1. A MARKET is the set of all actual and potential buyers of a product (Kotler).

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1 WHAT ARE MARKETS? The word MARKET has a number of meanings. 1. It could refer to a specific location where products are bought and sold, e.g. vegetable market. 2. It may refer to a large geographical area, e.g. SADC/EU/COMESA. 3. Sometimes market refers to the relationship between the demand and supply of a specific product. E.g. How is the market for diamonds/ foreign currency these days? 4. At times market is used to mean the act of selling something. 5. At times market refers to the total population or mass market that buys products in general. DEFINITION OF A MARKET 1. A MARKET is the set of all actual and potential buyers of a product (Kotler). 2. A MARKET is a group of sellers and buyers who are willing to exchange goods and services for something of value (McCarthy and Perreault, Jr). 3. A MARKET includes all the customers and potential customers who have a want or need in common and who would exchange money or something of value to satisfy it (Bovee and Thill). 4. A MARKET is an aggregate of people who, as individuals or as organization, have needs for products in a product class and who have the ability, willingness, and authority to purchase such products (Pride and Fewell). Requirements of a market 1

2 For a aggregate of people to be a market, it must meet these four requirements: 1. The people must need the product. 2. The people in the group must have the ability to purchase a function of their buying power in the form of tradeable money, goods and services. 3. The people in the aggregate must be willing to use their buying power. 4. Persons in the group must have the authority to buy the specific products (teenagers and producers of alcohol). Types of Markets Based on the characteristics of the individuals and organizations that make up a specific market, markets fall into the following categories. - Consumer markets - Industrial markets - Producer markets - Governmetn markets - Institutional markets - Reseller markets - Non-Profit markets. Other Dimensions of Market 1. TARGET MARKET (Served Market) is the group of the qualified available market that you have chosen to be the focal point of your marketing effort. It consists of the potential customers most likely to buy your products. 2. The POTENTIAL MARKET is the set of consumers who profess a sufficient level of interest in a market offer. 3. The AVAILABLE MARKET is the set of consumers who have the interest, income, access to a particular offer, willingness and authority to purchase that offer. 2

3 4. The QUALIFIED AVAILABLE MARKET is the set of consumers who have interest, income, access, and qualificiations for the particular market offer (e.g. the over 18 for beer and cigarettes; over 25 for commuter buses drivers; over 16 for the set market). 5. TARGET MARKET. 6. The PENETRATED MARKET is the set of consumers who are buying the company s products This set is a potion of buyers in the tartget market. These market definitions are a useful tool for market planning. If the company is not satisfied with its current sales, it can take a number of actions: 1. It can try to attract a larger percentage of buyers from its target market. 2. It can lower the qualifications of potential buyers. 3. It can expand its available market by opening distribution elsewhere or lowering its price. 4. It can try to expand the potential market by advertising the product to less interested consumers or ones not previously targeted. Defining Marketing 1. MARKETING is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfyt individual and organizational objectives (AMA). 2. 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 (Kotler). 3. MARKETING consists of individuals and organizational activities aimed at facilitating and expediting exchanges within a set of dynamic environmental forces (Pride and Ferrell). 3

4 Definition Key Concepts/Terms Process Planning Executing Activities Ideas Goods Services Product Dynamic environment Create exchange Satisfy Individuals/groups Organisations Needs and wants Value Central marketing function - The exchange process EXCHANGE is giving something of value in turn for something of value. PRODUCT is anything customers, will exchange something of value for, usually because it satisfiers a need or a want. A PRODUCT IS anything that can satisfy a need or want. Products are divided into three categories: 1. Goods, or physical/tangible item 2. Services or intangibles 3. Ideas, or concepts. AT a minimum, the following five conditions are necessary for successful exchanges; 1. At least two parties must be involved. 2. Each party must have something of value that interest the other party. 3. Each party must be able to communicate and deliver. 4. Each party must b free to accept or reject any offer from the other party. 5. Each party must consider it desirable, or at least acceptable, to deal with other party. 4

5 NEEDS - A need represents some fundamental requirement for continuing our lives, such as food, water or shelter. Needs are more basic than wants. WANTS are needs that are learned during a person s life. E.g Everyone needs water or some kind of liquid, but some people also have learned to want bottled mineral water or soda water. When a need is not satisfied, it may lead to a drive. E.g. the need for liquid leads to a thirst drive. A DRIVE is a strong stimulus that encourages action to reduce a need drives are internal. Types of Needs PHYSIOLOGICAL NEEDS are concerned with biological need food, drink, rest, sex. SAFETY NEEDS are concerned with protection and physical well-being [perhaps involving health food, medicine and exercise.] SOCIAL NEEDS are concerned with love, friendship, status, and esteem things that involve a person s interaction with others. PERSON NEEDS are concerned with an individual s need for personal satisfaction e.g. self-esteem, accomplishment, fun, freedom, and relaxation. ECONOMIC NEEDS are concerned with making the best use of consumer s time and money as the consumer judges it. It s important to understand whether your product fulfills a need or a want because the way the two types of products are marketed can be quite different. 5

6 DEMANDS are wants from specific products backed by an ability and willingness to pay E.g many people want a Mercedes, but only a few are able and willing to pay. DYNAMIC ENVIRONMENT continually changing environmental variables which necessitate appropriate reaction from marketing management. Economic Utility The degree to which a product meets customer needs and wants many be discussed in terms of its economic utility. UTILITY is the product s inherent ability to satisfy a user s needs or wants. Marketers can develop four kinds of utility. - Form utility - Time utility - Place utility - Possession utility Marketers create FORM UTILITY by shaping production suppliers and materials into useful products. Marketers offer TIME UTILITY by making their products available when customers want them E.g - Convenience stores create time utility by staying open all day, every day. - ATMs allow customers to use bank services around the clock. Marketers create PLACE UTILITY by making their products available in the places customers prefer E.g. - The newspaper deliver create place utility by putting the paper right at the customer s door. - The mobile food caravan driver creates it for construction workers by parking next to their building site. 6

7 Ownership or possession utility allows buyers to use or abuse products as they see fit. POSSESSION UTILITY is the value of owning a product and controlling its use. NB: 1. Marketing is much more than selling and advertising. 2. Marketing should begin with potential customer need not the production process. The Universal Functions of Marketing The UNIVERSAL FUNCTIONS OF MARKETING are: - Buying function - Selling function - Transportation function - Storing function - Standardization and grading - Financing - Risk taking - Market information function. Exchange usually involves buying and selling. The BUYERS FUNCTION means looking for an evaluating goods and services. The SELLING FUNCTION involves promoting the product. It includes the use of person selling, advertising, and other mass selling method. This is probably the most visible function of marketing. The TRANSPORTATION FUNCTION means the movement of goods from one place to another. The STORING FUNCTION involves holding goods until customers need them. STANDARDIZATION and GRADING involve sorting products according to size and quality. 7

8 FINANCING provides the necessary cash and credit to produce, transport, store, promote, sell, and buy products. RISK TAKING involves bearing the uncertainties that are part of the marketing process. The MARKET INFORMATION FUNCTION involves the collection, analysis, and distribution of all the information needed to plan, carry out, and control marketing activities. Who Performs Marketing Functions? Marketing functions are performed by: 1. Producers 2. Middlemen 3. Consumers 4. Facilitators (marketing specialists) a) Advertising agencies b) Marketing research firms c) Independent product testing laboratories d) Public warehouses e) Transporting firms. f) Financial institutions Defining Marketing Management Now that we know what marketing is, let us now look at and define the marketing management process. Definition 1. The MARKETING MANAGEMENT PROCESS is the process of a) Planning marketing activities b) Directing the implementation of the plans, and c) Controlling these plans (McCarthy and Perreault, Jr.) 8

9 2. MARKETING MANAGEMENT is a process of planning, organizing, implementing, and controlling marketing activities in order to facilitate and expedite exchanges effectively and efficiently. (Pride & Ferrell). 3. MARKETING MANAGEMENT is the process of planning and executing the conception, pricing, promotion, and distribution of goods, services, ideas to create exchanges that satisfy individual and organizational goals (Kotler). Marketing managers include: - Sales managers - Salespeople - Advertising executives - Pricing specialists - Sales promotion people - Marketing researchers - Product managers MARKETING MANAGEMENET PHILOSOPHIES There are 5 alternative concepts under which organizations conduct their marketing activities: The production concept: Ind. Rev The product concept The selling concept 1930s s The Marketing concept 1950s today The societal marketing concept. THE PRODUCTION CONCEPT. The philosophy that consumers will favour products that are available and highly affordable and that management should therefore focus on improving production and distribution efficiency. 9

10 THE PRODUCTION CONCEPT. The idea that consumers will favour products that offer the most quality, performance, and features and that the organization should therefore devote its energy to making continuous product improvements the better mousetrap theory. THE SELLING CONCEPT. The idea that consumers will not buy enough of the organization s products unless the organization undertakes a large-scale selling and promotion effort. The hard-sell concept typically practices with unsought goods. THE MARKETING CONCEPT holds that achieving organizational goods depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors at a profit and rough functional integration. ELEMENTS OF THE MARKETING CONCEPT [MC] To apply the marketing concept, marketers must do three things: 1. Meet customer NEEDS and WANTS. 2. Achieve and maintain long-term Profitability 3. Integrate marketing with the other functions in the company. The Marketing Concept Finance Marketing Research Service DRIVER: Customer FUNCTONAL INTEGRATION OBJECTIVE: long- Needs and wants term profitability Materials Admin Manufacturing Handling Technical support 10

11 Sensitivity to customer needs and Wants - A conscious dedication to meeting customer wants and needs is at the CORE of the MC. - This dedication requires 2 steps: a) Understanding what customer EXPECT b) Meeting those expectations BETTER than your competitors. - Companys that place a premium on satisfying their customers are said to have a customer ORIENTATION. -CUSTOMER ORIENTATION is a management philosophy in which the customer is central to everything the company does. 2. Long-Term Profitability - Maintaining acceptable PROFIT LEVELS year after year while meeting customer needs. - The EMPHASIS ON LONG-TERM is the key her 5, 10,, or 20 years from now. - If your only INTEREST is making a FAST BUCK, it does not make SENSE for you to invest in: Research laboratories Support personnel Repair facilities, e.t.c 3. Functional Integration - Integrate the marketing department with othr functional groups such as R & D Technical support Manufacturing Finance Materials Handling 11

12 Administration service -Functional cooperation greatly increases a fir s chances of success. - Poor re/ships undercut performance. Contrasting the selling concept (SC) and the MC - The SC takes an INSIDE OUT perspective -It starts with the factory, focuses on the company s existing products, and calls for HEAVY SELLING and promotion to obtain profitable sales. - By contrast, the MC takes an OUTSIDE in perspective - It starts with a a) Well-defined market b) Focuses on customer needs c) Co ordinates all the marketing activities affecting customers d) Makes profits by creating customer satisfaction. - Under the MC, comapnies produce what consumers want at a profit. CORPORATE MARKETING CULTURE - In embracing the MC, companies try to adopt a MARKETING CULTURE. - Definition: A Corporate Marketing culture is a corporate STYLE and VALUE SYSTEM that puts the customer first and emphasis market-sensitive management. - It is a corporate culture geared toward customer satisfaction through marketing concepts and procedures. 12

13 - Central to the formation of a marketing culture is the creation of an internal MARKETING COMMUNITY that includes everyone in the company. - Prode employees in all departments with the point of view of a marketer by TRAINING everyone in the PRINCIPLES OF MARKETING and CUSTOMER RELATIONS. THE SOCIETAL MARKETING CONCEPT [SMC] - The SMC holds that the organization should determine the needs, wants, and interests of target markets. -It should then deliver the desired satisfactions more effectively and efficiently than competitors in a way that maintains or improves the consumer s and the society s well-being. - The SMC is the newest of the marketing philosophies. - The SMC questions whether the pure MC is adequate in an age of: Environmental problems, Resource shortages Rapid population growth Worldwide inflation and Neglected social services -The SMC says the pure MC overlooks possible conflicts between short-run consumer WANTS and long-run consumer WELFARE. THE MARKETING ENVIRONMENT 13

14 Definition: A company s MARKETING ENVIRONMENT consists of uncontrollable actors and forces outside marketing that affects marketing management s ability to develop and maintain successful transactions with its target customers. -To be SUCCESSFUL, a company must ADAPT its marketing mix to trends and developments in this environment. - The marketing environment (ME) is: a) Dynamic - changes very fast and unpredictably b) Uncertain c) Uncertain d) Offers both OPPORTUNITIES AND THREATS -Use you MR and MI systems to watch the changing environment. ENVIRONMENTAL SCANNING AND ANALYSIS - The process of gathering information from people and publications on various aspects of your marketing environment is called ENVIRONMENTAL SCANNING. - You can collect this information from customers, salespeople, dealers, suppliers, distributors, government agencies, magazines, publications, newspapers, and books. ENVIRONMENTAL ANALYSIS is the interpretation of all the data generated in environmental scanning. 14

15 -Marketers evaluate the data collected in environmental scanning with an eye to their own business, considering how the various TRENDS would AFFECT THEM now and in the future. - Their goal is to create marketing strategies adapted to the dynamic marketing environment. APPROACHES TO THE MARKETING ENVIRONMENT - You can respond to your marketing environment in two ways: 1. with REACTIVE MARKETING 2. With PROACTIVE MARKETING - WITH REACTIVE MARKETING you view environmental forces as uncontrollable and simple try to adjust to them. - With PROACTIVE MARKETING you take steps to change the marketing environment and make it more conducive to your needs/activities. Consider how the two approaches differ. Confronted with new legislation banning some of their products, reactive marketers might abandon those offerings and concentrate on developing new products in unregulated areas. The proactive marketer facing the same external threat would probably join an industry coalition or association such as the Motor Tradition Association, ZNCC or CZI to lobby parliament and raise public support for the industry s point of view.e.g Zimbabwe s reaction to the worldwide ban on asbestos generally. Neither the reactive nor the proactive approach is inherently better. Depending on organizational goals, ethical and legal constraints, and other circumstances, an organization might choose the proactive approach in some cases and the reactive approach in others. This does not imply, however, that you always have a choice. Sometimes you are affected by a sudden change in the marketing environment and you are left with no 15

16 alternative but to react. Study as you might, you cannot always predict the behaviour of nature, governments, competitors, or customers. But, by understanding the nature of your marketing environment and by playing an active role in your industry, you stand less chance of being at the mercy of outside forces. Controllable and Uncontrollable Environmental Elements - All marketers, whether they are more reactive or proactive, face controllable and uncontrollable environmental elements. - CONTROLLABLE ELEMENTS are those internal factors in the marketing environment over which marketers have a high degree of control (can modify), such as their product selection (product mix), pricing, promotion and distribution. - UNCONTROLLABLE ELEMENTS are external factors in the marketing environment over which marketers have limited control, if any. - Note that a given component of the marketing mix, such as pricing, is controllable in some industries (hairdressers) and largely uncontrollable in other (public utility companies). Major Divisions of the Marketing Environment - The marketing environment (ME) is made up of a) A microenvironment. (market environment) b) A microenvironment DEFINITION: MICROENVIRONMENT consists of the forces chose to the company that affect its ability to serve its customers the market, competitors, intermediaries, suppliers, publics. 16

17 DEFINITION: The MACROENVIRONMENT consists of the larger societal forces that affect the whole microenvironment technological, economic, social, political, physical/natural, cultural forces. Major Actors/Elements in the Company s Microenvironment The company Finance R & D Marketing Purchasing Accounting Manufacturing Top Management Suppliers Marketing Intermediaries Middlemen Physical distribution firms Marketing service agencies Financial intermediaries Customers Consumer markets Industrial markets Reseller markets Government markets International markets Competitors Monopoly 17

18 Oligopoly Monopolistic competition Pure competition Publics Financial publics Media publics Government publics Citizen action publics Local publics General public Internal public The Company s Microenvironment Demographic forces Economic forces Technological forces Political-legal forces Socio cultural forces Demographic Environment Changing age structure of population Changing family structure Geographic shifts in population Movement from rural to urban area Movement from the city to the suburbs Movement from high to low density areas A better educated and more white collar population ECONOMIC ENVIRONMENT Income 18

19 GNP per capita income Income distribution Disposable income Discretionary income Changing consumer spending patterns Prices Savings Credit Competitive elements Monopoly Oligopoly Monopolistic competition Pure competition Competitive position Dominant Strong Satisfactory Weak Very weak Exchange control Exchange rates Inflation Taxation Interest rates Balance of payments Tariffs or duties Invisible tariffs Questions Embargoes 19

20 Regionalism Market size Personal ownership of goods The business cycle Prosperity Recession Depression Recovery Infrastructure Transportation Energy Communication Accounting practices Natural Physical Environment Location of country Political relationship Trade relationship Topography Mountains and plains Deserts and tropical forests Bodies of water Climate Climate and development Climate implications for businesspeople 20

21 Natural resources Shortage of raw materials Increased cost of energy Alternative energy services Contamination/pollution of resources Government intervention in natural resource management. Technological Environment Faster pace of technological change Unlimited opportunities High R & D budget Concentration on minor improvements Increased regulation Technology and the product element Technology and the promotion element Technology and the distribution element Technology and the pricing element Political Legal Environment Ideological forces Domestic politics International politics Government ownership of business Legislation regulating business, especially the 4Ps * Regulatory enforcement agencies * Self-regulation Growth of public interest groups * Privatization Nationalism Government protection Government stability 21

22 Traditional hostilities International organizations Labour laws Country risk assessment Taxation Tax level Tax types Complexity of tax laws Tax conventions Export controls Antitrust and restrictive trade practices legislation Expropriation, confiscation and domestication Product liability Civil and criminal Price and wage controls Currency exchange controls Business contracts Patents, trademarks, trade names, copyrights and trade secrets Standardization Corruption and bribery Socio Cultural Environment Culture and cultural values Sub cultures Shifts in secondary cultural values People s relation to themselves People s relation to others People s relation to institutions People s relation to society People s relation to nature 22

23 People s relation to the universe Population Total population Population growth rates Population distribution Population density Age distribution of population Ratio of working women Rate of family formation Divorce rate. CONSUMER MARKETS AND CONSUMER BUYING BEHAVIOUR - Understanding buying behaviour is the essential task of marketing management. Definition: CONSUMER BEHAVIOUR encompasses all the actions involved in selecting, purchasing, using and disposing of goods and services. Definition: CONSUMER BUYING BEHAVIOUR refers to the buying behaviour of final consumer individuals and households who buy goods and services for personal consumption. - All of the final consumers combined make up the CONSUMER MARKET. MODEL OF CONSUMER BEHAVIOUR - Companies research consumer buying decisions to answer about: What consumers buy Where they buy How they buy How much they buy When they buy 23

24 Why they buy - Central question is: How do consumers respond to various marketing stimuli the company might use? - You must understand how consumers will respond to different Product features, Prices Advertisements -Starting point for understanding the relationship between marketing stimuli and consumer response is the stimulus response model of buyer behaviour - This model shows that marketing and other stimuli enter the consumer s lack box and produce certain responses. Marketers must figure out what is in the buyers black box. - The market wants to understand how the stimuli are changed into responses inside the consumer s black box. - Black box has two parts: a) BUYER S CHARACTERISTICS - Influence how he/she perceives and reacts to the stimuli b) BUYER S DECISION PROCESS itself 24

25 MODEL OF BUYER BEHAVIOUR MARKETING OTHER BUYER S BLACK BOX BUYER S RESPONSE STIMULI STIMULI Product Economic Buyer Buyer Product choice Price Political Characteristic decision Brand choice Place Technological Process Dealer choice Promotion Cultural Purchase timing Purchase amount 25

26 INFLUENCE ON THE CONSUMER DECISION PROCESS Your Marketing Your Competitors Cultural Mix Marketing Mixes Influences Product Product Culture Price Price Subculture Distribution Distribution Social classes Promotion Promotion Demographics Consumer s Decision Process Psychological Situational Social Influences Influences Influences Motives and needs Physical surroundings Reference groups Perception Social surroundings Aspirational groups Learning Temporal perspective Membership groups Attitudes Task definition Household family Personality Antecedent state Roles and status Self-concept Opinion leadership 26

27 - Because these forces determine how a consumer behaves when considering a purchase, understanding them is a vital step in your strategic marketing planning. -You simply cannot design an effective marketing strategy without knowing what your customers think and how they behave. 27

28 PERSONAL CHARACTERISTICS AFFECTING CONSUMER BEHAVIOUR CULTURAL SOCIAL PERSONAL FACTORS FACTORS FACTORS Culture Membership groups Age Subculture Reference groups FLC stage Social class Aspirational groups Occupation Family/household Economic situation Social roles and status Opinion leadership Life style Personality and Self -concept BUYER PSYCOLOGICAL Motives + Needs 28

29 Perception Learning Beliefs and attitudes 29

30 The Buyer Decision Process Need/Problem Information Evaluation of Purchase Post purchase Recognition Search Alternatives Decision Behaviour Buying Roles We can distinguish five roles people might play in a buying decision: INITIATIOR : A person who first suggests the idea of buying the product or service INFLUENCER: A person whose view or advice influences the decision DECIDER : A person who decides on any component of a buying decision; whether to buy, what to buy, how to buy, or where to buy. BUYER : The person who makes the actual person USER : A person who consumers or uses the product or service. 1. PROBLEM/ NEED RECOGNITION Recognize that you have a need to fulfill or a problem to solve. Need recognition is noticing a DESCREPANCY between a DESIRED STATE and an ACTUAL STATE that is significant enough to activate the decision process. Need recognition a) Can be sudden ( We re out of cat food ) 30

31 b) Can evolve subtly over time ( well, I think its about time we got a new TV Need can be trigged by a) INTERNAL STIMULI - HUNGER, THIRST, SEX b) EXTERNAL STIMULI Among the many factors that can continue to need recognition are: - Availability of products - Culture - Normal depletion - Social class - Brand performance - Reference groups - Family changes - Financial status - Situational factors - Marketing efforts - Household characteristics STEP 2: INFORMATION SEARCH -An aroused consumer may or may not search for information - Information search is both INTERNAL & EXTERNAL 31

32 -INTERNAL SEARCH is a check of existing knowledge about the need: - Internal search inadequate external search - Sources of external information search. PERSONAL SOURCES BUYER-DECISION PROCESS FOR NEW PRODUCTS [THE CONSUMER ADOPTION PROCESS] Definition: ADOPTION is an individual s decision to be come a regular user of a product. Definition: The CONSUMER ADOPTATION PROCESS is the mental process through which an individual passes from first hearing about an innovation to final adoption. -The consumer adoption process is later followed by the consumer-loyalty process, which is the concern of the established producer. -Target your product first to early adopter STAGES IN THE ADOPTION PROCESS - AN INNOVATION refers to any good, service, or idea that is perceived by someone as new. 32

33 -Innovations take time to spread through the social system. Definition: The INNOVATION DIFFUSION PROCESS is the spread of a new idea from its source of invention or creation to its ultimate users or adopters. - Adopters of new products move through 5tages AIETA 1. AWARNESS: You become aware of the innovation buy you lack information abut it. 2. INTEREST : Consumer is stimulated to seek information about the innovation. 3. EVALUATION: Consumer considers whether to try the innovation. 4. TRIAL : Consumer tries the innovation 5. ADOPTION : Consumer decides to make full and regular use of the innovation - The new-product marketer should facilitate consumer movement through these stages. Factors Influencing the Adoption Process 1. Differences is individual readiness to try new products. 2. The effect of personal influence. 3. Differing rates of adoption. 4. Differences in organisations readiness to try new products. 33

34 Individual Differences in Innovativeness Definition: A PERSON S INNOVATIVENESS is the degree to which an individual is relatively earlier in adopting new ideas than the other members of the social system (Rogers). -People differ greatly in their readiness to try new products. - In each product area, there are consumption pioneers and early adopters. - Other individuals adopt new products much later. - People can be classified into the following adopter categories: 1. Innovators 2½% 2. Early adopters 13½% 3. Early majority 34% 4. Hate majority 34% 5. Laggards 16% Adoption Categorization on the Basis of Relative Time of Adoption of Innovation Innovators 34

35 13½% 34½% 34½% 16% Early Early Late Adaptors majority majority Laggards Time of adoption of innovations - The 5 adopter groups have different values - INNOVATORS Are venturesome They are willing to try new ideas at some risk. EARLY ADOPTORS Guided by respect Are opinion leaders in the community Adopt new ideas early but carefully Tend to be younger in age Have higher social status Have a more favourable financial position. EARLY MAJORITY Are skeptical Adopt an innovation only after a majority of people have tried it. LAGGARDS Are tradition bound Are suspicious of change Mix with other tradition bound people Adopt the innovation only when it takes on a measure of tradition itself. -This adopter classification suggests that an innovating firm should research the demographic, psychographics, and media characteristics of innovators and early adaptors and direct communication specifically to them. 35

36 INNOVATORS - Are venturesome - Relatively younger and better educated - Higher in income - Are willing to try new ideas - More receptive to unfamiliar things - Rely more on their own values and judgment - Are more willing to take risks. Effect of Personal Influence - PERSONAL INFLUENCE is the effect one person has on another s attitude or purchase probability -Personal influence is more important in the evaluation stage of the adoption process than in the other stages. -It has more influence on late adopters than early adopters. -It is more important in risky situations. Influence of Product Characteristics on Rate of Adoption - The characteristics of the new product affect its rate of adoption. - Some products catch on immediately (e.g. hair styles), whereas others take a long time to gain acceptance (e.g. diesel-engine autos) - Five characteristics influence the rate of adoption of an innovation, namely: Relative advantage Compatibility Complexity Divisibility Communicability Cost Risk and uncertainty Scientific credibility Social approval RELATIVE ADVANTAGE - the degree to which the innovation appears superior to existing products. 36

37 COMPATIBILITY - The degree to which the innovation matches the values and experiences of the individuals. COMPLEXITY - The degree to which the innovation is relatively difficult to understand or use. DIVISIBILITY - the degree to which the innovation can be tried on a limited basis COMMUNICABILITY - the degree to which the beneficial results of use are observable or describable to others. - Have to research all these factors when developing the new product and its marketing programme. BUSINESS/ORGANIZATIONAL MARKETS AND BUSINESS/ORGANIZATIONAL BUYING BEHAVIOUR - Business organizations do not only sell, they also buy vast quantities of raw materials, plant and equipment, supplies, and business services. - Most large companies sell to other organizations. - Many industrial companies sell most of their products to organizations - Infact, industrial markets involve many more dollars and items than do consumer markets. Definition: ORGANISATIONAL BUYING is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. Definition: The ORGANISATIONAL MARKET consists of all groups that purchase goods and services for use in operations, for resale to others, or as raw materials or components for their own products. Put simply, the organizational market consists of all buyers other than final consumers. - The major industries making up the organizational/ business market are: Agriculture Forestry and fisheries 37

38 Mining Manufacturing Construction Transportation Communication Public utilities Banking, finance and insurance Distribution Services Types of Organisational Markets -The terms organizational market and industrial market are often used interchangeably because industry is perhaps the most visible component of the organizational market. However, there are three distinct components in the organizational market, namely: The industrial market The reseller market The Government market The Industrial/Commercial/Business Market is made up of all thei ndividuals and organiations acquiring goods and services that enter into the production of other products and services that are sold, rented or supplied to others. The industrial market is huge; it is the largest and most diverse organizational market. The Reseller Market - consists of all the individuals and organizations that acquire goods for the purpose of reselling or renting them to others at a profit. - Resellers purchase goods for resale and goods and services for conducting their operations. - Indeed, almost everything produced passes through some type of reseller. - Wholesalers and retailers - From a manufacturer s stand point, resellers are vital business partners for two reasons: 1. Many companies that produce goods and services designed for consumers do not have the ability to reach those consumers. 2. Resellers themselves constitute a large market for equipment, suppliers, vehicles, shelving, displays, cash registers, e.t.c 38

39 The Government Market - consists of governmental units national, provincial, and local that purchase or rent goods and services for carrying out their main function. -Selling to government markets at any level requires going through a bidding process or negotiating a contract. - Usually the lowest bid must be accepted. - In some cases a government agency will use the bidding process to develop a list of approved suppliers for regularly purchased items. - Selling to the government market can be : Complex Time consuming Expensive - Complex because of The tangle of regulations and policies Extensive paperwork Multiple purchasers Varying degree of buyers expertise -But no lucrative it s well worth the effort. Other Organizational Customers A number of organizational customers are found in the non-government, nonprofit sector, including: Religious institutions Private hospitals NGOs Museums Private colleges/universities Civic clubs Charities Foundations Political parties Characterisitcs of Organisational Markets - The organisatonal market differs sharply from the consumer market in several ways that affect how products promoted, priced, and sold. 39

40 - These differences can be broken down into three categories (Bavee) 1. The kinds of products marketed and how they are purchased. 2. The nature of the buyer-seller relationship 3. The nature of organizational demand. - Kotler and Armstrong say the main differences between these two markets are in 1. Market structure and demand 2. The nature of the buying unit 3. The types of decisions and the decisions process. Market Structure and Demand Fewer buyers Larger buyers Geographically concentrated buyers Close supplier-customer relationship Derived demand Inelastic demand Fluctuating demand. The Nature of the Buying Unit More buyers More professional Several buying influences Multiple sales calls Types of Decisions and the Decision Process More complex buying decisions More formalized buying process Buyer and seller much more dependent on the each other. Long-run relationship with customers Source loyalty Reciprocity Direct purchasing Leasing A Model of Organisational Buyer Behaviour - Within the organization, the buying activity consists of two major parts: 1. The BUYING CENTRE made up of all the people involved in the buying decision. 2. The BUYING DECISION PROCESS - The BC and the BDP are influenced by: 40

41 Internal organization Interpersonal factors Individual factors External environmental factors A Model of Organisational Buyer Behaviour The Environment Buyer Responses The Buying Organization Marketing Other The Buying Centre Stimuli Stimuli Product Economic Product or service Buying choice Price Technological decision Supplier choice process Place Order quantities Political Delivery terms and (Interpersonal and price Cultural service terms Promotion Competitive individual influences) payment terms (Organisational influences 41

42 Industrial Buyer Behaviour - Four critical questions about industrial buyer behaviour 1. What buying decisions do industrial buyers make? 2. Who participates in the buying process? 3. What are the major influences on buyers? 4. How do industrial buyers make their buying decisions? What Buying Decisions Do Industrial Buyers Make? - The industrial buyer faces a whole set of decisions in making a purchase. - The number of decisions depends on the buying situation. A. Buying Situations - There are 3 major types of buying situations Straight rebuy Modified rebuy New task Straight Rebuy - is a buying situation in which the buyer reorders the same product on a routine basis from a regular supplier. No modifications Based on past buying satisfaction Buyer chooses from suppliers on a approved list - In suppliers try to maintain product and service quality - The out suppliers try to offer something new or exploit dissatisfaction with a current supplier. - Out suppliers try to get a small order and then enlarge their purchase share over time. - Usually automated, using a computerized reordering system. - It is the most common purchasing situation. Modified Reby is a situation in which the buyer wants modify: - Product specifications - Prices - Delivery requirements - Suppliers - Other firms. - The organization is willing to consider alternatives to the usual choices. - Usually involves additional decision participants on both sides - In suppliers become nervous and have to do their best to protect the account. 42

43 - Out suppliers see an opportunity to propose a better offer to gain some business. New Task is a buying situation in which the buyer buys a product or service for the first time. - There is little or no experience in purchasing product because most new tasks introduce an element of cost and risk. a) The buying center tends to be large b) The information search is extensive c) Many alternatives are considered d) Decision making takes a longer time. Three types of Buying Situations Straight Rebuy Modified Rebuy New Task Electricity New cars or trucks Custom built house Water Electrical components Complex buildings Gas Computer terminal Bridges, Dams Telephone Consulting services Installations (machinery Office supplies Fuel oils Computers) Gum Coal Weapon systems Cigarettes Acids Space vehicles Bulk chemicals Electrical cables Security system. BUYING SITUATIONS CHARACTERISTICS STRAIGHT MODIFIED NEW TASK REBUY REBUY Time required Little Average Much Size of buying center Small Medium Large Information needs Minimal Moderate Maximum Alternatives considered None Few Many Novelty None Average High Decision complexity Low Medium Medium-high Frequency Often Recurring Infrequent - New task buying passes through several stages 1. AWARENESS 2. INTEREST 43

44 3. EVALUATION 4. TRIAL 5. ADOPTION - Communication tools effectiveness varies at each stage a) Mass media are most important deserving the initial awareness stage b) Salespeople have their greatest impact as the interest stage c) Technical sources are the most important during the evaluation stage - In the new task, the buyer has to determine: 1. Product specifications 2. Price limits 3. Delivery terms and times 4. Service terms 5. Payment terms 6. Order quantities 7. Acceptable suppliers 8. Selected supplier - Different decision participants influences each decision - The new-task is the marketer s greatest opportunity and challenge -Because of the complicated selling involved in the new task, many companies use a missionary sales force consisting of their best sales people. - As a marketer, you need to determine where a particular purchase falls in the buy class continuum and then taylor your efforts accordingly. - Buying situations also vary in their: NOVELTY COMPLEXITY IMPORTANCE NOVELTY is the amount of experience (or lack thereof) that the organization has had with this type of purchse. - The more novel it is, the greater the number of individuals included in the buying center COMPLEXITY refers to the amount of information that must be gathered before a decision can be made, the number of people included in the buying 44

45 center, and the extent to which the decision will require changes in the organization e.g. changing production line robots. - The more complex the situaton: a) The longer the decision process will take, b) The more people will be involved c) The higher the risk d) The greater the amount of communication within the buying center IMPORTANCE is the ultimate effect of the purchase on the organization. - The most important decisions will take the longest time and will have the largest buying centers. - You need to assess the novelty, complexity and importance of a purchase decision and then provide adequate and appropriate information to the right people - If you do not identify the right buying influences up front, you run the risk of having a sale killed latter in the process by someone whose needs are not being met. BUYINGMETHOS - Organizational buyers typically use one of four methods to make a purchase. 1. INSPECTION 2. SAMPLING 3. DESCRIPTION 4. NEGOTIATED CONTRACTS INSPECTION or examining each item to be purchased, is used when the product is not standardized e.g. buildings, vehicles. - The buyer must look at, choose, and perhaps even bid against competitors for the item. SAMPLING, or looking at representative samples from a hot, is used when a large quantity of something with uniform quality is being bought e.g. lumber, paper, maize. DESCRIPTION, or buying on the basis of written specifications, is used with standardized items such as office suppliers. - Usually order from a catalogue or brochure NEGOTIATED CONTRACTS are used when a customized product is ordered. 45

46 - Negotiated contracts are common in construction Systems Buying and Selling Many business buyers prefer to buy a total solution to their problem from one seller. This is called systems buying - This practice originated with government purchases of major weapons and communication systems - The government purchaser solicits bids from the prime contractor who assembles the system s subcomponents from second tier contractors. - The prime contractor thus provides a Turnkey solution, so called because the buyer simple has to turn on key to get the job done. - Many sellers have adopted SYSTEMS SELLING an a marketing tool e.g. an auto parts manufacturer sell whole sytems such as the seating sytem, the braking system, or the door system. - A variant on systems selling is SYSTEMS CONTRACTING, where a single supply source provides the buyer with his/her entire requirements of micro suppliers. - Advantages of systems contracting: 1. The customer benefits from reduced costs because the seller maintains the inventory 2. Savings also result from reduced time spent an supplier selection 3. The savings result from price protection over the term of the contract 4. The seller benefits from lower operating costs because of a steady demand and reduced paperwork. - Systems selling is a key industrial marketing strategy in bidding to build large Scale industrial projects, such as: o Steel factories o Sanitation systems o Utilities o Irrigation systems o Pipelines o New towns. - Project engineering firms must compete on o Price o Quality 46

47 o o Reliability Other attributes to win contracts The Buying Centre - Who participates in the industrial buying process? - Who buys what in an organization? - Purchasing agents influential in straight rebury and modified rebuy situations. - Other department personnel more influential in new-bury/task situations. - Engineering personnel more influential in selecting product components. - Purchasing agents dominate in selecting suppliers. - The decision making unit of an organization is called the BUYING CENTRE. Definition : The BUYING CENTRE is all the individuals and units involved in making a particular decision within an organization. - The buying center is not a formalized group or location; rather, it is A communication network that varies from purchase to purchase. That evolves during the purchasing process That differs from organization to organization. - If you want to sell to a buying center, you will have to answer all their questions convincingly. Dimensions of the Buying Centre To analyze the complexity of an organization s purchasing process, you can view the interactions within the buying center along five dimensions: Vertical involvement Lateral involvement Extensively Connectedness Centrality VERTICAL INVOLVEMENT refers to the number of levels of the organization represented within the buying center, from top management down to production workers. LATERAL INVOLVEMENT is the number of departments or divisions represented in the decision-making process. For large-scale purchases you may have to make a sales presentation to nearly every department in the company. EXTENSIVITY is the total number of individuals actually involved in the buying process, which can range from 1 to

48 CONNECTDNESS is the degree to which members of the buying center interact with each other concerning the purchase. CENTRALITY is the important of the purchasing agent in the communication network, as measured by the number of interactions he/she has with other buying center members regarding a decision. - If the purchasing agent s influence is low, the marketer must seek out the more influential members of the buying center. Roles In the Buying Centre - In each purchase decision, members of the buying center assume general social roles in the buying process. - If you can identify the role each member is playing, you can do better job of satisfying each one and take advantage of his/her influence on the buying decision. -The BUYING CENTRE ROLES are roles assumed by various members of the buying center including: 1. Initiators 2. Influencers 3. Deciders 4. Gatekeepers 5. Users 6. Approvers 7. Buyers/purchasers INITIATORS - Those who identify a problem or need - Then request that something be purchased - They may be users or others in the organisation USERS - Are the ultimate consumers/users of the product - In many cases, users initiate the buying proposal - Also help define the product requirements - However, seldom have much of a say in the eventual decision. INFLUENCERS - They influence the buying decision 48

49 - Have input into a) Whether a purchase will be made b) What will be bought c) Who it will be bought from - Often help define specifications - Influencers can come from any department or level or may even be outside consultants. - Influencers can include board members and stockholders for major purchases; but mostly technical personnel engineers and production DECIDERS/DECISION MAKERS - Make the actual yes-or-no decision about the purchase. - They choose and approve the product and supplier - In many cases, the initiator and the decision maker are not the same person. APPROVERS - People who authorize the proposed actions of deciders or buyers - Chart of authority BUYERS/PURCHASERS - The person who actually orders the goods/services - Has formal authority to select the supplier and negotiate the best deal possible with chosen suppliers. - May help shape product specifications GATEKEEPERS - Are individuals who control the flow of information in the buying center e.g. a receptionist and the purchasing agent. - Purchasing agent inviting bids from suppliers is gatekeeping. - Receptionist, telephone operators and secretaries may prevent salespersons from contacting users or deciders. - To a large extent, gatekeepers determine which products and suppliers will actually be considered by members of the buying center. - An alternative to identifying buying influences in a customer organization according to social roles is identifying them based on their NEEDS in the purchase. 49

50 - In this scheme, the three main influences are: The Economic Buyer The Technical Buyer The End-user Buyer The Economic Buyer - Makes primarily a financial decision, such as ROI, payback time, or effect on profit. - When marketing to this person you need to speak his/her language. - You need to talk financial impact - Net interested in technical features - Usually a finance person. The Technical Buyer - Typically an engineer or other technically oriented employee - Invested in technical features The End User Buyer - The person who will have to use the products when they are installed - Include secretaries, store clerks, bank tellers and air-traffic controllers. - These people may not have much influence on the buying decision, but the product won t be successful long term unless these people are satisfied. - Whichever schemes you use, in some cases, especially for small and routine purchases, one person may fill many or all of these roles. - Which role has the most influence in the buying center? That depends on: a) The product b) The buying situation c) The stage in the buying process - Important: To target your efforts property, business marketers have to figure out: Who are the major decision participants? What decisions do they influence? What is their level of influence? Is their a domineering participant? What evaluation criteria do they use? - The average number of people involved in a buying decision ragnes from about 3 (for small items) to almost 5 (for high-ticket purchasers) 50