14.1: Customer Relationships

14.1.1: The Exchange of Value

Learning Objective

Explain how customers evaluate value

Key Points

• Value, in quantitative terms, is equal to expected benefits divided by expected cost.
• For a firm to deliver value to its customers, they must consider what is known as the “total market offering”.
• The key to deliver high perceived value is attaching value to each of the individuals or organizations; thereby, helping them to solve a problem, offering a solution, giving results, and making them happy.

Key Terms

value

The degree of importance you give to something.

marketplace

The world of commerce and trade.

The value of a product is the mental estimation a consumer makes of it. Formally it may be conceptualized as the relationship between the consumer’s perceived benefits in relation to the perceived costs of receiving these benefits. Value changes based on time, place and people in relation to changing environmental factors. It is a creative energy exchange between people and organizations in the marketplace, and it is often expressed in the equation:

Value can also be expressed as 

Value is thus subjective (i.e., a function of consumers’ estimation) and relational (i.e., both benefits and cost must be positive values). For a firm to deliver value to its customers, they must consider what is known as the “total market offering. ” This includes the reputation of the organization, staff representation, product benefits, and technological characteristics as compared to competitors’ market offerings and prices. Value can thus be defined as the relationship of a firm’s market offerings to those of its competitors .

Value Proposition

This image depicts the point where value opportunity exists.

Value in marketing can be defined by both qualitative and quantitative measures. On the qualitative side, value is the perceived gain composed of individual’s emotional, mental and physical condition plus various social, economic, cultural and environmental factors. On the quantitative side, value is the actual gain measured in terms of financial numbers, percentages, and dollars. Normally, in the exchange process, the seller is more active than the buyer as he or she identifies the needs of the potential buyers and persuades them to buy the product.

However, when a buyer plays an active role, he or she will be treated as a marketer. For an individual to deliver value, one has to grow his or her knowledge and skill sets to showcase benefits delivered in a transaction (e.g., getting paid for a job). For an organization to deliver value, it has to improve its value to cost ratio. When an organization delivers high value at high price, the perceived value may be low. When it delivers high value at low price, the perceived value may be high. The key to deliver high perceived value is attaching value to each of the individuals or organizations—making them believe that what you are offering is beyond expectation—helping them to solve a problem, offering a solution, giving results, and making them happy.

The value in the marketplace varies from place to place as well as from market to market, and there are parallels between cultural expectations and consumer expectations in relation to perceived value. For example, a consumer in Japan might value a pizza topped with tuna more so than one topped with pepperoni.

14.1.2: Customer Relationship Management

Learning Objective

Integrate the customer relationship management perspective into the broader organizational strategy, and recognize how organization’s benefit from retention

Key Points

• Customer relationship management (CRM) is a central process to organizational strategy in which the organization builds connections with users through communication and data.
• The primary objective of CRM is the retention of current users.
• CRM processes can loosely be divided into three categories: operational, analytical, and collaborative.
• Generally speaking, consumers benefit from CRM through better understanding of consumer needs, improved targeting, and customer support being offered across a wide variety of channels.
• Technology plays a key role in modern CRM processes, providing a huge variety of useful tools, programs, and scripts to automate process and integrate CRM perspectives.

Key Terms

customer retention

The act of keeping customers consistently consuming products offered by an organization.

CRM

An acronym that stands for Customer Relationship Management, or the process of interacting with past, present, and future consumers.

Customer Retention is Key

Interactions between an organization and its past, current, and prospective customers is critical to success. While it delivers a wide range of benefits, the central focal point of customer relationship management (CRM) is customer retention.

Customer retention is a simple concept. When customer needs are being met, and expectations are exceed, it is highly likely that current customers will remain customers, or be retained. The rate at which an organization can retain its customer base can be a key source of competitive advantage. 

Primary Functions of CRM

CRM can be loosely divided into three categories:

1. Operational – These include the primary activities of CRM work. Operational CRM relates to integrating sales, marketing, and customer support to ensure that customer satisfaction is as high as possible. 
2. Analytical – CRM has a substantial data-oriented side as well, particularly with the rise of useful CRM data gathering tools. Utilizing the benefits of big data (where available), organizations can accurately asses who their core consumers are, how they behave, what they’re looking for, and how satisfied they are.
3. Collaborative – Finally, it’s worth noting that CRM functions are collaborative across strategic alliances. Of particular importance are suppliers and vendors (earlier on the overall supply chain). For example, let’s say you own a coffee shop. In sourcing your coffee beans, you notice customer retention is low if they order a particular roast of coffee. It may be worth discussing this with your supplier to either replace that particular roast, or identify what hasn’t been working with the current batches.

Why Customers Appreciate It

Most importantly, organizations are doing all of this to make customers happier. The upsides to this from the customer point of view are fairly significant:

• Marketing/sales messages are individualized to be of interest to the consumer
• Pricing is constantly evolved to match what the market believes is appropriate
• Quality of products are constantly assessed and, if necessary, improved by on consumer behavior
• Customer support assistance is integrated across a wide variety of media channels

Of course, there are downsides as well. Ongoing discussions regarding privacy relative to the observation of consumer behavior are still relevant concerns for modern consumers. There is also a paradox in all of this. As organizations optimize for user tastes based on data, it is the largest data points that will drive changes. As a result, while some consumers will benefit (presumably the majority), the rest of the users are at risk of being ignored entirely.

Technology and CRM

It is also worth noting the significant impact of modern technology and modern tools on this area of management. From the vast sea of social networking tools like Twitter and Facebook, to far more specialized tools for monitoring, analyzing and assessing user behavior, the ever-increasing integration of technology is almost always a constant opportunity (and risk) for organizations. Listing each and every prospective tool wouldn’t even be possible. For aspiring CRM specialists and data analysts, however, what’s most important to keep in mind is that most tasks have supporting technological tools. Before diving into a complex problem, it almost always pays off to hop online and see what tools you could install to save you time and money while improving your efficiency and accuracy.

Where CRM Fits

This image is rather complex, but the intent is quite simple. Within an organization’s framework, CRM fits within Business Intelligence. In many ways, CRM is driven by data-oriented conclusions to improve customer outcomes.

This image is rather complex, but the intent is quite simple. Within an organization’s framework, CRM fits within Business Intelligence. In many ways, CRM is driven by data-oriented conclusions to improve customer outcomes.

14.1.3: Long-Term Relationships: Satisfaction and Loyalty

Learning Objective

Explain how to increase customer satisfaction

Key Points

• Customers’ perceived value, brand trust, customers’ satisfaction, repeat purchase behavior, and commitment are found to be the key influencing factors of brand loyalty.
• Commitment and repeated purchase behavior are considered as necessary conditions for brand loyalty followed by perceived value, satisfaction, and brand trust.
• Unsatisfied customers are not loyal customers, thus customer satisfaction is seen as a key performance indicator within business.
• Although sales or market share can indicate how well a firm is performing currently, satisfaction is perhaps the best indicator of how likely it is that the firm’s customers will make further purchases in the future.

Key Terms

Market Share

Percentage of some market held by a company.

oligopoly

an economic condition in which a small number of sellers exert control over the market of a commodity

Brand loyalty in marketing consists of a consumer’s commitment to repurchase or otherwise continue using the brand and can be demonstrated by repeated buying of a product or service, or other positive behaviors, such as word of mouth advocacy. Brand loyalty is more than simple repurchasing, however. Customers may repurchase a brand due to situational constraints (such as vendor lock in), a lack of viable alternatives, or out of convenience. Such loyalty is referred to as “spurious loyalty. ” True brand loyalty exists when customers have a high relative attitude toward the brand which is then exhibited through repurchase behavior. This type of loyalty can be a great asset to the firm. Customers are willing to pay higher prices; they may cost less to serve and can bring new customers to the firm. For example, if Joe has brand loyalty to Company A, he will purchase Company A’s products, even if Company B’s are cheaper and/or of a higher quality.

Factors Influencing Brand Loyalty

It has been suggested that loyalty includes some degree of pre-dispositional commitment toward a brand. Brand loyalty is viewed as a multidimensional construct. Customers’ perceived value, brand trust, customers’ satisfaction, repeat purchase behavior, and commitment are found to be the key influencing factors of brand loyalty. Commitment and repeated purchase behavior are considered as necessary conditions for brand loyalty followed by perceived value, satisfaction, and brand trust. Fred Reichheld, one of the most influential writers on brand loyalty, claimed that enhancing customer loyalty could have dramatic effects on profitability. Among the benefits from brand loyalty—specifically, longer tenure or staying as a customer for longer—was said to be lower sensitivity to price. This claim had not been empirically tested until recently. Recent research found evidence that longer-term customers were indeed less sensitive to price increases.

Customer Satisfaction and Loyalty

Customer satisfaction, a term frequently used in marketing, is a measure of how products and services supplied by a company meet or surpass customer expectation. Customer satisfaction is defined as “the number of customers, or percentage of total customers, whose reported experience with a firm, its products, or its services (ratings) exceeds specified satisfaction goals. ” In a survey of nearly 200 senior marketing managers, 71% responded that they found a customer satisfaction metric very useful in managing and monitoring their businesses. Unsatisfied customers are not loyal customers, thus customer satisfaction is seen as a key performance indicator within business and is often part of a “Balanced Scorecard. ” In a competitive marketplace where businesses compete for customers, customer satisfaction is seen as a key differentiator and increasingly has become a key element of business strategy.

It is essential for businesses to effectively manage customer satisfaction. To be able do this, firms need reliable and representative measures of satisfaction. In researching satisfaction, firms generally ask customers whether their product or service has met or exceeded expectations. Thus, expectations are a key factor behind satisfaction. When customers have high expectations and the reality falls short, they will be disappointed and will likely rate their experience as less than satisfying. For this reason, a luxury resort, for example, might receive a lower satisfaction rating than a budget motel—even though its facilities and service would be deemed superior in “absolute” terms. The importance of customer satisfaction diminishes when a firm has increased bargaining power. For example, cell phone plan providers, such as AT&T and Verizon, participate in an industry that is an oligopoly, where only a few suppliers of a certain product or service exist. As such, many cell phone plan contracts have a lot of fine print with provisions that they would never get away if there were, say,100 cell phone plan providers, because customer satisfaction would be way too low, and customers would easily have the option of leaving for a better contract offer.

Although sales or market share can indicate how well a firm is performing currently, satisfaction is perhaps the best indicator of how likely it is that the firm’s customers will make further purchases in the future. Much research has focused on the relationship between customer satisfaction and retention. Studies indicate that the ramifications of satisfaction are most strongly realized at the extremes. On a five-point scale shown here , individuals who rate their satisfaction level as “5” are likely to become return customers and might even evangelize for the firm. Individuals who rate their satisfaction level as “1,” by contrast, are unlikely to return. Further, they can hurt the firm by making negative comments about it to prospective customers. Willingness to recommend is a key metric relating to customer satisfaction.

Customer Satisfaction Scale

Example of a scale used to gauge customer satisfaction in a survey.

14.1.4: Activities in Marketing Departments

Learning Objective

Outline the specific functions of marketing departments

Key Points

• The role of a marketing manager can vary significantly based on a business’s size, corporate culture, and industry. To create an effective, cost-efficient marketing management strategy, firms must possess an objective understanding of their own business and the market in which they operate.
• Common functions include market research, product and market planning, development, branding, packaging, and labelling.
• Marketing departments are often (but not always) responsible for customer support services, standardization and grading, and physical distribution.

Key Terms

grading

the process of classification of products into different categories on the basis of quality, size etc.

standardization

the process of setting certain norms or standards for a product with regard to shape, size, color, quantity, quality, weight etc

Marketing Managers

Marketing managers are often responsible for influencing the level, timing, and composition of customer demand. The role of a marketing manager can vary significantly based on a company’s size, corporate culture, and industry context. For example, in a large consumer products company, the marketing manager may act as the overall general manager of his or her assigned product. To create an effective, cost-efficient marketing management strategy, firms must possess a detailed, objective understanding of their own business and the market in which they operate. In analyzing these issues, the discipline of marketing management often overlaps with the related discipline of strategic planning.

Specific marketing functions

Marketing functions can include some or all of the following:

Market Research: Marketing research is the systematic investigation of the facts relevant to various aspects in marketing. It helps in identifying the needs of the customers. It involves study of the markets and customers, their tastes and preferences, and what they are willing to buy, when they are likely to buy, etc.

Marketing planning: Marketing plans are prepared to achieve marketing objectives of an organization.

Product Planning and Development: PPD is concerned with identifying customers needs, developing new products and improving existing products in order to meet desires of customers.

Buying and Assembling: Buying is the purchase of raw materials for use in manufacture of finished goods for resale. Assembling is the collection of specific type of products from different buyers under a common roof.

Standardization and Grading: Standardization refers to the process of setting certain norms or standards for a product with regard to shape, size, color, quantity, quality, weight, etc. It helps in ensuring that products confirm to standards. Grading refers to the process of classification of products into different categories on the basis of quality, size, etc. Grading is generally done for agricultural products, such as fruits and vegetables. Graded products are of uniform quality and become easy to market.

Branding: A brand is a name, sign, symbol, or design assigned to a product so as to differentiate it from products of competitors.

Packaging: Packaging is the act of designing and producing the package for a product. A package is a wrapper or container in which a product is kept.

Labeling: A label is a carrier of information about the product. Labels are attached to the product package to provide information about the product, such as manufacturer of the product, date of manufacture, date of expiry, its ingredients, how to use the product, and its handling.

Customer Support Services: In today’s competitive environment, customer support services play an important role in marketing. Services such as after sale services, maintenance services, and handling customer complaints provide satisfaction to customers and also helps in building product loyalty.

Promotion: Promotion refers to communication used to inform, persuade, and influence the prospective customers to buy a product.

Physical Distribution: Is concerned with making the goods and services available at the right place. It includes 2 important decisions:

• Channels of Distribution are middleman or intermediaries like wholesaler, agents, and retailers that facilitate the movement of goods and services and their title between the point of production and the point of consumption, by performing various marketing activities.
• Physical movement of goods from producers to consumers through means of transport, storage and warehousing, and inventory control .

14.1.5: The Marketing Concept

Learning Objective

Explain the relationship between marketing concept and market orientation

Key Points

• The marketing concept proposes that in order to satisfy its organizational objectives, an organization should anticipate the needs and wants of consumers and satisfy these more effectively than competitors.
• Market orientation is the organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization-wide responsiveness to it.
• Market orientation can be achieved with market research, contacting surveys, or interviews with the help of the customers to identify their needs and preferences.

Key Terms

Marketing Research

the systematic collection and evaluation of data regarding customers’ preferences for actual and potential products and services

Market Orientation

implementation of the marketing concept, which is a particular business philosophy.

Market Concept

the generation of appropriate market intelligence pertaining to current and future customer needs, and the relative abilities of competitive entities to satisfy these needs; the integration and dissemination of such intelligence across departments; and the coordinated design and execution of the organization’s strategic response to market opportunities.

Marketing Concept

a business philosophy that holds that long term profitability is best achieved by focusing the coordinated activities of the organization toward satisfying the needs of a particular market segment(s).

Example

• A firm focused on the marketing concept would employ market research to gauge consumer desires, use R&D (research and development) to develop a product attuned to the revealed information, and then utilize promotion techniques to ensure persons know the product exists.

The Marketing Concept

The marketing concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions. It proposes that in order to satisfy its organizational objectives, an organization should anticipate the needs and wants of consumers and satisfy these more effectively than competitors.

The marketing concept highlights the following:

• Identification of market or target customers
• Understanding of needs and wants of customers in the target market
• Developing of products or services according to needs and wants of customers
• Satisfying their needs better than the competitors
• Doing all this at a profit

The marketing concept centers on market orientation. Market orientation is the organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization-wide responsiveness to it. The marketing orientation is perhaps the most common orientation used in contemporary marketing. It includes monitoring competitors’ actions and their effect on customer preferences as well as analyzing the effect of other exogenous factors.

Market orientation can be achieved with market research, contacting surveys, or interviews with the help of customers to identify their needs and preferences. These methods may also lead to updates on your competitors’ products or services. For a market oriented company, product innovation is very important. Furthermore, all company resources must make an effort to reach the common goal.

Marketing Concept versus Market Concept

The marketing concept is a business philosophy that holds that long term profitability is best achieved by focusing the coordinated activities of the organization toward satisfying the needs of a particular market segment(s). The attempt to define the concept of market orientation has led to a number of arguments in the academic field.

The market concept is the generation of appropriate market intelligence pertaining to current and future customer needs and the relative abilities of competitive entities to satisfy these needs. It is the integration and dissemination of such intelligence across departments and the coordinated design and execution of the organization’s strategic response to market opportunities. Market orientation is implementation of the marketing concept, which is a particular business philosophy.

The Various Components of Marketing

Successful marketing strategies include the consideration of a variety of factors, such as market research and product branding.

14.1.6: The History of the Marketing Concept

Learning Objective

Outline the history of market orientation

Key Points

• An orientation, in the marketing context, related to a perception or attitude a firm holds towards its product or service, essentially concerns consumers and end-users.
• The marketing orientation evolved from earlier orientations; namely, the production orientation, the product orientation and the selling orientation.
• The marketing orientation is perhaps the most common orientation used in contemporary marketing. It involves a firm essentially basing its marketing plans around the marketing concept, and thus supplying products to suit the new tastes of consumers.

Key Term

orientation

The act of orienting or the state of being oriented.

One marketing standard chronology (Bartels, 1974; Dawson, 1969; Keith, 1960; Kotler and Keller, 2006) subdivides marketing history as follows:

• Production orientation era
• Product orientation era
• Sales orientation era
• Market orientation era
• Customer orientation
• Relationship orientation
• Social/mobile marketing orientation

What’s an Orientation?

An orientation, in the marketing context, related to a perception or attitude, a firm holds towards its product or service, essentially concerns consumers and end-users. Throughout history, marketing has changed considerably in conjunction with consumer tastes. Constant throughout; however, is that marketing is some form of communication aimed broadly at improving eventual sales.

Earlier Approaches

The marketing orientation evolved from earlier orientations; namely, the production orientation, the product orientation and the selling orientation.

Production: production methods until the 1950s; a firm focusing on a production orientation specializes in producing as much as possible of a given product or service. Thus, this signifies a firm exploiting economies of scale until the minimum efficient scale is reached. A production orientation may be deployed when a high demand for a product or service exists, coupled with a good certainty that consumer tastes will not rapidly alter (similar to the sales orientation).

Product: quality of the product until the 1960s; a firm employing a product orientation is chiefly concerned with the quality of its own product. A firm would also assume that as long as its product was of a high standard, people would buy and consume the product.

Selling: selling methods 1950s and 1960s; a firm using a sales orientation focuses primarily on the selling/promotion of a particular product, and not determining new consumer desires as such. Consequently, this entails simply selling an already existing product, and using promotion techniques to attain the highest sales possible.

Such an orientation may suit scenarios in which a firm holds dead stock, or otherwise sells a product that is in high demand, with little likelihood of changes in consumer tastes that would diminish demand.

Marketing: needs and wants of customers 1970 to present day; the marketing orientation is perhaps the most common orientation used in contemporary marketing. It involves a firm essentially basing its marketing plans around the marketing concept; and thus supplying products to suit new consumer tastes. As an example, a firm would employ market research to gauge consumer desires; use R&D to develop a product attuned to the revealed information; and then use promotional tools to ensure people know the product exists .

Marketing

Internet marketing

14.1.7: Modern Trends in Marketing

Learning Objective

Compare relationship marketing, business marketing and societal marketing

Key Points

• Relationship marketing tries to unambiguously transcend the simple post purchase-exchange process with a customer to make more truthful and richer contact by providing a more holistic, personalized purchase, and uses the experience to create stronger ties.
• The overall goals of relationship marketing are to find, attract, and win new clients; nurture and retain those the company already has; entice former clients back into the fold; and reduce the costs of both marketing and also servicing clients.
• The tremendous growth and change that business marketing is experiencing is due in large part to the technological revolution, the entrepreneurial revolution, and a revolution within marketing itself.

Key Terms

social responsibility

A voluntarily assumed obligation toward the good of society at large as opposed to the self alone.

landing page

A web page at which a user first arrives at a website.

The marketing concept is the philosophy that companies should focus on and strive to satisfy customer needs while also making profits. More specifically, it involves identifying target customers, understanding the needs and wants of customers, and developing products or services according to those needs–thereby satisfying the needs better than competitors.

Modern trends in marketing include relationship marketing, business or industrial marketing, and societal marketing . Modern marketing is also inseparable from the digital realm. E-marketing and online marketing are essential tools for modern firms. Internet marketing is sometimes considered to be broad in scope, not only referring to the Internet, but also including e-mail and wireless media as well as driving audiences from traditional methods like radios and billboards to Internet properties or landing pages.

Modern Trends In Marketing

Modern trends in marketing include relationship marketing, industrial marketing, and societal marketing.

Relationship Marketing

Relationship marketing was first developed through direct response marketing campaigns emphasizing customer retention and satisfaction, rather than a dominant focus on sales transactions. Relationship marketing differs from other forms of marketing in recognizing the long-term value of relationships and extending communication beyond intrusive promotional messages. Relationship marketing refers to a short-term arrangement where the buyer and seller have an interest in providing a more satisfying exchange. This approach tries to transcend the simple post-purchase exchange with a customer to make a deeper connection by providing a holistic, personalized experience to create stronger ties. Relationship marketing is often applied when there are competitive alternatives for customers to choose from and when there is an ongoing and periodic desire for the product or service.

The practice of relationship marketing has been facilitated by several generations of customer relationship management software that allow the tracking and analysis of customer preferences, activities, tastes, likes, dislikes, and complaints. With the growth of the Internet and mobile platforms, relationship marketing has continued to evolve as technology opens more collaborative and social communication channels. This includes tools for managing relationships that go beyond simple demographic and customer service data. A key principle of relationship marketing is the retention of customers through varying means and practices to ensure repeated trade from preexisting customers by satisfying needs better than the competition. The overall goals of relationship marketing are to find, attract, and win new clients; nurture and retain those the company already has; entice former clients back into the fold; and reduce the costs of both marketing and also servicing clients.

Business/Industrial Marketing

Business marketing is the practice of selling products and services to other companies or organizations that either resell them, use them as components in products or services they offer, or use them to support their operations. Also known as industrial marketing, business marketing is at times called business-to-business marketing, or B2B marketing.

The tremendous growth and change in business marketing is due to three “revolutions” occurring around the world today. First is the technological revolution. Technology is changing at an unprecedented pace, speeding up the pace of new product and service development.

Second is the entrepreneurial revolution. To stay competitive, many companies have downsized and reinvented themselves. Adaptability, flexibility, speed, aggressiveness, and innovation are the keys to remaining competitive. Marketing is taking the entrepreneurial lead by finding market segments, untapped needs, and new uses for existing products; and by creating new processes for sales, distribution, and customer service.

The third revolution is occurring within marketing. Companies are looking beyond traditional assumptions and adopting new frameworks, theories, models, and concepts. They are also moving away from the mass market and being preoccupied with transactions. Relationships, partnerships, and alliances define marketing today. The cookie cutter approach is out. Companies are customizing marketing programs to individual accounts.

Societal Marketing

Societal marketing holds that the organization’s task is to determine the needs, wants, and interests of a target market and to deliver satisfaction more effectively and efficiently than competitors in a way that preserves or enhances social, ethical, and ecological well-being. It is linked with corporate social responsibility and sustainable development. The main focus of societal marketing is on customer satisfaction and the welfare of society at large, which can be attained through providing eco-friendly products–for example, those that remove social and environmental ills like drugs and pollution.

In terms of societal marketing, products can be classified in terms of long-term benefits and immediate satisfaction:

• Deficient products bring neither long-run or short-term benefits;
• Pleasing products bring a high level of immediate satisfaction, but can cause harm to society;
• Salutary products bring low short-term satisfaction, but benefit society;
• Desirable products combine long-run benefits and immediate satisfaction.

Societal marketing suggests that, for the well-being of society, deficient products should be eliminated; products should be modified to reach the fourth category by incorporating missing short-term benefits into salutary products and long-term benefits into pleasing products; and a company’s ultimate goal should be to develop desirable products.

14.2: Marketing Strategies

14.2.1: The Target Market

Target markets enable organizations to filter populations to identify the ideal characteristics of their customer group.

Learning Objective

Recognize the targeting parameters that organizations commonly use to separate target markets from populations

Key Points

• Target marketing enables the filtering of a broad population, using specific characteristics that denote likelihood to purchase a given good or service.
• Through effective targeting, organizations can acquire a higher volume of users at a lower cost per user. Simply put, marketing is cheaper and more effective if well targeted.
• Target marketing requires making assumptions and observations, and testing those observations against big data. Statistical assessments of significance is extremely useful when conducting target market research.
• While organizations can target on a variety of characteristics, the most common include geographic, demographic, pyschographic, behavioral, and product-related.

Key Terms

Demographic

Of or related to the study of human populations, and how they change.

Psychographic

Based on individual psychological characteristics, rather than demographic or other factors.

A target market is simply a specified group of potential consumers who are likely to have a need for (or interest in) a given product or service. As a business, targeting is the process of filtering a population for the characteristics that most closely align with their customer base. It’s easy to see why this is a valuable tactic for businesses. Through identifying who the ideal consumers are, acquiring these consumers and gathering data about their current needs is that much easier and cheaper. 

Target Markets

This is a simple image of three circles, each one smaller within the next. The idea is that a target market is a specific segment of a broader population, filtered through strategically collecting information.

This is a simple image of three circles, each one smaller within the next. The idea is that a target market is a specific segment of a broader population, filtered through strategically collecting information.

An Example

Let’s take a simple example. You work at a university, in their marketing department. They pose a simple question: who should we advertise our services to to get the most applications at the lowest cost? Your first instinct is to young men and women who have (or likely will) complete a high school diploma, and who live in relatively close proximity to the university. 

However, your marketing manager informs you that this target market may not be the perfect match for the majority of your marketing spend. As you start researching the question, you realize a great deal of the paying customers of universities are actually the parents of students and not the students themselves. Interestingly, marketing to the parents may be more valuable (or maybe not!). You bring this conclusion back to your marketing manager, who goes a step further and asks about school guidance counselors.

As you can see from this example, choosing a target market isn’t always quite as simple as it seems. Sure – it may be true that advertising to 16-18 year old students currently enrolled in high school performs best in some ways. But it may be true also that promoting to guidance counselors and high school teachers ultimately reaches more students, and for cheaper on a per student basis.

Common Targeting Approaches

Target markets can be specified using virtually any metric or approach. However, all marketers should be familiar with the basic market segmentation approaches that are most common across industries:

• Geographic – For many businesses, the location and region (and potentially the climate) are hugely relevant data points, creating the first large filter on targeting.
• Demographic/socioeconomic – This filter focuses mostly on gender, age, career, education level, marital status, wages and other biographical information.
• Psychographic – Compared to the previous two, this is a bit more complex. Psychographic targeting revolves around attitudes, religion, lifestyle, and values. Picture certain news channels, which seem to cater to certain types of opinions.
• Behavioral – This usually refers to their purchasing behaviors, relative either to your business, industry, or complementary industries. An example of this would be a headphones company targeting users who purchase DJ equipment.
• Product-related – Some user groups build up relationships with the products themselves. Smartphone users, for example, will find themselves bombarded with targeting specifically for the particular operating system.

The ultimate objective of most effective targeting approaches will be to filter the broader population into a small, idealized segment that is highly likely to convert into paying customers. 

14.2.2: The Marketing Mix

The marketing mix is used to reach a target market and is often referred to as the “four Ps” of marketing: product, price, promotion, and place.

Learning Objective

Break down the marketing mix into the “four Ps”

Key Points

• Those selling a product must develop a product that meets the needs of the target market, set a price for the product, get it to a place where the consumers can buy it (distribute it), and inform the target market about it (promotion).
• A product is seen as an item that satisfies what a consumer in the target market needs or wants. It is a tangible good or an intangible service. The price is the amount a customer pays for the product. The price is very important as it determines the company’s profit and hence, its survival.
• Promotion represents all of the methods of communication that a marketer may use to provide information to different parties about the product. Place refers to providing the product at a place which is convenient for consumers to access. Place is synonymous with distribution.

Key Terms

marketing mix

The marketing mix is a business tool used in marketing products. The marketing mix is often crucial when determining a product or brand’s unique selling point and is often synonymous with the four Ps: price, product, promotion, and place.

Promotion

Promotion represents all of the methods of communication that a marketer may use to provide information to different parties about the product. Promotion comprises elements such as: advertising, public relations, personal selling and sales promotion.

Example

• This is an example of a model of a green marketing-mix applying the “four Ps.” Product: A producer should offer ecological products which not only must not contaminate the environment but should protect it and even liquidate existing environmental damages. Price: Prices for such products may be a little higher than conventional alternatives. But target groups like LOHAS (Lifestyles of Health and Sustainability) are willing to pay extra for green products. Place: Distribution logistics are of crucial importance with a focus on ecological packaging. Marketing local and seasonal products (e.g. vegetables from regional farms is more easy to be marketed “green” than imported products). Promotion: A communication with the market should stress the environmental benefits (e.g. the company possesses a CP certificate or is ISO 14000 certified). This may be publicized to improve a firm’s image. Furthermore, the fact that a company spends expenditures on environmental protection should be advertised since sponsoring a natural environment is very important.

The marketing mix is a business tool used in marketing and by marketers. The marketing mix is often crucial when determining a product or brand’s offer, and is often associated with the four P’s: price, product, promotion, and place.

Product

A product is seen as an item that satisfies what a consumer in the target market needs or wants. It is a tangible good or an intangible service. Intangible products are service-based like products in the tourism industry, the hotel industry and the financial industry. Tangible products are those that have an independent, physical existence. Typical examples of mass-produced, tangible objects are the car and the disposable razor.

Every product is subject to a life-cycle including a growth phase, followed by a maturity phase, and finally an eventual period of decline as sales falls. Marketers must do careful research on how long the life-cycle of the product they are marketing is likely to be and focus their attention on different challenges that arise as the product moves through each stage.

The marketer must also consider the product mix. Marketers can expand the current product mix by increasing a certain product line’s depth or by increasing the number of product lines. Marketers should consider how to position the product, how to exploit the brand, how to exploit the company’s resources, and how to configure the product mix so that each product complements others. The marketer must also consider product development strategies.

Price

The price is the amount a customer pays for the product. The price is very important as it determines the company’s profit and hence, survival. Adjusting the price has a profound impact on the marketing strategy, as it will often affect the demand and sales as well. The marketer should set a price that complements the other elements of the marketing mix. When setting a price, the marketer must be aware of the customer’s perceived value for the product.

There are various strategies that can be applied when pricing a product like skimming and penetration pricing. Skimming means to price the product highly to increase profits. For example if you invent a new software which no one else has, you can skim the market because the customers are forced to buy from you until there is more competition. Penetration pricing can be applied when you want to enter a market and price your product lower than the perceived market price so that more people will buy it and this will increase your market share.

Promotion

Promotion represents all of the methods of communication that a marketer may use to provide information to different parties about the product. Promotion comprises elements such as advertising, public relations, personal selling and sales promotion.

Advertising covers any communication that is paid for. This can be in the form of television commercials, radio and Internet advertisements or through print media and billboards. Public relations is where the communication is not directly paid for and includes press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Word-of-mouth is any apparently informal communication about the product by ordinary individuals, satisfied customers or people specifically engaged to create word-of-mouth momentum. Sales staff often play an important role in word-of-mouth and public relations.

Fedex Billboard

Billboards are a common method of promotion for advertisers.

Place

Place refers to providing the product at a place or places which is convenient for consumers to access it. Place is synonymous with distribution. Various strategies such as intensive distribution, selective distribution, exclusive distribution and franchising can be used by the marketer to complement the other aspects of the marketing mix.