Marketing 11 Chapter 2 Notes

Page 1

2.1 Consumer Demand

Consumer = person who uses a product

Customer = person who buys a product

Sometimes used interchangeably

Customer not always a consumer

Gatekeeper = normally a parent or guardian (a consumer who is not a customer), buy clothes, toys, etc. for child

Basic needs (Food, protection, affection and affiliation), they are essential for survival

Wants, not necessary for survival, but add pleasure + comfort

Developed countries more focused on wants

Undeveloped countries more focused on basic needs

Changes in consumer demand

Consumer demand changes based on economic shifts + availability of new products in the market

Fluctuations create challenges for marketers, don’t know how much a product will sell, have to make educated guess

If you overestimate how big a quantity you need to produce, you can create a glut (an oversupply of the product) and must reduce the price in order to increase demand

Page 2

2.2 Product Life Cycles

Product life cycles describe change in consumer demand over time

The Traditional Product Life Cycle

Consists of five stages: introduction, growth, maturity, decline and decision point

Introduction Stage

Product launch = new product introduced to marketplace

Launch = very expensive (new machinery, design costs, training personnel, advertising, warehousing, new packaging/labelling)

Consumers who like trying new products or bing “first” are called early adopters or trendsetters

During introduction, marketers focused on selling to trendsetters

New product Push and Pull Strategies

Marketers try to form value equation as early as possible

If marketers use a pull strategy: make ads to create positive associate with new product, may use coupons and samples

If marketers use push strategy: focused on product placement, obtaining shelf space, offer dealer incentives, cooperative advertising etc. to encourage retailers to make initial purchase

Problem with push is that consumer has little info about the new product

Must have attractive packaging/product display to catch attention

Shelf allowance = money paid by manufacturers to provide shelf space for new product

Growth Stage

Once trendsetters find new products, other consumers follow

Growth stage is most crucial for advertising

Product will either catch on or fail, marketers may decide to abandon product if it does not succeed in this stage

If product is removed before it recovers its initial costs, it is called a bust

Faster you can reach growth stage, faster you can make a profit, first company to enter market will have no competition for a period of time

When competitors enter market, marketers need to monitor product carefully to maintain market share

Market share = company’s sales as percentage of total sales for that market

Some factors prevent companies from realizing profit in a given market, those factors are called barriers to entry

Some barriers to entry are: small market, cost of research and development, advertising expenses, factory and equipment costs, design costs, lack of distribution and cost of raw materials

New competitors reluctant to enter market because existing brands already dominate market

Push strategies very successful during middle portion of growth stage

Distributors often carry low priced product to establish a minimum price, called low end product

Maturity Stage

Sales increase more slowly

Advertising may highlight the fact that it has remained in market for a long time

Company has recovered major costs from introduction and growth stage + has established effective distribution

Largest profit is often made in this stage

Use profit to develop and launch new products + can use brand reputation to market new product

Decline Stage

Company enters decline stage when they can’t find new customers

As profits decrease, marketers try to find out what is causing the decline

Decline can sometimes be easily reversed, sometimes there are more serious issues

Redesigning, reformulating, repackaging can sometimes reverse the decline, or the company can remove the product

Decision Point Stage

Final stage of product life cycle

Marketers make important decisions about products future

Can decide to reformulate, repackage and reintroduce a “new and improved” product

Can involve new promotion and pricing to target new customers

The company can also decide to discontinue the product

Nontraditional Product Life Cycles

Fads

A product that is very popular for a brief period of time

Very unpredictable, can lose a lot of money

Can be stuck with a large oversupply when fad dies

Trends

Trend = a mass movement toward a particular style or value

Has a more lasting effect on the marketplace

Can involve products that take on traditional life cycles

Niche Markets

Nice market = small section of market dominated by one product

Very short growth stage

Very little competition

Seasonal Markets

Markets products that are only relevant during certain seasons

Changes life cycle because product is only relevant briefly

Eg. Skiing resort, ice cream parlor

Page 3

2.3 The Consumer Marketplace

Consumer Profiles

Different people make different buying decisions

Marketers create consumer profiles to people likely to buy their products

Consumer are grouped into cohorts, groups that share common characteristics and buying habits

A group of consumer with common characteristics and buying habits is a consumer segment

The primary market is composed of people most likely to but the marketer’s product, while the secondary market is composed of occasional consumers.

Knowledge of consumer profiles affects the following elements of a marketing plan:

Distribution methods

Advertising

Product design

Media

International markets

Demographics

Demographics is the study of obvious characteristic that categorize people ex: age, gender, income, etc.

Age

0-9: Pre-customer's - pre-customers ask their gatekeepers for specific items, so the marketer must make the product appealing to both the child and the gatekeeper

10-15: Allowance customers - a group without regular income but make minor buying decisions

16-19: Youth market - relies on gatekeepers for necessities, but have disposable part-time income

20-25: Postsecondary market - this group is targeted for products needed for independent single life, ex. Personal care products, furniture and linens. This market makes habitual buying decisions and develop brand loyalties

25-40: Family formation (nesters) - this groups is concerned with life’s major decisions, such as career, marriage, home and children. They are attractive to marketers who sell furniture, insurance and other products that help them settle

40-45: Establishment - people who are earning their maximum income and who have increasing disposable income since their children are leaving home. This group attracts marketers of luxury goods and vacation packages.

55+: Mature market - This is the fastest growing market today. They have high disposable incomes from pension and investments.

Baby Boomers - people who were born between 1946 and 1963, when families who postponed their marriages for WWII started families.

Gender

Not many products are marketed exclusively to men, but there are products, such as dresses, which are marketed to only women

Family Life Cycle

A consumer’s stage in the family life cycle determines his or her wants, needs, and purchasing patterns

Marketers will change their marketing plans to attract people in a certain stage of the family life cycle

Income Level

Consumers can be grouped by their wealth

The upper-income group is willing to buy products that middle-income groups cannot afford

Income can be indicated by postal codes, profession, education, etc.

Ethnicity and Culture

Businesses must consider their target market’s culture to avoid offending them

International marketing must consider cultural differences and modify their products before they enter the market

For example, colour can mean different things in different cultures

Psychographics

Psychographics is a system to categorize consumer by their beliefs, opinions and interests. For example, someone who loves exercise will likely buy low-fat foods

Psychographics are not as easy to measure as demographics, but are equally essential

Geographics

Geographics are divided into urban, suburban and rural

Consumers in different geographic areas have different wants and needs

Product Use Statistics

Product use statistics categorizes consumers into 4 types: heavy users, medium users, light users and non-users

Marketers try to create brand loyalty with heavy-users, since heavy users, who are a small percentage of the market, may make the majority of the sales.

Marketers identify medium and light users to try to convert them to heavy users

There are two types of non-users

One type is entering the market for the first time, ie. new mothers who need diapers

The other type of non-user segment is composed to individuals who do not use products in that category. The marketer must come up with a value equation that shows the consumer the benefit in using a certain product.

Page 4

2.4 Consumer Motivation

Motivation is the biological, emotional, rational and/or social force that activates and directs behaviour.

Biological forces are the most basic motivational forces these would be need for food, water, and shelter.

Emotional forces, such as love, sympathy, joy and fear, motivate people to protect themselves from emotional pain and to get emotional pleasure

Rational forces include considerations of convenience, cost savings, safety, warranties and ease of purchase. These are normally what is used when a business is the purchaser

Social forces include peer pressure and make people do things that they might not want for the sake of fitting in. Companies pay for celebrity endorsements because many people use products celebrities use.

Motivational theories

Thorndike’s Law of Effect

People buy products that produce positive events and avoid products that produce negative events

If the product does not live up to standard or the process of buying too troublesome (crowded parking, loud noises) can make people avoid purchases

If the product satisfies wants or needs, then people will buy that product

Maslow’s Hierarchy of Needs

Maslow’s theory arranges needs in order of importance, Maslow believed that it is essential to fulfill the needs in this particular order

Physiological: hunger, thirst, shelter, warmth

Safety/Security: freedom from danger, adequate financial support

Affiliation: sense of belonging

Esteem: celebrating personal achievement, being successful and admired

Growth needs

Cognitive: desire to know

Aesthetic: desire for beauty

Self-Actualization: desire for self-fulfillment and realize personal potential

Transcendence: motivated by a desire to help others

Alderfer’s ERG Theory

Alderfer synthesize Maslow’s theory down to only three levels the same rule applies that in order to fulfill a need you must first fulfill all the needs before it on the hierarchy

Existence needs

Relatedness needs

Growth needs

Page 5

2.5 The Buying Decision

Step 1: Creation of a want (eg. Your dishwasher breaks)

Step 2: The criteria for the satisfaction of the want or need are set (eg. do you want to repair the old dishwasher or get a new one; if a new one is wanted what type is desired)

Step 3: The consumer searchers for the products that match the criteria (eg. Four places have dishwashers that match the criteria)

Step 4: A decision is made (eg. You decide to buy from shop A because it offers a better price)

Step 5: A purchase is made (eg. You buy the dishwasher from shop A)

Step 6: Evaluating the purchase (eg. How does the dishwasher work compared to the old one)

In some cases the buying process is partially or fully ignore such as when purchasing shopping goods (when the consumer is trying to decide between categories of products instead of brands, for example should you buy soup or frozen vegetables)

Page 6

2.6 The Industrial Institutional Consumer

The rational motivational force is generally the only force that acts on decisions made by institutions

Location is key because the costs of shipping is a directly related to the distance from the supplier

A government agency must by law issue a tender when making large purchases. This is a notice informing companies that the government is looking to buy a certain product, it gives design specifications, desired quantity, and deadlines for completion. Companies then submit bids for the contract based on the total amount they would charge for the products. This process is intended to remove the risk of corruption given the large sums of money involved.