Introduction to Marketing

Marketing (c) Gemmy Allen, 1999

Chapter 1 Study Guide
Marketing plays a major role in our daily lives. Each day is filled with consuming products
made available by marketers. We pay for marketing each time we buy a product. In fact, half of
every dollar spent at the retail level goes to cover marketing costs. Marketing is responsible for
satisfying customers, which in turn increases our standard of living and quality of life.

Purpose of Marketing
In today's competitive environment, a strong focus on customer satisfaction is essential to the
success of any organization. Rapid globalization means that companies now compete in markets
all over the world. Foreign and domestic organizations are realizing that profit will only be
achieved through the use of marketing. Marketing is the business function that focuses on
satisfying the needs and wants of customers through exchange processes. It is the only revenueproducing activity for the organization. Peter Drucker says, "Because its purpose is to create a
customer, the business has two - and only two - functions: marketing and innovation. Marketing
and innovation create value, all the rest are costs." (See Drucker, Peter F., People and
Performance, Harper college Press, 1977, p. 90) Thus, sound marketing is critical to the success
of the organization, whether for-profit or not-for-profit, foreign or domestic.
The idea that profit is not the primary goal of business is not a new. In 1954, Peter Drucker made
the point in his book, The Practice of Management. "Profit is not the explanation, cause or
rationale of business behavior and business decisions, but the test of their validity." Profits are an
essential result of business success. Again, the true purpose is the creation of customers: the
efficient provision of goods and services that people want to buy. Satisfy customers and profit
will follow.
Many people think that marketing is just selling and advertising. Peter Drucker explains
marketing this way: "The aim of marketing is to make selling superfluous. The aim is to know
and understand the customer so well that the product or service fits him or her and sells itself."
This is not to say that selling and advertising are unimportant, but rather that they are part of a
larger "marketing mix" that must be orchestrated for maximum impact on the marketplace.
Jerome McCarthy delineates the marketing mix as the four Ps (product, price, promotion, and
place). Thus, a marketing mix is a specific combination of four strategies -- product, price, place
or distribution, and promotion or marketing communications -- designed to satisfy customers.
The focus of marketing is to do such an excellent job of developing, pricing, promoting, and
distributing a product to customers that the product practically sells itself.

Importance of Marketing
The American Marketing Association (AMA) defines marketing as the process of planning and
executing the conception, pricing, promotion, and distribution of ideas, goods, and services to

create exchanges that satisfy individual and organizational goals. This definition of marketing
first appeared in Marketing News on March 1, 1986. It is included in the Dictionary of
Marketing Terms, 2d edition, edited by Peter D. Bennett, published by the American Marketing
Association, 1995.
The definition of marketing describes the nature of the process. Ralph Mroz of ad lineam defines
marketing as the process that aligns the desires of customers with the capabilities of the
enterprise. Marketing is a continuous cycle that involves satisfying customer needs and wants by
creating mutually beneficial exchanges. A need is a state of felt deprivation. A want is the
conscious recognition of a need. Marketing begins with an idea about a want-satisfying product
and does not end until customers' wants are completely satisfied, which sometimes occurs after
the sale.
The desire for a product together with the ability to pay for it is known as demand. More
specifically, it is the quantity of a product that will be sold during a period of time at different
prices. Demand comes from new customers and repeat customers. Marketers must find demand,
as well as increase or decrease demand. Demarketing is the marketing task used to reduce or
shift demand. Marketing is essentially management of supply and demand. Outstanding
marketers go to great lengths to learn about and understand their customers' demands.

Exchange is the Focus of Marketing

The basis for marketing is exchange, a way to satisfy a want. Exchange is to give or receive
something of value for another thing. Value is the worth of a product, usually in money.
"Something of value" exchanged by the marketer can be an idea, good, or service and is not
limited to physical objects. Marketers, as well as many businesspeople, use the term product to
encompass anything that can be offered to a market that might satisfy a need or want. This could
include persons, places, organizations, and activities, as well as ideas, goods, and services. Or as
Charles Revson was reported to say, "In the factory we make cosmetics. In the store we sell
hope."
The customer is the individual or organization that actually makes the exchange or purchase.
The consumer is the person or organization that actually uses or consumes the product. Even
though customer and consumer are differentiated, he or she can be one and the same person.
Existing or potential customers can be considered a market. A market is a group of customers
who have the need, the ability, and the authority to purchase a specific product. Thus, buyers
constitute a market.
Natural separations exist between exchange parties. Buyers and sellers might be separated by
geographical location, lack of information, and timing in production versus demand. Five
different forms of separation between potential exchange parties include spatial, temporal,
perceptual, ownership, and value. Marketers bridge these separations by performing the
functions of exchange (buying and selling), logistics (transporting and storing), and facilitating
(financing, risk taking, providing information, standardizing/grading).

Marketing creates and provides utility (usefulness or value) for the consumer. Utility is the
attribute in an item that makes it capable of satisfying wants. Form utility is the physical change
that makes a product more valuable. Strictly speaking, this is a function of production but
marketing plays a vital role in directing the ultimate shape, size, quality, and design of products.
Place utility makes a product accessible to potential customers where they want it. Time utility
makes a product available when they want it. Possession utility is created when ownership is
transferred to the buyer.

Quality in Marketing
The customer is the final judge of value. Customer satisfaction is the extent to which a
product's perceived performance matches a buyer's expectations. Quality is defined in various
ways, but in terms of competitiveness and profitability, none is more important than customer
satisfaction. It is critical to create products that customers will buy, enjoy, tell their friends about,
and buy again. The quality of a product is a major determinant of customer satisfaction. The
American Society for Quality defines quality as the characteristics of a product or service that
bear on its ability to satisfy stated or implied needs.
The quality viewpoint stresses the provision of high-quality products and services at all times.
The aim of W. Edward Deming's Total Quality Management (TQM) approach is constant quality
improvement. Deming was one of the founders of the quality movement and helped Japanese
organizations make statistical quality control improvements. Later, United States marketers
recognized his contributions. Deming's recommendations include planning for quality, striving
for zero defects, using only a few suppliers who have demonstrated that they can deliver quality,
and inspecting for quality during the process and not after.
For marketers the focus of the total quality movement has shifted to total customer satisfaction.
Quality begins with customer needs and ends with customer satisfaction. Successful marketers
want their customers to be delighted when actual performance exceeds expectations. When
customers are surprised with more quality, their perceived sense of value is heightened.
Marketers manage satisfaction by targeting the customers who are most likely to appreciate the
organization's distinctive competence.

Concepts in Marketing
The role of a mutually satisfying exchange is central to the marketing concept. The marketing
concept is satisfying the customer at a profit. Three features of the marketing concept are
customer orientation, coordinated effort by all departments within the organization to provide
customer satisfaction, and emphasis on long-term profit.
The marketing concept describes an ideal state of affairs. It exists when an organization focuses
all of its efforts on providing products that satisfy its customers. The customer is the focal point
for how each area of the organization is run. Products are created with the goal of satisfying
customers' needs and wants. All departments within the organization work together toward the
goal of customer satisfaction. They closely coordinate their efforts both to satisfy customer
wants and achieve the organization's long-run goals.

When an organization is attempting to implement the marketing concept, it has a market

orientation. An organization is market oriented when it generates market intelligence on its
customer needs, disseminates the intelligence across departments, and then responds
organization-wide to the information. Organizations adopting the marketing concept are
committed to market-focused and customer-driven philosophies.
A more recent philosophy is the societal marketing concept, which enlarges the marketing
concept by asserting that organizations should determine customers' needs and wants and then
deliver superior value to the target market in a way that improves customers' and society's wellbeing. It requires that an organization think about the long-run interests of society in satisfying
consumers while meeting organizational objectives. Extending the time dimension means that
the organization takes a long-term view of customer satisfaction. It takes into account the need
for organizations to act responsibly not only towards their customers, but also towards the
environment and other needs of society. Extending the breadth dimension means the
organization recognizes that the market includes not only buyers of the organization's products
but also other people affected by the organization's operations. It has become good business to
consider and think of society's interests when the organization makes marketing decisions.
It is obvious to most consumers in the marketplace that many organizations have not adopted the
marketing concept. In fact, these organizations are successful in spite of themselves. A market
orientation is not important when competition is not intense, when market preferences are stable,
during periods of booming economies, and when industries are characterized as technologically
turbulent. Examples of marketers who do not follow the marketing concept include companies
that make products in terms of what designers or engineers say they can produce. The product
planner does not study how the product or its features could meet consumer needs. For those
companies, marketing remains just selling. Alternative concepts under which organizations
conduct their marketing activities include production, product, and selling.
According to the production concept, the focus of marketing efforts should be on improving
production and distribution efficiency. This works well when there is a great deal of unmet
demand for a product or when the cost of the product is so high that it needs to be manufactured
cheaper in order to get consumers to adopt it. This philosophy is clearly seen in an anecdote
about Henry Ford. When someone asked him why his popular Model T automobile was not
available in the variety of colors, he is supposed to have quipped "Customers can have it in any
color they want, as long as it is black!"
The production concept was rampant in American industry during the Industrial Revolution.
Companies prided themselves on manufacturing more products better and cheaper than their
competitors. However, a focus simply on production and distribution efficiency ignores an
important factor -- the needs of the customers. Inventors and entrepreneurs often fall victim to
the production concept and fail to think about the needs of the customers. Developing an
innovative product cheaper than the competition is no good unless it satisfies the needs of the
customers. There are many examples of companies developing extraordinarily efficient and
powerful software packages that have failed because of a lack of user-friendly features.

The product concept is a philosophy that focuses on the features of the product. While the
production concept argues for the focus on production and distribution processes, the product
concept assumes that consumers will buy the product with the best quality, performance and
features. Ralph Waldo Emerson professed this philosophy when he said, "If a man makes a
better mousetrap the world will beat a path to his door." Unfortunately, this is not necessarily
true. Customers will buy products that they perceive as providing them with the best value. This
is not necessarily the same as the product with the most features.
Theodore Levitt advanced the thesis that market definitions of a business are superior to product
definitions of business. Focus on the product rather than the benefit the product offers to
consumers can result in what Levitt calls marketing myopia or shortsightedness. The
organization fails to see the impact of a changing environment on its future. It loses sight of
underlying customer needs by only focusing on existing wants. The product focus was apparent
when the railroads went into decline, according to Levitt "because they assumed themselves to
be in the railroad business rather than the transportation business." This resulted in their
completely overlooking the threats posed by alternative forms of transportation. A product,
according to Levitt, is not a thing but a complex cluster of satisfactions. (See Theodore Levitt's
The Marketing Imagination, Free Press, 1983; Theodore Levitt, "Marketing Myopia," Harvard
Business Review July-August 1960, pp. 45-56.)
The selling concept is used when companies find themselves with an overabundance of products
that they have to sell in order to deplete their inventories. Followers of the selling concept
believe that consumers will not buy their products unless they undertake a large-scale selling and
promotion effort. Their aim is to sell what they make rather than make what will sell in the
market. This concept is typically practiced with unsought products, those that consumers don't
ordinarily think of buying such as funeral insurance. The danger, however, is that the focus on
"making the sale" overshadows the focus on building long-term relationships with customers.
Once a customer buys the product, this philosophy assumes that he or she will be satisfied with
the product or will simply forget about any disappointment or dissatisfaction with having bought
an unsatisfactory product.

Relationships in Marketing
In the past, the focus of marketing was on finding new customers to make the sale.
Organizations have begun to realize that it is a lot cheaper to retain current customers than to
attract new ones. This has led to a focus on relationship marketing that involves working closely
with customers to build lasting relationships over time. Theodore Levitt says, "One of the surest
signs of a bad or declining relationship is the absence of complaints from the customer."
Relationship marketing is establishing, developing, and maintaining successful relational longterm exchanges between organizations and ultimate customers. Understanding relationship
marketing requires distinguishing between the discrete transaction (distinct beginning, short
duration, and distinct ending) and the relational exchange, which traces to previous agreements
and is longer in duration, reflecting an ongoing process. The goal of the discrete transaction is to
get customers (short-term goal-oriented), whereas the goal of relationship marketing is to get
and keep customers (long term goal-oriented).

Relationship marketing has gained increased status in recent years in part because research has
shown that it costs up to five times as much to acquire a new customer as it does to service an
existing one. In addition, studies have shown that fewer than 10% of dissatisfied customers
repurchase a product, while these individuals relate their dissatisfaction to others at a rate five
times that of satisfied customers.
The unit of value in business today is relationships. Clearly, marketers have an incentive to keep
existing customers satisfied. The key to successful customer retention is superior customer
satisfaction. Focused marketing means building relationships with the right people.
Organizations have determined that even the loss of a sale in the short run may mean greater
profits in a long-term relationship. It is not uncommon for an organization engaged in
relationship marketing to recommend a competitor's product if they feel that the competing
product would better satisfy the unique needs of the customer. Such a focus on satisfying
customer needs helps build the trust that can result in a mutually beneficial and satisfying longterm relationship.
Relationships are built on value and service. Value for the customer is a result of increased
global competition that acts as an unyielding pressure on prices. The consumer receives value
from manufacturers operating huge factories and from retailers providing an infinite variety of
goods. Yet, service has suffered as individual production facilities and stores have been replaced
in this industry trend toward mergers with multiple factories and distribution sites. Service is
part of a corporate culture and is the other characteristic of global competition. It is exercised for
every transaction, large or small, to every customer. Those who render it will find they keep their
customers.

Internet and Marketing

Until recently marketers could reach customers by advertising, by phone, by mail, or in person.
Now marketers have the Internet, which is available around the clock, every day. Marketers can
build relationships with customers at their convenience, and at a much lower cost. They can
provide customer service whenever people need it -- and make it easily accessible. The Internet
is the newest way to attract new customers, as well as build loyalty.

Model of Marketing
Ralph Mroz designed the Synchronous Marketing Process (SM) model below. (SM is used
by permission.) A model is a tool that systematically arranges an analytical framework and
translates key inputs into outputs. It is often used when answers to strategic questions are not
immediately obvious, but when quantifiable and repeatable relationships exist between outputs
and inputs. A model's repeatable nature makes it ideal for analyzing multiple scenarios and
helping decide the most appropriate course of action.

The Synchronous Marketing Process (SM) is a model of an integrated, structured, repeatable

marketing process. It divides marketing into two broad categories. The right side of the model
refers to marketing planning (strategic marketing activities) and the left side of the model refers
to marketing operations (tactical marketing activities). The SM model is circular and constantly
interacting linked by appropriate information flows. It guides the organization through a
complete and thorough examination of the market, its opportunities, the development process
and promotional tasks.

The Environment of Marketing

Marketing (c) Gemmy Allen, 1999
Chapter 2 Study Guide
The organization operates within the larger framework of the external environment that shapes
opportunities and poses threats to the organization. The external environment is a set of
complex, rapidly changing and significant interacting institutions and forces that affect the
organization's ability to serve its customers. External forces are not controlled by an
organization, but they may be influenced or affected by that organization. It is necessary for
organizations to understand the environmental conditions because they interact with strategy
decisions. The external environment has a major impact on the determination of marketing
decisions. Successful organizations scan their external environment so that they can respond
profitably to unmet needs and trends in the targeted markets.

The Organization as a System

It is useful to conceptualize the organization as a system or a whole with interdependent and
interrelated parts. The systems approach solves problems by diagnosing them within a
framework of inputs, transformation processes, outputs, and feedback. Inputs are the labor
(human), money (financial), materials, and equipment resources that enter a transformation
process. Transformation processes comprise the technologies used to convert inputs into
outputs. Outputs are the original inputs as changed by a transformation process, products and
services. Feedback is information about a system's status and performance.

Internally, an organization can be viewed as a resource conversion machine that takes inputs
(labor, money, materials and equipment) from the external environment (i.e., the world outside
the boundaries of the organization), converts them into useful products, goods, and services, and
makes them available to customers as outputs. The organization must continuously monitor and
adapt to the environment if it is to survive and prosper. Disturbances in the environment may
spell profound threats or new opportunities. The successful organization will identify, appraise,
and respond to the various opportunities and threats in its environment.

External Macroenvironment
The external macroenvironment consists of all the outside institutions and forces that have an
actual or potential interest or impact on the organization's ability to achieve its objectives:
competitive, economic, technological, political, legal, demographic, cultural, and ecosystem.
Though non-controllable these forces require a response in order to keep positive actions with
the targeted markets. An organization with an environmental management perspective takes
aggressive actions to affect the forces in its marketing environment rather than simply watching
and reacting to it.
Competitive Environment
Adopting the marketing concept means that an organization must provide greater customer value
than its competitors. Being good is not good enough if a competitor is better. It is impossible for
an organization to develop strong competitive positioning strategies without a good
understanding of its competitors and the strengths and weaknesses of the competitors.
Three levels of competition exist.
1. Direct competitors are firms competing for the same customers with the similar products
(ex. grocery stores)
2. Competition exists between products that can be substituted for one another (ex.
margarine for butter)
3. Competition exists among all organizations that compete for the consumer's purchasing
power (ex. entertainment).
Pure competition has many firms, all selling identical products, and no one firm is powerful (ex.
wheat farmers). Monopolistic competition has a large number of firms selling slightly
differentiated products (ex. fast food - product differentiation). Oligopoly is a small number of
firms selling that can act collusively (ex. long distance telephone). Monopoly is a single firm
selling in the market for which there is no close substitute (ex. AT&T pre-1980).
Economic Environment
The economic environment consists of factors that affect consumer purchasing power and
spending patterns. Economic factors include business cycles, inflation, unemployment, interest
rates, and income. Changes in major economic variables have a significant impact on the

marketplace. For example, income affects consumer spending which affects sales for
organizations. According to Engel's Laws, as income rises, the percentage of income spent on
food decreases, while the percentage spent on housing remains constant.
People spend, save, invest and try to create personal wealth with differing amounts of money.
How people deal with their money is important to marketers. Trends in the economic
environment show an emphasis on global income distribution issues, low savings and high debt,
and changing consumer-expenditure patterns. If you consider access to telephones, clothes
washers, dryers, microwaves, etc., there is little visible difference between the poor and nonpoor.
Indeed, recent figures indicate that the affluent are shopping at discount stores, having adopted
some of the shopping habits of those with less income.
According to the U.S. Census Bureau reports, in 1995, the poverty threshold for a single-person
household was $7,763; it was $9,933 for a two-person household and $12,158 for a three-person
household. In spite of that, more than 90 percent of these households have a kitchen range, a
refrigerator and a color TV. A 1995 study from the National Center for Policy Analysis found
that more Americans at the poverty level owned dishwashers than families in the Netherlands,
Italy or the United Kingdom. It also found that more U.S. poor owned microwaves than the
people of any nation in Europe did.

Why superstars are paid so much?

Marketers can't control the problems that have cropped up, and that may continue to develop, at
various hot spots across the global economy. But they can -- and should -- take proactive steps to
shelter their organizations from unwanted consequences of a worldwide downturn. When an
organization's underlying financials are strong, it is able to capitalize on competitors'
weaknesses, prosper, and continue to grow, even in adverse economic times.
Technological Environment
The technological environment refers to new technologies, which create new product and market
opportunities. Technological developments are the most manageable uncontrollable force faced
by marketers. Organizations need to be aware of new technologies in order to turn these
advances into opportunities and a competitive edge. Technology has a tremendous effect on lifestyles, consumption patterns, and the economy. Advances in technology can start new industries,
radically alter or destroy existing industries, and stimulate entirely separate markets. The rapid
rate at which technology changes has forced organizations to quickly adapt in terms of how they
develop, price, distribute, and promote their products.
Political and Legal Environment
Organizations must operate within a framework of governmental regulation and legislation.
Government relationships with organizations encompass subsidies, tariffs, import quotas, and
deregulation of industries.

The political environment includes governmental and special interest groups that influence and
limit various organizations and individuals in a given society. Organizations hire lobbyists to
influence legislation and run advocacy ads that state their point of view on public issues. Special
interest groups have grown in number and power over the last three decades, putting more
constraints on marketers. The public expects organizations to be ethical and responsible. An
example of response by marketers to special interests is green marketing, the use of recyclable or
biodegradable packing materials as part of marketing strategy.
The major purposes of business legislation include protection of companies from unfair
competition, protection of consumers from unfair business practices and protection of the
interests of society from unbridled business behavior. The legal environment becomes more
complicated as organizations expand globally and face governmental structures quite different
from those within the United States.
Demographic Environment
Demographics tell marketers who current and potential customers are; where they are; and how
many are likely to buy what the marketer is selling. Demography is the study of human
populations in terms of size, density, location, age, sex, race, occupation, and other statistics.
Changes in the demographic environment can result in significant opportunities and threats
presenting themselves to the organization. Major trends for marketers in the demographic
environment include worldwide explosive population growth; a changing age, ethnic and
educational mix; new types of households; and geographical shifts in population.
Cultural Environment
Social/cultural forces are the most difficult uncontrollable variables to predict. It is important for
marketers to understand and appreciate the cultural values of the environment in which they
operate. The cultural environment is made up of forces that affect society's basic values,
perceptions, preferences, and behaviors. U.S. values and beliefs include equality, achievement,
youthfulness, efficiency, practicality, self-actualization, freedom, humanitarianism, mastery over
the environment, patriotism, individualism, religious and moral orientation, progress,
materialism, social interaction, conformity, courage, and acceptance of responsibility. Changes
in social/cultural environment affect customer behavior, which affects sales of products. Trends
in the cultural environment include individuals changing their views of themselves, others, and
the world around them and movement toward self-fulfillment, immediate gratification, and
secularism.

Ecosystem Environment
The ecosystem refers to natural systems and its resources that are needed as inputs by marketers
or that are affected by marketing activities. Green marketing (the greening of America) or
environmental concern about the physical environment has intensified in recent years.
Environmental consciousness has a strong presence in Western Europe and Japan, as well as in

the United States. To avoid shortages in raw materials, organizations can use renewable
resources (such as forests) and alternatives (such as solar and wind energy) for nonrenewable
resources (such as oil and coal). Organizations can limit their energy usage by increasing
efficiency. Goodwill can be built by voluntarily engaging in pollution prevention activities and
natural resource.

External Microenvironment
The external microenvironment consists of forces that are part of an organization's marketing
process but are external to the organization. These microenvironmental forces include the
organization's market, its producer-suppliers, and its marketing intermediaries. While these are
external, the organization is capable of exerting more influence over these than forces in the
macroenvironment.
The Market
Organizations closely monitor their customer markets in order to adjust to changing tastes and
preferences. A market is people or organizations with wants to satisfy, money to spend, and the
willingness to spend it. Each target market has distinct needs, which need to be monitored. It is
imperative for an organization to know their customers, how to reach them and when customers'
needs change in order to adjust its marketing efforts accordingly. The market is the focal point
for all marketing decisions in an organization.
Consumer markets are individuals and households that buy goods and services for personal
consumption. Business markets buy goods and services for further processing or for use in their
production process. Reseller markets buy goods and services in order to resell them at a profit.
Government markets are agencies that buy goods and services in order to produce public
services or transfer them to those that need them. The federal government is the largest buyer in
the United States. International markets consist of buyers in other countries.
Suppliers
Suppliers are organizations and individuals that provide the resources needed to produce goods
and services. They are critical to an organization's marketing success and an important link in its
value delivery system. Marketers must watch supply availability and monitor price trends of key
inputs. If there is a breakdown in the link between the organization and its suppliers, the result
will be delays and shortages that can negatively impact the organization's marketing plans. On
the other hand, positive and cooperative relationships between the organization and its suppliers
can lead to enhanced service and customer satisfaction.
Marketing Intermediaries
Like suppliers, marketing intermediaries are an important part of the system used to deliver
value to customers. Marketing intermediaries are independent organizations that aid in the
flow of products from the marketing organization to its markets. The intermediaries between an
organization and its markets constitute a channel of distribution. These include middlemen

(wholesalers and retailers who buy and resell merchandise). Physical distribution firms help the
organization to stock and move products from their points of origin to their destinations.
Warehouses store and protect the goods before they move to the next destination. Marketing
service agencies help the organization target and promote its products and include marketing
research firms, advertising agencies, and media firms. Financial intermediaries help finance
transactions and insure against risks and include banks, credit unions, and insurance companies.

Marketing Information
External environmental sources provide raw data for marketers to develop into actionable,
marketing information. Environmental forces create challenges and opportunities for the
organization. Marketers must react and adapt to changes in their external environment.
Globalization is an example of an opportunity for an organization. Improving technologies, such
as transportation and communications, have enabled companies to expand into global or
worldwide markets. Marketers must learn to deal effectively with multiple cultures and political
systems in the midst of rapidly changing markets and technology. They must be able to
anticipate this changing environment and develop the competencies at all levels in their
organizations to embrace this dynamic future.

Marketing Research
Copyright 1999 by Gemmy Allen, all rights reserved.
Chapter 3 Study Guide
Marketing information is a critical element in making effective marketing decisions. The pace of
technological development and the globalization of trade mean that today's environment changes
more quickly than ever before. Micro- and macro-environmental sources -- along with internal
data and marketing research -- provide unprocessed data for marketers to develop into
actionable, marketing information. Obviously, a marketers decisions can only be as good as the
information that led to those decisions. Therefore, it is of the utmost importance for an
organization to have a well-developed information gathering, analyzing and disseminating
system so marketing decision-makers are provided with timely and accurate information.

Information
Every member of an organization must have quality information in order to act intelligently and
make good decisions. In order to create useful information, data (unprocessed facts and figures)
must be collected and organized in some meaningful pattern. Information is data that have
been deliberately selected, processed, and organized to be useful. Organizations gather and store
a vast amount of information as a regular part of conducting their business. Internal
information comes from within the organization itself (internal environment). For example,
internal data ranges from sales data collected by the accounting department to consumer product
returns and complaints data processed by customer service. External information has been
generated from data outside the organization. The external environment of marketing includes
many diverse information sources, such as demographic, economic, legal, technological, and
competitive.

Competitive Intelligence
Managers need more than information to make decisions. They need intelligence to provide the
organization with a competitive edge. The Society of Competitive Intelligence Professionals
(SCIP) was founded in 1987 and defines competitive intelligence (CI) as the process of
monitoring the competitive environment. CI is performed by corporate marketing departments
and may be referred to as marketing intelligence. CI involves the legal and ethical collection of
information. It adds value to information gathering by introducing a disciplined system not only
to gather information, but also to perform analysis and disseminate findings tailored to the needs
of decision-makers. CI developed in response to increasing international business, a decline in
defense spending and the explosive growth of the telecommunications industry.
Competitor intelligence professionals (CIP) collect all the information about competitors that
can be developed from available public information (databases, government reports,
competitors employees, firms salespeople). Also, they may be charged with working to prevent
competitors from doing the same to them. Public documents available about competitors
include financial reports to shareholders and the SEC, patent office filings, executive speeches,
marketing materials, newspaper and magazine articles, investment house analyst reports in

short, anything thats available from the growing number of publicly accessible databases. Once
information is collected, the CIPs job is to analyze it and report to management on what the
competitors next market strategies might be. Marketers must know their markets, as well as
their competitors.

Marketing Information System

The environment provides the organization with information overload. Information management
can be done manually, but most organizations rely upon computers. Taking advantage of
developments in technology and methodology to increase the level of decision support, the
concept of an information system was introduced in the mid-1960s. An information system (IS)
is an ongoing and interacting structure of people, equipment and procedures designed to gather,
synthesize and distribute pertinent, timely and accurate information. Marketers soon tailored it
for their own unique needs and named it marketing information system (MkIS). MkIS is the
source for controlled and readily observed marketing variables. An effective MkIS is a powerful
source of competitive advantage. It may lead to new products or new processes.
Wal-Marts world-renowned information systems are a key factor in its success. The model
allows Wal-Mart to better know and service its customers. Some analysts say that Wal-Mart's
extensive information database is second in size only to that maintained by the U.S. government.
Besides raw sales, profit margin and inventory numbers, the system also documents what
consumers buy together, like cereal and milk.
Computers and the Internet make the process of gathering intelligence easier. Yet, many
researchers cant always get everything they need by using just one application from a MkIS.
Instead of one central system from which to retrieve information, it is more common to have to
go to many places to get needed information. Too much data is coming into most organizations
from too many directions. Hundreds of electronic sources flow into companies separately. In
fact, many companies subscribe to different information products from different publishers in
different formats. This makes it very difficult for marketers to analyze information.
SageMaker is a kind of newsstand for the hundreds of electronic sources that normally flow into
companies separately. It bundles together many publications and services so customers can use
them as though they are a single product. Publishers send their information to SageMaker,
which republishes it all in a single format and delivers it over the Internet to servers inside
energy and chemical companies. When a researcher sits down and says, 'What do we know
about Chevron?' anything about Chevron from all those sources appears under a single
interface. The researcher doesnt have to search 50 Web sites or launch 50 applications.

Marketing Decision Support Systems

In general, the MkIS produces a standard report according to a schedule. Unlike a MkIS, a
decision-maker can interact directly with the decision support system (DSS), which adds speed
and flexibility to the research process. DSS is an analytic model that joins a decision-maker's
experience and judgment to the computers processes. Decision-makers can access databases to
produce non-standard reports that can be used on a problem-to-problem basis. Decision-makers

can analyze, manipulate, format, display and output data in different ways. The DSS provides a
modeling function to help interpret the information retrieved. Each DSS is developed and
adapted to support a firms own decision problems.
A DSS enables decision-makers to represent environmental forces (such as customer purchasing
practices and changes in prices) and quickly evaluate many alternatives and assumptions within
models. The decision-maker can ask, What is? and What if? questions. Microsofts Excel,
electronic spreadsheet software, is an example of a form of DSS software. Excel will
automatically recalculate a quantity when one of the variables in a formula is changed.
Marketers have adapted DSS. A marketing decision support system (MDSS) is the part of a
MkIS that displays information in useful visual and graphic forms. Information might include
recurring market and accounting data from market analysis and accounting activities;
intelligence relevant to the future strategy of the firm; market research studies not of a recurring
nature; and a broad range of data from both internal and external sources. The purpose of
MDSS is to identify problems and opportunities early to provide a head start or at least to keep
up with the competition.

Databases
A database is data accessible by a computer. It is an organized collection of data -- such as
facts, figures and documents -- that have been stored for efficient access. Users interact directly
with the database to retrieve information. Database marketing is used to employ a firms
database information to direct its marketing efforts towards the best segment and potential
customers. Massive amounts of data can be manipulated allowing marketers to identify specific
users of products, measure their actual purchase behavior, and relate it to specific brand and
product categories. Microsofts Access is an example of database software.
Marketers use datamining (the extraction of hidden predictive information from large
databases) to drill down into the data to any level of detail needed to identify common
characteristics of high-volume users. Then, clusters of consumers who share certain
characteristics such as income, education, and brand loyalty can be identified as targets for
marketing efforts. Advertising messages can be tailored to this target.

Market research
Since decision-makers seldom have all of the information that they need, information gaps will
be revealed by use of MDSS models. Marketers must decide if they need more information and
how to get it. Getting more information may cost too much or take too long. The organization
must decide whether the benefits of having additional information are worth the costs of
providing it. Thus, marketers should weigh carefully the costs of additional information against
the benefits resulting from it. If new information is deemed valuable, market research
procedures can be used to develop and analyze new information.
Marketing research is a formalized means of acquiring information to assist in the making of
marketing decisions. The American Marketing Association (AMA) defines marketing research

as the function that links the consumer, customer, and public to the marketer through
information--information used to identify and define marketing opportunities and problems;
generate, refine, and evaluate marketing actions; monitor marketing performance; and improve
understanding of marketing as a process. Marketing research specifies the information required
to address these issues, designs the method for collecting information, manages and implements
the data collection process, analyzes the results, and communicates the findings and their
implications.
Organizations develop and maintain products through a continuous process of market research,
follow-up with previous customers and interaction with current customers. Marketers utilize
research to improve product value to current customers and to find new customers. For
example, marketers receive feedback from customers through purchase behavior that is tracked
in a database as well as through survey responses, product registration, warranty cards, etc.
Thus, market research completes a communication loop between the seller and the market.
Understanding how buyers relate to products can help organizations make better products and
promote them better across the world.
Marketing Research and Market Research
In his book Modern Marketing Theory: Critical Issues in the Philosophy of Marketing Science
(South-Western College Publishing, 1991), Shelby Hunt distinguishes between marketing
research
and
market
research.
Marketing research (or, alternatively, scholarly research in marketing) always seeks to expand
the total knowledge base of marketing. In a general, market research attempts to solve a
particular company's marketing problem. To evaluate a particular department stores image
would be a market research problem. To explore whether department stores have images at all
is a marketing (scholarly) research problem. To attempt to determine the best location for a
particular warehouse is a market research problem. To attempt to develop a model for locating
warehouses in general is a marketing research problem. The following question can serve as a
litmus test for differentiating market research from marketing research: After conducting this
research project, what will we then know about marketing in general that we do not know
now? In short, What will be the contribution of this research to knowledge about marketing?
(p. 2)

Also, visit The Market Research Society at:

http://www.marketresearch.org.uk/
Marketing Research Process
Marketing research is sometimes defined as the application of the scientific method to
marketing. The scientific method forces an orderly research process. The marketing research
process is an application of the four basic steps in scientific method. For more information, see
Trochim, William M. The Research Methods Knowledge Base, 2nd Edition. Internet WWW
page, at URL: http://trochim.human.cornell.edu/kb/index.htm .

(1.) State the Problem. It has been said, a problem well defined is half-solved. The problem
must be clearly defined and the objectives precisely stated to properly guide the rest of the
research process. Yet, defining the problem can be one of the most difficult parts of the research.
An incorrectly defined problem can lead to incorrect research objectives and consequently a
poor decision. Not only is it important for the right problem to be identified, but the definition
should be specific. Many people define symptoms of the problem as the problem (for example,
declining sales) instead of the defining the real problem (for example, declining quality). A
research design is the specification of methods and procedures for acquiring the information
needed to solve problems. Designs may be identified as exploratory, descriptive and causal.
Exploratory research is used to gain ideas and insight to define the problem and suggest
hypotheses. It is particularly helpful in breaking broad, vague problem statements into smaller,
more precise problem statements. Descriptive research, in contrast to exploratory research, is
concerned with describing the characteristics of certain groups, to estimate the proportion of
people who behave in a certain way, or to make predictions. The researcher already knows a
substantial amount about the research problem, perhaps as a result of an exploratory study,
before the project begins. Descriptive information is often useful for predictive purposes, but
the causes (reasons why) of what is being predicted improves understanding. Causal research
tests relationships of causal factors to the effects predicted. Does X cause Y? For example,
does a lower price cause an increase in sales?
*insert graphic Research designs - 3resdes
(2.) Form a Hypothesis (possible solution to a problem). Also, this step is known as
research. In marketing this step is known as developing the research plan and involves
outlining sources of existing data, specifying research approaches, contact methods, sampling
plans, and instruments to be used to gather new data. Data about the problem must be gathered
before a possible solution to the problem can be formed. Secondary data is pre-existing,
collected for another purpose. Since the information was collected for some other purpose, it
may not satisfy the current needs of the researcher, either because the data needed by the
researcher do not exist, or the data are not relevant to the current. Ideally, secondary data should
be available inside the organization from its MkIS. Also, secondary data is available outside the
organization from the Internet, libraries, trade associations, universities, private research
organizations, and government agencies. The Internet can be electronically monitored for any
mention of the company and its products so that the firm can stay on top of consumer reactions
to its products as well as to get any media reviews of its products as soon as they are published
on the Internet.
Primary data is collected to solve a current problem. Far too often, researchers gather primary
data when much relevant secondary information is already available at little or no cost!
Sources of primary data include observation, surveys, and experiments. Observation means
that the situation of interest is checked and a person or some mechanical device records the
relevant facts, actions, or behaviors. A survey involves using a questionnaire (data collection
instrument) to ask respondents questions to secure the desired information. Questionnaires may
be administered by mail, over the telephone, by computer, or in person. In an experiment, a
researcher selects matched groups, gives them different experimental treatments controlling for
other related factors, and checks for differences in the responses of the experimental group and
the control group. A common experiment is test marketing where the researcher duplicates real
market conditions in a small geographical area to measure consumers responses to a strategy
before committing to a major marketing effort.

*insert graphic Sources of data 3data

Data is gathered through sampling techniques since it is usually not economically feasible for
researchers to gather information from everyone (census or population). It is interesting to note
that samples are used in to infer the accuracy of the U.S. census. The use of large field staffs
introduces greater potential for non-sampling error. Thus, even the Census Bureau uses sample
surveys to check the accuracy of various censuses. Researchers select a sample (subset or
portion) of the population of interest to represent the larger group. A properly selected sample
will have the same characteristics as the population from which it was selected. Population can
refer to people, manufacturing firms, retail or wholesale institutions, or inanimate objects such
as parts produced in a manufacturing plant. Selecting the sample involves determining: (1) the
sampling unit (Who should be surveyed?) (2) the sample size (How many people should be
surveyed?) and (3) the sampling design (How should the sample be chosen?)

*insert graphic Sample designs 3sam

(3.) Test the Hypothesis. Marketers refer to this step as implementing the research plan.
Research is implemented to determine if the hypothesis solves the problem or not. The data must
be collected, processed, analyzed, and interpreted. Observation is often used for exploratory
research while questionnaires are best suited to descriptive research. For causal research, the
best approach is experimental research.
(4.) Draw Conclusions. Marketers refer to this step as interpreting and reporting the
findings. After analyzing the data from the research, conclusions can be drawn. Relationships,
trends and patterns can be identified. In it's simplest form, the conclusion will be "yes" the
hypothesis was correct, or "no" the hypothesis was not correct. A formal report is prepared and
presented.

Market Research Services

Many companies have their own marketing research departments. However, due to corporate
downsizing, more independent market research firms are being hired to conduct research. The
external suppliers of market research might maintain a large database, design models, and/or
collect, process, and analyze survey data. For example, Dun & Bradstreet has a marketing
database of more than 10 million U.S. businesses, which can be used to generate highly targeted
prospect lists, print mailing labels and telemarketing reports, and append demographic data to
customer files. Lexis/Nexis is a full-text news and legal information service. Its database
contains articles from the popular press in addition to academic and practitioner-oriented
journals, press releases, governmental sources, and a great deal of legal information.
Custom services work with individual clients (NPD, Burke, MARC).
Syndicated services routinely collect information on several different issues and provides
it to firms that subscribe to their services (Nielsen, Arbitron).
Field services concentrate only on collecting data for research projects (personal and
telephone interviews, focus groups).
Selective services specialize in just one or two aspects of marketing research, mainly
concerning coding data, editing, or data analysis.
Branded services specialize in data collection and analyses procedures that address
specific research problems and are marketed as branded products (PRIZM).

Product Development
Copyright 1999 by Gemmy Allen, all rights reserved.

Chapter 5 Study Guide

Product development plays an important role in helping the organization achieve its overall
goals. New products are the lifeblood of an organization. Product development includes input
from the external environment since external feedback is an integral part of all products.
Companies that focus on outstanding product designs increase customer satisfaction and
retention, which leads to increased sales, market share, profitability and future company growth.
Also, "first-to-market" companies enjoy less initial competition and are able to charge a
premium or attain higher profit margins.
Getting new products to market takes speed. This requires coordination with engineers, as well
as marketers. Without input and feedback from marketing, developers can often work in a void,
lacking market requirements and competitive information. Marketing has a role in each phase of
product development including: conceptualization, specialization, selling internally, competitive
analysis, engineering-marketing feedback loop, feasibility testing, packaging and pricing,
service, support, manufacturing requirements, buy versus make decisions, technology licensing,
beta testing, product scheduling and rollout, user feedback and future products.

Integrated Product Development

In the external environment of fast-paced technological change, nimble competitors, and
demanding customers, world-class firms have adopted an integrated product development (IPD)
process to provide best-in-class new products. IPD is a management strategy that uses customer
inquiry, cross-functional teaming and technology integration to improve the performance of
product development lifecycles. The U.S. Department of Defense first proposed IPD as a name
that better reflected the participation of manufacturing, design, marketing and finance in product
development. IPD improves an organization's ability to quickly respond to market demands with
high quality new products. Increasingly diverse needs of customers are met by exercising speed,
efficiency, and quality in the development of new products. IPD includes all of the processes that
link the activities for designing and building what the customer requirements specify. The
integrated, or concurrent, development process has easy access to management, with a centrally
networked information system in place that is readily accessible by everyone.
The marketing function's on-going contact with customers allows them to act as the "voice of the
customer" in the initial phases of the product development process communicating customer
needs to the design function. Their input enables the design function to develop new products
that are based on customer-originated ideas leading to greater market successes. In later stages of
the product development process, marketing ensures that new designs remain focused on
customer needs and that they provide the benefits that customers want. This interaction between
marketing and design is an iterative process that prevents development of products for which
there is no market. If the product cannot be built to the quality and cost levels that customers
demand, marketing will not be able to sell it no matter how innovative the design is. The
interaction between marketing and manufacturing in the product development process is
primarily a dialog regarding the production capacity that will be required to meet demand for the
new product and the company's ability to meet this demand. By forecasting sales and
communicating these forecasts to manufacturing early in the product development process, the

interaction between marketing and manufacturing will prevent lost sales due to insufficient
inventory and high carrying costs due to overproduction. Funds are often limited due to other
projects under development within a company, so financial decisions must be integrated with the
design, marketing and manufacturing strategies to maximize the long-run return on the
development of new products.

The Concept of Product

A product is anything that can be offered to a market that might satisfy a need or want. It could
be a tangible good (soap), service (haircut), person (George W. Bush for President), and place
(Viva! Las Vegas), organization (Intel Inside), or idea (Dont Do Drugs). Most tangible goods
include an intangible component, such as the warranty or guarantee of satisfaction.

Mass Customization
The concept of service has broadened to include both breadth of product offerings and the ability
to customize to meet specific needs. Undifferentiated mass-produced outputs can be adapted to
the needs of each customer through such tools as the Internet and the various online databases.
Mass customization is serving large numbers of customers, but giving each exactly what he or
she wants. The strongest possible one-to-one marketing role for a manufacturer will be to tailor
new products to the tastes and needs of individual consumers. Thus, marketers are finding new
ways to customize their offerings. Computer-controlled production processes are used to
manufacture individually customized products by combining any of a wide array of production
modules. Also in place is an efficient mechanism for learning an individual customer's product
specifications prior to manufacturing a product for that customer. Levi Strauss & Co.s Personal
Pair jeans program uses in-store computers to create jeans cut to the customers measurements.
Ritz-Carlton makes a computerized record of individual guest preferences available to all of its
hotels. The Montreal Ritz will have an extra pillow ready for a guest who requested it months
earlier at the Atlanta Ritz. Mattel lets you make a Barbie doll in your own image by allowing
you to name your Barbie after yourself, select the color of her hair and skin, her outfit,
profession and hobbies. If you like what you see, you can order the custom Barbie.
Even funerals are can be customized. Across the nation, people are increasingly asking for one
thing when they plan funerals: choice. People are becoming more interested in personalizing the
funeral service. They are substituting personality for tradition and seeking services that reflect
their lives and beliefs. White Light Casket Company creates art caskets - a line of caskets
decorated with images such as the Irish flag, religious symbols and a golf fairway. Individuals
can also special-order caskets. Indiana-based Batesville, America's biggest casket firm, is
increasingly selling caskets with options such as engraved lids or embroidered designs on the
interior.

Total Product
When a consumer buys a product, he or she is purchasing the total product, which includes
everything that adds value to the sellers offering. The core product is the actual benefit the

consumer is seeking from the purchase. For example, when consumers purchase Kodak film,
they are buying A Kodak Moment, the core benefit.
The actual product consists of product attributes such as quality level, design, brand name, and
packaging. All of these features help differentiate the product from its competitors. For
example, Kodak film is the actual product. Its brand name, packaging and other attributes
differentiate it from its competitors. All of these features have been combined to deliver the core
benefit moments of your life. Product quality is the set of features and characteristics of a
product that determine its ability to satisfy needs. Total Quality Management (TQM) is a
philosophy that commits the organization to continuous improvement in all of the activities.
ISO 9000 is a set of related standards of quality management that have been adopted by about 60
nations, including the United States. Product design refers to the arrangement of elements that
collectively form a product. Color is important aspect of design. A brand is a name and/or
mark intended to identify the product of one seller and differentiate the product from competing
products. Manufacturers, producers, retailers and wholesalers (middlemen) can own brands. A
brand makes a product easier to identify and helps ensure consistent quality. Brand equity is the
value a brand adds to the product. The sources of brand equity include the product, its name, and
its personification, logo, country of origin, advertising themes, and style and packaging
approach. A brand name consists of words, letters, and/or numbers that can be vocalized. A
good brand name is easy to pronounce, spell, and remember. It should be distinctive and suggest
something about the product, especially its benefits or use. Generics are unbranded products. A
family brand uses the company name (General Electric) or a product name (Armor All) for all
its products. Multiple-brands may be used for each product (Proctor & Gambles Tide and
Cheer detergents). A brand mark is the part of the brand that appears in the form of a symbol,
design, or distinctive coloring or lettering. A trademark is a brand that has been adopted by
seller and, in turn, given legal protection. Trademark licensing or brand licensing occurs when
the owner of a trademark grants permission (a license) to other firms to use the owners brand
name and brand mark of the licensees products. Packaging is all the activities of designing and
producing the container or wrapper for a product. It protects and promotes the product. Family
packaging uses identical packages for all products. A label is the part of the product that carries
information about the product and the seller.
The augmented product consists of the additional services and benefits (such as installation,
delivery and credit, warranty, and after-sale service) that come with the actual product to best
satisfy consumers. These post-sale features differentiate the product from its competitors. For
example, Kodak provides customers with a solution to their picture-taking problems by offering
a money-back guarantee for defective film.

Major Value Propositions

Designing and continuously redesigning product concepts ensures delivering the right
value proposition to targeted consumers. Products, just like diamonds, have many facets. A
product value proposition (proposed business deal) is the way an organization answers the
customers question, Why should I buy from you? The answer is the positioning the
products position in the mind of the consumer. A products position is the complex set of
perceptions that consumers hold for the product when it is compared with competing products. A

products position could be in relation to competition, in relation to product class or attribute, or

by price and quality.
Successful marketers do not leave their product positions to chance. They determine a core
benefit that they can deliver better than anyone else does. One example is Du Pont. They dont
sell a chemical; they sell a solution, Charging you more, costing you less. Thus, Du Ponts
major value proposition is best value for the money. Another example is Volvos major value
proposition of safest automobile.

Classifications of Product
Products are classified as either consumer products or business (also known as industrial
products) based on who will use them and how they will be used. Consumer products are
intended for personal (non-business) consumption. Business products are intended for resale,
for further processing in producing other products, or for use in conducting a business. Products
can be in both classes, if organizations and consumers purchase and use the product. For
example, a light bulb would be considered a consumer product if purchased by a family for their
home, but is categorized as a business product if bought by a businessperson for the
organization.
Consumer Products
Consumer products can be further classified on the basis of how consumers view and shop for
these products. The products price and purchase importance determine the level of involvement
a consumer will devote to purchasing the product. Convenience products are bought
frequently, immediately, and with a minimum of comparison and buying effort (groceries).
Shopping products are less frequently purchased and are carefully compared on suitability,
quality, price, and style (clothing). Specialty products are unique in some way and substitutes
are not accepted (expensive automobiles). Unsought products are those not normally thought
of either because consumers dont want to think of them (burial insurance) or consumers are
unaware of them (a telephone number allowing you to check your email messages).

Business Products
Business (or industrial) products can be classified based on their use by businesses. Materials
and parts are directly used in the production of final products by the firm. Raw materials will
become part of another tangible good. Two types of raw materials include agricultural products
(grain, fruits, and livestock) and natural products (minerals, land, and products of the forests and
seas).
Capital items aid in the production and operation of the firm. Installations are long-lived,
major equipment of the business user (printing press, canning machinery). Accessory
equipment is used in the production operations of a business firm, but it does not have a
significant influence on the scale of operations (forklift trucks, photocopiers).

Supplies are short-lived, low-priced items that aid in the firms operations but do not become a
part of the finished product (office supplies, lubricating oils). Component parts and materials
become an actual part of the finished product. Parts will be assembled with no further change in
form (zippers, semiconductors). Materials will undergo further processing (pig iron into steel).
Business-to-business services include maintenance and repair services (janitorial services,
equipment maintenance) as well as business advisory services (accounting, advertising services).

Product Life Cycle

The product life cycle is the cornerstone for understanding product/market behavior in consumer
marketing. Product life cycles can vary from a few weeks to decades depending on new
technologies, consumer dissatisfaction, or competitive activities. A product life cycle consists of
the aggregate demand for all brands comprising the generic product category overtime. The
introduction or pioneering stage is characterized by little competition. Product development
costs are high. Promotion focuses on stimulating demand for the product category, rather than a
single brand. In the growth or market acceptance stage, both sales and profits rise. Competitors
enter the market and profits start to decline. In the maturity stage, sales increase at a decreasing
rate. Price competition intensifies, and profits decline. In the decline stage, new replacement
products enter the market. Demand drops and a number of competitors withdraw from the
market.
The technological life cycle is the critical factor affecting fluctuations overtime in a given
business product category. The cutting-edge stage refers to that level of technology
development that is ahead of even the most sophisticated applications in the marketplace.
Markets for cutting-edge technology tend to be small and sophisticated. Firms that specialize in
adapting developed cutting-edge techniques to market needs and applications are known as state
of the art. They either integrate the cutting-edge product into their own offerings or use the
cutting-edge technology to discover new market applications. In the advanced stage, there is
increased competition and a less sophisticated customer base. First-to-clone companies beat
competitors to an improved or lower cost alternative while avoiding the development and market
risks of first-to-market companies. Market size increases and substantial profits emerge. The
company shifts from a technology-driven to a market-driven company. The firms product is no
longer technologically different from its competition. The firm with the lowest marginal cost
can become a market leader and make profits while eliminating competition. However, market
segmentation is a viable strategy and a safer alternative to price competition. In the mainstream
stage the market is fully developed. Products are standardized and the firms focus must shift to
low-cost production. The mature stage is characterized by its lack of strategic production
advantages. Competition shifts to customer service as prices stable lives. The product
approaches an undifferentiated commodity status. In the decline stage, new technologies
replace the dying technology. The old technology survives by pricing itself substantially below
the new technology.
Life cycles can be successfully managed. Marketers must predict the proposed products cycle,
even before it is introduced. Furthermore, they must successfully adapt marketing strategies at
each stage of the life cycle. They want to enter during the introductory stage to build a dominant
market position, or wait until the early part of the growth stage when a viable market has been

proved. To extend the product life cycle, marketers can expand the product line through
modifications
or
find
new
uses
for
the
product.

Mattel, Inc.s Barbie doll was introduced on March 9, 1959 at the New York Toy Fair. That year
351,000 dolls were purchased. On average, 172,800 Barbie dolls are sold worldwide every day.
Barbie products make up 40 percent of Mattel, Inc. annual sales. An estimated 90 percent of
American girls have owned at least one Barbie doll over the last 40 years.
The product mix is the set of all products offered for sale by a company. Breadth of product
mix is the number product lines carried. Depth of product mix is the variety of sizes, colors,
and model offered within each product line. A product line is a broad group of products,
intended for essentially similar uses having similar physical characteristics. Product line
extension means to add a similar item to an existing product line. For example, a soft drink
company could introduce a new flavor.

Planned Obsolescence
The purpose of planned obsolescence is to make an existing product out of date and thus
increase the market for replacement products. Technological or functional obsolescence results
from significant technical improvements that result in a more effective product. An example
would be compact discs (CDs) replacing audio tapes and audio tapes replacing records. Planned
obsolescence that is technologically based can be beneficial when a more effective product is
developed. Style obsolescence occurs when superficial characteristics of a product are altered
so that the new product is easily differentiated from the previous product. Style obsolescence is
often criticized as being environmentally unsound.
Consumers are too sophisticated to be drawn easily into a planned obsolescence situation. For
example, womens apparel manufacturers have learned the hard way that women select clothing
based on how it looks on them rather than what is in. A style is a distinctive manner of
construction or presentation in any art, product, or endeavor. A fashion is any style that is
popularly accepted and purchased by successive groups of people over a reasonably long period
of time. The fashion adoption process explains how fashion travels through the socioeconomic
classes. Trickle-down is when a fashion travels downward through several socioeconomic levels
(tie-less tuxedo shirts). Trickle-across is when a fashion travels horizontally and simultaneously
within several socioeconomic levels (blue jeans). Trickle-up is when a fashion travels from
lower socioeconomic levels upward to higher levels (hip-hop). Consumer products where
fashion and style are most noticeable include perfumes, for accurate household items, linens, and
gift items. A fad is any fashion that enters quickly, is adopted with great the zeal, peaks early,
and declines quickly. The classic example of a fad is the pet rock.

Product Innovation
The ability to change and innovate to meet the needs of the marketplace separates the winners
from the losers in todays business environment. Since products go through life cycles, new
products are necessary to sustain sales and profits. The competition and customers must be

assessed to determine what new products might satisfy customer needs. The new product
development process includes generating new product ideas, screening ideas, business analysis,
prototype development, market tests, and commercialization. Key questions in the process
include:

Is there a current need for the product?

Does the new product meet the users' needs uniquely? completely?
Will the user and buyer believe that you have the solution?
Is the size of the market big enough for the company to make a profit?
Have you tested and validated?

To be development leaders, companies use design integration techniques, such as voice-of-thecustomer. The surest way to delight the customer is to understand what they want. Leading
companies regularly seek feedback from customers to continuously improve services. Another
design technique is Quality Function Deployment (QFD). Three key areas of product
development excellence are time-based performance (How rapidly are different types of new
products being brought to market now and in the future?), development effectiveness (How
efficient is the process of developing new products? How effective are the results?), and project
management (How effective is the process for managing across and within specific projects?)
Critical areas of product development include delivering products more swiftly to market,
achieving greater revenue impact from new products, and minimizing lost product development
dollars.

New Product Diffusion and Adoption

The consumer buying decision process for new products helps marketers understand how
consumers learn about and decide to adopt new products. The diffusion of a new product is the
process by which the innovation is spread through the marketplace over time. The adoption
process refers to the series of stages a prospective buyer goes through in deciding to buy and
make regular use of a new product. These stages include awareness (knowing about the
existence of the new product), interest (finding the product interesting enough to seek more
information on it), evaluation (deciding whether the product is worth trying), trial (actually
sampling the product), and adoption (deciding to use the product on a regular basis). The role
of a marketer is to help consumers move through these stages quickly.
The diffusion process refers to the rate at which various members of society adopt a new
product. The first person on the block to buy the latest product is probably an innovator.
Approximately three percent of the market is innovators. They are venturesome and try new
ideas at some risk. Early adopters are respected and tend to be leaders in social settings. They
are the opinion leaders in their communities and adopt new ideas early but carefully. Early
adopters are approximately 13 percent of the market. The early majority, approximately 34
percent of the market, deliberates and does not rush out and buy the newest product. They adopt
new ideas before the average person. The late majority, approximately 34 percent of the
market, is skeptical of new products and does not adopt a product until a majority of consumers
have adopted it. Finally, the laggards are tradition bound. They constitute approximately 16
percent of the market and are suspicious of changes and adopt the innovation only when it has
become something of a tradition itself. Individuals who never accept the innovation are known
as nonadopters.

Product innovation characteristics influence the rate of adoption. Some products go through the
adoption process quickly. The relative advantage of the product compared to existing products
will affect the rate of adoption. If the product is seen as a significant improvement over current
options, it is likely to be adopted fairly quickly. The degree to which the new product is
compatible with the existing values and experiences of potential consumers will affect the
adoption rate. The more complex the innovation, the slower it will be adopted. The divisibility
of the product or its ability to be sampled will also affect the rate of innovation. The more
divisible, the faster the rate of adoption. Finally, communicability refers to the degree to which
the consumption of the innovation can be seen or observed by others. See Comparative
Diffusion of the Telephone and the World Wide Web: An Analysis of Rates of Adoption by Hsiang
Chen and Kevin Crowston.

The Internet
Information and communication are at the core of the product development process. The Internet
can bring people responsible for product development into contact with customers. Electronic
communication can speed up the entire process of developing a new product and bringing it to
market. Virtual product development teams can transcend the boundaries of time and geography.
Surveys can be used to gather information online. Mailing lists can be used to gather comments
and suggestions that can become the ideas for new products. Also, they can be used to gather
feedback during a beta test. Clipping services, databases and checking Web sites can be used to
keep track of the competition.