business and organizational customers
any buyers who buy for resale or to produce other goods and services. Types include: 1) Producers of goods and services, 2) Intermediaries, 3) Government units, 4) Nonprofit organizations
a written (or electronic) description of what the firm wants to buy
is a way for a supplier to document its quality procedures according to internationally recognized standards
buying specialists for their employers; they usually specialize by product area and are real experts
multiple buying influence
means that several people - perhaps even top management - play a part in making a purchase decision. Possible buying influences include: 1) Users, 2) Influencers, 3) Buyers, 4) Deciders, 5) Gatekeepers
all the people who participate in or influence a purchase
a formal rating of suppliers on all relevant performance
a request to buy something
occurs when a customer organization has a new need and wants a great deal of information. Can involve setting product specifications, evaluating sources of supply, and establishing an order routine that can be followed in the future if results are satisfactory. Multiple buying influence is typical in new-task buying.
a routine repurchase that may have been made many times before.
the in-between process where some review of the buying situation is done - though not as much as in new-task buying.
the terms of sale offered by the supplier in response to the purchase specifications posted by a buyer
reliably getting products there just before the customer needs them.
negotiated contract buying
agreeing to contracts that allow for changes in the purchase arrangements
contract with an outside firm to produce goods or services rather than to produce them internally
North American Industry Classification (NAICS) codes
groups of firms in similar lines of business. Ex: The number of establishments, sales volumes, and number of employees - broken down by geographic areas - are given for each NAICS code.
open to buy
the buyers have budgeted funds that can be spent during the current period
independent buying agents who work in central markets (NYC, Paris, Rome, Hong Kong, Chicago, LA) for several retailer or wholesaler customers based in outlying areas or other countries.
Foreign Corrupt Practices Act
passed by US Congress in 1977; prohibits US firms from paying bribes to foreign officials
the need-satisfying offering of a firm
a product's ability to satisfy a customer's needs or requirements
the set of all product lines and individual products that a firm sells
a set of individual products that are closely related
a particular product within a product line
the use of a name, term, symbol, or design - or a combination of these - to identify a product
a word letter, or group of words or letters. ex: America Online (AOL), WD-40, 3M Post-its, etc...
includes only those words, symbols, or marks that are legally registered for use by a single company
the same as a trademark, except that it refers to a service offering
how well customers recognize and accept a company's brand. 5 levels: 1-rejection, 2-non-recognition, 3-recognition, 4-preference, 5-insistence
means that potential customers won't buy a brand unless its image is changed
final consumers dont recognize a brand at all - even though intermediaries may use the brand name for identification and inventory control
customers remember the brand
that target customers usually choose the brand over other brands, perhaps because of habit or favorable past experience
customers insist on a firm's branded product and are willing to search for it
the value of a brand's overall strength in the market
The Lanham Act (of 19946)
spells out what kinds of marks (including brand names) can be protected and the exact method of protecting them; applies to goods shipped in instate or foreign commerce
the same brand for several products - or individual brands for each product. EX: Keebler snack food products and Sears Kenmore appliances
a well-known brand that sellers pay a fee to use. EX: Sunkist brand name has been licensed to many companies for use on more than 400 products in 30 countries
separate brand names for each product. EX: when General Mills introduced a line of organic cereals, it used the Cascadian Farm name and the Big G logo was not on the box. That was so consumers who try to avoid additives might not trust a big corporate brand.
generic products, generic "brands"
products that have no brand at all other than identification of their contents and the manufacturer or intermediary
brands created by producers; sometimes called "national brands" because the brand is promoted all across the country or in large regions. EX: Colgate, MasterCard, & McDonald's
dealer brands or private brands or private label
brands created by intermediaries. EX: Craftsman and Kenmore (Sears), Up & Up (Target)
battle of the brands
the competition between dealer brands and manufacturer brands is just a question of whose brands will be more popular and who will be in control.
involves promoting, protecting, and enhancing the product
universal product code (UPC)
identifies each product with marks readable by electronic scanners matching the product with its price.
Federal Fair Packaging and Labeling Act (of 1966)
requires that consumer goods be clearly labeled in easy-to-understand terms to give consumers more information; calls on industry to try to reduce the confusing number of package sizes and make labels more useful
Nutrition Labeling and Education Act of 1990
requires food manufacturers to use a uniform format that allows consumers to compare the nutritional value of different products.
explains what the seller promises about its product
Magnuson-Moss Act (of 1975)
says that producers must provide a clearl written warranty if they choose to offer any warranty. It does not have to be strong. Federal Trade Commissions says that it must be clear and definite and not deceptive or unfair. A warranty also must be available for inspection before the purchase.
products meant for the final consumer
products meant for use in producing other products
4 groups of consumer product classes
1) convenience, 2) shopping, 3) specialty, 4) unsought
products a consumer needs but isn't willing to spend much time or effort shopping for; bought often; require little service or selling; inexpensive; may even be bought out of habit; may be a staple/impulse/emergency product
products that are bought often, routinely, and without much thought; ex: breakfast cereal, canned soup, and other packaged foods
products that are bought quickly - as unplanned purchases - because of a strongly felt need; ex: sale items
products that are purchased immediately when the need is great; consumer doesn't have much time to shop around; EX: Ambulance service, raincoat, or ice cubes
products that a customer feels are worth the time and effort to compare with competing products; can be homogeneous or heterogenous
homogeneous shopping products
shopping products the customer sees as basically the same and wants at the lowest price; some consumers feel that certain sizes and types of computers, TV sets, washing machines, and cars may be very similar, so they shop for the best price.
heterogeneous shopping products
shopping products the customer sees as different and wants to inspect for quality and suitability. Furniture, clothing, and membership in a spa are something a consumer would expect help from a knowledgeable salesperson; quality and style matter more than price.
consumer products that the customer really wants and makes a special effort to find; willing to search for it
products that potential customers don't yet want or know they can buy, so they don't search for them at all. Consumers probably won't even see these products unless promotion can show their value
new unsought products
products offering really new ideas that potential customers don't know about yet
regularly unsought products
products - like gravestones, life insurance, and encyclopedias - that stay unsought but not unbought forever. May be a need, but potential customers aren't motivated to satisfy it. For this, personal selling is VERY important.
the demand for business products derives from the demand for final consumer products. EX: car manufacturers buy about 1/5 of all steel products, but if demand for cars drops, they'll buy less steel, then even the steel supplier with the best marketing mix is likely to lose sales
a product whose total cost is treated as a business expense in the year it's purchased
a long-lasting product that can be used and depreciated for many years; often very expensive, but due to tax purposes the cost is spread over a number of years
important capital items; ex: buildings, land rights, and major equipment
short-lived capital items - tools and equipment used in production or office activities; more standardized than installations and usually needed by more customers - like Canon's small copy machines, Rockwell's portable drills, and Steelcase's filing cabinets.
unprocessed expense items - such as logs, iron ore, and wheat - that are moved to the next production process with little handling; raw materials become part of a physical good and are expense items. 2 types: farm products & natural products
grown by farmers - ex: oranges, sugar cane, and cattle
products that occur in nature - ex: timber, iron ore, oil, and coal
processed expense items that become part of a finished product
expense items that do not become part of a finished product; THREE types = 1) maintenance, 2) repair, 3) operating supplies (AKA: MRO supplies)
specialized services that support a fir's operations; usually expensive
product life cycle
describes the stages a really new product idea goes through from beginning to end. FOUR major stages: 1) market introduction, 2) market growth, 3) market maturity, 4) sales decline
1) market introduction stage
sales are low as a new idea is first introduced to a market
2) market growth stage
industry sales grow fast - but industry profits rise and then start falling
3) market maturity stage
occurs when industry sales level off and competition gets tougher.
4) sales decline stage
new products replace the old
the currently accepted popular style; some sales of products are influenced by fashion; tend to have short life cycle
an idea that is fashionable only to certain groups who are enthusiastic about it; but these groups are so fickle that a fad is even more short lived than a regular fashion.
one that is new in any way for the company concerned
Federal Trade Commission (FTC)
The federal government agency that policies antimonopoly laws; to be called new, the FTC says a product must be entirely new or changed in a "functionally significant or substantial respect"
New-Product Development Process
1) Idea generation
3) Idea evaluation
Consumer Product Safety Act (of 1972)
set up the Consumer Product Safety Commission to encourage safety in product design and better quality control
the legal obligation of sellers to pay damages to individuals who are injured by defective or unsafe products; liability settlements may exceed not only a company's insurance coverage, but its total assets!
getting reactions from customers about how well a new-product idea fits their needs; uses market research - ranging from informal focus groups to formal surveys of potential customers
product managers or brand managers
manage specific products - often taking over the jobs formerly handled by an advertising manager; major responsibility = Promotion.
total quality management (TQM)
the philosophy that everyone in the organization is concerned about quality, throughout all of the firms activities, to better serve customer needs
a commitment to constantly make things better one step at a time
a graph that shows the number of times a problem cause occurs, with problem causes ordered from most frequent to least frequent
a visual aid that helps organize cause-and-effect relationships for "things gone wrong"
giving employees the authority to correct a problem without first checking with management
communicating information between the seller and potential buyer or others in the channel to influence attitudes and behavior; involves telling target customers that the right Product is available at the right Place at the right Price
involves direct spoken communication between sellers and potential customers; salespeople get immediate feedback; can be very expensive
communicating with large numbers of potential customers at the same time; less flexible than personal selling, but when the target market is large and scattered, mass selling can be less expensive
any paid form of non-personal presentation of ideas, goods, or services by an identified sponsor; vs. publicity which is "free"
any unpaid form of non-personal presentation of ideas, goods, or services
refers to promotion activities - other than advertising, publicity, and personal selling - that stimulate interest, trial, or purchase by final customers or others in the channel
concerned with managing personal selling; often responsible for building good distribution channels and implementing place policies
manage their company's mass-selling effort - in tv, newspapers, magazines, and other media; job = choosing the right media and developing the ads
communications with non-customers, including labor, public interest groups, stockholders, and the government
sales promotion managers
manage their company's sales promotion effort; has independent status and reports directly to the marketing manager
integrated marketing communications
the intentional coordination of every communication from a firm to a target customer to convey a consistent and complete message
action-oriented model consisting of FOUR promotion jobs:
1) to get Attention
2) to hold Interest
3) to arouse Desire
4) to obtain Action
The Traditional Communication Process
Source --> Encoding --> Message channel --> Decoding --> Receiver --> Feedback --> back to Source (in the middle of all this is "Noise"
a source trying to reach a receiver with a message
the sender of a message
a potential customer
any distraction that reduces the effectiveness of the communication process
the source deciding what it wants to say and translating it into words or symbols that will have the same meaning to the receiver
the receiver translating the message
the carrier of the message; a source can use many message channels to deliver a message
means using normal promotion effort - personal selling, advertising, and sales promotion - to help sell the whole marketing mix to possible channel members
means getting customers to ask intermediaries for the product
shows when different groups accept ideas
the first to adopt; eager to try a new idea and willing to take risks
are well respected by their peers and often are opinion leaders; tend to be younger, more mobile, and more creative than later adopters but have fewer contacts outside their own social group or community than innovators
avoid risk and wait to consider a new idea after many early adopters have tried and liked it
cautious about new ideas
prefer to do things the way they've ben done in the past and are very suspicious of new ideas
demand for the general product idea - not just for the company's own brand
demand for a company's own brand
basing the budget on the job to be done; helps set priorities so that the money you spend produces specific results
the amount of money that is charged for "something" of value
target return objective
sets a specific level of profit as an objective
profit maximization objective
seeks to get as much profit as possible
seeks some level of unit sales, dollar sales, or share of market - without referring to profit
status quo objectives
don't-rock-the-pricing-boat objectives; this form of thinking may happen when managers want to stabilize prices, meet competition, or even avoid competition
aggressive action on one or more of the Ps other than Price
consciously set prices
means offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities
offering the same product and quantities to different customers at different prices
skimming price policy
tries to sell the top (skim the cream) of a market - the top of the demand curve - at a high price before aiming at more price-sensitive customers; skimming may maximize profits in the market introduction stage for an innovation
penetration pricing policy
tries to sell the whole market at one low price; this might by wise when the elite market is small
introductory price dealing
temporary price cuts - to speed new products into a market and get customers to try them; however don't confuse temporary price cuts with low penetration prices.
basic list prices
the prices final customers or users are normally asked to pay for products
reductions from list price given by a seller to buyers who either give up some marketing function or provide the function themselves
discounts offered to encourage customers to buy in larger amounts
cumulative quantity discounts
apply to purchases over a given period - such as a year - and the discount usually increases as the amount purchased increases; encourage repeat buying by reducing the customer's cost for additional purchases
noncumulative quantity discounts
apply only to individual orders; encourage larger orders but do not tie a buyer to the seller after that one purchase
discounts offered to encourage buyers to buy earlier than present demand requires
payment for the face value of the invoice is due immediately; these terms are sometimes changed to net 10 or net 30, which means payment is due within 10 or 30 days of the date on the invoice
reductions in price to encourage buyers to pay their bills quickly; the terms for a cash discount usually modify the net terms
2/10, net 30
means the buyer can take a 2 percent discount off the face value of the invoice if the invoice is paid within 10 days. Otherwise, the full face value is due within 30 days.
trade (functional) discount
a list price reduction given to channel members for the job they are going to do
a temporary discount from the list price; encourage immediate buying
everyday low pricing
setting a low list price rather than relying on frequent sales, discounts, or allowances. Some supermarkets use this approach
given to final consumers, customers, or channel members for doing something or accepting less of something
price reductions given to firms in the channel to encourage them to advertise or otherwise promote the supplier's products locally
aka: slotting allowances - are given to an intermediary to get shelf space for a product
push money (prize money) allowances
aka: PMs or spiffs - are given to retailers by manufacturers or wholesalers to pass on to the retailers' salesclerks for aggressively selling certain items; used for new items, slower-moving items, or higher-margin items
a price reduction given for used products when similar to new products are bought
refunds paid to to consumers after a purchase. sometimes the rebate is very large; some automakers offer rebates of $500 to $6,000 to promote sales of slow-moving models.
F.O.B. (Free On Board)
a commonly used transportation term meaning free on board some vehicle at some place; typically FOB pricing names the place - often the location of the seller's factory or warehouse - as in FOB Taiwan or FOB mill. This means that the seller pays the cost of loading the products onto some vehicle; then title to the products passes to the buyer. The buyer pays the freight and takes responsibility for damage in transit
making an average freight charge to all buyers within specific geographic areas
uniform delivered pricing
means making an average freight charge to all buyers; a kind of zone pricing - an entire country may be considered as one zone - that includes the average cost of delivery in the price. Most often used when 1) transportation costs are relatively low, and 2) the seller wishes to sell in all geographic areas at one price, perhaps a nationally advertised price
absorbing freight cost so that a firm's delivered price meets that of the nearest competitor; this amounts to cutting list price to appeal to new market segments
setting a fair price level for a marketing mix that really gives the target market superior customer value
unfair trade practice acts
put a lower limit on prices, especially at wholesale and retail levels
pricing a product sold in a foreign market below the cost of producing it or at a price lower than in its domestic market; usually designed to protect the country's domestic producers and jobs
phony list prices
prices customers are shown to suggest that the price has been discounted from list; some customers seem more interested in the supposed discount than in the actual price; most businesses/trade associations/government agencies consider this unethical
Wheeler Lea Amendment
bans "unfair or deceptive acts in commerce"
competitors getting together to raise, lower, or stabilize prices; relatively easy; completely ILLEGAL in the US; considered a "conspiracy" under the Sherman Act and the FTC
selling the same products to different buyers at different prices
Robinson-Patman Act (of 1936)
makes illegal any price discrimination if it injures the competition; does permit some price differences, but they must be based on 1) cost differences or 2) the need to meet competition
a dollar amount added to the cost of products to get the selling price. EX: CVS buys a bottle of Pert Plus shampoo and conditioner for $2.40, to make a profit, CVS must obviously sell the product for more than $2.40. If it adds $1.20 to cover operating expenses and provide a profit, we say that the store is marking up the item $1.20.
percentage of selling price that is added to the cost to get the selling price.
the sequence of markups firms use at different levels in a channel; determines the price structure in the whole channel; the markup is figured on the selling price at each level of the channel
the number of times the average inventory is sold in a year; a low stockturn rate may be bad for profits
adding a reasonable markup to the average cost of a product
3 kinds of total cost
1) total fixed cost - sum of those costs that are fixed in total, no matter how much is produced
2) total variable cost - the sum of those changing expenses that are closely related to output
3) total cost - the sume of total fixed and total variable costs
3 kinds of average cost
1) average cost (per unit) - obtained by dividing total cost by the related quantity
2) average fixed cost (per unit) - obtained by dividing total fixed cost by the related quantity
3) average variable cost (per unit) - obtained by dividing total variable cost by the related quantity
target return pricing
adding a target return to the cost of a product; price setter seeks to earn 1) a percentage return on the investment, or 2) a specific total dollar return
evaluates whether the firm will be able to break even - cover all its costs - with a particular price
break-even point (BEP)
the quantity where the firm's total cost will just equal its total revenue
fixed cost (FC) contribution per unit
the assumed selling price per unit minus the variable cost per unit
focuses on the changes in total revenue and total cost from selling one more unit to find the most profitable price and quantity
the change in total revenue that results from the sale of one more unit of a product
the change in total cost that results from producing one more unit
rule for maximizing profit
the highest profit is earned at the price where marginal cost is just less than or equal to marginal revenue
the extra profit on the last unit
usually sets a price for all to follow, perhaps to maximize profits or to get a certain target return on investment
value in use pricing
setting prices that will capture some of what customers will save by substituting the firm's product for one currently being used
the price they expect to pay
setting some very low prices - real bargains - to get customers into retail stores
setting some very low prices to attract customers buy trying to sell more expensive models or brands once the customer is in the store
setting prices that have special appeal to target customers
setting prices that end in certain numbers
setting a few price levels for a product line and then marking all items at these prices
setting an acceptable final consumer price and working backward to what a producer can charge
setting a rather high price to suggest high quality or high status
setting prices for a whole line or products
complementary product pricing
setting prices on several products as a group
setting one price for a set of products
means offering a specific price for each possible job rather than setting a price that applies for all customers
a price set based on bargaining between the buyer and seller
A sales representation is an example of a...
A widely used measure of income in most countries is...
gross national income
20 percent of US families with the highest incomes receive...
50 percent of the total US income
Behavioral scientists recognize different consumer problem solving levels include...
-Routinized response behavior
-Limited problem solving
-Extensive problem solving
The added value given a brand name to a product beyond its mere functional benefit is called:
What is the most important reference group for most people?
A _____ is a visual aid that helps organize cause-and-effect relationships for "things gone wrong."
Consumers' attitudes can be learned from:
A. exposure to the attitudes of others.
B. promotion which is directed toward them.
C. previous experiences.
A Universal Product Code (UPC)
identifies a product with a mark which can be "read" by electronic scanners.
Social Class Characteristics
A. Social class is hierarchical in nature.
B. Social class restricts interaction between individuals.
C. The behavior of people is impacted by their social class.
During sales decline stage...
...new products replace the old.
A "product" is best described as...
...a need satisfying offering of a firm.
According to projections about percent growth in population for each state in the U.S., from 2000 to 2010...
the greatest growth is in western states like Nevada, Arizona, Idaho, and Utah.
A _____ is a relatively homogeneous group of customers who will respond to a marketing mix in a similar way.
A modified rebuy is MOST likely to occur for:
The marketing management team for Dada Motors brainstormed a variety of solutions to the problem of how to transport people in the world. This process came during the ____ step in the market segmentation process.
What is the biggest disadvantage of selling generic branded products?
Neither the manufacturer or retailer is able to generate any brand loyalty for the product.
When a company segments its business customers on the basis of whether or not they require contract bids over the Internet, what segmenting dimension is this company using?
Bart Thunderheart has an annual income of $75,000 a year. He pays $25,000 in taxes, and spends another $15,000 on his home, car, food, and other "necessities." Last year, he decided to really enjoy his annual vacation, so he spent $5,000 to go skiing in Austria. What was Bart's discretionary income last year?
Which statement is true about products in the decline stage of the product life cycle?
A declining product may still be profitable for some time and it might be more appropriate to phase-out this product gradually.
During which stage of the product life cycle does the firm begin to build selective demand?
With regard to retail buying:
Buying committees, instead of individual retail buyers, may make the decisions.
Frustrated by a lack of freedom to make decisions at her work, Betty quit her job to find one with greater independence. What type of need motivated Betty's actions?
need maximum exposure and widespread distribution at low cost.
A Consolidated Metropolitan Statistical Area
is a large metropolitan statistical area--with over 1 million population.
In this step of the adoption process, the adopter continues to rethink the decision and searches for support for the decision.
A set of ________________ contains a written or electronic description of what a firm wants to buy.
Marginal utility, as defined by Alfred Marshall, is:
-the change in total utility resulting from one unit change in the quantity of a product purchased.
-diminished by the law of diminishing return.
Cargill, Inc. is finally earning a profit on the unique product it introduced six months ago. Cargill's advertising is both informative and persuasive. Much money is being spent on Place development. There is little price competition, although several competitors have come out with reasonable imitations. Total industry sales and profits are both rising. In which stage of the product life cycle is Cargill operating?
Chris Carmine manages specific products and promotion at Bright-n-Shiny Toothbrush Company. Her job responsibility sounds like that of a ________.
When a company creates a rating form for its suppliers and rates their on-time delivery, product quality, service advice, and so forth, in order to determine which suppliers to put on an approved list of suppliers for specific products, this process is called a(n):
Which of the following statements is true about a straight re-buy situation?
A. Buyer purchases from an approved list.
B. It is important to maintain a personal relationship between buyer and the seller.
C. The seller must be careful not to become complacent.
Electro Technologies, Inc. (ETI) has limited capital and wants to reduce the risk of competitors taking customers if it invests in a new product-market. Its broad product-market consists of three reasonably distinct submarkets. To identify a target market, ETI should probably focus on using the __________ approach.
single target market
According to the text, social class in the U.S. is usually measured in terms of:
occupation, education, and housing arrangements.
A producer of high quality stereo component equipment has developed a new line of very inexpensive, low quality "rack systems" to sell through discount stores. It probably should not use its current ______________ brand for the new line.
The statement, "Of course people will buy our product--each of its features is better than the competition," most closely reflects which consumer behavior concept?
the economic-buyer theory
Target customers choosing a particular brand over other brands, because of habit or favorable past experience have a brand familiarity level of ...
An independent buyer who works in a foreign market for several wholesalers or retailers is called:
a resident buyer
About what percentage of babies in the U.S. are born to a single parent?
The fact that our eyes and minds seek out and notice only information that interests us is called:
In a buying center, which of the following are likely to be influencers?
People who supply information for evaluating alternatives.
What observations about population trends is correct?
A. Between 1950 and 2000, world population doubled.
B. Today, the population growth is about 1.2 percent per year.
D. Over the long term population growth is expected in most countries.
E. Less-developed countries experience the fastest population growth rates.
With respect to buyer-seller relationships in business markets...
some customers simply are not interested in a close relationship with a supplier.
In the U.S., which population group has the fastest growing group of Facebook users?
Ideas about potential new products should...
...be encouraged from any and all sources, since only a few ideas will develop into successful products.
The set of laptop computers sold by Dell is called a...
The use of psychographic categories in marketing:
has not been a useful tool in most marketing campaigns.
A firm's "relevant market for finding opportunities" should:
be bigger than the firm's present product-market--but not so big that the firm couldn't be an important competitor.
Positioning is not what you do to a product, it is what you do to the mind of the prospect. T/F
Product sales increase at an increasing rate during the...
market growth stage of the product life cycle.
Factors that influence the Communication Process
- Receiver's Existing Opinions & Beliefs
- Expertise of Source
- Social Context or Reference Group
- Peripheral Issues