Capturing Marketing Insights

 Collecting Information and Forecasting Demand

Making marketing decisions in a fast-changing world is both an art and a science. To provide context, insight, and inspiration for marketing decision making, companies must possess comprehensive, up-to-date information about macro trends, as well as about micro effects particular to their business. Holistic marketers recognize that the marketing environment is constantly presenting new opportunities and threats, and they understand the importance of continuously monitoring, forecasting, and adapting to that environment

The severe credit crunch and economic slowdown of 2008–2009 brought profound changes in consumer behavior as shoppers cut and reallocated spending. Sales of discretionary purchases like toys, apparel, jewelry, and home furnishings dropped. Sales of luxury brands like Mercedes—driven for years by free-spending baby boomers—declined by a staggering one-third. Meanwhile, brands that offered simple, affordable solutions prospered. General Mills’s revenues from such favorites as Cheerios, Wheaties, Progresso soup, and Hamburger Helper rose. Consumers also changed how and where they shopped, and sales of low-priced private label brand soared. Virtually all marketers were asking themselves whether a new age of prudence and frugality had emerged and, if so, what would be the appropriate response.

Firms are adjusting the way 

They do business for more reasons than just the economy. Virtually every industry has been touched by dramatic shifts in the technological, demographic, social-cultural, natural, and political-legal environments. In this chapter, we consider how firms can develop processes to identify and track important macroenvironment trends. We also outline how marketers can develop good sales forecasts. Chapter 4 will review how they conduct more customized research on specific marketing problems

Components of a Modern Marketing Information System

The major responsibility for identifying significant marketplace changes falls to the company’s marketers.Marketers have two advantages for the task: disciplined methods for collecting information, and time spent interacting with customers and observing competitors and other outside groups. Some firms have marketing information systems that provide rich detail about buyer wants, preferences, and behavior

DuPont commissioned marketing studies to uncover personal pillow behavior for its Dacron Polyester unit, which supplies filling to pillow makers and sells its own Comforel brand. One challenge is that people don’t give up their old pillows : 37 percent of one sample described their relationship with their pillow as being like that of “an old married couple,” and an additional 13 percent said their pillow was like a “childhood friend.” Respondents fell into distinct groups in terms of pillow behavior: stackers (23 percent), plumpers (20 percent), rollers or folders (16 percent), cuddlers (16 percent), and smashers, who pound their pillows into a more comfy shape (10 percent).Women were more likely to plump, men to fold. The prevalence of stackers led the company to sell more pillows packaged as pairs, as well as to market different levels of softness or firmness

A well-researched and well-executed marketing campaign for the state of Michigan increased tourism and state tax revenue.

Companies with superior information can choose their markets better, develop better offerings, and execute better marketing planning. The Michigan Economic Development Corporation (MEDC) studied the demographic information of its visitors and those of competing Midwestern cities to create a new marketing message and tourism campaign. The information helped MEDC attract 3.8 million new trips to Michigan, $805 million in new visitor spending, and $56 million in incremental state tax revenue over the period 2004–2008

Every firm must organize and distribute a continuous flow of information to its marketing managers. 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. It relies on internal company records, marketing intelligence activities, and marketing research.We’ll discuss the first two components here, and the third one in the next chapter

The company’s marketing information system should be a mixture of what managers think they need, what they really need, and what is economically feasible. An internal MIS committee can interview a cross-section of marketing managers to discover their information needs :

1.	What decisions do you regularly make?
2.	What information do you need to make these decisions?
3.	What information do you regularly get?
4.	What special studies do you periodically request?
5.	What information would you want that you are not getting now?
6.	What information would you want daily? Weekly? Monthly? Yearly?
7.	What online or offline newsletters, briefings, blogs, reports, or magazines would you like to see on a regular basis?
8.	What topics would you like to be kept informed of?
9.	What data analysis and reporting programs would you want?
10.	What are the four most helpful improvements that could be made in the present marketing information system?

Internal Records

To spot important opportunities and potential problems, marketing managers rely on internal reports of orders, sales, prices, costs, inventory levels, receivables, and payables.

The Order-to-Payment Cycle

The heart of the internal records system is the order-to-payment cycle. Sales representatives, dealers, and customers send orders to the firm. The sales department prepares invoices, transmits copies to various departments, and back-orders out-of-stock items. Shipped items generate shipping and billing documents that go to various departments. Because customers favor firms that can promise timely delivery, companies need to perform these steps quickly and accurately.Many use the Internet and extranets to improve the speed, accuracy, and efficiency of the order-to-payment cycle

Fossil Group Fossil Group Australia designs and distributes accessories and apparel globally. Its account executives lacked the latest information about pricing and inventory while taking wholesale orders. High demand items were often out of stock, creating problem for retailers. After the firm deployed a mobile sales solution that connected account executives with current inventory data, the number of sales tied up in back orders fell 80 percent. The company can now provide retailers with actual inventory levels and ship orders in hours instead of days

 

Sales Information Systems

Marketing managers need timely and accurate reports on current sales. Walmart operates a sales and inventory data warehouse that captures data on every item for every customer, every store, every day and refreshes it every hour. Consider the experience of Panasonic.

Panasonic makes digital cameras, plasma televisions, and other consumer electronics. After missing revenue goals, the company decided to adopt a vendor-managed inventory solution. Inventory distribution then came in line with consumption, and availability of products to customers jumped from 70 percent to 95 percent. The average weeks that product supply sat in Panasonic’s channels went from 25 weeks to just 5 weeks within a year, and unit sales of the targeted plasma television rose from 20,000 to approximately 100,000. Best Buy, the initial retailer covered by the vendor-managed inventory model, has since elevated Panasonic from a Tier 3 Supplier to a Tier 1 “Go-To” Brand for plasma televisions

Panasonic’s new vendor-managed inventory system met with marketplace success, including from retailers

Companies that make good use of “cookies,” records of Web site usage stored on personal browsers, are smart users of targeted marketing.Many consumers are happy to cooperate: A recent survey showed that 49 percent of individuals agreed cookies are important to them when using the Internet. Not only do they not delete cookies, but they also expect customized marketing appeals and deals once they accept them.

Companies must carefully interpret the sales data, however, so as not to draw the wrong conclusions. Michael Dell gave this illustration: “If you have three yellow Mustangs sitting on a dealer’s lot and a customer wants a red one, the salesman may be really good at figuring out how to sell the yellow Mustang. So the yellow Mustang gets sold, and a signal gets sent back to the factory that, hey, people want yellow Mustangs

Databases, Data Warehousing, and Data Mining 

Companies organize their information into customer, product, and salesperson databases—and then combine their data. The customer database will contain every customer’s name, address, past  transactions, and sometimes even demographics and psychographics (activities, interests, and opinions). Instead of sending a mass “carpet bombing” mailing of a new offer to every customer in its database, a company will rank its customers according to factors such as purchase recency, frequency, and monetary value (RFM) and send the offer to only the highest-scoring customers. Besides saving on mailing expenses, such manipulation of data can often achieve a double-digit response rate.

Companies make these data easily accessible to their decision makers. Analysts can “mine” the data and garner fresh insights into neglected customer segments, recent customer trends, and other useful information. Managers can cross-tabulate customer information with product and salesperson information to yield still-deeper insights. Using in-house technology,Wells Fargo can track and analyze every bank transaction made by its 10 million retail customers—whether at ATMs, at bank branches, or online.When it combines transaction data with personal information provided by customers, Wells Fargo can come up with targeted offerings to coincide with a customer’s lifechanging event. As a result, compared with the industry average of 2.2 products per customer,Wells Fargo sells 4 products.7 Best Buy is also taking advantage of these new rich databases.

Best Buy has assembled a 15-plus terabyte database with seven years of data on 75 million households. It captures information about every interaction— from phone calls and mouse clicks to delivery and rebatecheck addresses—and then deploys sophisticated algorithms to classify over three-quarters of its customers, or more than 100 million individuals, into profiled categories such as “Buzz” (the young technology buff), “Jill” (the suburban soccer mom), “Barry” (the wealthy professional guy), and “Ray” (the family man). The firm also applies a customer lifetime value model that measures transaction-level profitability and factors in customer behaviors that increase or decrease the value of the relationship. Knowing so much about consumers allows Best Buy to employ precision marketing and customer-triggered incentive programs with positive response rates.

Best Buy uses a massive database to develop profiles with which to classify its customers

Marketing Intelligence

The Marketing Intelligence System

A marketing intelligence system is a set of procedures and sources that managers use to obtain everyday information about developments in the marketing environment. The internal records system supplies results data, but the marketing intelligence system supplies happenings data. Marketing managers collect marketing intelligence in a variety of different ways, such as by reading books, newspapers, and trade publications; talking to customers, suppliers, and distributors; monitoring social media on the Internet; and meeting with other company managers. Before the Internet, sometimes you just had to go out in the field, literally, and watch the competition. This is what oil and gas entrepreneur T. Boone Pickens did. Describing how he learned about a rival’s drilling activity, Pickens recalls, “We would have someone who would watch (the rival’s) drilling floor from a half mile away with field glasses. Our competitor didn’t like it but there wasn’t anything they could do about it. Our spotters would watch the joints and drill pipe. They would count them; each [drill] joint was 30 feet long. By adding up all the joints, you would be able to tally the depth of the well.” Pickens knew that the deeper the well, the more costly it would be for his rival to get the oil or gas up to the surface, and this information provided him with an immediate competitive advantage

Marketing intelligence gathering must be legal and ethical. In 2006, the private intelligence firm Diligence paid auditor KPMG $1.7 million for having illegally infiltrated it to acquire an audit of a Bermuda-based investment firm for a Russian conglomerate. Diligence’s cofounder posed as a British intelligence officer and convinced a member of the audit team to share confidential documents

A company can take eight possible actions to improve the quantity and quality of its marketing intelligence. After describing the first seven, we devote special attention to the eighth, collecting marketing intelligence on the Internet

-	Train and motivate the sales force to spot and report new developments. The company must “sell” its sales force on their importance as intelligence gatherers. Grace Performance Chemicals, a division ofW. R. Grace, supplies materials and chemicals to the construction and packaging industries. Its sales reps were instructed to observe the innovative ways customers used its products in order to suggest possible new products. Some were using Grace waterproofing materials to soundproof their cars and patch boots and tents. Seven new-product ideas emerged, worth millions in sales.
-	Motivate distributors, retailers, and other intermediaries to pass along important intelligence. Marketing intermediaries are often closer to the customer and competition and can offer helpful insights. ConAgra has initiated a study with some of its retailers such as Safeway, Kroger, and Walmart to study how and why people buy its foods. Finding that shoppers who bought their Orville Redenbacher and Act II brands of popcorn tended to also buy Coke, ConAgra worked with the retailers to develop in-store displays for both products. Combining retailers’ data with its own qualitative insights, ConAgra learned that many mothers switched to time-saving meals and snacks when school started. It launched its “Seasons of Mom” campaign to help grocers adjust to seasonal shifts in household needs
-	Hire external experts to collect intelligence. Many companies hire specialists to gather marketing intelligence.13 Service providers and retailers send mystery shoppers to their stores to assess cleanliness of facilities, product quality, and the way employees treat customers. Health care facilities’ use of mystery patients has led to improved estimates of wait times, better explanations of medical procedures, and less-stressful programming on the waiting room TV.
-	Network internally and externally. The firm can purchase competitors’ products, attend open houses and trade shows, read competitors’ published reports, attend stockholders’ meetings, talk to employees, collect competitors’ ads, consult with suppliers, and look up news stories about competitors
-	Set up a customer advisory panel. Members of advisory panels might include the company’s largest, most outspoken, most sophisticated, or most representative customers. For example, GlaxoSmithKline sponsors an online community devoted to weight loss and says it is learning far more than it could have gleamed from focus groups on topics from packaging its weightloss pill to where to place in-store marketing.
-	Take advantage of government-related data resources. The U.S. Census Bureau provides an in-depth look at the population swings, demographic groups, regional migrations, and changing family structure of the estimated 304,059,724 people in the United States (as of July 1, 2008). Census marketer Nielsen Claritas cross-references census figures with consumer surveys and its own grassroots research for clients such as The Weather Channel, BMW, and Sovereign Bank. Partnering with “list houses” that provide customer phone and address information, Nielsen Claritas can help firms select and purchase mailing lists with specific clusters.
-	Purchase information from outside research firms and vendors. Well-known data suppliers include firms such as the A.C. Nielsen Company and Information Resources Inc. They collect information about product sales in a variety of categories and consumer exposure to various media. They also gather consumer-panel data much more cheaply than marketers manage on their own. Biz 360 and its online content partners, for example, provide real-time coverage and analysis of news media and consumer opinion information from over 70,000 traditional and social media sources (print, broadcast,Web sites, blogs, and message boards.

Understranding Marketing Management

Defining Marketing for the 21st Century

Formally or informally, people and organizations engage in a vast number of activities we could call marketing. Good marketing has become increasingly vital for success. But what constitutes good marketing is constantly evolving and changing. The election of Barack Obama as the 44th President of the United States was attributed, in part, to the adoption of new marketing practices

The “Obama for America” presidential campaign combined a charismatic politician, a powerful message of hope, and a thoroughly integrated modern marketing program. The marketing plan needed to accomplish two very different goals: expand the electorate via broader messages while targeting very specific audiences. Multimedia tactics offline and online media, as well as free and paid media. When research showed that the more voters learned about Obama, the more they identified with him, the campaign added long-form videos to traditional print, broadcast, and outdoor ads. The Obama team—aided by its agency GMMB—also put the Internet at the heart of the campaign, letting it serve as the “central nervous system” for PR, advertising, advance work, fund-raising, and organizing in all 50 states. Their guiding philosophy was to “build online tools to help people selforganize and then get out of their way.” Technology was a means to “empower people to do what they were interested in doing in the first place.” Although social media like Facebook, Meetup, YouTube, and Twitter were crucial, perhaps Obama’s most powerful digital tool was a massive 13.5 million–name e-mail list. What were the results of these online efforts? About $500 million (most in sums of less than $100) was raised online from 3 million donors; 35,000 groups organized through the Web site, My.BarackObama.com; 1,800 videos posted to YouTube; the creation of Facebook’s most popular page; and, of course, the election of the next President of the United States.

Good marketing is no accident, but a result of careful planning and execution using state-of-the-art tools and techniques. It becomes both an art and a science as marketers strive to find creative new solutions to often-complex challenges amid profound changes in the 21st century marketing environment. In this book, we describe how top marketers balance discipline and imagination to address these new marketing realities. In the first chapter, we lay the foundation by reviewing important marketing concepts, tools, frameworks, and issues.

The Importance of Marketing

The first decade of the 21st century challenged firms to prosper financially and even survive in the face of an unforgiving economic environment.Marketing is playing a key role in addressing those challenges. Finance, operations, accounting, and other business functions won’t really matter without sufficient demand for products and services so the firm can make a profit. In other words, there must be a top line for there to be a bottom line. Thus financial success often depends on marketing ability.

Marketing’s broader importance extends to society as a whole.Marketing has helped introduce and gain acceptance of new products that have eased or enriched people’s lives. It can inspire enhancements in existing products as marketers innovate to improve their position in the marketplace. Successful marketing builds demand for products and services, which, in turn, creates jobs. By contributing to the bottom line, successful marketing also allows firms to more fully engage in socially responsible activities

CEOs recognize the role of marketing in building strong brands and a loyal customer base, intangible assets that contribute heavily to the value of a firm. Consumer goods makers, health care insurers, nonprofit organizations, and industrial product manufacturers all trumpet their latest marketing achievements. Many now have a chief marketing officer (CMO) to put marketing on a more equal footing with other C-level executives such as the chief financial officer (CFO) or chief information officer (CIO).

Making the right marketing decisions isn’t always easy. One survey of more than a thousand senior marketing and sales executives revealed that although 83 percent felt that marketing and sales capabilities were a top priority for their organization’s success, in rating their actual marketing effectiveness, only 6 percent felt that they were doing an “extremely good” job.

 Marketers must decide what features to design into a new product or service, what prices to set, where to sell products or offer services, and how much to spend on advertising, sales, the Internet, or mobile marketing. They must make those decisions in an Internet-fueled environment where consumers, competition, technology, and economic forces change rapidly, and the consequences of the marketer’s words and actions can quickly multiply

Domino’s When two employees in Conover, North Carolina, posted a YouTube video showing themselves preparing sandwiches while putting cheese up their noses and violating other health-code standards, Domino’s learned an important lesson about PR and brand communications in a modern era. Once it found the employees—who claimed the video was just a gag and the sandwiches were never delivered—the company fired them. In just a few days, however, there had been more than a million downloads of the video and a wave of negative publicity.When research showed that perception of quality for the brand had turned from positive to negative in that short time, the firm aggressively took action through social media such as Twitter, YouTube, and others.

 

After a distasteful video was posted online by two employees, Domino’s Pizza learned a valuable lesson about the power of social media

As Domino’s learned, in an era of connectivity, it is important to respond swiftly and decisively.While marketers were coming to grips with this increasingly wired world, the economic recession of 2008–2009 brought budget cuts and intense pressure from senior management to make every marketing dollar count.More than ever, marketers need to understand and adapt to the latest marketplace developments. At greatest risk are firms that fail to carefully monitor their customers and competitors, continuously improve their value offerings and marketing strategies, or satisfy their employees, stockholders, suppliers, and channel partners in the process.

Skillful marketing is a never-ending pursuit. Consider how some top firms drive business :

-	OfficeMax promoted a new line of products by professional organizer Peter Walsh with Web videos and in-store events featuring local experts demonstrating his OfficeMax-branded organizing system.
-	eBay promoted its “Let’s Make a Daily Deal” holiday promotion by recreating the famous 1970s TV game show Let’s Make a Deal in Times Square, adding an online component so people outside New York City could play.
-	Johnson & Johnson launched BabyCenter.com to help new parents. Its success is thought to have contributed to subscription slumps experienced by parenting magazines.

Good marketers are always seeking new ways to satisfy customers and beat competition

The Scope of Marketing

To prepare to be a marketer, you need to understand what marketing is, how it works, who does it, and what is marketed.

What Is Marketing?

Marketing is about identifying and meeting human and social needs. One of the shortest good

definitions of marketing is “meeting needs profitably.”When eBay recognized that people were unable to locate some of the items they desired most, it created an online auction clearinghouse. When IKEA noticed that people wanted good furnishings at substantially lower prices, it created knockdown furniture. These two firms demonstrated marketing savvy and turned a private or social need into a profitable business opportunity.

The American Marketing Association offers the following formal definition: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.7 Coping with these exchange processes calls for a considerable amount of work and skill.Marketing management takes place when at least one party to a potential exchange thinks about the means of achieving desired responses from other parties. Thus we see marketing management as the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value.

We can distinguish between a social and a managerial definition of marketing. A social definition shows the role marketing plays in society; for example, one marketer has said that marketing’s role is to “deliver a higher standard of living.” Here is a social definition that serves our purpose: 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.

Managers sometimes think of marketing as “the art of selling products,” but many people are surprised when they hear that selling is not the most important part of marketing! Selling is only the tip of the marketing iceberg. Peter Drucker, a leading management theorist, puts it this way :

There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available.

When Nintendo designed its Wii game system, when Canon launched its ELPH digital camera line, and when Toyota introduced its Prius hybrid automobile, these manufacturers were swamped with orders because they had designed the right product, based on doing careful marketing homework.

What Is Marketed? 

Marketers market 10 main types of entities: goods, services, events, experiences, persons, places, properties, organizations, information, and ideas. Let’s take a quick look at these categories.

GOODS

Physical goods constitute the bulk of most countries’ production and marketing efforts. Each year, U.S. companies market billions of fresh, canned, bagged, and frozen food products and millions of cars, refrigerators, televisions, machines, and other mainstays of a modern economy.

 

SERVICES

As economies advance, a growing proportion of their activities focuses on the production of services. The U.S. economy today produces a 70–30 services-to-goods mix. Services include the work of airlines, hotels, car rental firms, barbers and beauticians, maintenance and repair people, and accountants, bankers, lawyers, engineers, doctors, software programmers, and management consultants. Many market offerings mix goods and services, such as a fast-food meal.

 

EVENTS

Marketers promote time-based events, such as major trade shows, artistic performances, and company anniversaries. Global sporting events such as the Olympics and the World Cup are promoted aggressively to both companies and fans.

The Rolling Stones have done a masterful job of marketing their rebellious form of rock and roll to audiences of all ages

EXPERIENCES

By orchestrating several services and goods, a firm can create, stage, and market experiences. Walt Disney World’s Magic Kingdom allows customers to visit a fairy kingdom, a pirate ship, or a haunted house. There is also a market for customized experiences, such as a weekat a baseball camp with retired baseball greats, a four-day rock and roll fantasy camp, or a climb up Mount Everest.

PERSONS

Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals all get help from celebrity marketers.10 Some people have done a masterful job of marketing themselves—David Beckham, Oprah Winfrey, and the Rolling Stones. Management consultant Tom Peters, a master at self-branding, has advised each person to become a “brand.”

PLACES

Cities, states, regions, and whole nations compete to attract tourists, residents, factories, and company headquarters.11 Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies. The Las Vegas Convention & Visitors Authority succeeded with its provocative ad campaign, “What Happens Here, Stays Here,” portraying Las Vegas as “an adult playground.” In the recession of 2008, however, convention attendance declined. Concerned about its potentially out-of-step racy reputation, the Authority took out a full-page BusinessWeek ad to defend its ability to host serious business meetings. Unfortunately, the 2009 summer box office blockbuster The Hangover, set in a debauched Las Vegas, likely did not help the city position itself as a choice business and tourist destination

 

PROPERTIES

Properties are intangible rights of ownership to either real property (real estate) or financial property (stocks and bonds). They are bought and sold, and these exchanges require marketing. Real estate agents work for property owners or sellers, or they buy and sell residential or commercial real estate. Investment companies and banks market securities to both institutional and individual investors.

 

ORGANIZATIONS

Organizations work to build a strong, favorable, and unique image in the minds of their target publics. In the United Kingdom, Tesco’s “Every Little Helps” marketing program reflects the food marketer’s attention to detail in everything it does, within the store and in the community and environment. The campaign has vaulted Tesco to the top of the UK supermarket chain industry. Universities, museums, performing arts organizations, corporations, and nonprofits all use marketing to boost their public images and compete for audiences and funds

 

INFORMATION

The production, packaging, and distribution of information are major industries. Information is essentially what books, schools, and universities produce, market, and distribute at a price to parents, students, and communities. The former CEO of Siemens Medical Solutions USA, Tom McCausland, says, “[our product] is not necessarily an X-ray or an MRI, but information. Our business is really health care information technology, and our end product is really an electronic patient record: information on lab tests, pathology, and drugs as well as voice dictation.

IDEAS

Every market offering includes a basic idea. Charles Revson of Revlon once observed: “In the factory we make cosmetics; in the drugstore we sell hope.” Products and services are platforms for delivering some idea or benefit. Social marketers are busy promoting such ideas as “Friends Don’t Let Friends Drive Drunk” and “A Mind Is a Terrible Thing to Waste.”

Who Markets?

MARKETERS AND PROSPECTS A marketer is someone who seeks a response—attention, a purchase, a vote, a donation—from another party, called the prospect. If two parties are seeking to sell something to each other, we call them both marketers.

One of the most important areas of marketing is the work that social marketers do to promote socially desirable behaviors

Marketers are skilled at stimulating demand for their products, but that’s a limited view of what they do. Just as production and logistics professionals are responsible for supply management, marketers are responsible for demand management. They seek to influence the level, timing, and composition of demand to meet the organization’s objectives. Eight demand states are possible :

1.	Negative demand—Consumers dislike the product and may even pay to avoid it.
2.	Nonexistent demand—Consumers may be unaware of or uninterested in the product
3.	Latent demand—Consumers may share a strong need that cannot be satisfied by an existing product.
4.	Declining demand—Consumers begin to buy the product less frequently or not at all.
5.	Irregular demand—Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis.
6.	Full demand—Consumers are adequately buying all products put into the marketplace
7.	Overfull demand—More consumers would like to buy the product than can be satisfied.
8.	Unwholesome demand—Consumers may be attracted to products that have undesirable social consequences.

In each case, marketers must identify the underlying cause (s) of the demand state and determine a plan of action to shift demand to a more desired state.

MARKETS Traditionally, a “market” was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (such as the housing market or the grain market).

Five basic markets and their connecting flows are shown in Figure 1.1.Manufacturers go to resource markets (raw material markets, labor markets, money markets), buy resources and turn them into goods and services, and sell finished products to intermediaries, who sell them to consumers. Consumers sell their labor and receive money with which they pay for goods and services. The government collects tax revenues to buy goods from resource,manufacturer, and intermediary markets and uses these goods and services to provide public services. Each nation’s economy, and the global economy, consists of interacting sets of markets linked through exchange processes.

Marketers use the term market to cover various groupings of customers. They view sellers as constituting the industry and buyers as constituting the market. They talk about need markets (the diet-seeking market), product markets (the shoe market), demographic markets (the youth market), and geographic markets (the Chinese market); or they extend the concept to cover voter markets, labor markets, and donor markets, for instance

Fig. 1.1. Structure of Flows in a Modern Exchange Economy

Figure 1.2 shows the relationship between the industry and the market. Sellers and buyers are connected by four flows. Sellers send goods and services and communications such as ads and direct mail to the market; in return they receive money and information such as customer attitudes and sales data. The inner loop shows an exchange of money for goods and services; the outer loop shows an exchange of information.

Fig. 1.2. A Simple Marketing System

KEY CUSTOMER MARKETS  Consider the following key customer markets: consumer, business, global, and nonprofit.

 

Consumer Markets

Companies selling mass consumer goods and services such as juices, cosmetics, athletic shoes, and air travel spend a great deal of time establishing a strong brand image by developing a superior product and packaging, ensuring its availability, and backing it with engaging communications and reliable service.

 

Business Markets

Companies selling business goods and services often face well-informed professional buyers skilled at evaluating competitive offerings. Business buyers buy goods to make or resell a product to others at a profit. Business marketers must demonstrate how their products will help achieve higher revenue or lower costs. Advertising can play a role, but the sales force, the price, and the company’s reputation may play a greater one.

 

Global Markets

Companies in the global marketplace must decide which countries to enter; how to enter each (as an exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer); how to adapt product and service features to each country; how to price products in different countries; and how to design communications for different cultures. They face different requirements for buying and disposing of property; cultural, language, legal and political differences; and currency fluctuations. Yet, the payoff can be huge.

 

Nonprofit and Governmental Markets

Companies selling to nonprofit organizations with limited purchasing power such as churches, universities, charitable organizations, and government agencies need to price carefully. Lower selling prices affect the features and quality the seller can build into the offering. Much government purchasing calls for bids, and buyers often focus on practical solutions and favor the lowest bid in the absence of extenuating factors

 

MARKETPLACES, MARKETSPACES, AND METAMARKETS

The marketplace is physical, such as a store you shop in; the marketspace is digital, as when you shop on the Internet.16 Northwestern University’s Mohan Sawhney has proposed the concept of a metamarket to describe a cluster of complementary products and services closely related in the minds of consumers, but spread across a diverse set of industries.

Metamarkets are the result of marketers packaging a system that simplifies carrying out theserelated product/service activities. The automobile metamarket consists of automobile manufacturers, new and used car dealers, financing companies, insurance companies, mechanics, spare parts dealers, service shops, auto magazines, classified auto ads in newspapers, and auto sites on the Internet

A car buyer will engage many parts of this metamarket, creating an opportunity for metamediaries to assist him or her in moving seamlessly through them. Edmund’s (www.edmunds.com) lets a car buyer find the stated features and prices of different automobiles and easily click to other sites to search for the lowest-price dealer for financing, accessories, and used cars. Metamediaries also serve other metamarkets, such as home ownership, parenting and baby care, and weddings.

Core Marketing Concepts

To understand the marketing function, we need to understand the following core set of concepts.

Needs, Wants, and Demands

Needs are the basic human requirements such as for air, food, water, clothing, and shelter. Humans also have strong needs for recreation, education, and entertainment. These needs become wants when they are directed to specific objects that might satisfy the need. A U.S. consumer needs food but may want a Philly cheesesteak and an iced tea. A person in Afghanistan needs food but may want rice, lamb, and carrots.Wants are shaped by our society.

Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few are able to buy one. Companies must measure not only how many people want their product, but also how many are willing and able to buy it.

These distinctions shed light on the frequent criticism that “marketers create needs” or “marketers get people to buy things they don’t want.” Marketers do not create needs: Needs preexist marketers. Marketers, along with other societal factors, influence wants. They might promote the idea that a Mercedes would satisfy a person’s need for social status. They do not, however, create the need for social status.

Some customers have needs of which they are not fully conscious or that they cannot articulate. What does it mean when the customer asks for a “powerful” lawn mower or a “peaceful” hotel? The marketer must probe further.We can distinguish five types of needs :

1.	Stated needs (The customer wants an inexpensive car.)
2.	Real needs (The customer wants a car whose operating cost, not initial price, is low.)
3.	Unstated needs (The customer expects good service from the dealer.)
4.	Delight needs (The customer would like the dealer to include an onboard GPS navigation system.)
5.	Secret needs (The customer wants friends to see him or her as a savvy consumer.)

Responding only to the stated need may shortchange the customer.18 Consumers did not know much about cellular phones when they were first introduced, and Nokia and Ericsson fought to shape consumer perceptions of them. To gain an edge, companies must help customers learn what they want.

Target Markets, Positioning, and Segmentation

Not everyone likes the same cereal, restaurant, college, or movie. Therefore, marketers start by dividing the market into segments. They identify and profile distinct groups of buyers who might prefer or require varying product and service mixes by examining demographic, psychographic, and behavioral differences among buyers. 

After identifying market segments, the marketer decides which present the greatest opportunities— which are its target markets. For each, the firm develops a market offering that it positions in the minds whom safety is a major concern, positioning its vehicles as the safest a customer can buy.

Offerings and Brands 

Companies address customer needs by putting forth a value proposition, a set of benefits that satisfy those needs. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences.

A brand is an offering from a known source. A brand name such as McDonald’s carries many associations in people’s minds that make up its image: hamburgers, cleanliness, convenience, courteous service, and golden arches. All companies strive to build a brand image with as many strong, favorable, and unique brand associations as possible.

Value and Satisfaction

The buyer chooses the offerings he or she perceives to deliver the most value, the sum of the tangible and intangible benefits and costs to her. Value, a central marketing concept, is primarily a combination of quality, service, and price (qsp), called the customer value triad. Value perceptions increase with quality and service but decrease with price.

We can think of marketing as the identification, creation, communication, delivery, and monitoring of customer value. Satisfaction reflects a person’s judgment of a product’s perceived performance in relationship to expectations. If the performance falls short of expectations, the customer is disappointed. If it matches expectations, the customer is satisfied. If it exceeds them, the customer is delighted.

Marketing Channels 

To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers and include newspapers, magazines, radio, television, mail, telephone, billboards, posters, fliers, CDs, audiotapes, and the Internet. Beyond these, firms communicate through the look of their retail stores and Web sites and other media. Marketers are increasingly adding dialogue channels such as e-mail, blogs, and toll-free numbers to familiar monologue channels such as ads.

The marketer uses distribution channels to display, sell, or deliver the physical product orservice(s) to the buyer or user. These channels may be direct via the Internet, mail, or mobile phone or telephone, or indirect with distributors, wholesalers, retailers, and agents as intermediaries.

To carry out transactions with potential buyers, the marketer also uses service channels that include warehouses, transportation companies, banks, and insurance companies. Marketers clearly face a design challenge in choosing the best mix of communication, distribution, and service channels for their offerings.

 

Supply Chain

The supply chain is a longer channel stretching from raw materials to components to finished products carried to final buyers. The supply chain for coffee may start with Ethiopian farmers who plant, tend, and pick the coffee beans, selling their harvest to wholesalers or perhaps a Fair Trade cooperative. If sold through the cooperative, the coffee is washed, dried, and packaged for shipment by an Alternative Trading Organization (ATO) that pays a minimum of $1.26 a pound. The ATO transports the coffee to the developing world where it can sell it directly or via retail channels. Each company captures only a certain percentage of the total value generated by the supply chain’s value delivery system. When a company acquires competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value.

Competition

Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. An automobile manufacturer can buy steel from U.S. Steel in the United States, from a foreign firm in Japan or Korea, or from a minimill such as Nucor at a cost savings, or it can buy aluminum for certain parts from Alcoa to reduce the car’s weight, or engineered plastics from Saudi Basic Industries Corporation (SABIC) instead of steel. Clearly, U.S. Steel would be thinking too narrowly about its competition if it thought only of other integrated steel companies. In the long run, U.S. Steel is more likely to be hurt by substitute products than by other steel companies.

 

Marketing Environment

The marketing environment consists of the task environment and the broad environment. The task environment includes the actors engaged in producing, distributing, and promoting the offering. These are the company, suppliers, distributors, dealers, and target customers. In the supplier group are material suppliers and service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies, transportation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers.

The broad environment consists of six components: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political- legal environment. Marketers must pay close attention to the trends and developments in these and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity. Here are two good examples.

TerraCycle After finding that some of his friend’s indoor herbal plants flourished with a fertilizer made by feeding table scraps to red wiggler worms in a composting bin, TerraCycle founder Tom Szaky came up with an idea for a business. TerraCycle is devoted to “upcycling,” finding new ways to use nonrecyclable waste materials. Plastic bags become sturdy totes, yogurt cups become plant holders, and cookie wrappers become notebook covers, all distributed by major retailers such as Home Depot, Whole Foods, and Walmart. The firm also has partnerships with Kraft, Target, Honest Tea, Stonyfield Farms, and others. Schools, churches, wineries, and nonprofits provide space to store donated used bottles, corks, and candy wrappers. For each item collected, TerraCycle makes a donation a charity (typically 2 cents)

Allrecipes.com Allrecipes.com has cooked up a winning online formula by blending recipes posted by individuals with those provided by corporations promoting their own products like Kraft cheese or Campbell’s Soup. After almost a 50 percent increase in site visits and unique visitors in 2009, the Web site overtook the Food Network’s recipe site as the market leader. With tens of thousands of posted recipes, it thrives on people’s willingness to share recipes and the satisfaction they feel if their recipe becomes popular with others. The viral nature of the site’s success is obvious—it doesn’t spend any money on advertising! Users tend to think of it as “their” site—not something with a big company behind it.

The New Marketing Realities

We can say with some confidence that the marketplace isn’t what it used to be. It is dramatically different from what it was even 10 years ago.

Major Societal Forces

Today, major, and sometimes interlinking, societal forces have created new marketing behaviors, opportunities, and challenges. Here are 12 key ones.

-	Network information technology. The digital revolution has created an Information Age that promises to lead to more accurate levels of production, more targeted communications, and more relevant pricing.
-	Globalization. Technological advances in transportation, shipping, and communication have made it easier for companies to market in, and consumers to buy from, almost any country in the world. International travel has continued to grow as more people work and play in other countries.
-	Deregulation. Many countries have deregulated industries to create greater competition and growth opportunities. In the United States, laws restricting financial services, telecommunications, and electric utilities have all been loosened in the spirit of greater competition.
-	Privatization. Many countries have converted public companies to private ownership and  management to increase their efficiency, such as the massive telecom company Telefónica CTC in Chile and the international airline British Airways in the United Kingdom
-	Heightened competition. Intense competition among domestic and foreign brands raises marketing costs and shrinks profit margins. Brand manufacturers are further buffeted by powerful retailers that market their own store brands. Many strong brands have become megabrands and extended into a wide variety of related product categories, presenting a significant competitive threat.
-	Industry convergence. Industry boundaries are blurring as companies recognize new opportunities at the intersection of two or more industries. The computing and consumer electronics industries are converging, for example, as Apple, Sony, and Samsung release a stream of entertainment devices from MP3 players to plasma TVs and camcorders. Digitaltechnology fuels this massive convergence
-	Retail transformation. Store-based retailers face competition from catalog houses; directmail firms; newspaper, magazine, and TV direct-to-customer ads; home shopping TV ; and e-commerce. In response, entrepreneurial retailers are building entertainment into their stores with coffee bars, demonstrations, and performances, marketing an “experience” rather than a product assortment. Dick’s Sporting Goods has grown from a single bait-andtackle store in Binghamton, New York, into a 300-store sporting goods retailer in 30 states. Part of its success springs from the interactive features of its stores. Customers can test golf clubs in indoor ranges, sample shoes on its footwear track, and shoot bows in its archery range
-	Disintermediation. The amazing success of early dot-coms such as AOL, Amazon.com, Yahoo!, eBay, E*TRADE, and others created disintermediation in the delivery of products and services by intervening in the traditional flow of goods through distribution channels. These firms struck terror into the hearts of established manufacturers and retailers. In response, traditional companies engaged in reintermediation and became “brick-and-click” retailers, adding online services to their offerings. Some became stronger contenders than pure-click firms, because they had a larger pool of resources to work with and established brand names.
-	Consumer buying power. In part, due to disintermediation via the Internet, consumers have substantially increased their buying power. From the home, office, or mobile phone, they can compare product prices and features and order goods online from anywhere in the world 24 hours a day, 7 days a week, bypassing limited local offerings and realizing significant price savings. Even business buyers can run a reverse auction in which sellers compete to capture their business. They can readily join others to aggregate their purchases and achieve deeper volume discounts.
-	Consumer information. Consumers can collect information in as much breadth and depth as they want about practically anything. They can access online encyclopedias, dictionaries, medical information, movie ratings, consumer reports, newspapers, and other information sources in many languages from anywhere in the world. Personal connection and user-generated content thrive on social media such as Facebook, Flickr (photos), Del.icio.us (links), Digg (news stories), Wikipedia (encyclopedia articles), and YouTube (video).23 Social networking sites—such as Dogster for dog lovers, TripAdvisor for ardent travelers, and Moterus for bikers—bring together consumers with a common interest. At CarSpace.com auto enthusiasts talk about chrome rims, the latest BMW model, and where to find a great local mechanic
-	Consumer participation. Consumers have found an amplified voice to influence peer and public opinion. In recognition, companies are inviting them to participate in designing and even marketing offerings to heighten their sense of connection and ownership. Consumers see their favorite companies as workshops from which they can draw out the offerings they want.
-	Consumer resistance. Many customers today feel there are fewer real product differences, so they show less brand loyalty and become more price- and quality-sensitive in their search for value, and less tolerant about undesired marketing. A Yankelovich study found record levels of marketing resistance from consumers; a majority reported negative opinions about marketing and advertising and said they avoid products they feel are overmarketed