groups--

Individual identifies with the group to the extent that he takes on many of the values, attitudes or behaviors of the group
members.

Families, friends, sororities, civic and professional organizations.

Any group that has a positive or negative influence on a persons attitude and behavior.
Membership groups (belong to)
Affinity marketing is focused on the desires of consumers that belong to reference groups. Marketers get the groups to approve
the product and communicate that approval to its members. Credit Cards etc.!!

Aspiration groups (want to belong to)

Disassociate groups (do not want to belong to)
Honda, tries to disassociate from the "biker" group.

The degree to which a reference group will affect a purchase decision depends on an individuals susceptibility to reference
group influence and the strength of his/her involvement with the group.

 Social Class--

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 an open group of individuals who have similar social rank. Ethiopia is not a classless society. The criteria may be occupation,
education, income, wealth, race, ethnic groups and possessions.

Social class influences many aspects of our lives. IE upper middle class may for instance prefer luxury cars Mercedes.

Social class determines to some extent, the types, quality, quantity of products that a person buys or uses. Lower class people
tend to stay close to home when shopping; do not engage in much prepurchase information gathering.
Stores project definite class images.

Family, reference groups and social classes are all social influences on consumer behavior. All operate within a larger culture.

 Culture and Sub-culture--

Culture refers to the set of values, ideas, and attitudes that are accepted by a homogenous group of people and transmitted to
the next generation.

Culture also determines what is acceptable with product advertising. Culture determines what people wear, eat, reside and
travel. Cultural values may relate to good health, education, individualism and freedom. Different society has different levels
of needs, different cultural values.

Culture can be divided into subcultures:

o geographic regions
o human characteristics such as age and ethnic background.

Culture affects what people buy, how they buy and when they buy.

Understanding Consumer Buying Behavior offers consumers greater satisfaction (Utility) assuming that the company has adopted the
Marketing Concept and is consumer oriented.

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3.4 Organizational Markets and Organizational Buyer Behavior
Organizational/ Industrial / buyers are those who purchase items on behalf of their business or organization

Businesses now spend considerable sums trying to learn about what makes “customers tick”. The questions they try to understand are:

•Who buys?
•How do they buy?
•When do they buy?
•Where do they buy?
• Why do they buy?
For a marketing manager, the challenge is to understand how customers might respond to the different elements of the marketing mix that are
presented to them. If management can understand these customer responses better than the competition, then it is a potentially significant
source of competitive advantage.

Organizational Buyer Behavior-‘The decision-making process by which formal organizations establish the need for purchased
products and services, and identify, evaluate, and choose among alternative brands and suppliers’(Kotler and Armstrong 1989)
Hence, business buyer behavior is the buying behavior of the organizations that buy goods and services for use in the production of
other products and services or for the purpose of reselling or renting them to others at a profit.
Business buying process is decision process by which business buyers determine which products and services their organizations need
to purchase, and then find, evaluate, and choose among alternative suppliers and brands
In business buying, buyers and sellers work more closely together and build close long-run relationships.
Many business markets have inelastic demand (total demand for many business products is not affected much by price changes,
especially in the short run). Business markets have more fluctuating demand ( demand for many business goods and services tends to
change more—and more quickly—than the demand for consumer goods and services does. A small percentage increase in consumer
demand can cause large increases in business demand. Sometimes a rise of only 10 percent in consumer demand can cause as much as
a 200 percent rise in business demand during the next period)

Major Types of Buying Situations

• straight rebuy, the buyer reorders something without any modifications

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 • modified rebuy, the buyer wants to modify product specifications, prices, terms, or suppliers
• new-task situation, the company buying a product or service for the first time
-
greater the cost or risk
- larger number of decision participants and greater efforts to collect information
- the marketer's greatest opportunity and challenge
- the marketer not only tries to reach as many key buying influences as possible, but also provides help and
information
- the buyer must decide on product specifications, suppliers, price limits, payment terms, order quantities,
delivery times, and service terms

Systems Selling

Buying a packaged solution to a problem from a single seller, thus avoiding all the separate decisions involved in a
complex buying situation (often a key business marketing strategy for winning and holding accounts)
• Participants in the Business Buying Process:
• buying center - includes all members of the organization who play a role in the purchase decision process

• Roles in the purchase decision process:

• Users - members of the organization who will use the product or service (initiate the buying proposal and help define
product specifications)
• Influencers - help define specifications and provide information for evaluating alternatives (Technical personnel are
particularly important influencers)

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 • Buyers - have formal authority to select the supplier and arrange terms of purchase. ( their major role is in selecting
vendors and negotiating
• Deciders have formal or informal power to select or approve the final suppliers
• Gatekeepers control the flow of information to others

Major Influences on Organization Buyers

• institutional market - consists of schools, hospitals, nursing homes, prisons, and institutions that provide goods and services to
people in their care
• low budgets and captive patrons

• Government market - offers large opportunities for many companies, both big and small. (In most countries, government
organizations are major buyers of goods and services)

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 Characteristics of organizational buyer behavior

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 • Example: Buying a Machine Vision System

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THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS

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

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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.

Buying Situations

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
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.

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How Businesses Buy
To cap our discussion of the business market we now look at how purchasing decisions are made. Business purchasing follows the
same five-step buying process faced by consumers:

Need Recognition
Search
Evaluate Options
Purchase
After-Purchase Evaluation.

The Organization Buying Process

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

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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.

2. Search
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.

3. 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

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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.

4. 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.

5. 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.

If you are generating leads or interest in your business, but are struggling with making sales or deals happen, you may be mistaking
the type of demand your prospects are showing.

If you have had limited success in the types of marketing you have been doing, you may be too limited in how you market and to the
levels of demand you are reaching.

Have you ever asked yourself, "Should I spend more time educating potential customers on the benefits of our service or product or
should I spend more time telling them why we are better than the competition?" The answer often lies in the type of demand you have
generated or are seeking. The first type of demand is called primary demand.

Primary demand is when a potential buyer, or prospect, is showing interest in a product or service for the first time. Often times it is
because the prospect was never exposed to the "concept" of the product or service or never really understood it. But now due to new
circumstances she has an apparent need all of a sudden.

You may recognize primary demand when someone says, "Hmm... that sounds really interesting and something I/my company could
use. Please tell me more."

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Basically, when someone has primary demand for your services or products they are at the stages where they are at first only
considering your "type of service or product." They have to be convinced that this is even right for them before they even consider you
(or someone else).

At this point, they have not even compared you to the competition. Therefore, when facing primary demand situations you have an
excellent opportunity to gain new business. It's also an ideal way to "sidestep" your competition!

When you have a prospect with primary demand for your products or services your goal is to EDUCATE, EDUCATE, and
EDUCATE this person. Ask questions to uncover possible problems this person is facing or opportunities he wishes to explore. Then
when appropriate, explain how your product or service is the perfect match.

If you have good communication skills you can close almost all deals when a prospect has primary demand.

Selective demand is when a prospect has a need, has identified the need, and is ACTIVELY seeking out a solution. In these cases the
prospect will come to you if he feels comfortable in your company's ability to solve his needs.

This sounds good right? Buyers who already know what they want. No need for educating them. Just get to the point and sell. Well,
it's not that easy!

When someone has selective demand they are more proactive in their search for information. They usually give themselves enough
time to compare the quality, value, and offers of different companies. So while they are calling you they are also likely calling others
as well.

Primary demand = Someone has identified a need for the first time, often using your help. To sell and market your solution use
education, exploration of problems, and explain and demonstrate how you have the solution.

Selective demand = Someone has identified the need or problem on her own and is already seeking a solution before you came along.
To sell and market to someone with selective demand, first determine how you can better serve your prospect's needs and
communicating this clearly to him, before he goes to someone else!

A few examples for demonstration:

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A financial advisor would create "primary demand" in someone when he teaches the powerful, compounding effects of interest and
why it is so important to begin investing today.

An organizational development consultant would be facing "selective demand" if he had to convince a company why his approach to
improving productivity was better than what the competition used.

An executive coach would create "primary demand" if she first helped someone overcome a problem in productivity, then determined
other problems that existed, and finally offered to help solve these problems.

A wellness center, that teaches relaxation techniques through yoga, would gain a strong competitive advantage and win more
"selective demand" if their marketing focused on how they were better capable than their competition to solve the health concerns of
their customers and prospects.

Ways to increase "primary demand":

Use "pre-emptive" marketing. Rather than wait until the day comes when your prospects discover they have a need and allow them to
do their own search, hoping they find you and call you, make sure you reach them first!

Ways to do this:

Networking

- by focusing on the problems you solve, you are likely to meet interested people

- use especially when marketing to businesses

Direct Mail

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- use your letter to 1st help the reader identify a problem or need, 2nd magnify this problem or need to how it affects his business or
life, and 3rd provide a solution using your company

Display Ads in newspapers

- similar approach as in Direct Mail, but uses print media instead

- use ads LARGE enough to get noticed

Publicity

- it's a great way to get people's attention...if you can first get the publicity

Referrals

- get referred to the people and businesses likely to benefit from your offer

- many times people will be receptive to new ideas when they are referred by someone they already know and trust

Telemarketing

- often a "tough sell", but if you reach enough of the right people it can work

- stick to telemarketing to businesses

These marketing tactics tend to work best for primary demand because they catch someone when they are "not already" considering
your business or your type of product or service.

Just remember, these people did NOT expect to hear from you or about you on this particular day. So you must tell them in your
marketing, right up front "What's in it for them." In other words, you must use your marketing to ask probing questions, identify
needs, and then educate them on how their problems can be solved using your product, service, or company.

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Ways to increase Selective Demand:

Four Steps:

1) Determine where your prospects typically turn to for more information about your type of services or products.

For example: Internet Search Engines, Yellow Pages, Classified Sections, Business Directories, Advice from others.

2) Do everything possible to gain tremendous exposure for your company in the specific places that your potential customers turn to
when looking for a company like yours.

If it's a form of media, (online or offline) advertise there.

If it's word of mouth, identify who has strong levels of "influence" over other people's decisions and build relationships with these
people.

3) Recognize your company's strongest competitive advantages and communicate them in all marketing and advertising you do. Do
NOT be another "me too" company and look like everyone else. You will NOT get noticed that way. Stand out in a GOOD way.

4) Have excellent customer service and "incoming call" sales people ready to answer all questions and sell your company. If
necessary, have great sales people who can meet prospects in person on appointments to close business and start new relationships.

So, which one should we focus on, gaining more primary or selective demand?

That's a tough one, but in most cases BOTH.

If you are what I call a true "marketing hustler" who can get out there and is very proactive in marketing, you may be able to generate
enough leads by generating enough primary demand.

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However, there are cons as well. You may find yourself spending quite a bit of time trying to sell or market to people or businesses
that don't quite understand what you do and feel they have no real need.

Why not at least devote a bit of your marketing budget and efforts to generate you qualified, selective demand?

If your company's products and services are of much higher quality, better priced, and/or better serve customers' needs you will likely
win out in a head to head advertising/marketing battle. Proudly display your company wherever customers are likely to search for you.

It is probable that you will win most business anyway, especially if you have an established, strong identity.

However, when you combine both approaches and appeal to both markets you A) gain a share of the "established" market -
those consumers or businesses actively seeking a solution, and B) open new territories and expand into "untapped" markets
by generating primary demand.

References:
1. Philip Kotler, Marketing Management, 12/E, Prentice Hall: 2006 , ISBN-10: 0131457578
2. Kearney, A.T. (2002). Globalization’s Last Hurrah? Foreign Policy, January/February, 38-51.
3. Jallat, F. and Kimmel, A.J. (2002). Marketing in Culturally Diverse environments: The Case of Western Europe. Business Horizons, July/August, 30-36.
4. Rosenzweig, Philip M. (1994). National culture and Management. Harvard Business School, HBS 9-394-177.
5. Luna, D. and Gupta, S.F. (2001). An integrative framework for cross-cultural consumer behavior. International Marketing Review, 18(1), 45-69.
6. Van Gelder, S. (2002). General Strategies for Global Brands. In Brand & Meta: Global Brand Strategy, pp.1-10.
7. Blumenthal, D. (2001). Taking A Brand Global: Ten Steps to Success. Institute for Brand Leadership, pp.1-16.
8. Pao, V. and Lawrence, S. (2003). The Internal Impact of External Branding, Strategy+Business Enews, http://www.strategy-business.com
9. Kettels, C. (2003). Why European Context Matters. European Business Forum.http://wwwebfonline.com/at_forum/at_forum.asp?is=255&linked=252
10. Dolan, R. (1999). Integrated Marketing Communications. Harvard Business School, HBS case 9-599-087, pp. 316-327.
11. Johansson, Johny K. (2003). Global Advertising, Chapter 15. In Global Marketing, 3rd ed, Irwin McGraw Hill, pp. 472-495.
12. William M. Pride and O.C. Ferrell, Foundations of Marketing, second edition,
13. Michael R. Solomon and Elnora W. Stuart, Marketing: Real People, Real Choices, Prentice Hall, 3e, 2003.
14. Kotler, Philip (2000) Marketing Management, the Millennium edition, (Upper Saddle River, NJ: Prentice Hall) ISBN: 0-13-012217-3.
15. Lehmann, Donald R., Sunil Gupta, and Joel H. Steckel (1998) Marketing Research, (Reading, MA: Addison-Wesley) ISBN: 0-321-01416-2.
16. Philip Kotler & Kevin Lane Keller, Marketing Management, 12th Edition (Englewood Cliffs: Prentice-Hall, 2006)
17. J. Paul Peter and Jerry C. Olson, Consumer Behavior and Marketing Strategy, Fifth Edition: Irwin/McGraw Hill

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