Marketing Book 3

Burrow
Marketing 3e It’s More Than Essential

EVER YTHING NEEDED FOR MARKETING SUCCESS
South-Western’s Marketing — it’s better than ever! We’ve given the third edition an
exciting new look that will attract and hold attention. And, we’ve ramped up our DECA
coverage with a strong correlation to performance indicators, making it easier than
ever to prepare for competitive events.
Other Noteworthy Features of the Third Edition

• Each chapter begins with Prepare for Performance, outlining the DECA
performance indicators that will be covered in the upcoming pages.
• A Visual Focus feature presents an example that helps tie chapter content
to the real world of marketing.
• Even more real-world examples make the content relevant and tangible
for students.
• Career coverage is increased with the introduction of the Planning a
Career in... feature, which incorporates Career Clusters.
• A variety of features cover Internet, international marketing, ethics,
communication, law, mathematical concepts for marketers, and more.
• A robust Web site offers teacher support, as well as study tools and
quiz prep for students.
• Assessments throughout the text include Make Academic Connections
activities to link marketing concepts to core curricular areas.
• Competitive-event practice at the end of each chapter emulates an actual
DECA event and offers an opportunity to apply the performance indicators.
While the text has been enhanced based on feedback from marketing educators,
Marketing 3e maintains the integrated marketing approach, which has been the
hallmark of previous editions. Students learn the foundations and functions needed
to successfully market goods, services, and ideas to customers.
ISBN-13: 978-0-538-44664-8
ISBN-10: 0-538-44664-1
SB13CA
90000
For your course and learning solutions,

visit school.cengage.com 9 780538 446648
9780538446648_cvr_se_wkg.indd 1 12/12/07 11:01:25 PM

James L. Burrow
Contributing Writer
Jim Bosiljevac
Associate Creative Director
DDB, San Francisco
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Marketing, 3rd edition © 2009, 2006 South-Western, a part of Cengage Learning
James L. Burrow ALL RIGHTS RESERVED. No part of this work covered by the
copyright herein may be reproduced, transmitted, stored or used
in any form or by any means graphic, electronic, or mechanical,
Vice President of Editorial, Business: Jack W. Calhoun
including but not limited to photocopying, recording, scanning,
Vice President/Editor-in-Chief: Karen Schmohe digitizing, taping, Web distribution, information networks, or
Executive Editor: Eve Lewis information storage and retrieval systems, except as permitted
Senior Developmental Editor: Penny Shank under Section 107 or 108 of the 1976 United States Copyright Act,
Consulting Editor: Peggy Shelton without the prior written permission of the publisher.
Marketing Manager: Michael Cloran
Associate Marketing Manager: Linda Kuper For product information and technology assistance, contact us at
Content Project Manager: Jennifer A. Ziegler Cengage Learning Academic Resource Center, 1-800-423-0563
Production Manager: Patricia Matthews Boies
For permission to use material from this text or product,
Senior Technology Project Editor: Sally Nieman
submit all requests online at www.cengage.com/permissions
Web site Project Manager: Edward Stubenrauch Further permissions questions can be emailed to
Manufacturing Coordinator: Kevin Kluck permissionrequest@cengage.com
Production Service: Newgen
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Internal Designer: Lou Ann Thesing Student Edition ISBN 13: 978-0-538-44664-8
Cover Designer: Lou Ann Thesing Student Edition ISBN 10: 0-538-44664-1
Cover Image: Atlantide Phototravel/Corbis South-Western Cengage Learning
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Advertisement Researcher: Susan Van Etten Lawson
Cengage Learning products are represented in Canada by
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For your course and learning solutions, visit school.cengage.com
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Congratulations to the winners of the South-Western
Marketing 3e Marketing Message Contest
F IR S T PL ACE Marketing 3e...It’s More Than Essential

Vance High School, Charlotte, NC Teacher: Vincent Esposito
FRONT ROW, Seated (L to R): Charles Carrouthers, Kyra Hoyle, Samantha Lehr, Farren Franklin, Bryan Plesz.
BACK ROW, Standing (L to R): Vince Esposito (Teacher/Advisor), Shawn Holyfield, John Palumbo (2007-2008 ZB
Vance DECA President), Adam Mansour, Edoardo Agati, Wesley Cannon, Timothy Vernon, Justin Taylor.
SE CON D PL ACE Your Guide to Marketing in the Fast Lane

Algonquin Regional High School, Northborough, MA
Teacher: Michele Tontodonato
T HI RD P L AC E
Marketing 3e:
Marketing on the Move
West Deptford High School
Westville, NJ
Teacher: Lauren Newman
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Marketing 3e Marketing Messaging Contest Winners iii
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Presenting the Most Comprehensive
DECA PREP –
Prepare for Performance
DECA Performance Indicators – core performance
indicators and supporting performance indicators –
are identified at the beginning of each chapter as a
preview of chapter content, helping students prepare
for competitive events.
DECA PREP Assessment –

Connect to DECA
Connect to DECA activities at the end
of each chapter are short case study
activities which focus on DECA prep and
require students to apply critical thinking
and decision-making skills.
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DECA Prep Available!
DECA PREP –
DECA event-prep projects
This full page event-prep feature is a project that assists students with
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competitive-event preparation and includes critical-thinking questions.
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Preface v
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Real World Connections!
Visual Focus features an
actual advertisement that
helps tie chapter content to
the real world.
Text now includes even more

real-world examples, making
the content interesting, relevant,
and tangible for students.
Newsline describes marketing

trends or examples from real
companies or industries.
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Career Coverage!
Career coverage is increased
with the introduction of the
Planning a Career in... feature,
which incorporates Career Clusters.
SOS – Skills for Occupational Success is a

full-page feature that introduces basic skills
needed in everyday business and teaches
students how to market themselves.
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Engage Student Interest
Make Academic Connections at the

end of each lesson links chapter
content to core-curricular areas and
includes activities for:
Marketing Standards – • Career Planning • Language Arts
The latest Marketing • Careers • Management
Standards identified by
• Civics • Math
the Marketing Education
Resource Center (MarkED) • Communication • Psychology
are covered and visually • Consumer • Reading
identified throughout the Economics • Research
text where appropriate. • Decision Making • Science
• Economics • Social Studies
• English • Sociology
• Entrepreneurship • Statistics
• Ethics • Success Skills
• Finance • Technology
• Geography • Visual Arts
• Government • Writing
• History
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Special Features Enhance Learning!
Get the Message

World View is a multi- describes challenges,
cultural feature that techniques, devices, and
discusses marketing media used to convey
techniques in the rest of product information to
the world. customers.
Digital Digest presents different technologies,

software, hardware, and their computer-related
issues useful to marketers.
Judgment Call exam-

ines laws that control the
marketing industry and
Virtual Marketing ethical dilemmas faced by
offers specific information marketing professionals.
about how the Internet is
changing traditional ways
of marketing.
Figure This teaches mathematical concepts impor- S
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Integrated Technology Tools!
Instructor’s Resource CD includes:
• DECA Competitive Events Guide • Activities & Study Guide, Student Edition
• DECA Prep PowerPoint Slides • Activities & Study Guide, Instructor’s Edition
• National MarkED Curriculum Correlation • Portfolio Forms
• A*S*K Institute Competencies Correlation • Chapter Tests, Student Edition
• PowerPoint Slides • Chapter Tests, Instructor’s Edition
• Lesson Plans • DVD Discussion Guide
• Marketing Planning Guide • Teaching Tools
ExamView® CD– Save time while creating and grading quizzes, study guides, and tests easily and
quickly with ExamView. This computerized testing tool allows you to create paper and online tests
and is ideal for building tests, worksheets, and study guides (practice tests).
New DVD – includes short, engaging video clips that motivate students to learn, while allowing
teachers to easily add interest to the class and emphasize practical applications.
New Text/eBook Bundle – eBooks can be viewed on the computer and look exactly
like the printed version, including content, photos, graphics, and rich fonts. Students
can customize content by annotating text, highlighting key passages, inserting notes, and
bookmarking pages.
Product Web Site –
s c h o o l. c e n g a g e. c o m / m a r ke t i n g / m a r ke t i n g
Will include DECA written event templates!
Xtra! Study Tools provide an interactive review of every

lesson with games such as Beat the Clock, First Things First,
Labeler, Scenario, Sort it Out, etc.
Net Bookmark encourages students to

use the Internet for research. Product Web
site provides a safe portal for students to
Xtra! Quiz Prep provides an online review with immediate gather real data for analysis.
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Contents
Chapter 1 Chapter 3
Marketing Today Marketing Begins with
and Tomorrow 2 Economics 58
1-1 What Is Marketing? 4 3-1 Scarcity and Private Enterprise 60
1-2 Business Needs Marketing 11 3-2 Observing the Law of Supply and
1-3 Understanding the Marketing Demand 66
Concept 18 3-3 Types of Economic Competition 72
1-4 The Changing Role of Marketing 24 3-4 Enhancing Economic Utility 79
Chapter Assessment 30 Chapter Assessment 84
DECA Prep DECA Prep

Marketing Management Series Internet Marketing Business Plan
Event 33 Event 87
Chapter 2 Chapter 4
Socially Responsive The Basics of Marketing 88
Marketing 34 4-1 Changes in Today’s Marketing 90
4-2 Planning a Marketing Strategy 96
2-1 The Impact of Marketing 36
4-3 Understanding Consumers and
2-2 Criticisms of Marketing 41
Competitors 105
2-3 Increasing Social Responsibility 47
4-4 The Varied Role of Marketing 111
Chapter Assessment 54
DECA Prep
DECA Prep
Apparel and Accessories Marketing
Creative Marketing Project Event 119
Series Event 57
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Chapter 5 Chapter 7
Marketing Information and Competition Is
Research 120 Everywhere 180
5-1 Understanding the Need for Market 7-1 Focusing on Market Segments 182
Information 122 7-2 Positioning for Competitive
5-2 Finding and Managing Marketing Advantage 189
Information 127 7-3 Competing for Market Segments 194
5-3 Using Marketing Research 136 7-4 Learning about the Competition 199
5-4 Collecting Primary Data 144 Chapter Assessment 204
DECA Prep
DECA Prep Sports and Entertainment Marketing
Retail Marketing Research Event 153 Management Team Decision Making
Event 207
Chapter 6
Chapter 8
Marketing Starts with
Customers 154 E-Commerce and Virtual
6-1 Understanding Consumer Behavior 156 Marketing 208
6-2 What Motivates Buyers? 160 8-1 What Is E-Commerce? 210
6-3 Influencing Consumer Decisions 168 8-2 The Growing Importance of
E-Commerce 216
8-3 Virtual Marketing and Distribution 221
DECA Prep 8-4 The Role of Promotion for
Automotive Services Marketing E-Commerce 227
Individual Series Event 179 Chapter Assessment 232
DECA Prep
Internet Marketing Management Team
Decision Making Event 235
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Chapter 9 Chapter 11
Developing a Marketing Services Need Marketing 306
Strategy and Marketing 11-1 What Are Services? 308
11-2 Classifying Types and Evaluating
Plan 236 Quality 313
9-1 Elements of a Marketing Strategy 238 11-3 Developing a Service Marketing
9-2 Marketing Mix Alternatives 243 Mix 319
9-3 Analyzing Consumer Purchase Chapter Assessment 324
Classifications 252
9-4 Marketing Planning 259 DECA Prep
Hotel and Lodging Management
9-5 Developing a Marketing Plan 264
Individual Series Event 327
DECA Prep
International Business Plan Event 273
Chapter 12
Business-to-Business
Chapter 10 Marketing 328
12-1 Business-to-Business Exchanges 330
Developing Successful 12-2 Making Business Purchase
Products 274 Decisions 336
12-3 Business Purchasing Procedures 342
10-1 Starting with a Product 276
12-4 Retail Purchasing 351
10-2 Components of the Product Mix
Element 283 Chapter Assessment 356
10-3 Products for Consumers and
Businesses 291 DECA Prep
Retail Merchandising Individual Series
10-4 New Product Development 297
Event 359
DECA Prep
Learn and Earn Project 305
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Getting Products to Effective Promotion Means
Customers 360 Effective Communication 424
13-1 Marketing through Distribution 362 15-1 Promotion as a Form of
13-2 Assembling Distribution Channels 366 Communication 426
13-3 Wholesaling Manages the Middle 374 15-2 Types of Promotion 433
13-4 Retailing Reaches Consumers 379 15-3 Mixing the Promotional Plan 440
13-5 Physical Distribution 386 Chapter Assessment 446
DECA Prep
Community Service Project 449
DECA Prep
Quick Serve Restaurant Management
Individual Series Event 397
Chapter 16
Chapter 14 Be Creative with
Determining the Advertising 450
16-1 What Is Advertising 452
Best Price 398 16-2 Advertising Planning 456
14-1 The Economics of Price Decisions 400 16-3 Advertising Execution and
14-2 Developing Pricing Procedures 407 Evaluation 463
14-3 Pricing Based on Market Conditions 413 Chapter Assessment 470
DECA Prep
Advertising Campaign Event 473
DECA Prep
Hospitality and Recreation Marketing
Research Event 423
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Selling Satisfies Managing Risks 530
Customers 474 19-1 Assessing Business Risks 532
19-2 Identifying Marketing Risks 537
17-1 The Value of Selling 476
19-3 Managing Marketing Risks 544
17-2 Preparing for Effective Selling 485
17-3 The Selling Process and Sales
Support 492
DECA Prep
Business Services Marketing Individual
Series Event 553
DECA Prep
Technical Sales Event 503
Chapter 20
Chapter 18 Marketing Requires
Marketing in a Global Money 554
Economy 504 20-1 Marketing Affects Business
Finances 556
18-1 The Expanding World Economy 506 20-2 Tools for Financial Planning 562
18-2 How Businesses Get Involved 512 20-3 Budgeting for Marketing Activities 572
18-3 Understanding International Chapter Assessment 580
Markets 517
Chapter Assessment 526 DECA Prep
Financial Analysis Management Team
DECA Prep Decision Making Event 583
Food Marketing Individual Series
Event 529
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Entrepreneurship and Planning Your Future in
Marketing 584 Marketing 642
21-1 Understanding Entrepreneurship 586 23-1 Benefits of a Marketing Career 644
21-2 Characteristics of Entrepreneurs 592 23-2 Employment Levels in Marketing 650
21-3 Business Ownership Opportunities 599 23-3 Marketing Education and Career
21-4 Legal Needs of Entrepreneurs 603 Paths 658
21-5 Developing a Business Plan 608 23-4 Beginning Career Planning 664
Chapter Assessment 612 Chapter Assessment 672
DECA Prep DECA Prep

Entrepreneurship Participating Restaurant and Food Service
Event 615 Management Individual Series
Event 675
Glossary 676
Chapter 22 Index 686
Take Control with

Management 616
22-1 The Functions of Management 618
22-2 Managing Effectively with a Marketing
Plan 625
22-3 The Work of Marketing Managers 633
DECA Prep
Public Relations Project 641
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DECA Prep Events
Chapter 1 Marketing Management Series Event 33
Chapter 2 Apparel and Accessories Marketing Series Event 57
Chapter 3 Internet Marketing Business Plan Event 87
Chapter 4 Creative Marketing Project Event 119
Chapter 5 Retail Marketing Research Event 153
Chapter 6 Automotive Services Marketing Individual Series Event 179
Chapter 7 Sports and Entertainment Marketing Management

Team Decision Making Event 207
Chapter 8 Internet Marketing Management Team Decision
Making Event 235
Chapter 9 International Business Plan Event 273
Chapter 10 Learn and Earn Project 305
Chapter 11 Hotel and Lodging Management Individual Series Event 327
Chapter 12 Retail Merchandising Individual Series Event 359
Chapter 13 Quick Serve Restaurant Management Individual Series Event 397
Chapter 14 Hospitality and Recreation Marketing Research Event 423
Chapter 15 Community Service Project 449
Chapter 16 Advertising Campaign Event 473
Chapter 17 Technical Sales Event 503
Chapter 18 Food Marketing Individual Series Event 529
Chapter 19 Business Services Marketing Individual Series Event 553
Chapter 20 Financial Analysis Management Team Decision

Making Event 583
Chapter 21 Entrepreneurship Participating Event 615
Chapter 22 Public Relations Project 641
Chapter 23 Restaurant and Food Service Management Individual

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Features
Newsline )))
U.S. Exports Marketing Expertise 2
Heeling Safely 34
Competition and Cable TV 58
Providing Quality with Differences 88
The New American Restaurant 120
Sony Builds a Consumer Shopping Experience 154
New Cars for New Buyers 180
Consumers Say No to Pets.com 208
Refocusing on Customers 236
What Can We Learn from Labels? 274
Celebrity Endorsements 306
Coding System Unlocks Business Markets 328
Image or Value—Can’t We Have Both? 360
Establishing Value at HMOs 398
Why Do You Buy What You Buy? 424
Selling an Image 450
Technology Is Integral to the Sale 474
Responding to the World Economy 504
Successful New Products Are No Easy Task 530
Improving Quality While Cutting Costs 554
Avoiding the Glass Ceiling 584
Quality Is a Top Management Responsibility 616
What Do Employees Want? 642
Visual Focus
Cargill 3
Waste Management 35
Morgan Stanley 59
Visa 89
Pitney Bowes 121
Dimetapp 155
PJ Madison’s 181
Cisco 209
Nabisco Triscuit 237
NTT Do Co Mo 275
British Airways 307
Norilsk Nickel 329
UPS 361
The Week 399
S United States Marine Corps 425
N Winterfresh Polar Ice 451
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Avaya Communications 475
XL Capital 505
Zurich 531
Credit Suisse 555
General Electric 585
BMC Software 617
IBM 643
Digital Digest
Feedback for Sale 39
Database Marketing Made Easy 61
Using Scanners to Collect Market Data 109
Digital Photos Speed Products to Market 134
Direct Mail: More Than Just Junk 169
Marketers Reap New Data 191
Seeing Is Believing 266
Debugging New Products 300
Outsourcing the Drive-Thru 401
DVRs Make Ad Avoidance Even Easier 454
Effective Technology Boosts Sales 494
Video Conferencing: The Global Conference Room 523
The Newest Business Risk 548
Screen Out Costly Customers 563
Spam: It Isn’t Just a Meat Product 622
Work Outside the Office 654
Figure This
The Consumer Price Index (CPI) 26
Ethical Marketing Pays Off 52
Measuring the Demand Curve 75
Breakeven Point 171
Reach and Frequency 228
Services Devise Unique Ways to Measure Performance 311
Incremental Cost Decisions 337
Downstream Activity Offers Clue to Future Sales 372
Gauging Effectiveness 444
Advertising as a Game of Chance 464
Pay-for-Performance Incentives 480
Risks, Rewards, Expected Value 547
Unit Sales Provide Another Perspective 575
Return on Investment 600
Rule of 72 Makes Quick Work of Projections 630
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Get the Message
Getting the Word Out 20
The Changing Face of Radio 80
Pinpointing Promotion 92
Today’s Fragmented Media 142
The Power of Word-of-Mouth Marketing 195
The Closing of the Digital Divide 213
Using Social Media 352
Truck-Side Ads 376
In-Theater Advertising 414
Ad Clutter 465
Web Sites for Distributor Communication 488
Billboards Enter the Computer Age 560
Making Convincing Presentations 588
New Media Redefines Advertising Roles 646
Judgment Call
Misuses of Marketing Affect Its Image 8
Should Marketers Target Kids? 51
Gray Marketing 113
The Scales are Tipping 161
The Trouble with Cookies 223
Market Intelligence 254
Whose Interests Are Being Served? 286
Wireless Devices Raise Client Billing Issues 315
What If Buyers Become Too Close to Suppliers 347
When Is Cooperative Pricing Ethical? 381
Cause-Related Marketing Requires PR Savvy 436
Bribery Common but Not Legal 519
Chinese Protest Starbucks at Cultural Landmark 535
Whose Idea Is It? 604
Technology Raises Privacy Issues 636
Word-of-Mouth Promotion 22
Social Action 51
Supply and Demand 69
Marketing by Non-Business Organizations 115
Marketing Research Data 137
Consumer Decision-Making Process 164
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Product Distribution Using E-Commerce 225
Brand Recognition 246
Product Design 285
Service Quality 317
Retail Purchasing 353
Retail Shopping Centers 382
Price and Image 408
Publicity as a Marketing Tool 437
Advertising Formats 461
The Sales Close 497
International Marketing 522
Product Safety 539
Financial Tools 566
Netiquette 597
Employee Satisfaction 631
Marketing Careers 652
Planning a Career
Community Relations 45
Marketing Research 98
Customer Support 172
E-Marketing 219
Virtual Product Development 279
Supply Chain Management 346
Global Sourcing 404
Virtual Creative Services 466
International Hospitality 509
Credit Marketing Management 568
Business Coaching 620
Skills for Occupational Success

Your Personal and Professional Image 21
Communicate with Charts and Graphs 81
Understand Basic Statistics 141
Be an Effective Listener 186
Using Communications Technology Professionally 240
Dealing with Rude and Discourteous People 316
Understand Personal Financial Statements 391
Design a Promotional Display 442
Make a Persuasive Presentation 482
Evaluate Information Sources 541
Writing a Press Release 589 S
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Virtual Marketing
Basic Internet Business Models 16
The Emergence of Online Auctions 63
Consumer Products Giant Taps Internet for New Product Launch 102
Interactivity Propels Kiosks 147
The Effect of the Internet on Television 200
E-Commerce Accommodation 260
Sales Tax on the Internet 294
One-Stop Convenience 320
Tracking Shipments Online 388
Internet Advertising Services 411
Big Advertisers Find Better Role for Internet 435
Selling Yourself with Internet Job Services 478
China’s Internet Develops from Infancy 508
Consumer-Generated Advertising 573
The Internet Changes the Job Search 659
World View
Borders Can Be Barriers 42
Online Music Stores Think Globally, Price Locally 123
Television Advertising Around the Globe 157
One Brand or Many? 183
E-Readiness 218
The Emerging Chinese Market 249
What’s on Your Pizza? 277
The World’s Most Popular Sport 310
The American-Japanese Car Company 418
Chuck E. Cheese’s Goes Bilingual to Target Hispanics 429
Ethnic-Focused Media 461
Global Travel: Representing Your Country 514
Coca-Cola Angolan Gamble Pays Off 540
An Inventor and an Entrepreneur 595
Ethical Decisions = Profits 629
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Reviewers
Lisa Baynes Ryan Harrison Kevin Reisenauer

Marketing Teacher Marketing Education Teacher/ State Supervisor, Marketing
Tunstall High School Coordinator Education
Dry Fork, Virginia DECA Advisor Career and Technical Education
Rosemount High School Bismarck, North Dakota
James Belongia Rosemount, Minnesota
Business Education Instructor Thomas A. Scharine
Green Bay East High School Kevin Hermann Marketing Teacher
Green Bay, Wisconsin Marketing Instructor/ Oregon High School
Coordinator Oregon, Wisconsin
Patricia J. Bowie CTE Department Chair
Teacher, Fashion Merchandising DECA Advisor Jeffrey A. Schettino
and Management Mounds View High School Marketing Education
Warwick Area Career and Tech Arden Hills, Minnesota Coordinator
Center Turner High School
Warwick, Rhode Island Darrin L. Joines Kansas City, Kansas
Marketing Educator
Madeline Cooper Beech High School Susan Schonauer
Chair, Career and Technology Hendersonville, Tennessee Marketing Research/
Marketing Education Teacher Management Instructor
Liberty-Eylau High School Joan M. Owen Indian Hill High School
Texarkana, Texas Marketing/Business Instructor Great Oaks Institute of
Woods Cross High School Technology and Career
Michael Crawford Woods Cross, Utah Development Satellite
Marketing/Advertising Instructor Cincinnati, Ohio
GASC Technology Center Lynn Pitchford
Flint, Michigan Marketing Education Mark Steedly
Coordinator Sports Marketing Instructor
Vincent Esposito Tabb High School Winton Woods High School
Marketing Teacher Yorktown, Virginia Great Oaks Institute of
DECA Advisor Technology and Career
Zebulon B. Vance High School Elizabeth S. Pitts Development Satellite
Charlotte, North Carolina Marketing Teacher Cincinnati, Ohio
North Hall High School
Tina L. Fulks
Gainesville, Georgia Michael Vialpando
Department Chair
Department Chair
Business/Marketing Teacher
Michele Ray La Joya Community High School
DECA Advisor
Teacher Phoenix, Arizona
Sierra Vista High School
Blue Springs South High School
Las Vegas, Nevada
Blue Springs, Missouri
Deborah Hageman
Bob Reinhardt
Business Instructor
Business/Marketing Teacher
Northeast Iowa Community
Cascade High School
College
Turner, Oregon
Calmar, Iowa S
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Chapter 1
Marketing Today
and Tomorrow
1-1 What Is Marketing?
1-2 Business Needs Marketing
1-3 Understanding the
Marketing Concept
1-4 The Changing Role of
©GETTY IMAGES/PHOTODISC
Marketing
Newsline )))
U.S. Exports Marketing Expertise
People around the world often look enough to guarantee the success of redesign transportation systems,
to the United States to determine companies or economies. Marketing improve processes for handling
what is the latest and hottest in activities are also necessary. Compa- and storing products, plan and use
consumer products, lifestyles, and nies and countries must understand market research, and establish credit
trends. They are quick to adopt consumer and customer needs and and financing procedures. They also
fashions, food, films, and the latest produce products that meet those assisted with many other activities
in technology. In much the same needs. They must be able to move needed for effective marketing.
way, as developing countries adopt products efficiently, develop effec- Those countries and their citizens
principles of capitalism and par- tive communications and promotion are now reaping the rewards of U.S.
ticipate in international business, programs, assist with pricing and marketing leadership.
many look to the United States for financing, and make sure products
expertise and leadership. They need are useful, durable, and reliable. Think Critically
help transforming their economies Under government-controlled 1. Why is there often limited mar-
and organizing and managing their economies, companies were not as keting expertise in government-
marketing systems. Many countries concerned about consumer needs
controlled economies?
such as those that made up the or efficient business operations.
former Soviet Union, African and Marketing was not well understood, 2. What advantages, if any, does
Eastern European nations, and even making it difficult to apply the the United States gain by
China are changing from govern- changes needed for new economic providing marketing expertise
ment controlled economies to free systems to succeed. and support to developing
enterprise systems. Hundreds of U.S. marketing countries?
The capability of producing and experts went to work. They helped
manufacturing good products is not foreign governments and businesses
school.cengage.com/marketing/marketing
CH 01-B4491_PB1_REV3.indd 2 12/9/07 12:40:25 AM

This chapter develops the following Performance Indicators
from the DECA Competitive Events program.
Core Performance Indicators Supporting Performance Indicators

• Understand marketing’s role and function in • Explain marketing and its importance in a global
business to facilitate economic exchanges with economy
customers • Describe marketing functions and related
• Employ products/services to acquire desired busi- activities
ness image • Explain the concept of product mix
• Employ product-mix strategies to meet customer • Plan product mix
expectations
• Identify product to fill customer need
• Evaluate the effectiveness of the marketing-
• Explain the nature of product extension in services
communications mix to make product-mix
marketing
decisions
Go to school.cengage.com/marketing/marketing and click on Connect to DECA.
Visual Focus
Marketing is often quite different than we
expect. Often unique efforts are required to
make sure that the products and services of
a company are available to customers wher-
AD PROVIDED WITH PERMISSION BY CARGILL. ©2007 CARGILL, INCORPORATED.
ever they are located and at the time and in

the form that satisfies customer needs. This
chapter introduces you to marketing and its
importance to businesses, other organizations,
and consumers. You will learn how market-
ing has become a very important economic
activity.
Focus Questions:
What marketing activities are being demon-
strated by Cargill in the advertisement? Why
do you believe a large international com-
pany like Cargill is concerned about how to
get products to consumers living in Central
America?
Locate another advertisement or vi-
sual example of a unique or unusual form of
marketing used by a business to make sure its
products are available to its customers. Share
your example in a class discussion.
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1-1 What Is Marketing?
GOALS KEY TERMS
• Understand the importance of studying marketing. marketing, p. 9
• Explain what marketing is and describe important mar-
keting functions.
• Define marketing.
Marketing is one of the most important functions in today’s American and interna-
tional companies. It is estimated that companies worldwide spend over $250 billion
on advertising each year. That amount is huge, but it is only a small piece of the
large marketing pie. Many companies budget 50 percent of their expenses for mar-
keting activities. For some e-commerce businesses, that amount can rise to nearly
90 percent of costs.
Work with team members to generate a list of ten different business activities
that you feel are examples of marketing. What jobs and careers could be related to
those activities? Discuss the differences among team members’ views.
Why Study Marketing?

arketing is exciting, important, and
M profitable. Businesses, individual

consumers, and our economy ben-
efit from effective marketing. This chapter
introduces marketing in a way many people
will not recognize. Even though marketing
is a well-known word, it is often misused or
misunderstood. Marketing activities and
marketing jobs have changed a great deal
in the past and will continue to change.
Even though forms of marketing have been
around for centuries, some businesses still
do not understand marketing well or use it
effectively. Why is marketing an important part of a
Marketing is an important part of busi- retail business?
ness operations and includes a number of
different activities. Marketing is now seen recognize the difference between effective
as essential to the success not only of manu- and ineffective marketing. They develop an
facturers, retailers, and other businesses approach to marketing that responds to the
but also of government agencies, hospitals, needs of customers. They know that effec-
S law offices, schools, and churches. Suc- tive marketing leads to satisfied customers
N cessful businesses and other organizations and a successful, profitable business.
4
4 CHAPTER 1 • Marketing Today and Tomorrow
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Where Does Marketing employer. They can help you be a more ef-
Take Place? fective leader of an organization. They also
are the skills needed for many exciting and
Marketing is one of the most visible areas of well-paying business careers.
business around you. You may not typically
see products being manufactured, accoun-
tants maintaining the financial records of
How Do Businesses
a business, or human resource employees Use Marketing?
hiring and training personnel. But you see Every business today is involved in mar-
marketing every day. Marketing includes keting. Over four million companies in
advertisements in all types of media, prod- the United States have marketing as their
ucts being transported by truck, train, and primary business activity (see Figure 1-1).
airplane, and marketing researchers survey- Most of the efforts of those businesses are
ing shoppers in shopping malls. directed at completing marketing activities
As a consumer, you are not involved rather than producing goods or providing
in most business operations, but you make other business services. Other companies,
marketing decisions and participate in while not directly involved in marketing,
marketing activities every day. You are devote a large part of their resources to
involved in marketing when you decide to marketing activities. Large businesses have
make a purchase in a store or on the Inter- marketing departments employing many
net, when you decide whether to pay for an types of marketing specialists. Even small
item with cash or a debit card, and when companies employ people who can com-
you pay to transport a bulky item to your plete many marketing activities.
home rather than transport it yourself.
As you study marketing, you will learn What Are Marketing Job
how businesses use marketing effectively Opportunities?
and profitably. You will see how you can
use marketing skills in your personal life. There are many types of marketing jobs,
Those skills can help you make better ranging from selling to inventory manage-
purchasing decisions as a consumer. They ment. Careers in advertising, sales promo-
can help you as you complete an application tion, customer service, credit, insurance,
for college or interview with a potential transportation, and research require
preparation in marketing. Marketers work
FIGURE 1-1
Some businesses are more actively involved in marketing than others, but all businesses complete
many marketing activities.
All Types of Businesses Use Marketing

Businesses Directly Businesses with Major Businesses with Limited
Involved in Marketing Marketing Activities Marketing Role
• advertising agencies • retailers • law offices

• marketing research firms • manufacturers • medical centers
• import/export offices • banks • accounting firms
• freight companies • real estate agencies • government agencies
• finance and credit firms • insurance companies • universities
• automobile dealers
• telemarketers • construction businesses S
• travel agencies • farmers and ranchers • public utilities N
5
1-1 • What Is Marketing? 5
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for manufacturers, law offices, hospitals, keting positions can be among the highest
museums, professional sports teams, and paid jobs in most companies. Because of
symphonies. the change and growth in marketing, many
Marketing jobs are available as you people view it as the most diverse and excit-
begin your career. These jobs include retail ing career area of the twenty-first century.
clerk, bank teller, stock person, telemarket-
ing interviewer, and delivery person. You Checkpoint
could advance to many marketing manage-
ment jobs, some requiring a great deal of Name three types of businesses whose
education and experience. Typically, mar- activities are devoted almost entirely to
marketing.
What Is Marketing?
hen many people hear the word
W marketing, they think of only adver-

tising and selling. However, many
marketing activities need to be completed
Fa s t FAC T S
A large consumer products company
before a product or service is ready to be may introduce as many as 100 new
advertised and sold. Those many activities products a year. On average only
can be grouped within major marketing five percent of new products
functions or related activities designed to are successful.
accomplish an important marketing goal.
Marketing Functions Promotion Communicating informa-

Many marketers recognize nine marketing tion to prospective customers through
functions. You will learn more about the advertising and other promotional meth-
functions and how each function is used as ods to encourage them to purchase the
a part of effective marketing in later chap- organization’s products and services.
ters. Here is a description of each.
Selling Direct, personal communica-
Market Planning Identifying and tions with prospective customers in order
understanding the markets a company to assess needs and satisfy those needs
wants to serve and developing effective with appropriate products and services.
marketing strategies for each market.
Marketing- Information
Product and Service Management Management Obtaining, managing,
Assisting in the design and development and using market information to improve
of products and services to meet the decision making and the performance of
needs of prospective customers. marketing activities.
Distribution Determining the best Financing Budgeting for necessary
methods and procedures to be used so financing, and providing financial assis-
prospective customers are able to locate, tance to customers to assist them with
obtain, and use the products and services purchasing products and services.
of an organization.
Risk Management Providing security
Pricing Establishing and communicat- for products, personnel, and customers
S ing the value of products and services to and reducing the risk associated with
N prospective customers. marketing decisions and activities.
6
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Each of these functions occurs every purchase contract
time a product or service is developed and within 30 days. Rather
sold. The performance of the activities than cutting the price
described in the functions is the respon- of the home, this pric-
sibility of marketers. So you can see that ing incentive works to
marketing is a very complex part of busi- maintain sales levels
ness and is very important to the success while competitors
of businesses and to the satisfaction of continue to struggle.
customers. Businesses selling
expensive products,
How Companies Use the such as oceanfront
Marketing Functions condominiums,
personal aircrafts, or
When you understand the marketing
yachts, prepare high-
functions, you will be able to recognize the
quality promotional
activities being performed by companies as
CDs and brochures
they develop new products, improve mar-
that provide detailed How might the information
keting procedures, and respond to
product information. obtained from electronic scanners
customer needs. You can find examples
The promotion materi- be used by store owners?
of these functions in hundreds of
als are sent to selected
different forms.
customers to interest them in purchasing
Apple used product/service manage-
the product.
ment by combining the technologies of a
Major automobile manufacturers
widescreen iPod, a cellular telephone, and
demonstrate the financing function when
an improved Internet browser to produce
they maintain their own financing orga-
the iPhone.
nizations to make loans or provide leases
Led by Hertz, most airport rental
to consumers who purchase their products
car companies now offer a convenient
from local dealers.
distribution strategy. Through a pre-
arranged rental agreement completed
online or by telephone, the customer’s Marketing Core Standards
automobile is waiting with all paperwork for Employment
completed to speed his or her departure. Marketing jobs exist in every industry and
Many professional firms are recog- within most companies. Marketing jobs
nizing the importance of personal selling. are found at the lowest and highest levels
Selected executives in law offices, ac- of a company and are available for people
counting firms, and banks are complet- with varied amounts of education and
ing professional sales training in order to experience. Job opportunities in marketing
effectively obtain new clients and handle are available to match any interests.
their needs. Career programs in Marketing Edu-
An example of marketing-information cation provide the most comprehensive
management is the use of electronic scan- preparation opportunities for high school
ners at supermarket checkouts. They pro- students considering full-time employ-
vide information about purchases so that ment in marketing after graduation or for
managers can instantly determine what is those considering additional education
being purchased, enabling them to keep after high school. A Marketing Education
the best assortment of products available. program incorporates complementary
To reduce their inventory of existing learning experiences—introductory and
homes when there is a slump in hous- advanced courses in marketing, a student
ing sales, a major construction company organization (DECA), and when appropri-
offers customized decorating and new ate, structured work experiences through S
furnishings to customers who sign a internships and cooperative education. N
7
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To prepare for careers in marketing,
you need a broad understanding of mar-
keting functions and activities. You will
also need to develop skills in one or more
of the functions. In Marketing Educa-
tion, seven curriculum areas have been
identified as essential skills needed by
marketers and are designated as Marketing
Core Standards, as shown in Figure 1-2.
Successful marketers must have a strong
understanding of each core standard as
described below.
Market Planning Mar-
keters must understand
the concepts and strategies
utilized to determine and
target marketing strategies
to a select audience.
Marketing-
Information
Management Mar-
keters must understand
the concepts, systems, and
tools needed to gather, access, synthesize,
evaluate, and disseminate information for FIGURE 1-2
use in making business decisions. Marketing Education identifies seven Core
Standards for marketing employment.
Judgment Call
Misuses of Marketing Affect • Using misleading photos or descriptions
Its Image of products in advertising.
Consumers develop a negative view of mar- • Asking people to participate in a survey
keting when they see companies use market- but using the information to try to sell
ing practices that take advantage of custom- them something.
ers or mislead them without satisfying their
Think Critically
needs. That tends to occur when a business
is concerned only with making a sale, not de- 1. What other examples of misleading or
veloping a long-term relationship. Common inappropriate marketing have you expe-
ways marketing is misused include: rienced? How did you feel about the
• Stating that a product is on sale or a price product and company?
is reduced when it really is not. 2. What can people do to discourage mis-
• Advertising a product at a low price but use of marketing when they encounter it?
stocking only a small quantity so it quickly
S
sells out.
N
8
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Product and Service Promotion Marketers
Management must understand the con-
Marketers must under- cepts and strategies needed
stand the concepts and to communicate informa-
processes needed to obtain, tion about products, ser-
develop, maintain, and improve a prod- vices, images, and/or ideas to achieve a
uct or service mix in response to market desired outcome.
opportunities.
Selling Marketers must
Channel understand the concepts
Management Marketers and actions needed to
must understand the con- determine client needs and
cepts and processes needed wants and respond through
to identify, select, monitor, planned, personalized communication
and evaluate sales channels. that influences purchase decisions and
enhances future business opportunities.
Pricing Marketers must
understand concepts and
strategies utilized in deter- Checkpoint
mining and adjusting
prices to maximize return Which of the nine marketing functions oc-
and meet customers’ perceptions of value. curs when a product is developed and sold?
Define Marketing
ecause of the many functions and organizational function and a set of pro-
B activities that are part of marketing, it

is not easy to develop a definition that
effectively describes it. A simple definition
cesses for creating, communicating, and
delivering value to customers and for
managing customer relationships in ways
was presented in 1960 by the American that benefit the organization and its stake-
Marketing Association (AMA). Marketing holders.”
was described as “the performance of busi- Because marketing can be applied in
ness activities that direct the flow of goods different ways in various organizations,
and services from producer to consumer and because marketing needs to be easily
or user.” As marketing developed and was understood, the following definition de-
applied in a broad set of organizations, scribes the value marketing offers to those
definitions became more complex. Market- who use it well. Marketing is the creation
ing now includes customer research and and maintenance of satisfying exchange
product development activities. It applies relationships.
to nonprofit businesses and to organiza- You need to carefully consider all parts
tions not considered businesses (churches, of this definition in order to understand
schools, libraries). Not only is marketing marketing. Creation suggests that mar-
used for products and services, it is also keting is involved from the beginning as
used for individuals (political candidates, products and services are being developed.
artists, sports stars) and even to promote Maintenance means that marketing must
ideas (stop smoking, recycle, stay in school). continue to be used as long as a business
The most recent definition of market- or organization is operating. Satisfaction
ing, accepted by the AMA in 2004, commu- of both the business and the customer is
nicates how marketing has changed over an important goal of marketing. When S
the years. It defines marketing as “an products and services are exchanged, the N
9
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needs of everyone involved must be met as
well as possible. Exchange relationship ap- Checkpoint
plies the definition to any exchange where
What kinds of relationships exist when mar-
people are giving and receiving something
keting is successful?
of value as shown in Figure 1-3. Marketing
is needed by, but not limited to, businesses
that are selling products and services.
FIGURE 1-3
Marketing is a part of many types of exchanges.
Business/Organization Exchange Customer

• movie theater • convenient and enjoyable access to entertainment • moviegoers
• grain farmer • high-quality wheat delivered for processing • cereal manufacturer
• physician • treatment for illnesses and injuries; health care • patients
• college • courses, degrees, professional development • students
• commercial airline • safe, on-time, and comfortable transportation be- • business travelers, indi-
tween cities viduals, and families
• city government • clean and well-maintained streets, police and fire • citizens
protection, enjoyable living
1-1 Assessment school.cengage.com/marketing/marketing
Key Concepts Make Academic Connections

Determine the best answer. 4. Visual Art Draw or use technology to create
1. Marketing involves which of the following a picture, graphic, or other visual representa-
a. advertising tion of the definition of marketing and com-
b. transporting products mon activities that are a part of marketing.
c. taking surveys 5. Careers Use the career center in your school
d. all of the above or the Internet to identify a marketing job
2. A business with a limited marketing role is that would have major responsibilities
a. a retailer for each of the nine marketing functions.
b. a farmer or rancher Prepare a chart that lists the function, the
c. a physician’s office job title, and a brief description of the work
d. none of the above has a limited marketing responsibilities that are a part of the job.
role
Connect to
3. Which of the following is the best description
6. Develop a two-minute presentation on the
of an important goal of marketing?
importance of marketing for businesses,
a. satisfying exchanges
other organizations, and consumers. Make
b. profitable distribution
sure to include an explanation of the defini-
c. creation of new products
tion of marketing. Prepare an outline of your
d. attention-getting promotions
presentation and one visual aid. Give your
S presentation to your teacher (judge).
N
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Business Needs Marketing 1-2
GOALS KEY TERMS
• Explain why businesses need marketing. self-sufficient, p. 12 production, p. 14
• Understand how marketing developed as bartering, p. 12 merchandising, p. 15
a part of business. specialization of labor, p. 13 operations, p. 15
• Describe the functions of business. money system, p. 13 accounting and finance, p. 15
central market, p. 13 management, p. 16
Over time, marketing has developed into a sophisticated and complex business func-
tion. Several simple business activities that were taken for granted in the past have
become important marketing tools today. For example, 100 years ago, providing
credit to regular customers was common and was managed with a pen and paper to
record customers’ purchases. Today, providing financing options, including credit, is
a complex process requiring computerized records and entire divisions of a business.
Working with team members, imagine that you are running a business 100
years ago. Think of a marketing activity that might have been common at that time.
Discuss how that activity is performed today. Share your discussion results with the
other teams.
The Need for Marketing

ver since people began exchanging not know where to purchase it, is unable
E things with each other, there has been

a need for marketing. In the past,
marketing was viewed as a simple set of
to get to the place where it is sold, cannot
afford the price being charged, or does not
believe it is a good value, the product will
activities that helped a business sell its not be purchased. A variety of marketing
products to more customers. The first activities are required so that customers
businesses developed ideas and activities will be able to purchase the product and
designed to attract interest and sell their will be satisfied with their decision.
products. Marketing cannot be successful if the
Business executives know that market- product is not what the customer wants or
ing must be carefully planned and coor-
dinated with other business activities. The
approach to managing marketing activities Wo r k i n g i n Te a m s
changes as organizations understand what
makes marketing effective. Form a team and discuss products you have
Marketing is necessary in every busi- purchased that you later found were not what
ness. Some people believe that if a busi- you expected. Why did you make the purchase,
ness offers a good product, marketing is and what did you do when you became dissatis-
not necessary. However, if the customer fied? As a team, suggest how businesses could
does not know about the product, does do a better job of satisfying customers. S
N
11
1-2 • Business Needs Marketing 11
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if the quality is low. While a customer may Businesses and other organizations use
be encouraged to buy a product through effective marketing to provide satisfying
advertising, selling, or low pricing, the exchanges of products and services with
product must be viewed as satisfying a customers. The ways marketing is used
need. If the customer decides to buy the have changed over the years, but the need
product but it is defective or does not work for marketing has not changed.
the way the customer was led to believe,
the customer will likely return it for a re-
fund. Even if the product is not returned, it
is unlikely the customer will buy the same Checkpoint
product again, and he or she may have a
negative attitude about the business where Why does a business need marketing if it
the purchase was made. has a good product or service?
The Development of
Marketing in Business
here have been times in history when known as bartering. A system of barter-
T people were self-sufficient. Being

self-sufficient means you do not
rely on others for the things you need to
ing was developed so that people could
exchange with others to obtain the things
they needed. For example, in an early
survive. People were able to find or pro- bartering system, someone who was a
duce the food and materials needed for good hunter but was not able to grow grain
themselves and their families. That type of might exchange products with a person
lifestyle required hard work and was very who had extra grain but needed meat. Peo-
risky. Self-sufficient people had to have ple who had developed skills in weaving
good hunting, fishing, or farming skills
as well as the capability to produce
shelter, clothing, and other necessi-
ties. Often it was not possible to obtain
everything needed to survive because
of poor weather, competition with
other people, sickness, or lack of skills.
Bartering
Some people who found
they were not successful
at being self-sufficient
tried to find other ways
to survive. They dis-
covered that often when they did not

have certain things they needed, other
people did. If each person had some-
thing that the other person valued,
they were able to make an exchange, so
each would be better off than before.
S Exchanging products or services with Why do you think people are not as self-sufficient
N others by agreeing on their values is as they once were historically?
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cloth might barter with people who raised
animals. Exchanging products through
bartering was one of the first examples of
marketing. Bartering still takes place today
among individuals and businesses. Can
you identify examples of bartering in your
neighborhood or community or on the
Internet?
Specialization of Labor
People discovered that they
had particular interests or
skills in certain kinds of
work while they were not as
good at or were uninterested
in other types of work. When people con-
centrated on the work they did well, they
were able to accomplish much more than
when they tried to do a variety of things.
Concentrating on one thing or a few re-
lated activities so that they can be done

well is known as specialization of labor.
Specialization of labor made it possible
for people to produce larger quantities of
a product rather than trying to produce
many different products. Therefore, more
of that product would be available to ex- How did people get the products and services they
needed before a money system was developed?
change with other people.
Central Markets
Money Systems With many people produc-
As specialization of labor ing more types of products
became more common and and with people having
a greater variety and quan- money to purchase the items
tity of products were avail- they needed, the demand for
able, bartering was not al- products increased. Locating and gather-
ways possible. Not all people ing all of the products people wanted and
needed the products of others, and it was needed was a difficult process. Much time
not always possible to reach agreement was spent traveling to sell and purchase
on what products were worth so that they products. To solve that problem, central
could be exchanged directly. To assist with markets were developed. A central market
the exchange, a money system was devel- is a location where people bring products
oped. A money system established the use to be conveniently exchanged. Central
of currency as a recognized medium of ex- markets were often located at places where
change. With money, people could obtain many people traveled, such as where rivers
products even if they did not always have or roads met.
something to exchange. Those with prod- Towns and cities developed at those
ucts to sell could do so for money, which locations and became centers of trade.
could then be used for future purchases. People brought the products they wanted
The development of a money system is to sell to the markets. When people needed S
another example of marketing. things they could not produce, they would N
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travel to the market to make purchases. products that were not available in the
Developing locations where products could market but that customers wanted.
be bought and sold was another step in the Each of those activities resulted in the
development of marketing. development of another marketing activity
and made the exchange process more
Other Marketing Activities effective for those who produced products
As central markets and those who purchased and consumed
expanded, other types of the products. Soon marketing became
business services were a complex set of activities with some
created to make exchanges businesses specializing in marketing while
easier. It was not always others used the services of marketing
possible for sellers and buyers to travel to businesses. Exchanges became easier as
the markets at the same time. Therefore, businesses added marketing services and
individuals often formed businesses to improved the ones already provided.
purchase products from producers and
hold them for sale to purchasers as needed. Checkpoint
Other businesses were started to loan
money to buyers or sellers, to help with How did the development of central mar-
transportation of products, or to locate kets aid in the growth of business?
The Functions of Business

rom the previous discussion of the Raw Materials Production includes
F development and improvement of mar-
keting activities, it is clear that market-
ing is an important part of business and
obtaining raw materials for sale to cus-
tomers. Mining, logging, oil drilling, and
similar activities are examples of this type
that businesses cannot be effective without of production.
marketing. But marketing cannot be suc-
cessful alone. Other important business
functions are production,
operations, accounting and
finance, and management. Production
These business functions are creates or obtains products
and services
shown in Figure 1-4.
Production Operations Management

The primary reason for a maintains daily Marketing develops,
activities and exchanges products implements, and
business to exist is to pro- and services with evaluates business
resources of the
vide products or services business customers plans
to consumers and to earn
a profit. The production
function creates or obtains Accounting & Finance
products or services for manages income and
sale. Think of the variety of expenses and maintains
products and services avail- financial records
able, and you can see that
S production can take various FIGURE 1-4
N forms. Marketing is one of several important business functions.
14
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Processing Other businesses take raw maintained. Products must be obtained,
materials and change their form through transported, and stored. Paperwork and
processing so that they can be used in computerized records must be prepared
the production of other products or in and maintained. The ongoing operations
the operation of businesses or equipment. or day-to-day activities of a business must
Examples include oil refining and the be performed well in order for the business
production of steel, paper, plastics, and to be successful.
food products.
Agriculture A third example of pro- Accounting and Finance
duction is agriculture. Food and other Businesses are complex with a variety
materials are grown for consumption or of activities occurring at once. Money is
for processing into a variety of products. needed to finance those activities, and that
money must be carefully monitored and
Manufacturing Manufacturing busi- managed. Many types of money, including
nesses are also involved in production. cash, checks, and credit, are used in a
Manufacturers use raw materials and business. The accounting and finance
other resources to produce products for function plans and manages financial re-
sale to consumers or to other businesses. sources and maintains records and infor-
Most of the products consumed by you, mation related to a business’s finances.
your friends, your family, and businesses Finance begins by determining the
have been produced by manufacturers. amount of capital needed for the business
Services Creating and providing ser- and where that capital will be obtained.
vices is also an example of production. Budgets must be developed, monitored,
While a physical product is not provided and updated. Most businesses must bor-
to the customer, offering a service such as row money for major purchases as well
preparing tax returns, cutting hair, pro- as for some day-to-day operations. De-
viding lawn care, or performing a concert termining sources for borrowing, interest
meets customer needs in the same way rates, and loan payback schedules
that making consumable products does. are important responsibilities
of accounting and finance
Merchandising Finally, some busi- personnel. Managers rely
nesses do not produce or manufacture on accounting and finance
products. Instead, they accumulate personnel to provide the
products for resale to customers. Offer- financial information they
ing products produced or manufactured need to plan the activities
by others for sale to customers is known of the business.
as merchandising. Retailers and whole-
salers are examples of merchandising Management
businesses. While merchandising is not Even in the smallest busi-
production, it makes the products of nesses, consider-
other businesses available for sale. able time must be
spent developing
Operations plans and organiz-
The ongoing activities designed to sup- ing work. Someone
port the primary function of a business must determine what
and keep it operating efficiently are known the business will do, how
as operations. Many things must occur it can best meet the needs
for a business to successfully produce and of customers, and how to
market products and services. Buildings respond to competitors’ actions. S
and equipment must be operated and Problem-solving, managing employees, N
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Virtual Marketing
Basic Internet Business Models or to conduct searches. Portals may carry a
Most businesses today use the Internet as a subscription (AOL) or may offer a rich oppor-
business tool. Many businesses have been tunity for advertisers to reach pre-selected
challenged to find ways to generate profit- audiences (Yahoo!, Google). Some portals
able sales from the Internet because most collect listing fees (Monster.com).
consumers still expect information on the Web site subscriptions. Specialized content
Internet to be free. The traditional way to providers (World Book Encyclopedia and
use the Internet has been to offer online NetFlix) require subscription payments for
ordering for a company’s products. How- access to their product. Some providers
ever, traditional uses are now changing. offer basic information without a charge
New Internet business models are providing but require payment for advanced services,
promise for new and existing businesses. such as online investment research (Mar-
Online markets. Amazon.com is a classic ketWatch) or complete magazine content
example of this model. It sells everything (BusinessWeek).
online. It began by selling books and music, Think Critically
but it now provides a virtual mall for con-
1. Why are many people reluctant to pay
sumers by offering hundreds of businesses’
for information and other services on the
products for sale. eBay is another example. It
Internet?
manages online auctions for individuals and
businesses. 2. What other ways can you identify that
Access to an audience or a specialized allow businesses to earn money via the
service. Portals are places where people go Internet?
on the Internet to access specialized content
and evaluating the activities of the busi- variety of activities in order to make their
ness are ongoing responsibilities of man- products and services available to consum-
agers. The management function involves ers and to ensure that satisfying exchanges
developing, implementing, and evaluating occur.
the plans and activities of a business.
Managers are responsible for every- Coordination of Business
thing that occurs in the business includ- Functions
ing the work of the employees. They must
develop objectives and plans, make sure Each of the functions of an effective
the appropriate resources are available, be business depends on the other functions.
responsible for buildings and equipment, Products can be produced, but if the
and assign responsibilities to others. Man- company is not operated or managed well,
agers are responsible for the performance adequate records are not maintained, or
of the company, including whether or not marketing is ineffective, the products will
it is profitable. not be sold at a profit.
In the same way, operations maintains
buildings and equipment and management
Marketing plans and coordinates the work occurring
S Marketing is also an important function of in all parts of the business. Finance and
N business. All businesses need to complete a accounting provides information to the
16
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other parts of the business to make sure As a result, product quality and cus-
that adequate funds are available and are tomer service decline while prices increase.
used efficiently. Customers become unhappy about the
Some organizations have not been suc- declining product quality and service and
cessful in coordinating business functions. rising prices. Competitors who are bet-
Functions operate independently and often ter organized can take advantage of those
compete with each other. Products are situations.
produced that cannot be sold. Marketing
activities are planned without considering
costs. Managers concentrate on specific Checkpoint
activities without considering if their deci-
sions may have negative effects on other How can the lack of coordination among
functions. the business functions affect a company?

Determine the best answer. 5. Geography and History Gather historical in-
1. In which business function are consumers formation about your state. Use the Internet to
most likely to be involved? locate and print a state map. Mark the locations
a. production of five towns and cities that were central mar-
b. accounting kets in the early years of your state’s develop-
c. marketing ment. Identify why each town or city provided
d. operations a good location for a central market.
2. Exchanging products or services with others 6. Economics Most countries have their own
by agreeing on their values is known as money system and currency. However, inter-
a. specialization of labor national trade requires that currencies from
b. marketing different countries can be readily exchanged.
c. developing a money system Develop a table to identify ten countries other
d. bartering than the United States, the name of the main
currency of each country, and the current ex-
3. The ongoing activities designed to support
change rate of that currency with the U.S. dollar.
the primary function of a business and to
keep a business operating efficiently are Connect to
known as
7. Your team members are the managers of a
a. operations
company in which expenses are increasing
b. management
while sales and profits are declining. Each team
c. accounting and finance
member will assume the role of manager of
d. merchandising
one of the main business functions. Discuss
4. The management function of business how the function each manager represents
involves , , and can work with the other functions to identify
the plans and activities of the main problems facing the business and to
a business. develop a plan for improvement. Make a three-
minute team presentation of your recommen-
dations to your teacher (judge).
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1-3 Understanding the Marketing Concept
GOALS KEY TERMS
• Define the marketing concept. marketing concept, p. 19
• Determine how businesses implement the marketing market, p. 22

concept. marketing mix, p. 22
product, p. 23
distribution (place), p. 23
price, p. 23
promotion, p. 23
An important principle of effective marketing is to identify products and services

that customers want and then provide them at an appropriate price. Companies
spend many hours and hundreds of millions of dollars every year trying to identify
new products that customers will buy. Often the new products are just improve-
ments or changes to existing products. Other times, entirely new product categories
are created that have not existed in the past.
Work with team members. You are a new product team in the marketing depart-
ment of a company. Discuss ways that you can identify a product that customers
would want to own. Once you have decided what the customers want and devel-
oped a product that responds to their needs, discuss how you are going to intro-
duce the new product to them. Share your discussion results with the other teams.
The Marketing Concept

arketing was not always viewed
M as an important part of business.

Indeed, marketing was not even a
term used in business until the last half of
Fa s t FAC T S
In 1908, it took $280 to purchase one of
the twentieth century. In the early 1900s, the few available models of automobiles,
businesses were mostly concerned about the Model T Ford. It was a luxury few
producing products that the business people could afford. In today’s dollars,
believed customers could afford and would the same car would cost about $14,000,
purchase. Major efforts that today would a more affordable price. However, few
be considered marketing were directed people today would be satisfied with the
at one of the biggest challenges facing features and performance of the Model T.
businesses—getting the products from
the places where they were produced to
the places where customers could pur- roads and highways were not well devel-
chase and use them. There were not many oped. The primary challenge to the sale
S choices of transportation methods, and of more products was to be able to deliver
N them to a larger number of customers.
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As consumers increased their ELEMENTS OF THE MARKETING CONCEPT
standard of living and had more money
to spend, their demand for newer and
better products increased. Demand was Identify
Develop and
Operate a
usually greater than the available supply needs of market
business
of products. Business people concen- customers
products or
profitably
trated on production and seldom had services
to worry about marketing. Customers
were often eager to buy new products
and would seek out the manufacturer FIGURE 1-5
when they heard of a product they The marketing concept focuses on identifying and satis-
wanted. fying customer needs.
Over time, production processes
improved, there was more competition
among producers and manufacturers, and
consumers had more choices of products • First, the business must be able to iden-
and services. Businesses had to compete tify what will satisfy customers’ needs.
with each other to get customers to buy
their products. They began to increase • Second, the business must be able to
their attention of basic marketing activi- develop and market products or ser-
ties, such as advertising and selling, to per- vices that customers believe are better
suade customers that their products were than other choices.
superior to those of competitors. • Third, the business must be able to
operate profitably.
Satisfying Customer
Needs Many businesses are successfully identify-
ing and responding to needs of customers.
As it became more and more difficult Fast food restaurants provide breakfast
and expensive for businesses to sell their menus and late night hours in order to
products, some business people began to make their products available when cus-
realize an important fact. Businesses could tomers want them. Many banks provide
no longer be successful by just producing services so that customers can pay bills,
more products or increasing their ad- transfer money, and check account bal-
vertising and selling efforts. They had to ances by using a telephone or a personal
produce products that customers wanted. computer. Hospitals offer wellness pro-
The most successful businesses were the grams, weight loss clinics, and fitness
ones that considered customers’ needs centers to attract clients and broaden their
and worked to satisfy those needs as they image. Colleges offer courses for area high
produced and marketed their products school students to earn college credits
and services. That philosophy of business prior to graduation and to interest students
is now known as the marketing concept. in enrolling full-time at the college.
The marketing concept is using the needs
of customers as the primary focus during
the planning, production, pricing, dis-
When Customer Needs Are
tribution, and promotion of a product or Not Satisfied
service. Businesses that do not use the marketing
Using the marketing concept is not concept are more concerned about produc-
as easy as it might sound. Three activities ing products than understanding customer
must be accomplished by businesses if they needs. Once products are developed, they
want to use it successfully. Those activities rely on traditional marketing activities to
S
are illustrated in Figure 1-5. sell those products. Often when automobile
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1-3 • Understanding the Marketing Concept 19
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Get the Message
Getting the Word Out The Word of Mouth Marketing Association
Word-of-mouth promotion has been around (WOMMA) describes several new methods to
since the beginning of business, but it is still encourage positive messages from satisfied
an important promotional tool today. Stories customers. They include:
of positive experiences spread by satisfied Buzz Marketing. Using high-profile enter-
customers can be a powerful influence on tainment or news to get people to talk
family members, neighbors, and friends. about your brand.
On the other hand, there can often be no Product Seeding. Placing the right product
stronger negative influence than people in the right hands at the right time and pro-
talking about their negative experiences viding information or samples to influential
with a product or a business. Businesses
individuals.
have developed methods to try to influence
Conversation Creation. Developing inter-
word-of-mouth promotion. Some of those
esting or fun advertising, e-mails, catch
methods are:
phrases, entertainment, or promotions
After-sale follow-up. Making contact with
designed to start word-of-mouth activity.
purchasers in-person, on the telephone, and
with letters and e-mails to make sure they Think Critically
are satisfied with their purchase. 1. Why is word-of-mouth information so
Recognition and special services. Publicly influential for many consumers?
recognizing purchasers in promotions and 2. If you are the marketing manager for a
newsletters or at events. new brand of sunglasses, what
Incentives. Offering purchasers small finan- would you do to increase the positive
cial incentives, discounts, or special purchas- word-of-mouth promotion by customers?
es for recommending the business and its
products to prospective customers.
manufacturers have difficulty selling their business. Also, after purchasing the prod-
cars it is because they are not producing uct, customers may decide it is not what
the type, style, or quality of cars customers they wanted. They may return the product
want. They then have to use advertising, or become unhappy with the product and
price reductions, rebates, and pressure sell- the company. They may be reluctant to
ing to persuade customers to buy a product buy from that company in the future and
the customers do not prefer. may express dissatisfaction to prospective
Retail stores sometimes buy products customers, resulting in reduced sales for
that they believe will sell but then find that the company.
customers are not willing to buy them.
The stores then have to cut prices, increase
advertising, use special displays, and other Checkpoint
strategies to persuade customers to buy
the products. The extra expenses of mar- Under the marketing concept, what is a
keting products that customers may not business’s primary focus during planning,
S have a strong interest in buying can lead to production, pricing, distribution, and pro-
N reductions in profit or even losses for the motion of a product?
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Your Personal and Professional Image

Businesses are aware of the importance of the breath and maintains a healthy
first impression—the image that is conveyed by and beautiful smile. An easy-
a product and its package, the cleanliness and to-maintain and attractive hair
appearance of a store and its merchandise, and style, clean and trimmed nails,
the impression made by the appearance, behav- and healthy skin increase
ior, and language of its employees. If you walk into personal attractiveness
a law office, you expect a different image from and self-confidence.
one you might encounter in a supermarket or
an auto repair shop. If that image does not meet
Language and
your expectation, you may not feel comfortable or Voice Tone
confident in becoming a client or customer. Your language and tone
Everyone makes decisions based on first of voice are the final
impressions. As you walk down the halls of your pieces of your successful
school each day, you notice what other students image. No matter what
are wearing. At the beginning of a new semester, the setting or with whom
the appearance and attitude of each teacher influ- you are speaking, use
ence your initial feelings about them and the class. positive, personalized, and appropriate language.
You have your own personality and prefer- Demonstrate your interest by carrying on your
ences, and that affects your dress and grooming side of a conversation but not dominating it.
choices. It would be a boring world if everyone Show knowledge without being overbearing.
looked, dressed, and acted alike. On the other How you speak and what you say convey a great
hand, dress and grooming decisions have an deal about you, especially to those who are just
effect on your success. Personal image, whether getting to know you.
in business, school, or social situations, is formed
Develop Your Skill
by clothing, personal care and appearance, and
language and voice tone. Use a digital camera to take a picture of yourself
dressed for three situations.
Clothing 1. Going to school
Don’t overdress or underdress. Choose styles
that reflect your personality and fit the setting in 2. Going to work at a job you would like to have
which they will be worn. Your clothing choices 3. Going to a social activity with your friends
do not have to be expensive or exclusive, but Show the photos to three people—a close
they should be pleasing, not startling, to others. friend, a business person, and a teacher or other
You do not have to be conservative, but you also adult who knows you well. Ask them to provide
should not dress so differently from others that honest feedback on whether the image you
the only thing people remember about you is convey in each photo fits the situation. Ask each
PHOTO: ©GETTY IMAGES/PHOTODISC
how you dress. person to provide two positive comments and

Personal Care and Appearance two recommendations for you that will help
strengthen your image in the way you dress and
There are many elements to personal appear-
your personal care and appearance. Use their
ance, starting with cleanliness, skin and hair care,
feedback to set goals for personal improvement.
and personal hygiene. Regular bathing keeps
Keep the pictures as a reminder of your goals and
you fresh. Brushing your teeth freshens your
progress. S
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Implementing the Marketing Concept
ompanies that believe in the market-
C ing concept operate differently from

those that do not. They follow a two-
step process.
Identify the Market

The first step is to identify
the market or markets the
company wants to serve. A
market is a description of
a unique group of prospec-
tive customers a business wants to serve
and their location. An example of a mar-
COURTESY OF JBL HARMAN INTERNATIONAL

ket for a bicycle manufacturer may be
people who ride bicycles in the moun-
tains for health and fitness. A potential
market for a sports arena may be teens
within 80 miles of the arena who attend
concerts more than twice a year.
Develop a Marketing Mix

The second step is to develop a market-
ing mix that will meet the needs of the JBL and Trek offer products to the same unique
market and that the business can provide market.
profitably. A marketing mix is the blend-
ing of four marketing elements—product,
distribution, price, and promotion—by with place used as an alternate term for
the business. The marketing mix is some- distribution.
times referred to as the 4 Ps of marketing Let’s use the two markets described
earlier to illustrate a possible marketing
mix for each. The bicycle manufacturer
may decide to offer three different types
of mountain bikes. It can sell through a
selected group of bicycle shops. The price
Consumers communicate with others about can range from $280 to $550. It can be
their purchasing experiences using word-of- promoted by advertising in fitness
mouth promotion. Access school.cengage. magazines, on a cable sports channel, on
com/marketing/marketing and click on the link travel and cycling Internet sites, and by
for Chapter 1. Visit the web site for the Word of salespeople in the bicycle shops.
Mouth Marketing Association (WOMMA). Have The sports arena manager could
you engaged in any of the word-of -mouth pro- choose a marketing mix for concerts
motions described? Do you think the strategies that includes groups whose recent titles are
listed on the site would work for all products or among those most frequently downloaded
services? from Internet music sites. Performances
could be scheduled on Saturday or
S
school.cengage.com/marketing/marketing Sunday evenings and priced at $60 for
N reserved seating and $32 for open seating.
22
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The concerts could be promoted on the Price is the amount that customers pay
three area FM radio stations with the high- and the methods of increasing the value of
est audience ratings for listeners age 15 to the product to the customers.
25, by posters placed in local youth gather- Promotion includes the methods used
ing places, and through word-of-mouth and information communicated to encour-
“buzz” marketing. age customers to purchase and to increase
Each of the elements of the marketing their satisfaction.
mix provides many alternatives to better While each of the definitions is writ-
satisfy the market. The development and ten to describe marketing of products by
implementation of the marketing mix will a business, the mix elements are also part
be discussed in detail in other chapters. of services and ideas. Non-business orga-
Basic definitions of each marketing mix nizations and individuals can effectively
element follow. develop marketing mixes.
Product is anything offered to a mar-
ket by the business to satisfy needs, includ-
ing physical products, services, and ideas. Checkpoint
Distribution or place includes the loca-
tions and methods used to make the prod- What four marketing elements make up the
uct available to customers. marketing mix?

Determine the best answer. 5. Math A company is considering two market-
1. True or False: Marketing has not always been ing mixes. With the first, it projects it can sell
viewed as an important part of business. 8,500 units at a price of $23.50 per unit with to-
tal costs of $176,000. Unit sales for the second
2. Which of the following is true about condi-
mix are projected at 9,875 at a price of $19.90
tions facing businesses in the early 1900s?
with total business costs of $158,500. What is
a. Transportation of products to consumers
the projected profit (total income – total costs)
was quite easy.
for each one?
b. Consumers had many choices of products
on which to spend money. 6. Management Choose one of the businesses
c. Businesses were mostly concerned about described in the lesson—the bicycle manufac-
producing products that customers could turer or the sports arena. Identify a specific new
afford and would purchase. market for the business. Then plan the market-
d. All are true. ing mix elements the business should offer
to meet the needs of the identified market.
3. Using the needs of customers as the primary
Prepare a three-paragraph report explaining
focus during the planning, production, pric-
your decisions.
ing, distribution, and promotion of a product
or service is known as the marketing Connect to
a. mix c. philosophy
7. You are a consultant working with the owner
b. concept d. approach
of a new restaurant who wants your advice on
4. Which of the following is not one of the mar- how to make effective marketing decisions.
keting mix elements? Meet with the new owner (judge) and describe
a. product c. price the meaning and importance of the marketing
b. distribution d. planning concept to guide marketing planning. S
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1-4 The Changing Role of Marketing
GOALS KEY TERMS

• Describe how businesses approach marketing differ- relationship marketing, p. 27
ently today than they did in the past. employee empowerment, p. 27
• Summarize how marketing is changing in businesses
and other organizations.
Marketing is an important tool for businesses. In addition, many other organizations

that are not businesses also find benefits in performing marketing activities. For
example, colleges routinely send recruiters all over the United States and even to
other countries to attempt to persuade students to attend their school.
Work in a team to identify a non-business organization with which team mem-
bers are familiar. Discuss how the use of marketing can benefit the organization and
help it achieve its goals. Describe several specific ways that marketing functions
could be used by the organization. Share your results with the other groups.
The Changing Approach to Marketing

hile marketing is necessary in all marketing has played in U.S. businesses
W exchanges, businesses have not

always believed marketing was
important to their success. They expected
during the past century. The historical
development of marketing is summarized
in Figure 1-6.
customers to take most of the responsibil-
ity for completing marketing activities. It Production Emphasis
took many years before businesses began In the early years of the last century (1900–
to realize the value of effective marketing. 1920), production processes were very
There are several changes in the role that
FIGURE 1-6
Businesses’ approach to marketing has changed throughout history.
Marketing Marketing
Production Era Sales Era Department Era Concept Era
• 1900s–1920s • 1930s–1940s • 1950s–1960s • 1970s–Today
• Emphasis on producing • Emphasis on using ad- • Emphasis on developing • Emphasis on satisfying
and distributing new vertising and salespeople many new marketing customers’ needs with
products to convince customers to activities to sell products a carefully developed
S buy a company’s marketing mix
products
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simple and few product choices were avail- consumers as their hours of work declined.
able. People had limited money to spend Consumers had more money to spend and
on products, and much of their purchasing more time to enjoy the use of many prod-
was for basic necessities. Transportation ucts. Companies increasingly found that
systems were not well developed, so it was consumers were not easily convinced to
difficult to get products from where they purchase products when they had many
were manufactured to people throughout choices available to them. Therefore, busi-
the United States. nesses had to find different ways to be sure
Businesses believed that if they could that consumers purchased their products.
produce products, they would be able to Companies began to organize market-
sell them. They focused on developing ing departments that were responsible for
new products and improving production. developing those new methods.
Their only marketing effort was devoted One of the first efforts of the new mar-
to distribution—moving products from keting departments was to expand the use
the producer to locations where customers of advertising. Advertising had an impor-
could buy them. tant role of informing consumers about
a company’s products, the reasons to buy
the products, and where they could locate
Sales Emphasis the products. The use of newspapers and
During the 1930s and into the 1940s, busi- magazines, the expanded use of radio, and
nesses became more effective at produc- the growth of television provided outlets
ing products. Industrial improvements to reach consumers with many forms of
and modern methods of producing large advertising.
numbers of products at a low cost, such as New methods of getting products
assembly lines, were introduced. Transpor- to customers were developed including
tation systems, including the use of trains,
boats, and trucks, improved, making it
easier to get products to customers. At the
same time, the standard of living of many
Americans improved, so they had more
money to spend on goods.
These changes resulted in increased
competition among businesses. They could
no longer rely on customers buying their
products just because they were able to get
the products to the customers. Companies
began to rely on salespeople to convince
customers that their products were better
than the products of competitors. Good
salespeople could introduce products that
customers had not purchased before and
demonstrate the advantages of ownership.
COURTESY OF IBM CORPORATION
Marketing Department
Emphasis
The sales emphasis continued into the
1950s for many businesses and well be-
yond that time for others. After World
War II, the U.S. economy expanded Throughout the history of business, advertising S
rapidly, and wage levels increased for has introduced new products. N
25
1-4 • The Changing Role of Marketing 25
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catalog sales with mail delivery to rural It was discovered that marketing was be-
areas, expanded and improved truck and coming quite expensive. Also, since the goal
rail distribution, and even the use of air- of the marketing department was to sell the
planes to rapidly move perishable products. products of the company, marketers began
The expanding number of retail stores and to misuse marketing activities. These inap-
the growth of city shopping centers gave propriate activities might have increased
customers easier access to product choices. sales, but they also led to customer com-
Competition brought product prices down, plaints. Examples included high-pressure
and customers were offered credit to make sales, misleading advertising, and customer
purchases more affordable. As companies services that were not provided as prom-
worked to find more ways to encourage cus- ised. These past actions help explain why
tomers to buy, they increasingly relied on even today some people have a negative at-
marketing to find ways to expand markets titude toward marketers and some market-
and sell more products. ing activities.
Marketers also discovered that no mat-
Marketing Concept Emphasis ter how hard they tried, there were some
The marketing department emphasis products that customers did not want to
showed that marketing could be a very buy. If customers did not believe that a
important tool for businesses. A number of product would satisfy their needs, market-
activities were now available that had not ing was not effective. Yet marketers were
been used in the past. However, just because not involved in developing the products.
more marketing activities were used, com- In the 1970s, some companies began
panies were not always more successful. to realize they could be more successful
Figure This
The Consumer Price Index (CPI) have a CPI less than 100, and years after the
Marketers are responsible for developing base year have a CPI greater than 100. For
strategies to sell a company’s products and example, the CPI for 1915 was 9.1, for 1950,
services to consumers. Those consumers 24.1, and for 1995, 152.4. If a consumer pur-
must decide how to spend the money they chased $350 of goods and services in 1983,
have available to get the greatest value and those same purchases would have cost $31.85
satisfaction from the purchases they make. in 1915 ($350 ⫻ .091), $84.35 in 1950 ($350 ⫻
Competition among businesses, improve- .241), and $533.40 in 1995 ($350 ⫻ 1.524).
ments in technology and business proce- Think Critically
dures, and greater productivity from employ-
1. If the cost of an automobile in 1983 was
ees cause product prices to decrease over
$15,580, how much could we expect the
time. However, inflation results in increases
price to increase due to inflation by 2007
in the prices customers pay. To measure the
if the CPI for that year was 205.5?
effect of inflation on consumer prices, the
federal government calculates the Consumer 2. If the actual cost of the automobile was
Price Index (CPI). The CPI compares the cost of less than what would be expected based
a group of products and services commonly on the CPI, what could account for the
purchased by consumers from year to year. lower price?
The base year, or a CPI of 100, was estab-
S lished as 1983. Years prior to the base year
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if they listened to consumers and consid- a customer is not enough. It costs a great
ered customer needs as they developed deal of money to identify new customers,
products and services. The marketing inform them of a company’s products, and
concept uses the needs of customers as the convince them to purchase. Studies have
primary focus during the planning, pro- found that retaining customers so that they
duction, pricing, distribution, and promo- continue to purchase from the company
tion of a product or service. again and again can increase profits by 25
When the marketing concept was to 50 percent. The extra efforts required to
adopted, marketing became more than the replace a lost customer can reduce profits
work of one department. It was now a major by the same amount or more.
part of the business. Marketing personnel Businesses are now implementing
worked closely with people in other parts relationship marketing. Relationship
of the company. Activities were completed marketing focuses on developing loyal
with customer satisfaction in mind. By customers who continue to purchase from
coordinating the efforts of the departments the business for a long period of time.
in the company and by focusing on satis- Customers prefer to shop and buy from
fying customers’ needs, companies were businesses they trust and that they believe
able to develop and market products that provide good products and great service.
customers wanted and that could be sold at Companies that use relationship market-
a profit. Since its first use in the 1970s, the ing stay in contact with customers, deter-
marketing concept has been proven as an ef- mine ways to provide better products and
fective method. It is now used by the major- services, and immediately try to solve any
ity of businesses and by other organizations. problems the customers may have.
Improving the Marketing Employee Empowerment To most

customers, a business is represented by
Concept the employees with whom they deal on
The marketing concept has directed the ef- a regular basis. If an employee has an
forts of many businesses for nearly 40 years, uncaring or indifferent attitude, cannot
and it still achieves the desired goals— answer customers’ questions, appears
satisfied customers and profitable sales. You unconcerned about a problem, or is
will learn in later chapters that even when unable to solve a problem, a customer will
the competitors of a business use the same quickly become dissatisfied and will look
philosophy, it is possible for each busi- for another place to shop.
ness to be successful because of its focus Employee empowerment is an ap-
on satisfying the needs of its customers. proach to customer service that gives
However, the marketing concept continues employees the authority to solve many cus-
to change as businesses become more ef- tomer problems. Employee empowerment
fective marketers and find ways to improve requires that businesses trust employees to
the way they complete marketing activi- make good decisions in the best interests
ties. Two important improvements are an
emphasis on relationship marketing
and employee empowerment. A third
improvement is attention to social Wo r k i n g i n Te a m s
responsibility, as discussed in the
Work with your team members to identify
next chapter.
several businesses that you believe do a good
Relationship job of relationship marketing. Discuss what
Marketing Busi- the business does that demonstrates interest
nesses have learned in customers and how those things encourage
that a one-time sale to customers to return again and again. S
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of the company and the customer. Empow- concept make good decisions that satisfy
ered employees are given training to un- customers.
derstand the resources that are available to
them when they work on a problem. They Checkpoint
are also given guidelines to determine
the appropriateness of possible solutions. Name the four major emphases in the
Businesses have learned that empowered development of marketing’s role in busi-
employees who understand the marketing ness since 1900.
The Changing View of Marketing

arketing is different today than it You can evaluate organizations to de-
M was even 15 or 20 years ago. If you

look at the history of business, you
can see that marketing played a role in
cide if they understand the value of market-
ing. If they rely on promotion with bro-
chures, advertisements, and public service
even the simplest early businesses. But announcements, they likely view marketing
business people have not recognized the as a way to convince consumers of their
full value of marketing as a business tool organization’s value. Without research to
until recently. help them understand their clients, they are
The role of marketing in business not able to respond to the clients’ needs.
changed as did the business view of the
importance of marketing. Previously,
marketing was seen as a tool to help the
business sell its products and services.
It was not needed if sales were high.
Today, business people see that market-
ing contributes in several important
ways. It provides information about
customers through market research.
Marketing provides many ways to serve
customers better and increase customer
satisfaction. It can help businesses be-
come more profitable by coordinating
activities and controlling costs.
Marketing in Other
Organizations
Because of the successful use of market-
©UNITED STATES POSTAL SERVICE
ing in businesses, other organizations

now look to marketing for help. Librar-
ies, churches, government agencies,
community organizations, and the
military are using marketing activities.
Some use marketing well while others
do not understand marketing. They
may view marketing only as advertising
S or selling and not as a way of satisfying The U.S. Postal Service uses marketing to improve
N their customers’ or clients’ needs. customer service.
28
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If they use marketing to determine involved in marketing need information
what products and services to offer, where about customers, competitors, and market
to make them available, how to help conditions. This information helps market-
consumers determine the value of their ers make decisions that will result in sales
services, and how to communicate effec- and profits for the business. Marketers
tively with consumers, they have adopted have varied amounts of experience and
the marketing concept. The marketing education. Marketing is an exciting and
concept works well for businesses and challenging career area. If you are inter-
other organizations. ested in marketing, you must be willing to
develop the needed knowledge and skills.
Marketers’ Roles Today Marketing offers many opportunities for
Marketing managers are responsible for you now and in the future.
a large number and variety of activities.
They must work with many people inside Checkpoint
and outside of a company. Marketing
managers are ultimately responsible for a Why is marketing ultimately important to
large part of the company’s budget. People every business and organization?

Determine the best answer. 5. Technology Use the library or Internet to iden-
1. In the era in which the marketing efforts of tify a change in technology that you believe
a business were devoted to distribution, the improved the way marketing activities were
business was said to have a completed during four different times in history:
a. marketing department emphasis 1900–1930, 1931–1950, 1951–1980, 1981–pres-
b. sales emphasis ent. Use visuals or a written report to communi-
c. production emphasis cate your findings. Make sure you describe how
d. marketing concept emphasis the technology improved marketing.
2. Relationship marketing is good for a business 6. Communication Compose a letter to the
because it owner or manager of a business that you be-
a. reduces costs lieve has a low level of customer service. De-
b. increases profits scribe the reasons for your beliefs and explain
c. develops long-term customers who con- how relationship marketing and employee
tinue to purchase from the company empowerment might help the business.
d. all of the above
Connect to
3. An approach to customer service that gives
7. You have decided to run for the office of presi-
employees the authority to solve many cus-
dent of a student organization in your school.
tomer problems is
Prepare a two-minute speech you would
a. the marketing concept
deliver to the members of the organization in
b. relationship marketing
which you describe the importance of using
c. employee empowerment
marketing as a way to increase the number of
d. social responsibility
new members in the organization. Deliver the
4. True or False: Because businesses have be- speech to your teacher (judge).
come more concerned about profits and
competition, marketing is less important
today than it was in the past. S
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Chapter 1 Assessment
Check Your Understanding

Now that you have completed the chapter, check offer reasons that marketing is needed by busi-
your understanding of the lessons with these ques- nesses, other organizations, and consumers?
tions. Record the score that best represents your discuss several ways marketing activities were
understanding of each marketing concept. first performed by businesses?
1 = not at all; 3 = somewhat; 5 = very well describe several functions of business in addition
If your score is 42–50, you are ready for the assessment to the marketing function?
activities that follow. If you score 33–41, you should define the marketing concept and explain why
review the lessons for the items you scored 1–3. If you businesses adopt it?
score 32 or less, you will want to carefully reread the describe the two steps required to implement
lessons and work with a study partner on the areas you the marketing concept?
do not understand. identify ways the approach to marketing has
Can you— changed since the early 1900s?
identify and define the nine marketing provide examples of methods businesses are
functions? using to improve the marketing concept?
provide a simple definition of marketing that identify ways that marketing is being used effec-
describes its value to those who use it? tively in non-business organizations?
Review Marketing Terms

Match the terms listed with the definitions. Some terms may not be used.
1. The creation and maintenance of satisfying ex-
change relationships
2. Using the needs of customers as the primary
focus during planning, production, distribution, a. accounting and finance
and promotion of a product or service b. bartering
3. The prospective customers a business wants to c. central market
serve and the location of those customers d. distribution (place)
4. Blending of the four marketing elements (prod- e. employee empowerment
uct, distribution, price, and promotion) by the f. management
business g. market
5. Anything offered to a market by the business h. marketing
to satisfy needs, including physical products, i. marketing concept
services, and ideas
j. marketing mix
6. The business function that creates or obtains k. merchandising
products or services for sale
l. money system
7. The actual amount customers pay and the m. operations
methods of increasing the value of the product
n. price
to the customers
o. product
8. Focuses on developing loyal customers who con-
p. production
tinue to purchase from the business for a long
period of time q. promotion
r. relationship marketing
9. The locations and methods used to make the
product available to customers s. self-sufficient
S t. specialization of labor
10. Exchanging products or services with others by
N agreeing on their values without using money
30
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Review Marketing Concepts
11. Which marketing function involves designing a. management
and developing products and services? b. accounting and finance
a. product/service management c. marketing
b. marketing-information management d. operations
c. pricing 16. Which business function
d. selling represents the ongoing ac-
12. Which marketing function establishes the value tivities designed to support the primary function
of products and services? of a business and keep it operating efficiently?
a. selling a. management
b. pricing b. production
c. product/service management c. marketing
d. marketing-information management d. operations
13. Which marketing function develops procedures 17. Which marketing mix element includes the
so customers are able to locate, obtain, and use methods used and information communicated
products and services? to encourage customers to purchase and to
a. selling increase their satisfaction?
b. promotion a. product
c. distribution b. distribution
d. financing c. price
14. Which business function involves activities d. promotion
that make products and services available to 18. Which of the following is an approach to cus-
consumers and ensure that satisfying tomer service that gives employees the authority
exchanges occur? to solve many customer problems?
a. management a. the marketing concept
b. production b. relationship marketing
c. marketing c. employee empowerment
d. operations d. social responsibility
15. Which business function involves developing,
implementing, and evaluating the plans and
activities of a business?
Marketing Research and Planning

19. Find an article from a current magazine or news- d. Five examples of businesses performing
paper that describes how a company developed marketing functions.
a new product or service, improved a marketing e. Five descriptions of markets.
procedure, or responded to customer needs. 21. Identify ten people who vary in age, gender,
Prepare a brief oral report describing the activity occupation, and other personal characteristics.
and how it does or does not illustrate the mar- Ask each person the following three questions.
keting concept. Record their answers
20. Identify and record examples from your own a. What do you believe “marketing” means?
experience for each of the following: b. When you hear the word “marketing,” are your
a. Five marketing activities you have seen in the feelings more positive, more negative, or
last week. neutral?
b. Five businesses in your community that have c. Do you believe most people involved in
marketing as an important activity. marketing are attempting to meet your needs
c. Five careers in marketing. as a customer? Yes or no? S
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CHAPTER 1 Assessment 31
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When you have completed the inter view, write a Business Functions
summary of your findings for Part a using a word production and marketing
processing program. Then using a spreadsheet finance and marketing
program, enter the gender, age, and occupa- operations and production
tion of each person you interview in the first management and finance
three columns. In the fourth column, enter each 23. The two statements below express opinions
interviewee’s answer to Question b, and in the often held by people who do not understand
fifth column, enter their answers to Question c. marketing. Using a word processing program,
Using the graphing function of the spreadsheet develop a paragraph of at least five sentences for
program, create several graphs or charts that each of the statements that demonstrates why
illustrate the data you recorded. the opinion is not correct.
22. Businesses may have problems when the busi- “My business offers high-quality products, so it
ness functions are not coordinated. An impor- does not need marketing.”
tant way to increase customer satisfaction and
“Customers have been complaining that my
make a profit is to organize the functions so
products are not as good as they would like. I
that they cooperate rather than compete. For
need to use marketing to be sure those poor
each of the following sets of functions, identify
products are sold.”
a problem that might result if the two functions
compete with each other. Then identify a way
that customer satisfaction or company profits
could improve if the functions are coordinated.
Marketing Management and Decision Making

24. Managers regularly make decisions about the For the CD player, at the original price, the
price of products to provide a good value for profit would have been $6 ($150 ⫻ .04). At the
customers, make a profit for the business, and reduced price, the profit is $5 ($125 ⫻ .04).
ensure that products are sold. Often the original The reduction in profit is $1.
product price is not the selling price. Collect c. Using the marketing concept, determine
information on price reductions for at least reasons why the manager of the business may
ten products. Gather the information from prod- have decided to reduce the price for each
ucts you, your family, or friends have purchased product you identified. Suggest other things
by checking prices in stores in your community the manager might have been able to do to
or in advertisements. Identify the original price avoid reducing each product’s price.
and the reduced price for each product. Then 25. Each of the marketing functions provides excit-
complete the following activities: ing career opportunities. There are marketing
a. Calculate the amount and percentage of jobs available for people with varied levels of
decrease in price for each product. For education, experience, interests, and talents. Use
example, if a compact disc (CD) player origi- the classified section of a newspaper or a web
nally sold for $150 and is on sale for $125, site that lists jobs. For each of nine marketing
the price reduction is $25 ($150 – $125). The functions, find two jobs that have duties related
percentage of decrease is the price reduction to it. One job should be open to people with a
divided by the original price. For the CD high school diploma and little or no experience.
player, the percentage of decrease in price is The other should require a college degree and
16.7% ($25/$150). several years of experience. Use the information
b. Assuming the business makes 4% net profit to prepare a career poster or work with a team to
on each sale, determine how much reduction develop a bulletin board to inform others about
in profit the store will have for each product. jobs available in the world of marketing.
S
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Marketing Management
Series Event
The Market- publicity. You must outline a strategy that
ing Manage- includes steps to overcome all of the
ment Series negative publicity that Solid Trust Homes
Event consists of a 100-question multiple- has received. The goal is to create satis-
choice comprehensive exam and role-plays. fied customers who, through word of
The role-play portion of the event requires mouth, will share positive comments
participants to accomplish a task by translat- with prospective customers.
ing what they have learned into effective, effi-
cient, and spontaneous action. Students have Performance
ten minutes to prepare their strategy for the Indicators Evaluated
role-play and another ten minutes to explain
it to the judge. The judge has five minutes to • Explain the nature of posi-
ask questions related to the presentation. tive customer/client relations.
You are the marketing manager for a (Emotional Intelligence)
large national home builder (Solid Trust • Demonstrate a customer-service
Homes) that builds homes around the coun- mindset. (Emotional Intelligence)
try. Your company has earned numerous • Explain management’s role in
awards for building high-quality homes. customer relations. (Emotional Intel-
However, the company’s success is in jeop- ligence)
ardy because of recent consumer complaints
about faulty construction.
• Explain warranties and guarantees.
(Product/Service Management)
Most states have laws that require new
homeowners to take cases not involving • Evaluate customers’ experiences. (Product/
warranties to arbitration. Arbitration is an Service Management)
expensive process in which an agreed-upon
Go to the DECA web site for more detailed
third party hands down a decision that must
information.
be adhered to by the disputing parties. This
strategy is very unpopular with home buyers
because they have less money to spend on Think Critically
the legal process than large home builders. 1. Why should a home builder conduct follow-up
There has been an alarming increase with customers?
in the number of complaints filed by Solid 2. What is the problem that a company faces
Trust Home customers. Your company has a with one unhappy customer?
successful track record of defending itself in
3. What may be the public’s view of a company
these cases because it has great attorneys
that has the finest lawyers to defend it?
and insurance to cover court costs. However,
unhappy customers are now picketing at your 4. Should Solid Trust Homes consider develop-
large home design centers, using billboards ing a Consumer’s Bill of Rights or Customer
PHOTOS: © DECA INC.
to publicize complaints about the quality of Satisfaction Pledge? Why?

work, and reporting problems with your new
homes to the media. Solid Trust Homes has
S
called upon you to help stop the unfavorable w w w. d e c a . o r g N
33
1-1 • What Is Marketing?
DECA Prep 33
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Chapter 2
Socially Responsive
Marketing
2-1 The Impact of Marketing
2-2 Criticisms of Marketing
2-3 Increasing Social
Responsibility
Newsline )))
Heeling Safely
In 2006, Heelys—the sneakers with have not caused large numbers of manner, and NEVER WITHOUT full
wheels in the heels—became must- hospital-treated injuries. But as their protective gear.”
have items for millions of American popularity grows, so does the fear In addition, Heelys commis-
kids. Almost 6.2 million pairs were that injuries will increase. “If sales sioned an independent consultant
sold that year, more than five times are booming,” says Dr. Steven Krug, to study the safety of its products.
the number sold in 2005. With a pediatrician at Chicago Children’s The study found that wheeled shoes
Heelys, wearers pop a wheel into the Memorial Hospital, “we will see more have a lower injury rate than nearly
heel, transforming the sneaker into injuries. The injuries that we fear all other popular sports. Still, parents
a skate and allowing them to roll or most are head injuries.” need to be aware of the possible
glide just about anywhere. Aware of the potential for dangers. Kids need to heed Heelys’
But not everyone loves Heelys. injury, Heelys packages its shoes advice and wear protective gear
Citing safety concerns, many schools with a number of safety warnings. whenever they wear the shoes.
have prohibited students from wear- Visitors to Heelys’ web site must
ing them on school property. Reports read and accept a warning before Think Critically
of broken bones and run-ins with cars they can watch any of the videos 1. Who is responsible if a child is
have become common. A number demonstrating the shoes. The site injured while wearing Heelys—
of shopping malls have also banned includes a list of Frequently Asked the manufacturer, the retail
the sneakers, claiming they damage Questions about safety gear as store, the parents, or all of them?
flooring. They also fear lawsuits from well as a disclaimer that states, “We
injuries sustained from their use. always recommend that anyone 2. Do you think Heelys is being
To date, information submit- who attempts to use HEELYS in any socially responsible by includ-
ted to the Consumer Product Safety capacity should ALWAYS wear full ing safety warnings with the
Commission from participating protective gear, including: helmets, shoes and on its web site, or is
emergency rooms does not seem wrist, elbow, and knee pads. . . . the company just looking out
to bear out those worries. Heelys NEVER use HEELYS in an unsafe for its own interests? Explain.
CH 02-B4491_PB1_REV2.indd 34 12/4/07 7:27:17 PM


• Understand the nature of business to show its • Explain the role of business in society
contributions to society • Explain the nature of trade regulations
• Acquire knowledge of commerce laws and regula- • Describe the impact of anti-trust legislation
tions to continue business operations
• Demonstrate honesty and integrity
• Apply ethics to demonstrate trustworthiness
• Explain the need for professional and ethical stan-
• Acquire foundational knowledge of business laws dards in marketing
and regulations to understand their nature and
• Describe the use of business ethics in marketing
scope
Visual Focus
Marketing affects businesses, people, and
society as a whole. If misused, marketing can
have a negative impact. Because of this, there
are some criticisms of marketing. Marketers
must recognize the responsibility that goes
along with their marketing efforts. Not only
should marketers work to meet the needs
of individual consumers, but they must also
be responsive to the needs of society. Work-
ing under a code of ethics to increase public
awareness and consumer safety will help
combat the criticisms of marketing.
Focus Questions:
What message is being communicated by
Waste Management in this advertisement?
Do you think the message is effective? How
©WASTE MANAGEMENT
does it demonstrate social responsibility? Find

another example of marketing that demon-
strates social responsibility to consumers or
society as a whole and discuss it in class.
CH 02-B4491_PB1_REV2.indd 35 12/4/07 7:28:54 PM

2-1 The Impact of Marketing
GOALS KEY TERMS
• Explain how marketing affects businesses. international trade, p. 40
• Describe marketing’s impact on individuals.
• Discuss ways marketing benefits society.
There are a number of factors that go into making a purchasing decision. “Is the
price right?” “Is the product what I need?” “Will the product perform as expected?”
“Is there a guarantee or warranty in case it is defective?” People ask themselves
these and many other questions when making most purchasing decisions.
Work with a group. Have each person in the group name a product he or she
has purchased recently. Then list all the important questions that went into making
the purchasing decision. Do the questions differ from product to product? Are there
certain questions that were the same or similar for all or most of the products? What
did the manufacturers and retailers do to help you answer these questions? Summa-
rize your results and share them with the other groups.
Marketing Affects Businesses

arketing helps businesses find cus- always understood marketing and used
M tomers and sell their products and

services profitably. Many people
question the value of marketing. Some
it effectively, they could not have existed
without it. Marketing is responsible for
the activities leading to the exchange of
people believe it adds to the cost of prod- a business’s products and services for the
ucts. Others believe it encourages people to customer’s money. Distribution, financing,
buy things they really do not want or need. promotion, and the other marketing func-
Still others suggest that if businesses pro- tions are needed to make the exchange
duce quality products and services, there is possible.
no need for marketing. Businesses that use the marketing
It is important to determine if market- concept benefit even more from market-
ing plays a positive or a negative role. What ing. In those businesses, marketing is used
does marketing contribute to businesses, to identify and understand customers.
individuals, and society? If there are prob- Through the use of market research and
lems with marketing, what can be done to marketing information systems, the busi-
eliminate them? ness is able to determine customer needs,
attitudes, likes, and dislikes. Then the busi-
Critical Business Function ness can carefully develop products and
S Marketing is an important business func- services that meet the needs of the
N tion. Even though businesses have not customers and earn a profit.
36
36 CHAPTER 2 • Socially Responsive Marketing
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Customer Satisfaction terms of styles and prices before purchas-
Marketing helps a business satisfy cus- ing new items to sell. When customers’
tomer wants and needs. Manufacturers wants and needs are met, they are more
developing a new brand of laundry deter- likely to be loyal and continue to purchase
gent will make better decisions if they are from the business. So, effective marketing
aware of what consumers like and dislike is important to the success of businesses.
about the current brand. Marketing also
helps the business make better decisions Checkpoint
about what to sell and how to sell it. The
manager of a clothing store will want to Why do businesses that use the marketing
know what consumers are expecting in concept benefit more from marketing?
Marketing Helps People

ndividuals benefit from marketing
I because it improves the exchanges that

occur between businesses and con-
sumers. While many people do not easily
recognize the benefits of marketing, there
are numerous examples of its value.
Consider going to a supermarket to
purchase party supplies. You want the
store to be conveniently located. It should
stock an adequate supply of your favorite
brands of decorations, drinks, and
snacks. When you get into the store, the
products should be easy to locate. The
prices should be clearly marked and af-
fordable. Store employees should be able
to answer your questions and help you
check out and bag your purchases. The
©DEL LABORATORIES, INC.

store should offer convenient methods of
payment, including cash, check, and credit
or debit card.
Each of the activities described for the
purchase of your party supplies is an ex-
ample of marketing. Those activities make
it easier for you to shop. The business ben- Parents are attracted to products that respond to
efits because you purchase the products. children’s health concerns.
You benefit because the business is able to
on this information, improvements are
satisfy your needs.
made to products and services, and new
products are developed. As a result of
Better Products at marketing activities, more products are
a Lower Cost available to satisfy the needs of more
Marketing provides other benefits to indi- customers. This results in higher sales.
viduals that may not be as obvious. Mar- The increase in sales allows businesses
keting continually evaluates consumers’ to produce products more efficiently, S
likes and dislikes and unmet needs. Based and costs can decline. N
37
2-1 • The Impact of Marketing 37
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The first personal computers were very
basic and not very powerful, but they cost Fa s t FAC T S
several thousand dollars. Today’s personal
computers are hundreds of times more According to Job Outlook 2007, Mar-
powerful, have many features to make keting/Marketing Management is one
them easy to use, and can be purchased for of the top 10 degrees at the bachelor’s
less than $500. This is possible because of degree level in demand by employers.
improved technology and marketing.
Expanded Opportunities accomplish a number of your goals. Mar-

Another contribution of marketing to keting skills can help you get elected to
individuals is the large number of employ- an office in a club, prepare for a job or for
ment opportunities. Between one-fourth college, plan a fundraising activity for an
and one-third of all jobs in the United organization, or start your own business.
States are marketing jobs or have market- As a result of marketing, people can
ing as a major job responsibility. Sales- choose from a wide variety of products
people, customer service representatives, and services, find businesses that respond
warehouse managers, inventory specialists, to their needs, have access to good jobs,
marketing researchers, and many others and develop skills that can help meet per-
have interesting, financially rewarding sonal goals.
careers because of the need for marketing.
Marketing skills are also valuable Checkpoint
to people who are not directly employed
in the field of marketing. By understand- What percentage of jobs in the United
ing the marketing process and using the States involves the performance of market-
marketing concept, you will be able to ing activities as a major job responsibility?
Marketing Benefits Society

oes society benefit because of market-
D
FIGURE 2-1
ing? This question often is debated, All of the benefits of marketing are not obvi-
but the evidence seems to indicate ous. However, those benefits are important to
there are many positive effects of market- consumers, businesses, and society.
ing for society, as shown in Figure 2-1.
Benefits of Marketing
New and Better Products • Businesses meet consumer needs
Marketing helps to identify • Consumers make better decisions
and develop new and better
products and services for • Natural resources are used more effectively
consumers. Many of those • Standard of living is improved
products and services are
beneficial to society in general. • International trade increases
More efficient automobiles use less
gasoline and cause less pollution. Bio- number and severity of injuries from ac-
degradable products reduce the grow- cidents. All of these products were devel-
S ing need for landfill space. Products like oped to meet the needs of consumers and
N airbags and motorcycle helmets reduce the society.
38
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Digital Digest
Feedback for Sale their own products, services, and marketing
When marketers want quick feedback or ad- efforts as well as those of their competi-
ditional research to supplement their data, tors. These Internet services can be quicker
they can turn to several Internet services. and more cost-effective in collecting data
Many retail web sites such as Amazon.com because they actively seek out consumers
and cnet.com allow consumers to review eager to review products and because they
products. Other web sites such as collect data on millions of products from
planetfeedback.com, American Consumer consumers around the globe.
Opinion (acop.com), and Epinions.com were Think Critically
created to give consumers a chance to voice
1. What kinds of useful information could a
their opinions about products and services.
company obtain from data compiled by
These feedback services, in turn, are
an Internet feedback service?
building databases that can complement
companies’ own marketing research. The 2. Why might dissatisfied customers vent
web sites make money by selling the their frustrations through an Internet
customer data they collect to businesses. feedback service rather than writing or
The data can give businesses insight into calling a company directly themselves?
Marketing encourages businesses to Better Standards of Living

provide products and services that con- Marketing improves the
sumers want. It also helps educate con- standard of living in a
sumers to make better purchasing deci- country. The standard
sions. As a result, natural resources and of living is based on the
raw materials can be used more efficiently products and services
rather than being wasted on products con- available to consumers, the
sumers will not buy. amount of resources
consumers have to
obtain the products
and services, and the
quality of life
for consumers.
Countries that have
well-developed
marketing systems
are able to make
more and better
products available
to consumers. Those
countries also have
more jobs for their
citizens and higher
wage scales as a
result of marketing.
Marketing helps improve our standard of living. How is this demon- S
strated at your local supermarket? N
39
2-1 • The Impact of Marketing 39
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Improved International Trade determine where products can be sold and
Marketing has been particularly effec- how to sell them in countries that may
tive in improving international trade. have very different business procedures,
International trade is the sale of products
money systems, and buying practices.
and services to people in other countries. Methods of shipping and product handling
International trade has many benefits for must be identified or developed. Decisions
the participating countries and for the about customer service must be made.
consumers in those countries. Think of Promotional methods that are appropriate
the number of products you buy that were for the people in each country or region
produced in another country. Just as the have to be developed to ensure that cus-
United States is a large consumer of foreign tomers understand the products and their
products, many U.S. businesses sell prod- benefits.
ucts internationally. Without marketing,
international trade would not be possible. Checkpoint
Marketing activities are essential for
international trade. Marketers help to How does marketing help the environment?

Determine the best answer. 4. Visual Art Select a business from which you
1. All of the following tend to occur when the purchase products or services. Create a graphic
marketing concept is used effectively except or other visual representation showing how
a. customer satisfaction increases marketing affects this business.
b. sales go up 5. Consumer Economics Marketing is said to
c. prices go up improve exchanges between businesses and
d. costs are reduced consumers. Make a list of at least five products
2. All of the following are examples of market- or services that you buy or use. Describe how
ing jobs except marketing has improved the exchange process
a. web site designer for each of these products or services. Organize
b. sales representative this information in a spreadsheet.
c. public relations specialist
Connect to
d. all of the above are marketing jobs
6. You work for a food processing company that
3. The effects of marketing on society include all
is considering selling its product globally. The
of the following except
owner has no experience marketing products
a. better products
internationally and has asked for your advice.
b. decrease in international trade
Prepare a two-minute presentation on how
c. more jobs
international trade can benefit the business.
d. improvements to the environment
Include two specific ways that marketing
can support the company’s efforts. Give your
speech to your teacher (judge).
S
N
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Criticisms of Marketing 2-2
GOALS KEY TERMS
• Discuss three common criticisms of green (environmental)
marketing. marketing, p. 44
• Explain how marketing can be used to
solve social problems.
The activities associated with marketing can sometimes cause customers and other
people to get upset. Marketing has been accused of creating a false need for
unnecessary products. Some people feel that marketing is a waste of money and
only serves to increase the price customers pay. Others claim that high-quality
products do not need any marketing because the products will sell themselves.
Work with a group. Discuss each of these complaints and reasons why they are
valid. Then try to come up with reasons why these criticisms are wrong. Share your
results with the other groups.
Common Complaints
t would be easy to say that marketing are often
I has only positive results. That is not

always the case. If not used appropri-
ately, marketing can have negative effects.
available for
expensive
products to
The misuse of marketing has led to some make them
criticisms and has created a negative image seem more
for some marketing activities. Business affordable.
people must take criticisms of marketing Marketing
seriously. If consumers have a negative activities and
©DIGITAL VISION
opinion about an important part of a busi- the power of
ness, it can affect whether or not they will promotion
be customers. can increase
the sales of Do you think credit cards are a positive out-
Marketing Causes products and come of marketing? Why or why not?
Unneeded Purchases services.
Businesses using the marketing concept
Because of marketing, consumers have should carefully consider the potential im-
many choices of products to purchase. pact of marketing activities on consumers.
Those products are readily available in While it might seem appropriate to use
many stores. They are displayed in ways any tool that will result in more sales of a
that make them easy to purchase, and they product, the long-term results of the sale
are packaged to attract attention. Advertis- should also be considered. If a customer
ing is used extensively to encourage people buys a product because of marketing rather
to consider specific brands of products. than because the product is really needed, S
Credit and special financing arrangements N
41
2-2 • Criticisms of Marketing 41
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World View
Borders Can Be Barriers The United States, on the other hand, has
International borders can create challenges no formal barriers to entertainment imports.
for companies marketing products overseas. However, foreign films, especially foreign-
Marketers must overcome cultural differ- language films with subtitles, typically only
ences. Many countries also protect their play in small theaters and enjoy modest
local industries by regulating the number of success here. A foreign-made show occasion-
foreign imports or by enacting high tariffs to ally crosses cultural barriers and finds success
make it easier for local businesses to com- in the United States. Teletubbies, a children’s
pete with international companies. program produced in the U.K., has been a
It is particularly common for news and en- smash hit here. But more often, U.S. studios
tertainment media to be regulated in foreign will remake a foreign hit to be more relevant
countries. Because most film markets cannot to American audiences, as they did with the
compete with the high budgets and marketing British television comedy, The Office.
power of Hollywood studios, foreign govern- Think Critically
ments sometimes require that a certain per-
1. Why do you think foreign-language
centage of films shown be locally produced. movies with English subtitles are not
France is particularly protective of its film and often successful in the United States?
television industries, and the European Union
2. How have the development of the Inter-
tries to reserve at least half of its television
net and the growth of cable TV helped to
programming for shows made in Europe. break down cultural barriers?
there is a good chance the customer will be carefully matched to customers’ needs.
dissatisfied. How many times have you pur- Products that do not sell should be evalu-
chased something and then quickly decided ated to determine why customers do not
you really did not want or need the item? want them. In that way, the business can
What actions did you take? make better planning decisions in the fu-
Many consumers simply return the ture in order to offer products and services
item for a refund. The business has now that customers want.
lost the sale, and it also has a product that Marketing should start with good prod-
is worth much less than before and perhaps ucts. If a product is not meeting customer
cannot be resold. Even if the consumers do needs, business people should avoid using
not return the products, they are marketing strategies such as promotion
likely to be dissatisfied. Do you
believe the consumers will buy that
product again? The business is left Wo r k i n g i n Te a m s
with returned merchandise, a dis-
satisfied customer, and possibly a Working with a team, select a product and list
bad reputation among the customer’s all of the marketing activities that must occur
friends. to accommodate the exchange between the
To respond to this criticism, busi- business and the customer. Outline how the
ness people must be sensitive to the exchange would work without marketing. As a
S needs and experiences of customers. team, discuss why marketing is needed.
N Products and services should be
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and price reductions to try to sell the prod- Marketing Is Not
uct. This will often lead to dissatisfaction Always Needed
with both the product and the business.
Finally, the business must value long- There are many examples of businesses
term relationships with customers. One that rely on marketing to sell poor-quality
sale is not enough. The business will be products. Think of the used automobile
successful only when customers return with many mechanical problems that is
repeatedly because they are satisfied with sold because the salesperson convinced the
the business and believe the business is unsuspecting customer that the car is in
concerned about their needs. good condition. There are numerous tales
of unsuspecting people buying land based
on information in a brochure or video-
Marketing Wastes Money tape only to discover that the land is in a
As seen in Figure 2-2, the average cost of swamp or on the side of a steep mountain.
all marketing activities is about 50 percent Marketing is misused in those situations to
of the price of products. For some products misrepresent poor products.
it is much higher, and for others, it is a On the other hand, consider whether
very small percentage. Since many people or not a high-quality product needs mar-
think of marketing as only advertising and keting. Without marketing, it would be
selling, they are upset when they believe the responsibility of the consumer to find
those activities double the price of their out that the product exists and to gather
purchases. information about it. The consumer would
In reality, promotion and selling are a have to locate the product, pay cash for it,
small part of the cost of marketing— and transport it from where it was manu-
typically about 2 to 10 percent of the factured to where it would be used. The
product’s price—and effective promotion customer would assume all of the risk in
and selling do increase the value to the moving the product. If it was damaged, the
customer. Advertising can provide product customer would be responsible.
information so that you can make the best These examples show that marketing
choice. It can inform you where a product is important even for quality products and
can be purchased and when it is on sale.
Advertising can even result in savings
because of the information provided. A
salesperson who helps you select the best The Typical Costs of Marketing
product for your needs rather than sells Total
you something you do not want helps you product
spend your money more effectively. price
Economists who study the impact of (100%)
Product Price
marketing activities on product prices

have demonstrated that marketing actu- Average
ally results in lower prices in the long run. cost of all
Because of marketing, products can be marketing
sold to more customers. This, in turn, cre- Average cost activities
ates more competition among businesses. of sales and (50%)
When consumers have more choices of advertising
(2–10%)
products, they will usually buy those that
are reasonably priced. That encourages
businesses to keep prices as low as possible FIGURE 2-2
to be competitive. According to the econo- On average, total marketing expenses are about one-half of
mists, increased sales volume and competi- a product’s price, while sales and advertising costs average S
tion result in lower prices for consumers. about 2 to 10 percent of the price. N
43
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services. Marketing activities must be
performed in every exchange. If the busi- Checkpoint
ness is not responsible for marketing, con-
Why is a business that is committed to long-
sumers will have to complete the activities
term customer relationships less likely to
themselves in order to purchase the
use high-pressure sales tactics?
product or service.
Marketing Solves Problems

arketing, if misused, can have
M negative results. However, when

it is used effectively, marketing
can help to solve important problems
and contribute to social improvement.
Marketing Increases
Public Awareness
There are many seri-
ous problems facing
our society. Concerns
about health care, crime
levels, poverty, diseases,
racism, education, unemployment,
drug use, teenage pregnancy, and the
©BP NORTH AMERICA/OGILVY & MATHER

environment all require the attention
of many people if solutions are to be
found. Marketing contributes to the
solutions in several ways. Through
communication, people are more
aware of societal problems and how
they affect individuals and the coun-
try. Consider the number of times you
have received information on using
seat belts, recycling, the dangers of Today, energy companies must work to demon-
drugs and alcohol, and reasons to stay strate their commitment to a clean environment.
in school. Marketers have been respon-
sible for developing the advertisements much attention because of effective
and public service announcements you marketing.
have seen. Many businesses now promote
Marketing has encouraged people to the use of green marketing. Green
eat low-cholesterol products, quit smok- (environmental) marketing consists of
ing, contribute money to charity and relief marketing activities designed to satisfy
organizations, and support research into customer needs without negatively impact-
cures for diseases like AIDS and cancer. ing the environment. Businesses promote
Marketing has encouraged people to vote the importance of environmentally
S and to avoid drinking and driving. Many friendly products and encourage con-
N important social issues are now receiving sumers to purchase such products.
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Planning a Career in... Community Relations
“The fire engines that roared down our street last

night woke up half the neighborhood. Our teen-
age neighbor had forgotten to extinguish a
candle before going to bed. The smoke de-
tector woke up the family. Their nine-year-
old was a hero because he had reminded
his parents to change the smoke detector • A perpetual ability to stay abreast of current
batteries when the time changed.” trends in your industry is required.
Did you ever experience
a positive outcome because What’s it like to work in…
you prepared for a poten- Community Relations
tially harmful event?
Jada arrives at her office at 9:00 A.M. As the Cus-
Public awareness cam-
tomer Communications Manager for her publicly
paigns reach out to commu-
funded city bus system, she will spend the next
nities to improve the quality
hour reviewing the print and radio “Ride the Bus”
of life within the community.
ad campaigns that will run for the rest of the sum-
Whether it is informing people
mer. Reminding commuters how they can help
about Lyme disease or remind-
reduce smog by riding the bus is an effective way
ing people to have cancer
to both increase ridership and minimize smog.
screening check-ups, these
After lunch, Jada gives a presentation on the
campaigns increase awareness on a number of
city’s new “fare assistance” program to representa-
vital issues.
tives from various social service agencies. Jada
Employment Outlook needs to inform the elderly, low-income city resi-
dents, and students about “fare assistance.” The
• Although faster than average growth is expect- presentation feedback provided by the agency
ed, actual job opportunities will vary by industry.
representatives will help her accomplish that goal.
• Related work experience and state-of-the-art The bus system strives to provide economical
Internet skills will increase a job candidate’s transportation to as many citizens as possible.
competitiveness. At 4:00 P.M., representatives from a local ad-
vertising agency meet with Jada and her team to
Job Titles review the new posters designed to increase rider-
• Community Outreach Coordinator ship. Featuring endorsements of riders from all
• Public Relations Officer walks of life, the posters are intended to increase
ridership throughout the community.
• Community Relations Liaison
• Director of Media
• Social Service and Outreach Manager

• Programs Specialist W h a t A b o u t Yo u
• Cancer Society Community Relations
What issues do you believe are important to a
Needed Skills community‘s well-being, and how would you
• A bachelor’s degree is usually required. promote those ideas if you worked in community
relations?
• Excellent written and oral communication skills S
are helpful. N
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Marketing Helps Match Oil products and gasoline can be dis-
Supply with Demand tributed throughout the country using an
extensive network of pipelines. If a greater
Products and services supply of natural gas or heating oil is
are not always available needed in the North during an especially
where consumers most cold winter, it can be routed away from ar-
need them. For example, eas that have less demand. Marketing helps
if there is a drought in to prevent or reduce the impact of prob-
one part of the country, lems that could otherwise result in serious
farmers and ranchers in that area may not outcomes for society.
have enough hay and grain to feed their
livestock. At the same time, there might be
an excess supply in other areas. An effec- Checkpoint
tive distribution system can move the hay
and grain quickly from one part of the If a heat wave in the West is causing electri-
country to another, matching supply and cal outages, how can marketing help allevi-
demand. ate the problem?

Determine the best answer. 5. Social Studies Marketing is responsible for
1. On average, marketing costs represent what many successful public awareness campaigns,
percentage of the price that a consumer pays such as Don’t Drink and Drive, Buckle Up, and
for a product? Just Say No. Think of a problem that is prevalent
a. 2% in society today. Create a poster or some other
b. 10% visual aid that would contribute to a public
c. 50% awareness campaign for the problem.
d. 75% 6. Economics Explain the effects of marketing
2. True or False: Marketing activities result in on the following business practices:
lower product prices in the long run. • Competition
• Pricing
3. Complaints about marketing include all of the
• Supply and demand
following except
a. Marketing leads to unneeded purchases. Connect to
b. Marketing creates an imbalance in supply
7. You are a marketer working in the farming in-
and demand.
dustry. Cranberry growers in your state are suf-
c. Marketing is a waste of money.
fering from an oversupply of cranberries. This is
d. Marketing is not necessary for all products.
forcing them to slash prices and is threatening
4. Effective uses for marketing include to put them out of business. Develop a two-
a. contributing to social improvement page written plan that outlines three specific
b. matching supply with demand ways marketing can help balance the supply
c. selling products that do not meet con- and demand of cranberries. Present your plan
sumers’ needs to your teacher (judge).
S d. both a and b
N
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Increasing Social Responsibility 2-3
GOALS KEY TERMS
• Define consumerism. social responsibility, p. 47 code of ethics, p. 50
• Explain ways by which businesses consumerism, p. 48 self-regulation, p. 50
improve their own practices. boycott, p. 48
• Discuss how ethical issues affect market- ethics, p. 50
ers’ professional responsibilities.
Most consumers have at one time purchased a product that did not live up to their
expectations. A shirt didn’t fit right. A household cleanser didn’t remove dirt well. A
potted plant wilted and died in just a week. A new hairstyle didn’t look very good.
Work with a group. Describe an occasion when a product or service you pur-
chased didn’t live up to your expectations. How did you handle the situation? Were
you satisfied with the outcome? Would you have handled another group member’s
situation differently than he or she did? Share a summary of your discussion with the
other groups.
Consumer Protection
arketers cannot
Mthink only about

selling products and
making a profit. They must
be aware of other effects of
their activities. Marketing can have both
positive and negative results. Marketers
must be willing to pay attention to soci-
ety’s needs to determine how businesses
can address those needs.
The trend today is a greater ex-
pectation for businesses to be socially
responsible and to aid in solving the
problems facing society. Concern about
the consequences of actions on others is How is a store that uses recycled bags being socially
social responsibility. When making deci- responsible?
sions, business people realize that they
must consider factors beyond what their Increasing the social responsibility
customers want and what is most profit- of businesses is occurring in three major
able for the business. Most business people ways. The growth of consumerism, govern-
recognize that their businesses cannot be ment regulation, and improving business
successful in the long run if society is fac- practices are each playing a role, as shown S
ing major problems. in Figure 2-3 on the next page. N
47
2-3 • Increasing Social Responsibility 47
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The Growth of
Consumerism Social Responsibility Must Be Shared
Consumerism is the organized RG
actions of groups of consumers S UME ROUP
seeking to increase their influence N
CO
S
on business practices. Consum-
ers as individuals can have only a
G OV
small influence on the activities of a S S ER
business. However, when organized
E
IN
NM
as a group, consumers have a much
BUS
ENT
greater impact. They can speak out
and meet with business people to
recommend changes. They can also
use the money they spend on pur-
chases to influence decisions.
While consumers have always
attempted to influence business
practices, consumerism became an
important influence on business FIGURE 2-3
practices in the 1960s when Presi- Consumer groups, government, and business organiza-
dent John F. Kennedy presented tions all must play a role in improving society.
the Consumer Bill of Rights. The
Consumer Bill of Rights identified purchase. Consumer lobbyists work with
four rights that all consumers should national and state legislators to develop
expect: the right to adequate and accurate laws to protect consumer rights. Some
information, the right to safe products, the important consumer laws are described in
right to product choices, and the right to Figure 2-4 on the next page.
communicate their ideas and opinions to Finally, consumers have found that
business and government. they can influence business practices by
As a result of the attention focused the way they spend their money, their
on those rights, consumers have become consumer votes. If a group of consumers
very active in ensuring that their rights are is dissatisfied with the actions or products
protected. Some ways used to protect con- of a business, they can organize a boycott.
sumer rights are consumer education, con- A boycott is an organized effort to influ-
sumer information, lobbying, and prod- ence a company by refusing to purchase its
uct boycotts. Consumer groups develop products. Consumer groups also reinforce
materials and educational programs to be positive business practices by encouraging
used in schools and in other places to help their members to purchase products from
people become better informed consumers. businesses that respond to consumer needs.
You may have used some of those materi-
als to learn how to use banking services,
purchase insurance, and apply for loans.
There are a number of consumer orga- Fa s t FAC T S
nizations that test products to determine The term boycott originated in 1880. It
whether they are safe and whether they was named after Captain Charles Cun-
provide a good value for the price. The ningham Boycott. As an English land-
organizations often publish the results in lord in Ireland, he ruthlessly evicted his
books, magazines, and on the Internet or tenants, leading his employees to refuse
S have a telephone service so people can call all cooperation with him.
N for product information before making a
48
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FIGURE 2-4
Federal legislation is one method of increasing the social responsibility of businesses.
Consumer Laws
Legislation Purpose
Sherman Antitrust Act, 1890 To increase competition among businesses by regulat-
ing monopolies
Food and Drug Act, 1906 To control the content and labeling of food and drug
products by forming the Food and Drug Administration
(FDA)
Federal Trade Commission Act, 1914 To form the Federal Trade Commission (FTC) to protect
consumer rights
Robinson-Patman Act, 1936 To protect small businesses from unfair pricing prac-
tices between manufacturers and large businesses
Fair Packaging and Labeling Act, 1966 To require packages to be accurately labeled and fairly
represent the contents
Consumer Credit Protection Act, 1968 To require disclosure of credit requirements and rates
to loan applicants
Consumer Product Safety Act, 1972 To set safety standards and to form the Consumer Prod-
uct Safety Commission (CPSC)
Americans with Disabilities Act, 1990 To prohibit discrimination and ensure equal opportu-
nity for persons with disabilities
Telemarketing and Consumer Fraud and To prohibit deceptive telemarketing practices and
Abuse Prevention Act, 1994 regulate calls made to consumers’ homes
Millennium Digital Commerce Act, 1999 To regulate the use of electronic contracts and signa-
tures for Internet business transactions
Gramm-Leach-Bliley Financial To limit the sharing of consumer information by requir-
Modernization Act, 1999 ing financial services companies to inform consumers
about how private information is handled
Government Regulation protection laws or risk fines and a loss of

The United States government plays an ac- business.
tive role in business practices. The welfare
of consumers is at the core of many of the Checkpoint
laws and regulations enacted by govern-
ment. These laws are designed to improve What federal law is intended to protect con-
the social impact of business practices. sumers by requiring that packages be accu-
Businesses must comply with consumer rately labeled and contents fairly disclosed?
Improving Practices
ost businesses recognize their soon stop buying the company’s prod-
M responsibility to consumers and to

society. If consumers are dissatis-
fied with the business’s practices, they will
ucts. If social problems exist, the govern-
ment may increase regulation of business
or increase taxes to pay for programs N
S
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designed to solve the problems. Businesses Many businesses have consumer
do not want increased regulation or taxes. service departments that work to solve
Individual businesses and business or- consumer problems and to provide con-
ganizations are working to improve busi- sumers with information about the
ness practices in several ways. Those ways company and its products. The Butterball
include codes of ethics, self-regulation, and Turkey Talk-Line has been in operation
social action. for 25 years. It is open through the months
of November and December to answer
Codes of Ethics consumers’ questions about how to pre-
pare a Butterball turkey for their holiday
Ethics are moral principles or values based
meals.
on honesty and fairness. A code of ethics is Some industries, such as homebuilders,
a set of standards or rules that guide ethical developed procedures for consumers to use
business behavior. A code of ethics encour-
ages honest and proper conduct. Business
people recognize that the inappropriate FIGURE 2-5
or illegal behavior of one company can Organizations and industries often develop a code of eth-
have a very negative effect on the whole ics to promote honest and proper standards of conduct.
industry. They attempt to influence that
behavior by agreeing on standards of Responsibilities of the Marketer
conduct. By agreeing to a code of ethics, In Product Development and Management
business people encourage responsible
behavior. In some groups, the codes of • disclosing all substantial risks associated with a prod-
uct or service
ethics are enforced by penalties estab-
lished by the industry that are applied • identifying substitutions that change the product or
to businesses that violate the standards. impact buying decisions
The American Marketing Association • identifying extra cost-added features
(AMA) Code of Ethics describes specific In Promotions
responsibilities for marketers in the areas
of product planning, promotion, pricing, • avoiding false and misleading advertising
distribution, and marketing research. A • rejecting high-pressure or misleading sales tactics and
portion of the AMA’s Code of Ethics is promotions
summarized in Figure 2-5. In Distribution
• not exploiting customers by manipulating the avail-
Self-Regulation ability of a product
Individual businesses and groups of • not using coercion
businesses in the same industry have • not exerting undue influence over the reseller’s choice
developed procedures to respond to to handle a product
consumer problems and to encourage
customers to work directly with the busi- In Pricing
nesses to solve problems. Taking per- • not engaging in price fixing
sonal responsibility for actions is known • not practicing predatory pricing
as self-regulation. The Better Business
• disclosing the full price associated with any purchase
Bureau is a consumer protection orga-
nization sponsored by businesses. The In Marketing Research
purpose of the Better Business Bureau is • prohibiting selling or fundraising disguised as con-
to gather information from consumers ducting research
about problems, provide information • avoiding misrepresentation and omission of pertinent
about improper business practices, and research data
S attempt to solve problems between busi-
• treating clients and suppliers fairly
N nesses and their customers.
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CH 02-B4491_PB1_REV2.indd 50 12/4/07 7:32:48 PM

to resolve problems. Problems that cannot
be resolved between the customer and
the business are referred to an independent
panel that can help determine a fair
solution. Marketers cannot think only about selling prod-
ucts and making a profit. They must be aware
of other effects of their activities. Access
Social Action school.cengage.com/marketing/marketing and
Business people are concerned about the click on the link for Chapter 2. Read the article
world in which they live. Many are active about Burger King. What socially responsible
in helping to solve some of society’s serious action is the company taking? Why do you
problems by investing time and money to think Burger King has made this decision?
help their communities. Recently, Micro-
soft and its employees reached a contribu-
tion milestone after donating more than
$2.5 billion in cash, services, and software
to nonprofit organizations around the
world. McDonald’s sponsors Ronald Mc- Checkpoint
Donald Houses for families with children
who are hospitalized with serious illnesses. What is a code of ethics?
Ethics in Marketing
ach day you can see many examples its people. Business ethics has received a
E of businesses that feel a social respon-

sibility to help their community and
great deal of attention recently. Most busi-
ness people behave ethically. However, the
Judgment Call
Should Marketers Target Kids? Because marketing to children is such
While monetary profit is a goal of marketers, a hotly contested topic, children’s advocacy
they must always consider what is ethical. watch groups and regulatory commissions
The question of marketing to children is such as the Children’s Advertising Regula-
one such ethical dilemma. Because children tory Unit (CARU) have been created to help
represent an increasing amount of purchase determine what is appropriate and to set
power, they are an alluring target for market- guidelines for marketers to follow when it
ers. But is it appropriate to target kids? comes to children.
This issue was debated in 2000 when the Think Critically
in-school television educational program
1. Why might people oppose advertiser-
Channel One was introduced in more than
supported TV in schools?
12,000 schools. Some people were appalled
to learn that Channel One would carry com- 2. Is there an ethical difference between TV
mercials. Channel One, however, argued ads for children at home and TV ads for
that the advertising income was funding the children in a program they are required S
whole program. to view in their schools? N
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actions of a few people can cause customers is best for the most people. Others believe
to wonder if ethical behavior is really an action is right or wrong based on how it
valued in business. will affect the people directly involved.
In 2007, ConAgra Foods recalled all
Responsibility to Customers varieties of its Peter Pan Peanut Butter
Marketers deal directly with customers. product because of a possible link to sal-
They ask customers to spend money for monella poisoning. Although initial prod-
products intended to satisfy needs and uct tests did not indicate the presence of
wants. Because of this relationship, mar- salmonella, ConAgra voluntarily recalled
keters have a special responsibility to be- the peanut butter and offered consumers
have ethically. People place a high value on a refund. ConAgra acted responsibly and
ethical business behavior. Business people ethically by making consumer health and
are expected to be honest and fair in deal- safety a priority. Upon further investiga-
ings with customers, employees, and other tion, ConAgra discovered that there was
businesses. salmonella contamination caused by water
Each marketer is responsible for ethical damage experienced during a flood at one
behavior. Decisions and actions should be of its plants. ConAgra closed the plant
evaluated to determine if they are honest to make renovations that would result in
and fair. Sometimes there will appear to be safer production processes.
conflicts in what is best for the business,
its employees, customers, competitors, and Harm and Accountability
society in general. Some people suggest In some cases, it may appear there is
that the decision should be based on what no real harm in unethical behavior. If
Figure This
Ethical Marketing Pays Off of $1,000 profit for every car they sell.
Not only is honest marketing the ethical thing Through the use of deceptive sales and
to do, but it makes business sense as well. Ide- pricing, Dealership A sells 100 cars in May.
ally, a company wants to build brand loyalty However, none of those 100 customers
and enter into long-term relationships with its ever buy from Dealership A again. Dealer-
customers. Loyal customers purchase repeat- ship B is honest with its customers but
edly from the same company. Over a lifetime, sells only 70 cars in May. However, 30 of
these purchases can really add up. And when those customers buy an average of three
customers are happy with a product or ser- more cars from Dealership B throughout
vice, they will recommend it to others. their lifetime. What is the difference in the
It may be tempting for a company to try monthly and long-term profit between
to increase sales through deceptive marketing Dealership A and Dealership B from those
that overstates the benefit of its product. This customers?
practice not only is unethical but also can be 2. Dealership B’s repeat customers also each
less profitable to the company in the long run. recommend Dealership B to six friends.
Fifty percent of those friends end up buy-
Think Critically ing a car from Dealership B. How much
1. Two car dealerships, Dealership A and profit does Dealership B make from this
S Dealership B, both make an average word-of-mouth promotion?
N
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dishonesty results in a customer buying of salespeople who sell them poor-quality
your product rather than your competi- or unneeded products or services. Finally,
tor’s, or if you can conceal a mistake you many unethical business practices are
made, you may believe that it does not illegal. People have been fined and impris-
matter. But marketers must remember that oned as a result of unethical actions.
their emphasis must be on what is best for Some businesses are developing educa-
everyone in an exchange. Marketers’ action programs and operating procedures to
tions affect many others, both inside and help employees understand how to make
outside the business. ethical decisions. They want to improve
In other cases, unethical behavior has the ethical image of all businesses and
negative consequences for individuals and ensure that customers believe they will be
businesses. Improper marketing can harm treated fairly.
customers. Society is hurt by businesses
that have no concern for the products and Checkpoint
services they sell or how or to whom they
are marketed. Senior citizens often fall Why do marketers have a special responsi-
prey to the unethical business practices bility for ethical behavior?

Determine the best answer. 5. Government Many consumer laws exist to
1. Which national elected leader proposed the protect consumer rights. Research one of these
Consumer Bill of Rights? laws. Write one paragraph describing the pur-
a. Jimmy Carter pose of the law and the history surrounding it.
b. Ronald Reagan 6. Ethics Although most businesses act ethically,
c. John F. Kennedy some do not. Search newspapers or the Inter-
d. none of the above net for recent stories about businesses that
2. Which of the following is not one of the four used unethical marketing tactics resulting in
basic rights enumerated in the Consumer Bill harm to consumers. Report about the unethi-
of Rights? cal activities in a one-page paper.
a. right to adequate and accurate infor-
Connect to
mation
b. right to fair prices 7. Your investor relations team works for a large
c. right to safe products public corporation that regularly makes sizable
d. right to product choices contributions to charity and relief efforts. The
annual shareholder meeting is coming up.
3. Marketing activities covered in the American
Some vocal shareholders have expressed a
Marketing Association’s code of ethics include
concern that the contributions are cutting into
a. promotions, pricing, and distribution
the corporation’s profits. Your team has been
b. promotions, distribution, and consu-
asked to prepare a three-minute presentation
merism
for the meeting to address the following ques-
c. product development, pricing, and self-
tion: If a corporation is supposed to maximize
regulation
its shareholders’ return on investment, how
d. none of the above
can it justify giving millions of dollars to social
4. True or False: The Better Business Bureau is a causes? Make your team presentation to your
consumer protection organization sponsored teacher (judge).
by consumer groups. S
N
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Now that you have completed the chapter, check list the ways that marketing benefits society?
your understanding of the lessons with these ques- describe three common criticisms of marketing?
tions. Record the score that best represents your
discuss how marketing can be used to solve
understanding of each marketing concept.
social problems and raise public awareness?
1 = not at all; 3 = somewhat; 5 = very well discuss how marketing helps match supply with
If your score is 42–50, you are ready for the assess- demand?
ment activities that follow. If you score 33–41, you describe ways consumer action and govern-
should review the lessons for the items you scored ment regulations are used to ensure businesses
1–3. If you score 32 or less, you will want to carefully respect consumer rights?
reread the lessons and work with a study partner on explain why businesses adopt codes of ethics?
the areas you do not understand.
provide examples of how a business can use self-
Can you— regulation to resolve customer problems?
list various ways that marketing affects explain why marketers have special ethical
businesses? responsibilities to customers?
identify how marketing affects individual
consumers?

Match the terms listed with the definitions.
1. The organized actions of groups of consumers
seeking to increase their influence on business a. boycott
practices
b. code of ethics
2. Taking personal responsibility for actions c. consumerism
3. An organized effort to influence a company by d. ethics
refusing to purchase its products e. green (environmental)
4. Concern about the consequences of actions on marketing
others f. international trade
5. Moral principles or values based on honesty and g. self-regulation
fairness h. social responsibility
6. A set of standards or rules that guide ethical
business behavior
7. Marketing activities designed to satisfy customer
needs without negatively impacting the
environment
8. The sale of products and services to people in
other countries
S
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9. True or False: When marketing is effective, prices 13. On average, the cost of
usually increase more than enough to cover the all marketing activities is
costs of marketing, so sellers make larger profits about __________ of the
per unit sold. price of a product.
10. Which of the following are involved in complet- 14. True or False: An important
ing marketing functions? social problem created by
a. manufacturers marketing is that it tends to result in the misuse
b. consumers and waste of raw materials and natural resources.
c. trucking companies 15. Transporting water to an area where there is a
d. all of the above severe drought is an example of
11. Effective marketing is used to encourage people a. self-regulation
to buy what kinds of things? b. consumerism
a. things they otherwise would not buy c. matching supply and demand
b. things they need or want d. public awareness
c. things that businesses cannot otherwise sell 16. True or False: Individual consumers acting alone
d. luxury items they cannot afford can usually be quite effective in influencing the
12. Marketing can be an effective tool in helping activities of businesses.
society solve some serious problems when it is 17. True or False: Federal laws to improve business
used by practices and protect consumers have been in
a. government existence only since 1960.
b. business 18. When a business practices environmentally
c. nonprofit groups friendly production processes, it is using
d. all of the above __________ marketing.

19. The four consumer products in the table below b. Assume that you planned to buy all four of
have undergone significant price decreases from the items. Calculate the total cost of the pur-
the time they were first sold until now. Those chases if all were purchased at the introduc-
price decreases occurred because of improved tory price. Now calculate the total cost if all
technology and effective marketing and resulted were purchased at the recent price. Calculate
in higher sales. The prices listed for each prod- the percentage savings to you if you were
uct are typical of the prices charged when the able to make all purchases at the recent price.
products were first introduced and more recent c. List four other products with large price
prices. decreases from the time they were first intro-
Introductory Recent duced until now.
Product Price Price 20. Review the business section in five issues of a
newspaper or five issues of a business magazine
Hand-held calculator $ 138 $ 16
(BusinessWeek, Fortune, or Money, for example).
Quartz watch 320 50 Identify all articles that relate to the social re-
Personal computer 2,800 599 sponsibility of businesses. For each article, deter-
mine (a) the primary issue involved; (b) whether
Microwave oven 860 110
the problem is being addressed by consumer
groups, government, businesses, or a combina-
a. For each product, find the price reduction and tion; and (c) the type of action being proposed
the percentage decrease from the introduc- to solve the problem. After you have collected S
tory price to the recent price. the information, summarize your findings in a N
55
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one-page written report. Before submission, c. A hospital cannot afford to admit patients
check the document for correct grammar, spell- who do not have health insurance.
ing, punctuation, and format. d. A market research organization asks a large
21. Using an Internet search engine and browser, number of personal questions during inter-
find the FedStats home page, which is a gateway views.
to statistics from more than 100 federal agen- 23. a. For each of the following criticisms of market-
cies. Select your state from the MapStats drop- ing, describe with specific examples why each
down menu, and then locate the most recent is not always accurate.
population statistics for your state and county.
Marketing causes people to purchase things
What percentage of your state’s total popula-
they otherwise would not buy.
tion resides in your county? Describe what other
kinds of information are available on this web Marketing adds to the cost of products with-
site. Identify several ways that marketers could out providing anything of value.
use the data provided by FedStats. Quality products and services do not need
22. The following statements describe marketing marketing.
activities that may result in a problem for soci- b. For each of the following positive results of
ety. For each statement, describe a problem that marketing, provide specific examples demon-
may result from the practice and one way that strating that those contributions do exist.
consumers, government, and businesses could Marketing increases public awareness of
respond. problems and solutions.
a. Fast-food restaurants use a large amount of Marketing helps match supply and demand to
packaging. solve serious problems.
b. Credit card companies use advertising to en-
courage people to use credit for more of their
purchases.

24. Work in small groups to prepare a code of ethics d. What do you believe is the most socially
for students and teachers. Pattern your code of responsible action? Why?
ethics after the example in the chapter or anoth- 26. Work with a partner to plan a fundraising cam-
er code of ethics you can locate. When you are paign in your school or community. The purpose
finished, share your group’s code of ethics with of the campaign may be to raise money for a
the other groups. Identify the areas of agreement school function, to fulfill a community need
and disagreement in the various codes of ethics. (such as cleaning up a local park), or to meet
Discuss how the students in the class could en- some other need. Consider how marketing can
force the code of ethics through self-regulation. be used throughout the campaign process. Ad-
25. Both the Newsline on Heelys sneakers and the dress questions such as:
Judgment Call discussing Channel One News • What product or service are you offering, and
in schools present situations in which business how will it satisfy needs?
people must decide how their decisions can be • How can market research help you develop a
socially responsible. Choose one and answer the successful campaign?
following questions: • What kind of promotions will you use?
a. What is the social responsibility issue • Do you need sponsors or investors to help
presented? finance the campaign?
b. Who is affected by the decisions of the Give an oral presentation using visual aids to your
business? How is each group affected? class describing the purpose of the fundraising
c. What is a possible action that can be taken by campaign. Communicate your marketing plans
a concerned consumer group, government,
S and the goals you want to accomplish.
or group of businesses? By the business
N involved?
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Apparel and Accessories
Marketing Series Event
In the fash- and five minutes to
ion industry, answer questions
what goes about your plan.
around comes You will meet in
around. the CEO’s office to
Today’s present your plan.
popular styles often are styles that were
popular 20 to 30 years ago. Performance
The manufacturer of a popular cotton Indicators
tennis shirt with a reptile emblem has made
an incredible comeback from its popularity 25 Evaluated
years ago. Twenty-five years ago, the well- • Defend your marketing
constructed cotton tennis shirt sold for $35 strategy objectively.
to $42. Retro clothing has made an incredible (Communication)
comeback, and now the reptile tennis shirt • Describe the concept of
commands a price ranging from $72 to $85. price. (Economics)
The popular reptile-emblem shirt can
• Explain the concept of
once again be seen on college campuses,
competition. (Economics)
on tennis courts, at social gatherings, and in
schools throughout the country. The shirt has • Explain the nature of
not really changed from 25 years ago, but in- international trade.
novative marketing, selective merchandising, (Economics)
and high demand from other countries have • Explain marketing and its
caused the price of the shirt to soar. Only the importance in a global economy.
top-end department stores and high-priced (Marketing)
specialty stores currently are allowed to sell
the retro tennis shirt. However, outlet stores Go to the DECA web site for more detailed
have also been selling the popular reptile ten- information.
nis shirt for only $60.
You have been asked by the CEO of the Think Critically
tennis shirt manufacturer to determine ad- 1. Why is it important to determine the target
ditional means to sell the very popular shirt market(s) for the shirt?
without lowering the price. You must describe 2. What types of stores are the best outlets for
how the advertisements in the United States the popular retro shirts?
will vary from the advertisements in Mexico,
where high-income individuals are purchas- 3. What can the shirt company do to show
ing many of the shirts from outlet malls. responsibility to society?
Your marketing strategy must describe 4. Why should the company consider selling the
the target market, the advertising campaign, shirts in other countries?
PHOTOS: ©DECA INC.
and the pricing strategy for the shirt manu-

facturer. You will have ten minutes to plan
S
your marketing strategy, ten minutes to pres- w w w. d e c a . o r g N
ent the strategy to the shirt company’s CEO,
57
2-1 • The Impact of DECA
Marketing
Prep 57
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Chapter 3
Marketing Begins
with Economics
3-1 Scarcity and Private
Enterprise
3-2 Observing the Law of
Supply and Demand
3-3 Types of Economic
Competition
3-4 Enhancing Economic
Utility
Newsline )))
Competition and Cable TV
In most areas of the United States, lines without first applying to However, phone company
cable television service providers local authorities for a franchise. supporters argue that opening
have traditionally operated as natu- Legislation that would allow the cable market will increase
ral monopolies. To provide service to telephone companies like AT&T competition and improve the
individual homes, a cable provider and Verizon to provide television quality of service television
must obtain special permission service is being debated in viewers receive from their
(called a franchise agreement) to California, Illinois, and many providers.
install cable lines along streets from other states. Not surprisingly,
the local government that owns the the cable television industry is Think Critically
streets. Although some communi- lobbying strongly against it. 1. Suppose telephone companies
ties are served by multiple cable Critics suggest that phone begin providing television
companies, almost all local govern- companies will “cherry-pick” service service in your state. How
ments issue franchise agreements to areas, choosing to operate only in do you think this would
only one provider. As a result, most higher-income communities and affect cable television prices?
Americans who want cable TV must leaving lower-income households Explain.
go to that one, single provider to get without similar choices. Others have
service. raised concerns about consumer 2. In addition to telephone com-
Now, telephone companies privacy and want assurances that panies, what other businesses
are trying to compete with cable telephone companies will not dis- are direct or indirect competi-
companies by offering customers close customer information to other tors to cable television service
programming through their phone businesses. providers?
CH 03-B4491-DS_REV2.indd 58 12/5/07 7:08:43 PM


• Understand the fundamental economic con- • Distinguish between economic goods and services
cepts to obtain a foundation for employment in • Explain the concept of economic resources
business
• Describe the concepts of economics and economic
• Understand economic systems to be able to rec- activities
ognize environments in which businesses function
• Determine economic utilities created by business
• Explain the types of economic systems activities
• Explain the concept of competition
Visual Focus
An understanding of the economy is essential
in order to make effective marketing decisions.
Marketers know that economic factors have
Investments and services are offered through Morgan Stanley & Co. Incorporated, member SIPC. © 2007 Morgan Stanley.
an effect on marketing planning. This chapter

introduces you to the basic economic problem
of scarcity and describes how different eco-
nomic systems make decisions regarding this
problem. It also discusses the effect of the laws
of supply and demand and economic competi-
tion on businesses. Finally, economic utility and
its role in marketing are introduced.
Focus Questions:
What it means to be World Wise. It means seeing the world as interconnected and flowing,
Does the use of a Chinese language headline
and knowing how borderless economies affect the investment decisions you make. It means
having the wherewithal to invest as confidently in Ningbo, China, as in Chicago or New York. increase or decrease your interest in the adver-
At Morgan Stanley, World Wise is an understanding of the world as more complex and more
dynamic than it has ever been. Which means that success is not only a matter of what tisement? What is the key message Morgan
©MORGAN STANLEY
you’ve invested in, but more importantly, whom you’ve invested with.
Stanley is trying to communicate? Offer ex-
amples of how the growth of the economies in
Ask a Financial Advisor today.
other countries around the world affects U.S.
morganstanley.com / WORLDWISE
businesses and consumers. Locate another
advertisement that identifies the importance
of the global economy. Share your ad with
other students in a class discussion.
CH 03-B4491-DS_REV2.indd 59 12/5/07 7:12:45 PM

3-1 Scarcity and Private Enterprise
GOALS KEY TERMS
• Identify the basic economic problem. scarcity, p. 61 profit motive, p. 63
• Describe how America’s private enterprise controlled economy, p. 62 value, p. 63
economy works. free economy, p. 62 demand, p. 64
mixed economy, p. 62 supply, p. 64
private enterprise, p. 63
Knowledge of economics and how people make economic decisions improves mar-
keters’ ability to make marketing decisions. Unlimited needs and wants combined
with limited resources produce scarcity. Scarcity is the basic economic problem.
People always want more than they can buy, so they must make choices. The way
those choices are made determines the type of economic system a society has.
The United States has a private enterprise economy, which has many of the char-
acteristics of a free economy. America’s economy is driven by consumers’ indepen-
dent decisions about what they want to purchase and by producers’ decisions about
what they will produce. The government’s role in making economic choices is very
limited.
Make a list of your ten most recent purchases. Identify how the availability of
product choices and the amount of money you had to spend affected your purchas-
ing decisions.
The Importance of Economic

Understanding
any people believe that effective results in increased customer satisfaction
M marketing relies almost solely on

creativity. In their view, people
who can create a memorable image for a
and higher profits for the company.
An understanding of the types of
competition that businesses face also
product or attract a customer’s attention contributes to better marketing decisions.
will increase sales. People who understand Marketers need to manage based on the
marketing, however, know that the mar- type of competition they face. They also
keting process is more scientific. Effective must learn how to interpret economic
marketing relies on the principles and con- information to improve marketing deci-
cepts of economics. Knowledge of econom- sions. Marketers and other business people
S ics and how economic decisions are made should recognize that the increased com-
N improves marketing decision making and petition faced by most businesses places a
60
60 CHAPTER 3 • Marketing Begins with Economics
CH 03-B4491-DS_REV2.indd 60 12/5/07 7:14:35 PM

whole new importance on under-
standing and using economic
information.
The Basic Economic

Problem
People’s wants and needs are
unlimited. They seldom feel
that their wants and needs are
completely satisfied. Conversely,
resources are limited. There are
never enough available to meet
everyone’s wants and needs. For
©DIGITAL VISION
example, producing a car requires
a variety of resources, including
glass, rubber, steel, and plastic.
Yet each of those resources is in
limited supply. They are also used Think of all the resources used to make a car. What other products require
the use of these same resources?
to produce other items in addition
to cars. So there may not be enough
resources to make as many cars as
people might want. Scarcity is the basic economic problem.
Unlimited wants and needs, combined Because of scarcity, choices must be made.
with limited resources, result in scarcity. How will limited resources be used to
Digital Digest
Database Marketing Made Easy phone number, e-mail address, each item
Many businesses create databases that ordered, price, the transaction date, and
contain huge amounts of data about their so forth. A collection of fields pertaining
existing customers and potential customers. to a particular customer or order is called a
Their marketers use the data to generate record. All of the records combined make up
computerized mailing lists and individual- the database.
ized promotions as well as research for The practice of using databases to make
product development efforts. marketing decisions is called database mar-
Database programs store, sort, and keting. Databases may also be purchased
analyze large volumes of data. They are very from outside vendors that specialize in
useful for businesses with large customer compiling mailing lists or sales leads.
bases or even those with relatively small Think Critically
customer bases but a large number of cus-
tomer transactions. 1. What is a database field?
To build a database, you first identify 2. Give an example of how a marketer
each relevant bit of information you want to might use a database’s sorting
keep track of, and then input that informa- capabilities to obtain useful
tion into a database field. A business might information.
want a separate field for the customer name,
S
N
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3-1 • Scarcity and Private Enterprise 61
CH 03-B4491-DS_REV2.indd 61 12/5/07 7:15:30 PM

satisfy people’s unlimited wants
and needs? Because wants and
needs will always be greater than
the available resources, choices
and tradeoffs must be made.
The available resources will have
to be allocated to satisfy some
wants and needs but not others.
Scarcity creates difficult
problems for a society. Some
needs and wants are satisfied
while others are not. Resources
are used to produce certain
products and services. Other
products and services are not
©CONVERSE; AGENCY: PYRO, DALLAS; PHOTOGRAPHER: CHERYL DUNN

produced. What is produced
and for whom it is produced
must be determined. The way
those decisions are made
indicates the type of economic
system a society has.
Who Makes the

Decisions?
An economy is designed to
facilitate the use of limited re-
sources to satisfy the individual
and group needs of people in the
economy. All economies must
answer three questions.
In a controlled economy, ads such as this one for Converse
1. What goods and services will shoes may not be seen because the government limits the
be produced? selection of products available to consumers.
2. How will they be produced?
3. For whom will they be important resources and to make the
produced? decisions about what will be produced
and consumed. In a free economy, also
Economies are organized into different known as a market economy, resources
economic systems based on how these are owned by individuals rather than the
three economic questions are answered. government. The market provides answers
The type of economic system determines to the three economic questions. Decisions
who owns the resources. It determines are made independently with no attempt
how decisions are made regarding the use at government regulation or control. In a
of resources. Which needs are satisfied and mixed economy, some goods and services
how resources are distributed also depend are provided by the government and some
on the type of economic system. Even the by private enterprise.
cost of resources depends on the economic
system.
In a controlled economy, the gov- Checkpoint
S ernment answers the three economic
N questions. It attempts to own and control What is the basic economic problem?
62
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America’s Private Enterprise Economy
he United States has many of the
T characteristics of a free economy. The

U.S. economic system is often called
a private enterprise or free enterprise
Fa s t FAC T S
Capitalism is another name for a private
economy. Private enterprise is based on enterprise economy. The beginning of
independent decisions by businesses and capitalism is often traced back to Adam
consumers with only a limited government Smith and his literary work titled The
role regulating those relationships. Wealth of Nations published in 1776.
Characteristics
Several important characteristics define a view of the worth of a product or
private enterprise economy. service. Consumers make decisions of
worth by comparing the cost of some-
• Resources of production are owned thing they are considering purchasing
and controlled by individual producers. to other available alternatives.
• Producers use the profit motive • The government stays out of exchange
to decide what to produce. The activities between producers and
profit motive is the use of resources consumers unless it is clear that indivi-
to obtain the greatest profit. duals or society are harmed by the
• Individual consumers make decisions decisions.
about what will be purchased to satisfy Because businesses have a great deal
needs. of independence in a private enterprise
• Consumers use value in deciding what economy, their decisions can determine
to consume. Value is an individual whether they succeed or fail.
Virtual Marketing
The Emergence of Online customer base and compete with big online
Auctions retailers.
Auctions also work well for commercial
When auction web sites first appeared in the
buyers. Companies looking to buy goods
late 1990s, they appealed mostly to individ-
can attract a large number of suppliers and
ual consumers. But as online auctions have
pick the best deal. Even the government has
grown and gained credibility, businesses,
started using online auctions. Through the
and even the government, have joined in on
auction web site FedBid, government agen-
the action.
cies purchase commercial items through
Retailers quickly realized that auction pre-approved, competing suppliers.
sites such as eBay would be a major source
of competition. However, it was also an Think Critically
opportunity to reach a new market, and 1. What advantages do online auctions offer
smart retailers got into the game early.
smaller retailers?
Independent bike shops, bookstores, and
clothing stores could easily add to their 2. How can online auctions cut costs? S
N
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Why do retailers offer so many different choices of clothing?
Consumers Individuals who purchase that are most likely to be purchased. An

products and services to satisfy needs are example of a producer’s decision is the
consumers. They have limited resources, development of a day-care center. Many
or money, to satisfy their needs. Consum- parents need someone to watch their chil-
ers select products that they believe will dren during the day while they are at work.
provide the greatest satisfaction for the There are opportunities to start businesses
price. Demand is a relationship between that respond to that need.
the quantity of a product consumers are
willing and able to purchase and the price. Government Under ideal circum-
Consumers gather information about stances, government allows consumers
available products and services so they and producers to make decisions without
can select those that appear to satisfy their any interference. However, there are times
needs. For example, clothing is a basic when some consumers or producers are
consumer need. Some consumers will sew at a disadvantage and will not receive fair
their own clothes. Some will buy basic and treatment, or society will be harmed by
inexpensive clothing. Others will spend a the decisions made by producers or con-
great deal of money on a large and expen- sumers. In those situations, the govern-
sive wardrobe. ment enacts laws and regulations to help
those who are treated unfairly.
Producers Businesses that use their
resources to develop products and services
are producers. They hope to sell prod- Economic Forces
ucts and services to consumers for profit. An example of decision making in a pri-
Supply is a relationship between the vate enterprise economy illustrates how
quantity of a product that producers are the system operates. Suppose a city has a
willing and able to provide and the price. variety of entertainment options but has
Producers gather information about no social club for teenagers. Many teen-
S the types of products and services agers indicate a need for some type of club
N consumers want so they can provide those and suggest they would visit it and spend
64
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money there if one was developed. Even incentives or other economic assistance.
though it appears that the need for the new They may even decide to develop and oper-
type of business exists, no one is required ate a teen center as a city service.
to open a teen social club. It will be de- In a private enterprise economy, gov-
veloped only when someone recognizes ernment would not typically get involved
the need, determines that a club could be with the economic problem described. It
opened and operated profitably, wants to would rely on the profit motive to encour-
operate that type of business, and has the age the development of a new business and
resources to do so. on consumers to express their needs for
Members of city government might products and services to businesses.
recognize the need for a teen club. They
may see teenage crime rates increas-
ing, have concerns expressed to them by Checkpoint
teenagers and parents, or just want to meet
important needs of city residents. Based on In a private enterprise economy, when
that concern, city leaders may encourage does government get involved in exchange
the development of a teen club through tax relationships?

Determine the best answer. 5. Social Studies Prepare a one-page paper
1. The government exerts the greatest influence describing the basic economic problem and
over economic decisions in a include an example of it. Explain how this prob-
a. mixed economy lem would be handled in different economic
b. controlled economy systems (controlled, free, mixed, and private
c. free economy enterprise).
d. private enterprise economy 6. Consumer Economics As your textbook
2. Which of the following is not an important explains, consumers gather information about
characteristic of a private enterprise economy? available products and services so they can
a. resources of production are owned and select those that appear to satisfy their needs.
controlled by individual producers Compile a list of resources—either print or on-
b. individual consumers make decisions line—that consumers can use to do this, briefly
about what will be purchased to satisfy describing each one.
needs
Connect to
c. government involvement in the economy
is relatively limited 7. You work for a clothing manufacturer that
d. businesses decide what to produce based would like to sell its products in China. You
on what is best for society as a whole have been asked to explore the marketing
opportunities in China. Conduct research to
3. An individual view of the worth of a product
determine the key differences between the
or service is called
Chinese and American economic systems.
a. scarcity
Develop a two- to three-minute presentation
b. the profit motive
on the key economic factors that would have
c. value
an impact on marketing your clothing line in
d. demand
China and present it to your teacher (judge).
4. True or False: Unlimited wants and needs,
combined with limited resources, result in
scarcity.
S
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3-2 Observing the Law of Supply and Demand
GOALS KEY TERMS
• Explain microeconomics and the concept of con- macroeconomics, p. 66 economic resources, p. 69
sumer demand. microeconomics, p. 66 supply curve, p. 69
• Identify factors that affect supply and its relation- demand curve, p. 68 law of supply, p. 70
ship to demand.
law of demand, p. 68 market price, p. 71
economic market, p. 68
Microeconomics analyzes the interaction of consumer demand with producer supply

to predict how changes in one affect the other. Much depends on consumers’ needs
and wants and on the availability of alternatives. When the independent decisions of
consumers and producers are combined, they can be illustrated as curved lines on a
two-dimensional graph that intersect at the market price.
Make a list of the last article of clothing you purchased, the last restaurant menu
item you bought, and your last transportation-related expense, along with the prices
you paid for each. If each had cost 20% more, would you still have bought them? What
if they were 50% more? Twice as much as you paid? What determines the point at
which you decide not to buy something or to find an alternative?
Microeconomics and Consumer

Demand
conomics attempts to understand and an entire society. Macroeconomics looks
E explain how consumers and producers

make decisions concerning the alloca-
tion of their resources. That understanding
at the big picture. It helps to determine if
society’s resources are being used as ef-
fectively and efficiently as possible. Mac-
helps consumers and producers use their roeconomics studies the decisions of all
resources more effectively. It also helps consumers and producers and the effects
government decision makers determine if of those decisions on the economy.
and when they should become involved in The second level, microeconomics,
the economy as they work to maintain an examines relationships between individual
even balance between producers and con- consumers and producers. Microeco-
sumers and to maintain a strong economy nomics looks at small parts of the total
that improves the standard of living for economy. Microeconomics studies how
citizens. individuals make decisions about what to
Economics operates on two levels. The produce and what to consume.
first level, macroeconomics, studies the While a broad understanding of eco-
S economic behavior and relationships of nomics is important to marketers, they are
N
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How do the concepts of supply and demand apply to a farmers market?
most concerned about microeconomics. at the ballpark rather than waiting to make
Information about how consumers make the purchase later at a sporting goods store.
purchasing decisions and how much they Another factor that affects consumers’
are willing to pay can be very important decisions is the available supply of prod-
in selecting target markets and developing ucts and services to satisfy their needs. If
effective marketing mixes. Marketers must there is a very large supply of a product,
also understand how a business’s competi- consumers will usually place a lower value
tors make decisions about what they will on it. Imagine walking through a farmers’
produce and the prices they are likely to market where a large number of producers
charge. Microeconomics looks at supply, are selling fresh fruits and vegetables. As a
demand, and the level of individual prod- consumer, you see there are many choices
uct prices. The relationship between supply of sellers and a large quantity of each prod-
and consumer demand is an important uct available. Therefore, you will probably
tool for marketers. be careful not to overpay for the fruits or
vegetables you want. On the other hand,
if a large number of customers are at the
Factors Affecting Demand market and only a few farmers are there to
A number of factors influence consumers’ sell their products, the customers may pay
decisions regarding what to purchase much higher prices to be sure they get the
and how much to pay. If a need or want is items they need.
particularly important or strong, a con- A third factor is the availability of
sumer might be willing to spend more alternative products that consumers be-
money to satisfy it. For example, if you are lieve will satisfy their needs. If consumers
at a baseball game and your favorite player believe there is only one product or brand
hits three home runs, obtaining a t-shirt that meets their needs, they are willing to
with the player’s name on it may seem very pay a higher price. If several options seem
important to you. You may be willing to to be equally satisfying, consumers are S
pay much more to buy a t-shirt right away more careful about how much they pay. N
67
3-2 • Observing the Law of Supply and Demand 67
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An example of this factor is your choice of Just as in marketing, economists use
entertainment for an evening. If there are the concept of markets. All of the consum-
very few things from which you and your ers who will purchase a particular product
friends can choose, you will likely be will- or service comprise an economic market.
ing to pay quite a bit for a specific activity. Economists believe that the consumers
However, if you identify several options (a in an economic market view the relation-
movie, bowling, an amusement park, rent- ship of products and prices in the
ing a video game) and each seems enjoy- same way.
able, you may consider the cost
more carefully. You might select
one that is inexpensive but which Price
DEMAND CURVE FOR MOVIES
you and your friends will still $10.50
enjoy.
9.00
Analyzing Demand 7.50
Curves 6.00
Economists try to determine how
much consumers are willing and 4.50
able to pay for various quanti- 3.00

ties of products or services. The
relationship between price and 1.50
the quantity demanded is often 1,000 2,000 3,000 4,000 5,000 6,000 7,000
illustrated in a graph known as a Quantity
demand curve. Figure 3-1 shows a FIGURE 3-1
sample demand curve for movies. As the price of movies increases, the number of consumers
As the price of movies increases, willing and able to pay that price decreases.
fewer people buy tickets. As the
price decreases, more tickets are sold.
This relationship is known as the
law of demand: When the price of a prod- Checkpoint
uct is increased, less will be demanded.
When the price is decreased, more will be How does microeconomics differ from
demanded. macroeconomics?
Supplying the Product

here are several factors that influ- services likely to yield either a small profit
T ence what and how many products

or services a business will produce.
Factors include the possibility of profit, the
or the likelihood of a loss. Business man-
agers carefully consider both the costs of
producing and marketing products and
amount of competition, and the capability the prices they will be able to charge for
of developing and marketing the products those products. That analysis helps in
or services. determining the most profitable choices to
One of the most important reasons produce.
for businesses to operate in a private
enterprise economy is to make a profit.
Businesses will try to offer products and Handling the Competition
S services that have a good chance of mak- When looking for opportunities, busi-
N ing a large profit, rather than products and nesses consider the amount and type of
68
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competition. When competition is
intense—with many businesses offering the
same types of products or services—there
are fewer opportunities for success than
when there is little competition. When More and more Americans are becoming inter-
possible, suppliers may choose to offer ested in eating organically grown food—that is,
products and services that have few com- food that is produced without the use of
petitors. Another option when there is a artificial pesticides, herbicides, or genetically
lot of competition is to change the product modified organisms (GMOs). Access school.
to make it different from those offered by cengage.com/marketing/marketing and click
other businesses. For example, an owner on the link for Chapter 3. After you read the
of an apartment complex in a community article, explain whether you think a pound of
where there are many vacant apartments organically grown carrots is likely to cost more
may provide free cable TV for residents. or less than a pound of conventionally grown
The owner may extend short-term leases carrots. Explain your answer using the principle
or may offer furnished apartments if those of supply and demand.
types of services are not available in other
apartment complexes. school.cengage.com/marketing/marketing
Finally, businesses use the resources
available to develop products and ser-
vices. Economic resources are classified
as natural resources, capital, equipment, and services changes at various prices.
and labor. The specific types of resources The graph of the relationship between
a business has available will determine price and quantity supplied is known as a
the types of products and services it can supply curve. An example supply curve
develop and sell. Some resources are very for cell phones is shown in Figure 3-2. The
flexible, enabling a business to change and graph shows that as the price increases,
offer new products quickly. For example, producers will manufacture more cell
if the owners of an electronics store found phones. As the price goes down, fewer
that equipment such as fax machines and will be manufactured. This relationship
scanners was not profitable, they could
quickly change the products
sold in that part of the store
to some that are more profit- SUPPLY CURVE FOR CELL PHONES
Price
able. Other businesses have $105
more difficulty changing
products. Companies that 90
own oil wells or 75
coal mines, for instance, have
few options because the natu- 60
ral resources they own are 45
their products. They must sell
30
the oil and coal even if those
products are not very 15
profitable.
10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

Analyzing a Supply Quantity
Curve FIGURE 3-2
Some economists predict As the price for cell phones decreases, so does the quantity of phones that S
how the quantity of products manufacturers will be willing to supply. N
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is known as the law of supply: When the
price of a product is increased, more will Fa s t FAC T S
be produced. When the price is decreased,
less will be produced. The supply and demand for many
Whenever possible, producers use consumer products is seasonal. For
their resources to provide products and example, Christmas holiday items don’t
services that receive the highest prices. sell well in April, and bathing suits have
Just as with demand, economists believe a limited sales appeal in January.
that all producers in a market respond in
similar ways when determining what to
produce. Like consumers, producers see a must be combined. The combined curves
relationship between products and prices. are shown in Figure 3-4 on the next page.
Notice that the two lines cross or inter-
Intersecting Supply sect at a price of $1,300 and a quantity of
and Demand 450,000 computers. The point where sup-
ply and demand for a product are equal is
We learned that suppliers and consumers
make independent deci-
sions. When the deci-
sions of many consumers DEMAND CURVE FOR NOTEBOOK COMPUTERS
Price
of the same product are
$2,100
combined, they form a
demand curve illustrating 1,800
the quantity of a product 1,500
or service that will be de- 1,200
manded at various prices. 900
And when the decisions
600
of all the suppliers of the
same product or service 300
are combined, they form
a supply curve. That curve 100 200 300 400 500 600 700 800
illustrates the quantity of Quantity (in 000s)
the product that will be
supplied at various prices. SUPPLY CURVE FOR NOTEBOOK COMPUTERS
Figure 3-3 shows a de-
mand curve and a supply Price
curve for a particular type $2,100
of notebook computer. 1,800
The demand curve shows 1,500
that fewer computers will 1,200
be purchased as the price
900
increases. As expected,
computer manufacturers 600
are willing to supply a 300
larger number of com-
puters if prices are high, 100 200 300 400 500 600 700 800
fewer if prices are low. Quantity (in 000s)
To determine the FIGURE 3-3
number of computers that Consumers and suppliers respond very differently to price changes.
S will actually be produced The demand curve illustrates consumers’ responses, and the sup-
N and sold, the two curves ply curve illustrates suppliers’ responses.
70
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known as the market price. At that price, MARKET PRICE FOR NOTEBOOK COMPUTERS
450,000 computers will be manufactured
Price
and sold.
$2,100
Each product in a specific market has
its own supply and demand curves. And 1,800
each market has price and quantity re- 1,500

lationships that are unique and result in 1,200 Market Price
different curves on the graphs. 900

600
300
Checkpoint 100 200 300 400 500 600 700 800

Quantity (in 000s)
What are the main factors that businesses FIGURE 3-4
consider when deciding what and how The point at which the demand curve and the supply curve for
much to produce? notebook computers intersect is the market price.

Determine the best answer. 5. Visual Art Create a picture, poster, or other
1. What can generally be expected to happen visual representation of macroeconomics and
when the price of a product is increased? microeconomics.
a. demand will increase 6. Economics Use the following data to create
b. demand will decrease supply and demand curves for cameras.
c. supply will increase Quantity Quantity
d. supply will remain constant Demanded Price Supplied
2. All of the consumers who will purchase a 100 $70 750
particular product or service are known as
200 60 550
a. an economic market
b. competitors 400 50 300
c. producers 700 40 150
d. a demographic
Connect to
3. The point where supply and demand for a
product are equal is known as the 7. You work for a party planning company that
a. competitive price has declining sales and profits. Consider the
b. discount price factors that affect the demand for your ser-
c. market price vices. Based on these factors, develop a plan
d. fair value price to improve your business. Write a two-page
report for your teacher (judge) describing pos-
4. True or False: Most marketers are primarily
sible reasons for the decline in business and
concerned about macroeconomics.
your recommendations to increase demand for
your services. S
N
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3-3 Types of Economic Competition
GOALS KEY TERMS
• Define pure competition and monopoly. pure competition, p. 73
• Explain the characteristics of oligopolies and monopo- monopoly, p. 73
listic competition. oligopoly, p. 74
monopolistic competition, p. 74
Businesses’ responses to consumer demands are strongly influenced by the competi-

tive structure of the industries they are in and the markets they serve. The type of
competition, or in some extreme cases the lack of competition, determines how much
control businesses have over pricing and what strategies they should follow to obtain
the greatest long-term profits. Each type of competition produces a unique demand
curve. Identifying the type of demand a business faces is important in developing
marketing strategies.
Make a list of six businesses, large and small, that operate in your city or town. Now
rate the businesses on a point scale of 1 to 10 based on how much market control you
think they have over the prices they charge, with a rating of 10 indicating the greatest
control.
All-Out Competition or
No Competition at All
he type of competition found in a 1. The number of firms competing in the
T market affects consumer and sup-

plier decisions alike. If consumers see
a variety of products that seem to be very
market
2. The amount of similarity between the
products of competing businesses
similar, they will be less willing to pay
higher prices. If suppliers are in a mar- Economists use these characteristics
ket with many other businesses offering to define four forms of economic competi-
similar products, they will have difficulty tion—pure competition, monopoly, oli-
raising their prices. Businesses must deter- gopoly, and monopolistic competition.
mine the type of competition they face and
the amount of control they have over the Pure Competition
prices they can charge to make effective A few markets contain a large number of
marketing decisions. suppliers with very similar products. In
Two characteristics are important to these markets, consumers have a great
S determine the type of economic competi- deal of control over choices and prices.
N tion in a specific market: Because the suppliers are unable to offer
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products that consumers view as unique, DEMAND CURVE FOR ONE COMPANY
they must accept the prices that consumers IN PURE COMPETITION
are willing to pay, or the consumers will Price
buy from another business. This market
condition is known as pure competition.
In pure competition, many suppliers offer
very similar products.
The traditional examples of industries
in pure competition are producers of agri-
cultural products such as corn, rice, wheat,
and livestock. Each producer’s products
are just like every other producer’s. There
are many producers, so customers have no
difficulty finding a business that will sell Quantity
the products. Because customers have so
many choices of suppliers and the products FIGURE 3-5
of all suppliers are similar, prices will be In pure competition, the seller must accept the market price no
matter how much of the product is sold.
very competitive. No single supplier will
be able to raise the price. Other examples
of markets in which businesses face some- market in which one supplier offers a
thing close to pure competition are those unique product. In this market, the sup-
for many of the low-priced consumer plier has almost total control, and the
products you purchase—milk, bread, paper consumers will have to accept what the
clips, light bulbs, blank CDs and DVDs, supplier offers at the price charged. This
and the like. occurs because of the lack of competition.
An example of the demand curve for Because of the obvious advantage a
a business in a purely competitive market business has in monopoly markets, gov-
is shown in Figure 3-5. In theory, it is a ernments attempt to control them. There-
straight line at one price. That suggests fore, there are few examples of monopolies
that the supplier will receive the same that actually dictate prices. Utility compa-
price no matter how much of the product nies that supply communities with elec-
the supplier is willing to sell. Therefore, tricity, gas, or water are typically organized
businesses have no control over price if as monopolies. There is only one supplier
they want to sell their products. of each product since it would be very inef-
ficient to have several companies extend-
ing gas and water lines or electrical
Wo r k i n g i n Te a m s service to every home. Once a home
is supplied with the utilities, it would
Discuss with team members the last business be easy for the company to raise the
you patronized and name as many of that price. The consumer would have no
business’s competitors as you can. Then explain choice but to pay the higher price or
why you visited that business rather than one of go without the gas, water, or electric-
its competitors. Discuss what the business does ity. So government agencies regulate
to help it stand out from its competition. the prices that can be charged by the
utility companies. Other examples of
markets that can operate much like
a monopoly are some local telephone
and cable television services and busi-
Monopoly nesses that are the only ones of their type
The opposite of pure competition is a in a particular geographic area where con- S
monopoly. A monopoly is a type of sumers have no choices. If you are driving N
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down an interstate highway
DEMAND CURVE FOR A MONOPOLY
and there is only one gasoline
station at a particular exit, Price
that business can operate
much like a monopoly for
those customers who need
gasoline or other automo-
tive products. A pharmacy
or other retail business in an
area where there is no other
similar business can also op-
erate as a monopoly for those
customers who are unable to
travel to a competing busi- Quantity
ness. In theory, the demand
curve facing a business that FIGURE 3-6
has a monopoly would look In theory, a business in a monopoly can charge any price
because it is selling a unique product.
like the one in Figure 3-6.
There is a fi xed demand for the product,
since there are no other businesses offering Checkpoint
a similar product. Therefore, if unregu-
Distinguish pure competition from
lated, the business can charge any price
monopoly based on the two characteris-
it chooses. The consumer either pays the
tics that economists use to define types of
price set by the business or goes without.
competition.
Between the Extremes

etween the extremes
B of pure competition
and monopoly are two
other types of economic
competition—oligopoly
and monopolistic competi-
tion. In an oligopoly a few
businesses offer very simi-
lar products or services. In
monopolistic competition, ©GETTY IMAGES/PHOTODISC
there are many firms compet-

ing with products that are
somewhat different.
Oligopolies
As you consider the difference What are the advantages and disadvantages of an oligopoly,
between an oligopoly and the such as the airline industry, to consumers?
other types of markets, you
might be able to see the prob-
lems and advantages facing be like a monopoly and have a great deal
S businesses in this type of market. If of control in the market. On the other
N the businesses work together, they will hand, if they are very competitive, the
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Figure This
Measuring the Demand Curve change in number of tickets sold: 50 300 =
Economists have a way of quantifying 17%. Then calculate the percentage change
demand curves so that businesses can use in price: $2 $6 = 33%. Now calculate the
them to develop better marketing strategies. ratio of the change in demand (17%) over the
This method of quantifying is referred to as change in price (33%): 17 33 = 0.52.
“elasticity of demand.” In economics, elastic- When the ratio is greater than 1, the
ity means responsiveness to change. Elasticity demand is said to be elastic, and raising prices
of demand measures how much consumer decreases overall revenue. When it is less
demand for a product changes when the than 1, demand is inelastic, and raising prices
price is raised or lowered. increases revenue. The theater’s revenue
If demand is highly elastic, the demand should increase even if fewer tickets are sold.
curve is more horizontal, and a small change Think Critically
in price will have a big effect on consumer
demand. If it is inelastic, the curve is more 1. Research for a bicycle shop indicates that
vertical, and demand remains relatively con- if it lowers the price it charges for a tune-
stant as prices change. up from $30 to $20, it will sell twice as
Elasticity is quantified by calculating many tune-ups. Calculate its elasticity of
the ratio of the percentage change in the demand.
quantity demanded over the percentage 2. Is its demand elastic or inelastic?
change in price. To illustrate, let’s say a movie
theater’s research indicates that if it raises its 3. If the shop’s costs per tune-up remain the
ticket price from $6 to $8, the average num- same regardless of how many tune-ups
ber of tickets it sells will decrease from 300 it does, what should it do to maximize
to 250 per night. To calculate the elasticity profits?
of demand, first calculate the percentage of
similarity of their products or services will One airline will not usually succeed
give consumers choices, much like in pure in increasing prices alone. If the airline
competition. In that case, the consumers industry wants higher prices to cover
will have more control, and prices will be operating expenses and contribute to
lower. profit, competing companies will need
The airline industry is an example of to cooperate in raising their prices as
an oligopoly. There are only a very few well. Depending on the industry, govern-
large airlines competing for national travel ment agencies may attempt to regulate
in the United States. It is difficult to see that type of activity, making it illegal for
important differences between airlines businesses to work together to control
that serve the same cities. Therefore, if one prices. Notice, however, that if one airline
airline wants to increase its number of announces a price increase or decrease,
passengers, it will often do it by reducing competitors are usually very quick to
prices. To counter that effort and to keep match the change.
passengers from flying with the competi- Other examples of industries
tor, other airlines will reduce their prices with characteristics of an oligopoly
as well. are automobile manufacturers, greeting S
card companies, interstate delivery N
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services, computer manufacturers, Internet services, the greater the control each firm
service providers, and companies offering will have in the market. With more com-
long-distance or wireless telephone ser- petitors and only minor differences, busi-
vices. On the local level, some businesses nesses will have very limited control.
operate as oligopolies because there are There are many examples of busi-
only a few businesses offering almost nesses in monopolistic competition. Most
identical products and services to the retail businesses in which you shop face
consumers in that market. Some examples this type of competition. Most of the
in medium- to large-size communities are products or services you buy fit the
taxi services, movie theaters, banks, and definition.
hospitals. As a consumer, you typically have
The demand curve facing businesses in several choices of businesses or products.
an oligopoly is difficult to describe. For an Among those choices, you can identify
individual business, the de-
mand curve will look like the
DEMAND CURVE FOR ONE COMPANY
demand in pure competition IN AN OLIGOPOLY
since one business cannot in- Price
fluence the price it can charge
to any great extent. Figure 3-7
shows an example of a de-
mand curve for one company
in an oligopoly.
The demand curve for
all of the businesses com-
bined in an oligopoly will
look much like that of a mo-
nopoly. Cooperatively,
the businesses have a great Quantity
deal of control over price.
Consumers who want the FIGURE 3-7
product or service will have One business in an oligopoly will have little influence over the
to purchase from one of the price it can charge.
few companies in the market
or go without. A demand
curve for the entire industry DEMAND CURVE FOR THE INDUSTRY
IN AN OLIGOPOLY
in an oligopoly is shown in Price
Figure 3-8.
Monopolistic
Competition
By far the most common type
of economic competition fac-
ing most businesses is mo-
nopolistic competition, where
many firms compete with
products that are somewhat Quantity
different. The fewer the num-
ber of competitors and the FIGURE 3-8
S greater the differences among Because there are few firms in an oligopoly, the total industry
N the competitors’ products or has much more control over prices.
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What kind of competition do retailers in a shopping mall face? Why?
differences. Some differences are very DEMAND CURVE FOR MONOPOLISTIC COMPETITION
noticeable and important. Other differ- Price
WITH FEW PRODUCT DIFFERENCES
ences are only minor. When you have
choices as a consumer, you usually select
the one providing the most satisfaction
at the best value. Examples of businesses
and products in monopolistic competi-
tion include restaurants, movie theaters,
shopping malls, athletic shoes, consumer
electronics equipment, and cosmetics.
The demand curve for businesses in Quantity
monopolistic competition falls somewhere
between that of pure competition and FIGURE 3-9
monopoly. If there are few differences, the When there are few differences among products,
business has less control, so the demand businesses will have little price control.
curve is more horizontal. An example of
this type of demand curve is shown in DEMAND CURVE FOR MONOPOLISTIC COMPETITION
Figure 3-9. Price
WITH GREATER PRODUCT DIFFERENCES
The greater the differences among

products and services, the more control
the business has, so the demand curve is
more vertical. An example is shown in
Figure 3-10.
Understanding the
Competition
It is important for business people and Quantity
especially marketers to know the type of FIGURE 3-10

economic competition they face and to act With greater product differences, businesses have S
accordingly in order to maximize profits. more control over prices. N
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A business in pure competition will not be and better than those of competitors. In
able to exercise much control in the market, that way they will have more control in the
while one in a monopoly will have almost marketplace.
total control. Businesses in an oligopoly
must pay careful attention to the actions
of competitors. For the largest number of
businesses, those in monopolistic competi-
tion, the differences between competing Checkpoint
products will be very important. Wherever
possible, marketers will want to do things Contrast oligopolies and monopolistic
that result in products that are different competition.

Determine the best answer. 5. Management Most restaurants operate in
1. In this type of economic competition, a a monopolistic competition environment.
few businesses offer very similar products Outline several changes a manager could make
or services. to increase profits in that type of competitive
a. pure competition environment.
b. monopolistic competition 6. Technology Use the library or Internet to
c. monopoly find a change in technology that you believe
d. oligopoly increased economic competition in the United
2 In theory, the demand curve for a business States. Find another change that you believe
in this type of market is a straight line at one reduced economic competition. Use visuals or
price. a written report to communicate your findings.
a. pure competition Make sure to describe how the technology af-
b. monopolistic competition fected competition.
c. monopoly Connect to
d. oligopoly
7. You have been hired by the owner of a new
3. When there are few differences among ice cream shop in your community to analyze
products in a monopolistic competition, the competition. Create a list of questions
a. the government will likely set limits on you believe need to be answered to help you
prices complete an effective analysis of the competi-
b. businesses will have little control over tive environment. Present these questions to
prices the owner (judge), and explain why each of
c. businesses will have total control over them is important. You should also present a
prices list of sources and/or techniques you will use to
d. one business can greatly influence prices, gather information for your analysis.
since competitors will be forced to follow
suit
4. True or False: By far the most common type
of economic competition facing most busi-
S nesses is oligopoly.
N
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Enhancing Economic Utility 3-4
GOALS KEY TERMS
• Define four types of economic utility. economic utility, p. 79
• Explain how marketers use utility to
increase customer satisfaction.
Although consumers rarely analyze precisely how they decide to buy products or
services, they unconsciously make buying decisions based on the satisfaction they
expect to receive from them. Businesses therefore try to increase consumers’ satis-
faction by making improvements to products and services.
Economists have developed a concept called economic utility and identified
various types of utility to explain why consumers get more or less satisfaction
from different products. For businesses, economic utility is important to help them
develop better products.
Identify two products in your classroom and propose changes that you believe
would increase the satisfaction they provide to users.
Utility Means Satisfaction

ost people would like to purchase Businesses use economic utility to
M more things than they can afford.

Because of limited resources and
unlimited needs, they have to choose
increase the chances that consumers will
buy their products or services. If a con-
sumer believes that a particular product
among products and services. People select
those that provide the greatest satisfaction
for the money they are able or willing to
spend. You may have to choose between
attending a concert and purchasing a new
video game, for example. Saving for college
may be more important than buying a car.
To analyze how people make choices
among competing products, economists
use a concept called economic utility.
Economic utility is the amount of sat-
isfaction a consumer receives from the
©DIGITAL VISION
consumption of a particular product or

service. Products that provide great sat-
isfaction have a higher economic utility,
while those providing less satisfaction have How could the economic utility of athletic shoes S
a lower utility. be improved? N
79
3-4 • Enhancing Economic Utility 79
CH 03-B4491-DS_REV2.indd 79 12/5/07 7:20:40 PM

Get the Message
The Changing Face of Radio radio companies such as Sirius and XM beam
Although many people predicted the down- a digital signal to receivers via satellite, so
fall of radio as more advanced technology listeners have access to hundreds of stations
emerged, that has not been the case. Every anywhere in the country. Currently, satellite
week, radio reaches approximately 95 per- radio is a subscription service and boasts
cent of Americans over the age of 12, making of being “commercial free” on many of its
it still a powerful way for marketers to reach music stations, but it does allow “promos,”
consumers. or short product messages. It is too early to
In 1996, the government passed the tell if satellite radio will be a success story,
Telecommunications Act, which deregulated or a very expensive failure. Either way, radio
the radio industry and allowed large com- in general will remain a valuable tool for
panies to buy many radio stations across marketers.
the country. Today, ten companies own over Think Critically
two-thirds of the radio market. While some
listeners complain that this decreases the 1. How do national radio broadcasts, like
diversity of radio programming, it also helps those via satellite, differ from local radio
radio stations cut costs to become more stations in terms of the types of advertis-
profitable and makes it easier for advertisers ers they will attract?
to reach their audience. 2. What are the advantages of having hun-
With the advent of satellite radio, the dreds of diverse radio stations? What are
format is changing once again. Satellite
the disadvantages, if any?
will provide higher utility than other when the customer wants it. Time utility
choices, that product will likely be pur- results from making the product or ser-
chased. The four primary ways businesses vice available when the customer wants it.
can increase the economic utility of a Examples include a bank that stays open in
product or service are changes in form, the evening and a dental office that accepts
time, place, and possession. appointments on weekends.
Form Utility Place Utility
The physical product provided or the Just as some consumers are concerned
service offered is the primary way that about when a product is available,
consumer needs are satisfied. Form utility others may want to purchase or consume
results from changes in the tangible parts the product at a particular place. Making
of a product or service. products and services available where the
Some products and services are in consumer wants them is place utility.
a more usable form than others. One Check-cashing outlets and businesses
product may be constructed better or have that provide mailing, photocopying, and
more features that consumers want. One printing services are successful if they are
service provider—a hair stylist, for exam- located where consumers and businesses
ple—may be more skilled than another. that need those services reside. A con-
Time Utility venient location for products and services
is an important utility for people with
S Even though a product is in the form a
busy lives.
N customer wants, it may not be available
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Communicate with Charts and Graphs

The old adage “a picture is worth a thousand to avoid distortions
words” still holds true. With a highly scheduled, when presenting
multitasking society, people want to get the information.
information they need, quickly understand it, and
move on.
Presenting the
Data analysis often begins with spreadsheets Results
that help automate the analysis of raw data. The The analysis process
results of the data analysis can be presented in may build a strong
charts, graphs, and tables. Charts and graphs visual case to under-
facilitate swift decision making by presenting stand a relation-
relationships among variables in a visual, under- ship between two or more items. Likewise, data
standable form. Tables provide a concise method analysis may provide a startling “aha” moment
to summarize data. Effective data summaries that contradicts previous beliefs. Although it may
do not overwhelm the target audience with an be tempting to omit data or vary the way the
excessive amount of data. information is presented, you must always main-
tain the integrity of your data and share impor-
Choosing a Data Summary Tool tant analyses. Your audience is relying on your
When deciding which type of data summary tools objectivity to help guide their decision making.
to use, keep your audience in mind. Certain types
of graphs are far more common, and therefore Interpreting Data
easier for the public to understand. Line graphs, Learning how to interpret the charts and graphs
bar charts, and pie charts are among the most of others is also an important skill. Pay close
frequently used. attention to the units of measurement, the source
A line graph is helpful for conveying changes of the data, and any possible bias in the presenta-
over a period of time. The slope of the line indi- tion. Ask yourself whether the conclusions made
cates whether the variable has an increasing or from the analysis are reasonable. When you have
decreasing trend. If the line goes up and down doubts, ask to see the original data on which the
frequently, it may represent cyclical changes. A analysis was based.
bar graph often conveys variations in quantity at
Develop Your Skill
specific points in time or among different ele-
ments or groups. Those quantity changes are usu- Review local or national newspapers (USA Today,
ally displayed on the vertical axis. for example) for articles that present data in
Pie charts are effective for illustrating per- tables, charts, and graphs. Determine which
centages of a whole. To insure that the pie chart is present information in an understandable way
easy to interpret, try to limit pie slices to five or six and which seem to present a biased view or con-
variables. fuse the reader. Now use a computer and spread-
Each chart or graph should be concise, sheet program to record numerical information
presenting an important relationship. Start with about your class or school. Summarize important
a simple meaningful title. The graph axes and relationships in a chart and a graph. Review the
variables should be labeled. The unit of measure- results with fellow students or a teacher. Ask for
ment as well as the item being studied should feedback on how clearly your charts and graphs
be easily distinguished. Using consistent units of convey information and help them understand
measurement throughout a graph is important the information. S
N
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Possession Utility without having to make a huge down
A product may be in the form a consumer payment. You will probably rent rather
wants and be available at the right time than buy a tuxedo for formal occasions
in the right place, yet the consumer still such as the prom.
may not be able to purchase the product Finding ways to finance, rent, or lease
because of a lack of resources. Possession products has become an important busi-
utility results from the affordability of the ness activity today. It is a valuable way to
product or service. It is usually not pos- offer possession utility to customers.
sible for a business to decrease the
price just so a product can be sold.
Yet there are other ways besides Wo r k i n g i n Te a m s
cutting the price to make a product
more affordable. Make a list of your last ten purchases. For each,
Credit allows people to purchase tell which type of economic utility was the most
things for which they do not have important factor in your buying decision. After
enough cash at the time. They can all team members have shared their lists, deter-
then pay for the product when the mine which type of utility drove the majority of
credit bill is received or pay gradually your team’s purchasing decisions. Discuss why
with monthly payments. you think that particular factor was so impor-
Few people want to spend money tant. Do you think other types of utility might
to purchase a movie just so they can be more important for your parents’ purchasing
watch it more than once. Video stores decisions? Explain why or why not.
are very successful because they rent
movies rather than sell them. With
low-cost rentals, people can watch more
movies. Likewise, automobile dealerships Checkpoint
lease new automobiles. Leases make it
possible for customers to drive new cars What are the four types of economic utility?
S
N How does possession utility affect auto sales?
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Utility as a Marketing Tool
usiness people who use the market- determine what changes customers would
B ing concept try to identify customer

needs and develop marketing mixes
to satisfy those needs. Economic utility
like to have in products and services in
order to develop an effective marketing
mix. There are many possible ways to
supports the marketing concept. It identi- improve products and, in turn, improve
fies ways to add value to products and ser- product demand.
vices through changes in form, time, place,
and possession. Economic utility can be a
particularly effective marketing tool when
a business focuses on the unique needs Checkpoint
and characteristics of each target market.
When economic utility is improved, so is How does the marketing concept relate to
customer satisfaction. Marketers need to the concept of economic utility?

Determine the best answer. 5. Creative Writing Compose either a jingle or
1. The amount of satisfaction a consumer script for an advertisement for a local business,
receives from the consumption of a particular focusing on one type of economic utility—
product or service is called form, time, place, or possession.
a. the profit motive 6. Geography Use the Internet to locate and
b. economic value print a map of your neighborhood or commu-
c. economic utility nity. On the map, mark as many locations of
d. economic expenditure grocery stores/supermarkets as you can find.
2. Which type of economic utility results from Then write an explanation of which store you
changes in the tangible parts of a product or would most likely patronize if place utility was
service? the most important consideration. What about
a. time utility form utility? Possession utility? Time Utility?
b. possession utility
Connect to
c. place utility
d. form utility 7. You are the manager of a medium-size
appliance store, and you want to increase sales
3. Marketers need to determine what changes
in your store. Consider the different types of
customers would like to have in products and
economic utility. Prepare a two-minute pre-
services in order to develop
sentation you would deliver to the store owner
a. an effective marketing mix
(judge) in which you describe at least three
b. the law of supply and demand
ways you can improve economic utility to
c. pure competition
accomplish your goal.
d. an economic market
4. True or False: Economic utility supports the
marketing concept.
S
N
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CH 03-B4491-DS_REV2.indd 83 12/5/07 7:22:10 PM


Now that you have completed the chapter, check — list the important characteristics of a private
your understanding of the lessons with these ques- enterprise economy?
tions. Record the score that best represents your — distinguish between microeconomics and
understanding of each marketing concept. macroeconomics?
1 = not at all; 3 = somewhat; 5 = very well — identify factors affecting supply and demand?
If your score is 42–50, you are ready for the assess- — explain what is meant by the laws of supply and
ment activities that follow. If you score 33–41, you demand?
should review the lessons for the items you scored — identify the characteristics that determine the
1–3. If you score 32 or less, you will want to carefully type of economic competition in a specific
reread the lessons and work with a study partner on market?
the areas you don’t understand. define the four forms of economic competition
—
Can you— and give an example of each?
— explain why an understanding of economics is — name the four types of economic utility?
important to marketing? — explain how economic utility supports the
— identify the basic economic problem? marketing concept?

1. An economic system where the government at- 9. A graph that illustrates the relationship between
tempts to own and control important resources price and the quantity supplied
and to make the decisions about what will be 10. An economic system based on independent
produced and consumed decisions by businesses and consumers with
2. The type of market in which there is only one only a limited government role
supplier offering a unique product
3. The result of unlimited wants and needs com-
bined with limited resources
a. controlled economy
4. The study of economic behavior and relation-
b. demand curve
ships for the entire society
c. free economy
5. The use of resources toward the greatest profit
d. macroeconomics
for the producer
e. market price
6. The point where supply and demand for a f. microeconomics
product are equal
g. mixed economy
7. The type of market in which there are a large h. monopoly
number of suppliers offering very similar i. private enterprise
products
j. profit motive
8. An economic system in which resources are k. pure competition
owned by individuals and decisions are made l. scarcity
independently with no attempt at government
m. supply curve
regulation or control
S
N
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11. True or False: A private enterprise economy is 18. True or False: Economic utility
heavily regulated by government. is the amount of profit busi-
12. True or False: Consumers have limited resources nesses make from selling a
and unlimited needs and wants. product.
13. Changes in a product’s physical features affect its 19. True or False: The quantity of
utility. a product that producers are
willing and able to provide at a specific price is
14. True or False: A larger supply of a product will usu-
known as demand.
ally cause consumers to place a lower value on it.
20. Locating an automated teller machine in an air-
15. When the price of a product is increased, a
port is an example of improving the
smaller quantity will be purchased. That state-
utility for banking services.
ment is known as which of the following?
a. the law of supply 21. is a relationship between the quan-
b. the law of demand tity of a product that producers are willing and
c. the law of the land able to provide and the price.
d. the law of economic utility 22. True or False: Individuals who purchase products
16. True or False: Economic resources are classified and services to satisfy needs are known as pro-
as natural resources, capital, equipment, and ducers.
consumers. 23. The relationship between price and the quantity
17. In pure competition, there are a large number of demanded is often illustrated in a graph known
suppliers offering which of the following? as a(n) curve.
a. very similar products 24. True or False: In theory, a business in a monopoly
b. somewhat different products can charge any price because it is selling a
c. unique products unique product.
d. an unlimited supply of products

25. Businesses can be classified into the four types of Survey five people from your school. Ask each
competition—pure competition, monopoly, oli- person how many of the items they typically
gopoly, and monopolistic competition—based purchase in one week at the current price. Then
on two factors: the number of competitors in the ask each person how many of the items they
market and the amount of similarity between would purchase at each of the price increases
the products of competing businesses. and decreases. Based on the results, construct
Use the advertising section of your local tele- a demand curve to illustrate the effect of price
phone directory, a business directory, or copies changes on demand for the product.
of newspapers or business magazines to identify 27. When a marketer analyzes a demand curve, it is
two businesses that fit into each of those four important to determine what effect changes in
categories. Explain each decision based on the price and quantity demanded would have on
two factors listed. the amount of money the business will receive
26. Select a popular food item that is sold in your from selling the product. The amount received is
school’s cafeteria or in a vending machine in your known as the total revenue and is determined by
school. Determine the current price for the item. multiplying the price by the quantity demanded.
Then construct a chart showing the following For example, if the price of a product is $8.50
price increases and decreases for the product: and the quantity demanded at that price is 1,550
+10%, +25%, +50%, +100%, items, the total revenue would be $13,175 ($8.50
× 1,550). The information in the table that fol- S
–10%, –25%, –50%, –90%.
lows was taken from the demand curves for two N
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different products. Calculate the total revenue for 28. You have been an economist for the United Na-
each price listed. Then construct a demand curve tions for the past 15 years. Now, in the year 2028,
for each product. a large industrial colony is being developed
on the moon. It will be started by 2,000 people
initially, and there are plans to expand it until
Product 1 Product 2 nearly one million people are living in the colony
by 2050. The United Nations is studying the best
Quantity Quantity form of economic system to develop on the
Price Demanded Price Demanded colony.
Prepare a two-page report in which you com-
$1.00 350,000 $250 1,125
pare three types of economies—controlled, free,
$2.50 280,000 $325 950 and private enterprise. Discuss the advantages
and disadvantages of each for consumers, busi-
$3.25 225,000 $400 600
nesses, and the government. Make a recommen-
$4.00 175,000 $500 425 dation on the most appropriate system for the
colony. Consider factors like resources available,
$4.75 75,000 $850 250
supply and demand, the amount of competition,
$5.50 25,000 $1,000 200 and so forth.

29. Marketing managers must be creative in deter- small printing businesses, each of which serves
mining ways that products and services can be individual consumers rather than businesses.
improved to increase customer satisfaction. For Tasha decides to compete with the larger com-
each of the following three items, determine panies rather than with the small printers. She
changes that could be made in form, time, place, believes there is more opportunity for larger
and possession utility. Then recommend the one printing jobs. She also believes her computer
change for each product that you believe would background could help her better serve the busi-
be the most effective in improving customer nesses’ needs.
satisfaction and explain why. After operating the business for six months,
a. Vending machine selling snacks Tasha is becoming concerned. The prospective
b. MP3 Player customers she contacts are more concerned
c. A college recruiting high school seniors about her prices rather than the personalized
30. Tasha Formby is a recent college graduate with a service she provides. The larger printers are usu-
degree in Business Administration and extensive ally able to offer lower prices than her business
course work in computer information systems can. It also seems that the larger printing busi-
and marketing. She completed a summer intern- nesses have much more control over the prices
ship with a computer manufacturer. She worked they charge, raising prices for some customers
full time during another summer at a company and lowering them for others.
that provides commercial printing services to a. What type of competitive environment do
small businesses. She was in charge of design you believe Tasha’s business is facing? Why?
work using computer software. b. Would she face the same type of competition
Tasha decides to open her own printing busi- if she sold to individual consumers? Why or
ness. There are already three large printing why not?
companies in the city. Those businesses compete c. What do you believe Tasha can do to improve
for the printing services of the large and small the chances of success for her new printing
S companies in the area. There are eight other business? What economic concepts support
N your answer?
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Internet Marketing Business
Plan Event
Internet market- Bibliography List all sources used.
ing involves the Appendix Inclusion is optional.
buying and sell-
ing of products Performance Indicators
and services by Evaluated
businesses and
consumers over the Internet. Internet market- • Identify the potential for Internet market-
ing sites are sometimes referred to as elec- ing. (Marketing-Information Management)
tronic storefronts. Internet marketing can also • Design and conduct a marketing research
include the electronic transfer of funds. study to identify the potential for Internet
This event requires you to research and marketing. (Marketing-Information Man-
design a plan to start or improve an existing agement)
Internet marketing business. Your business • Conduct marketing research. (Marketing-
plan will be based upon research and conclu- Information Management)
sions that are supported by your findings.
This project consists of two major parts:
• Prepare a written proposal for an Internet
marketing business based on the market
the written document and the oral presenta-
research. (Communication Skills)
tion. The project will be completed by one to
three students. All participants must present • Request financing for the proposal in a
the project and respond to questions asked role-playing interview with a bank or ven-
by the judge/audience. ture capital official. (Financial Analysis)
The oral presentation will include ten
minutes for students to explain and describe
information.
the project followed by five minutes for the
judge’s question.
Parts of the written Internet marketing Think Critically
business plan include the following: 1. Why has Internet marketing become
Executive Summary Write a one-page de- increasingly popular?
scription of the project. 2. Why are some consumers hesitant to
Introduction Describe the business and pro- participate in Internet marketing?
posed product or service.
3 What expenses are decreased
Analysis of the Business Situation Provide a
or eliminated by a business that
trading area analysis and competitor analysis.
is based totally on Internet
Planned Operation of the Proposed
marketing?
Business/Product/Service Describe the
proposed organization, proposed business/ 4. What age group may be the most
product/service, and proposed strategies. hesitant to purchase goods and
Planned Financing Include projected income services through Internet
PHOTOS: ©DECA INC.
and expenses and the proposed plan to meet marketing?

capital needs.
Conclusion Include a specific request for
S
financing and a summary of key points sup- w w w. d e c a . o r g N
porting the financial request.
87
3-1 • Scarcity and Private DECA
Enterprise
Prep 87
CH 03-B4491-DS_REV2.indd 87 12/5/07 7:22:15 PM

Chapter 4
The Basics of
Marketing
4-1 Changes in Today’s Marketing
4-2 Planning a Marketing
Strategy
4-3 Understanding Consumers
and Competitors
©STOCKBYTE
4-4 The Varied Role of
Marketing
Newsline )))
Providing Quality with Differences
What do Ritz-Carlton Hotels and and spend less than $100 per night Think Critically
Microtel have in common? Very little on a room. According to survey
1. Name the brands of three dif-
except that they both received the respondents, Microtel excelled in its
ferent products that you think
highest ratings in consumer satisfac- reservations and check-in/check-out
have a high-quality image.
tion surveys. Ritz-Carlton topped the services. It also was highly rated for
ratings in the luxury hotel category. the comfort and cleanliness of its What do you think makes each
Consumers gave the exclusive hotel rooms and the value provided for of those brands different from
brand top marks for delivering con- the cost. and better than competing
sistently superior quality, exclusiv- The travel market, like most brands? Are all of the brands
ity, and uniqueness. They rated it markets, is very large. It is made you identified expensive?
the brand most likely to be chosen up of people with different needs 2. Is quality the most important
by people who are admired and and expectations. Both the Ritz-
factor for you in most of your
respected. It is a measure of social Carlton and Microtel can be success-
purchases? Why or why not?
status. The survey participants were ful when they are devoted to
people who earned over $200,000 providing the types of services 3. Why do many brands have diffi-
per year and had an average net that their customers want. The two culty developing and maintain-
worth of $2 million. businesses demonstrate that coming a quality image?
At the same time, Microtel Inns mitment to quality works in both
and Suites was the highest-ranked the luxury and the value-conscious
hotel chain in a survey of consumers markets.
who typically stay at economy hotels
CH 04-B4491_PB1.indd 88 12/10/07 9:52:20 PM


• Acquire foundational knowledge of channel • Explain the nature and scope of channel
management to understand its role in management
marketing • Explain the relationship between customer service
• Discuss levers employees can use to motivate and channel management
decision making • Align marketing activities with business objectives
• Explain customer/client/business buying behavior
Visual Focus
Marketing involves a comprehensive set of
activities needed to insure effective exchanges
between a business and its customers. While
we often think of promotion as an important
marketing tool, it is no more important than
many others. Companies must have a com-
plete marketing strategy, including a quality
product that is well priced, distributed, and
promoted. This chapter introduces the basic
concepts and principles of effective marketing.
Focus Questions:
What do you think is meant by the ad’s
headline? What role does Visa play in help-
ing businesses market products and services
to customers? How do credit and financial
services such as the ones described in this ad
make it easier for businesses to participate in
©VISA
international commerce?
Locate an advertisement that promotes
a unique marketing activity that a company
does well. Share your example in a class
discussion.
CH 04-B4491_PB1.indd 89 12/10/07 10:03:27 PM

4-1 Changes in Today’s Marketing
GOALS KEY TERMS
• Explain how marketing today differs from marketing in integrated, p. 92
the past. market opportunities, p. 92
• Show why understanding customers is crucial to apply-
ing the marketing concept.
Marketing as it is practiced today is much different from what it was just a few decades
ago. It is more complex and more interconnected with other business functions. For
those reasons, it is even more important that businesses focus on making the best
marketing decision possible from the beginning. Today’s businesses know that mar-
keting must be planned carefully. Satisfying customer needs has to be their primary
objective. Even the best products and services will fail if they do not fit the needs of
their customers.
Make a list of four products or services that you have purchased recently that pro-
vided you with a high degree of satisfaction. What characteristics do these products or
services and the companies that offer them have in common?
Marketing Has Changed

amilla and Marcos are waiting for the
C start of their career seminar. As they

look at the course outline, they see that
they are beginning a study of marketing
today. They begin to talk about their inter-
est in marketing careers.
Camilla: Marketing seems to be an
area where there are a lot of jobs. You hear
about marketing all the time. Several of my
friends are planning to major in marketing
in college.
Marcos: I’m not sure I’m interested in a
marketing job. It seems like you have to be Why do you think it is important to learn about
a salesperson, and you know what people marketing regardless of your career choice?
think of salespeople. It doesn’t seem to
something? Even the good sales jobs in
take much to be a retail salesperson. Do
industry require you to travel all of the
you know how many people work long
time. It seems like you have to be able to
hours for no money in retail? What is your
out-think and out-talk your customers to
image of an automobile salesperson? What
convince them to buy your products.
do you think about the telemarketer who
S Camilla: It does seem that way,
calls you on the telephone at home to sell
N but there are other marketing jobs.
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Advertising is a part of marketing. Don’t From Few to Many Marketing
you think it would be exciting to create has expanded in scope from a few
magazine or television commercials or activities to a variety of activities. The
even some of the new video ads we see on earliest use of marketing was to move
the Internet? Some ads are not very good, products from the producer to the con-
but the good ones are really creative. They sumer. Then promotion and sales were
get me interested in the products they are added to help persuade customers to
selling. buy a business’s product. Today, busi-
Marcos: I guess you’re right. Still, it nesses are able to complete a vast num-
seems that marketing is used to get people ber of marketing activities ranging from
to buy things they don’t really need. I research to offering customers credit.
know companies need to sell their prod- Effective marketers understand all of the
ucts to stay in business. I’m not sure, marketing tools and know when and how
however, that I want to be the one who has to use them.
to convince someone to spend their money
on my business’s product or service, From Independence to Integra-
whether it is with advertising or selling. tion Marketing has changed from an
Camilla: Well, I’m going to be open- activity that was an independent part of
minded. I want to work in business, and most businesses to one that is well inte-
everything I read now says that marketing grated with other business functions. In
is one of the fastest-growing and highest-
paying career areas in business. I’ll be
interested to see what types of jobs are
available and what it takes to be successful.
Marketing Experiences
Just like Camilla and Marcos, you may
have started your study of marketing with
limited understanding of this important
business function. Much of your under-
standing comes from experience, and
people have not always had positive experi-
ences with marketing. They may not have
recognized that some of their positive ex-
periences with business occurred because
of effective marketing.
Now that you have begun the study
of marketing, you know that marketing
is different than many consumers and
business people realize. There are many
marketing activities and many ways to im-
prove exchanges between businesses and
consumers.
Understanding the
Differences
Marketing today is quite different from
marketing only a few years ago. Under-
standing those differences will help you How can the integration of marketing into business S
use marketing more effectively. planning benefit a company? N
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the past, marketing was not well under- Today’s businesses cannot afford to
stood by business people who did not wait until problems occur. They are con-
have marketing backgrounds. Marketers tinuously looking for market opportuni-
often worked by themselves and had little ties. Market opportunities include new
contact with others in the business. Plan- markets and ways to improve a company’s
ning for marketing was done after other offerings in current markets. Marketing is
business planning was complete. Now, responsible for identifying and planning
marketing is integrated , meaning it is for opportunities.
considered an essential part of the busi-
ness. It is involved in all important busi- From Expense to Investment What
ness decisions. Marketing strategies are used to be thought of as an expense
developed as a part of the business plans. is now prized as a critical investment.
Marketing can be very expensive. In the
From Problems to past, when businesses have faced fi nancial
Opportunities Marketing used to be problems, some have viewed market-
handled as a problem-solving tool, but ing as a place to cut costs. Most business
now it is regarded as an opportunity- people today recognize that companies
creation tool. Businesses often called on will not be able to make a profit if prod-
marketing when they faced a problem. ucts remain unsold. Effective marketing
If inventory was too high or competitors is an investment because it is respon-
were attracting customers away from a sible for matching a company’s offerings
business, marketers were asked to increase with market needs. Spending money to
sales and promotion efforts or to fi nd improve marketing usually results in
weaknesses in the competitor’s programs. increased profits.
Get the Message

Pinpointing Promotion purchase if you visit the business within the
Imagine you are walking down the street next 15 minutes. If you are driving down the
and pass a music store. Suddenly, your cell interstate, ads from gas stations and restau-
phone rings, and you receive an advertise- rants may encourage you to stop.
ment for the new CD of your favorite band. Think Critically
Wireless telephone and Internet services
1. Why is the targeted marketing used in
offer a new method of providing specific
GPS technology more likely to boost sales
advertising messages to consumers. The
than traditional media advertising such
message is targeted to those people who
as TV ads?
have an interest in the product. It can also
be sent at a specific time when the con- 2. There are concerns that businesses and
sumer may be most interested in making a others will misuse the new technology
purchase. to pinpoint your location at any time. Do
This targeted advertising uses the new you believe there should be restrictions
global positioning system (GPS) technology on GPS technology?
that is integrated into many of the newest 3. Would you be willing to complete a
cell phones. The GPS can identify where survey from your cellular service provider
the user is at any time. If you are walking that helps identify your interests? Why or
S through a mall, a store could send you a why not?
N digital coupon for 20 percent off of a
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Understanding and using marketing is to competition, and integrating marketing
an important business skill. Marketing is into the business.
a valuable business asset in today’s com-
petitive world. People who understand the
basics of marketing are in high demand in
Checkpoint
the business world. Those basics include What are the four ways that today’s market-
understanding the marketing concept, ing differs from marketing practices in the
planning a marketing strategy, responding past?
What Does Marketing Mean

to a Business?
he marketing concept has changed the
T way businesses operate. It is more than

just a new way to complete market-
ing activities. It requires a totally new
approach to thinking and planning. The
marketing concept keeps the main focus
on customers’ needs during the planning,
production, distribution, and promotion
of a product or service. That may seem
simple, but some examples show how dif-
ficult it actually is.
Reliable Auto Service

Maria Santoz has always enjoyed repairing
cars. As a teenager, she bought older cars,
fixed them, and resold them at a profit.
She studied auto mechanics in high school Why would the owner of an auto repair shop
and became a certified mechanic at a local need to be concerned about marketing?
community college. She began working
at a franchised auto repair center, but she liked the convenience of being able to leave
became dissatisfied. She had to complete their car while they were shopping. They
repairs as quickly as possible and use inex- also said they had more confidence in a
pensive repair parts rather than those spec- business where the owner worked on their
ified by the manufacturer. Maria wanted to car. Now that she owned the business,
be able to spend more time with each car to Maria knew she would be able to give each
make sure that all problems were identified car special attention and the best possible
and repaired with the best available parts. service.
After a few years, Maria decided to It didn’t take long, however, for Maria’s
open her own auto repair business. She customers to start complaining. Many were
rented a small building on the edge of a upset when they had to leave cars overnight
large shopping center two miles from her while Maria completed repairs. They were
home. She opened Reliable Auto Service also concerned that repair costs were higher
and was pleased with the early response. than they were used to paying. Maria told
She didn’t spend a great deal on adver- them that the price reflected the high-
tising, but the store’s location and signs est quality parts and that she guaranteed S
seemed to attract customers. Many people all repairs. Customers told her that other N
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businesses also offered guarantees at much clothing was unique and well constructed.
lower prices. Maria’s business began declin- However, the first retailer felt the fashions
ing. She was disappointed that customers did not fit the image of her stores. The sec-
did not value the quality of her work. ond retailer was willing to buy one or two of
the designs if Dee could produce a large vol-
Dee’s Designs ume of each in various sizes. Dee preferred
Dee Sloan combined her talents in art and to produce a variety of designs and styles.
sewing to work with the community the- The last contact was willing to display Dee’s
ater. She designed and made the costumes fashions but required a full display for each
for the theater’s productions. Several of the store in the chain and was unwilling to pay
actors and actresses were impressed with until 60 percent of the original order was
her unique designs. They asked her to create sold. Dee could not afford that investment.
some items for their personal wardrobes. Dee could not understand how her
Dee enjoyed the work, and word-of- current customers could be so excited
mouth from her customers soon resulted about her work, yet she could not interest
in more orders than she could fill. Because people in the fashion business.
of her success, she hired several people so
that she could expand into a full-
time business. She believed that she
could sell her products through small Wo r k i n g i n Te a m s
businesses that would use the unique
designs to compete with larger stores. As a team, select either Reliable Auto Service or
She contacted several small retail Dee’s Designs for analysis. What did the owner
chains hoping to find one that do right? What did she do wrong? As a team,
would agree to buy and distribute suggest the changes that should be made in the
her fashions. marketing strategy to demonstrate understand-
After three contacts, Dee was ing of the marketing concept.
discouraged. Retailers agreed that the
S
N How might marketing be used for a clothing design business?
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Focus On Customer Needs It is not just new businesses that do
These experiences illustrate the difficulty not use marketing effectively. Car manu-
of applying the marketing concept. These facturers, retailers, and restaurants fail,
businesses both offered a quality product often after many years of successful opera-
or service. Initial reactions from customers tions. A business that is unwilling to study
were positive, yet they were unable to de- the needs of its customers when planning
velop a successful business strategy. They and marketing products and services is
were unsuccessful for several reasons. taking a big risk. Competitors who under-
stand and use the marketing concept will
1. They were concerned only about the turn that understanding into an advantage.
product or service.
2. They believed that they knew what
customers wanted. Checkpoint
3. They did not study the market. What different approach to marketing plan-
4. They failed to use a variety of market- ning is required of businesses that use the
ing tools available to them. marketing concept?

Determine the best answer. 5. Math Maria Santoz can purchase economy car
1. The earliest use of marketing was to batteries for $28 each and sell them for $42.
a. conduct marketing research She can buy heavy-duty batteries for $68 and
b. move products from producer to sell them for $86. Research tells her that she
consumer can sell 38 economy batteries or 21 heavy-duty
c. use advertising and selling to convince batteries per month. What will be the differ-
customers to buy ence in monthly profit for her business based
d. identify new market opportunities on selling the economy batteries instead of the
heavy-duty batteries?
2. New markets and ways to improve a
company’s offerings in current markets 6. Communication Market opportunities
are known as consist of either totally new markets or ways
a. innovations to improve a company’s offerings in existing
b. the marketing concept markets. Choose a business in your community.
c. market opportunities Write a three-paragraph memo to the owner or
d. none of the above manager identifying a possible market oppor-
tunity and the reasons you believe the com-
3. When marketing is integrated, it is considered
pany should consider the opportunity.
a(n) ____ part of the business, and it is ____ in
all important business decisions. Connect to
4. Which of the following is evidence that a 7. Dee Sloan of Dee’s Designs has asked you
business is using the marketing concept? to help her use the marketing concept to
a. being concerned only about the product improve her business. Develop a two-
or service minute presentation explaining the changes
b. believing they know what the customer you recommend in her approach to marketing.
wants Give your presentation to your teacher (judge).
c. using only a few marketing tools Be prepared to answer questions about your
d. studying the market recommendations. S
N
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4-2 Planning a Marketing Strategy
GOALS KEY TERMS
• Understand how the marketing concept transforms strategy, p. 96
business planning. market segments, p. 99
• Explain the importance of market segments and mar- market opportunity analysis, p. 100
ket opportunity analysis.
target market, p. 100
• Discuss how businesses develop the right marketing mix.
When businesses use the marketing concept, the planning process is in many ways
turned on its head. Instead of starting with a product or service and then looking for
customers who are willing and able to buy it, a business starts by researching poten-
tial customers and their needs. Only then does it move on to planning the product.
Even then the product is not developed in isolation. It is planned as part of a compre-
hensive marketing mix. All elements of the marketing mix are focused on satisfying
the needs of the target market customers that the company’s research has identified.
For a company with which you are familiar, describe the marketing mix (product,
distribution, price, and promotion) it uses for a specific group of customers. What
needs does it appear to be trying to satisfy? How do you think the mix could be
improved?
Putting Marketing Up Front

very business decides how it will
E attempt to achieve its goals. Most busi-

nesses use carefully prepared plans to
guide their operations. A plan that identi-
fies how a company expects to achieve its
goals is known as a strategy. A business’s
strategy provides the clearest indication
of whether that business understands the
marketing concept.
Without the marketing concept, a
business first develops a product or service
and then decides how it will be marketed.
There will be little consideration of who

the customers are or what their needs are
until the product is completed. Marketing
planning will occur only after the product
has been designed. It will typically be done
by marketing specialists working apart
S from others in the company. The business Why is marketing research important
N expects that most people are potential in developing a marketing strategy?
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FIGURE 4-1
With the marketing concept, planning begins with customer needs.
How Does the Marketing Concept Affect Planning?

Without the Marketing Concept With the Marketing Concept
1. Develop a product. 1. Conduct research to identify po-

2. Decide on marketing activities. tential customers and their needs.
3. Identify potential customers. 2. Develop a marketing mix (product,
distribution, price, promotion) that
meets specific customer needs.
customers for the product. It assumes that the results to plan the products and ser-
with adequate marketing those customers vices to be developed. The company will
can be persuaded to buy the product. attempt to develop products and services
With the marketing concept, a very that respond to customers’ needs rather
different strategy will be used. The com- than what the company thinks should be
pany believes it will be most successful if it offered. Marketing and product planning
can respond to the needs of customers. It will occur at the same time, involving
recognizes that those needs may be dif- many people in all parts of the company.
ferent among various consumer groups. Marketing will be directed at meeting the
It also realizes that customer needs can identified needs of the customers rather
change over time. than developing ways to persuade people
As shown in Figure 4-1, before doing to buy something they may not need.
anything else, the company will begin its
planning by identifying potential cus- Checkpoint
tomers and studying the needs of those
customers. Marketers as well as others will What is the initial focus of planning when
be involved in the research and in using the marketing concept is followed?
Understanding the Customer

onsumers have many choices of prod- Bringing a new product to the
C ucts and services they can purchase to

meet their needs. Today, consumers
are well informed and experienced in gath-
marketplace is expensive. It takes time
and money to develop, produce,
distribute, and promote products.
ering information. They often spend time When a new product enters the market,
comparing products and services before it must compete with many products
they make decisions. Even if a hurried offered by other companies. These
decision is made, if the buyer is dissatisfied companies also have invested a great
with the purchase or finds a better choice deal and do not want their products to
later, the buyer will likely return the origi- fail. The competition among products S
nal product for a refund. is very intense. N
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Planning a Career in... Marketing Research
“Grandma finally agreed to move into a supportive

living environment. Her new
apartment has wide hallways
that accommodate her
walker. The bathtub has a
door that swings open so Needed Skills
she doesn’t have to step in • Depending on the type of research, educational
over a high edge. Her apart- requirements vary from a B.A. to an M.A. or
ment key is mounted in an Ph.D. degree.
oversized holder that makes
turning the key easier. Some-
• A blend of coursework in business, quantitative
analysis, and information science is beneficial.
one sure put a lot of thought
into making this place easy for • Strong analytical skills and attention to detail
her to navigate.” are important.
How did the building owners know what
features to include in apartments for the elderly? What’s it like to work in...
How do bathroom fixture manufacturers know Marketing Research
that a growth in the elderly population warrants It’s 7:15 A.M. and Dimetri, a marketing research
redesigning standard products for ease of use? associate at a consumer products company, is
Marketing research enables companies to reviewing what consumers need most from a
determine consumers’ needs and wants. Products laundry detergent. The results, obtained from a
can then be developed or refined to meet con- recent focus group, indicate that effectiveness at
sumers’ needs. stain removal, colorfastness, and value were the
most important factors to consumers. Dimetri will
Employment Outlook incorporate questions on these attributes into
• Faster than average growth is anticipated for the online survey he is developing for current and
the marketing research field. prospective customers.
• As international economies expand and create Dimetri’s afternoon team meeting focuses
the opportunity for more purchases, demand on the most effective way to deliver coupons to
for international marketing research will consumers. Six weeks ago, in three separate test
increase. markets, coupons for the laundry detergent were
distributed via newspaper ads, by having retailers’
• Rapidly expanding media outlets are driving
cash registers print out coupons when a competing
fiercer demand for consumers’ attention. Mar-
brand was purchased, and by making coupons avail-
keting research will be used to plan effective
able through the Internet. By comparing coupon
strategies to reach consumers.
distribution methods to recent sales in test markets,
the group hopes to determine which method of
Job Titles
coupon distribution was the most effective.

• Focus Group Facilitator
• Marketing Research Analyst
• Survey Sales Representative W h a t A b o u t Yo u
• Marketing Research Account Executive
S • Media Research Analyst How would you like to contribute to product en-
hancements through marketing research projects?
N • Research and Development Manager
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words, if they can effectively produce and
Fa s t FAC T S market products, consumers will buy their
products. These businesses feel that most
Loyalty to brands purchased in stores consumers are similar in terms of their
does not always translate into online needs and purchase behavior.
purchases. Consumers often begin Other businesses believe that an
shopping on the web site of a preferred understanding of consumer needs is an
brand but switch to a less-preferred important part of their business activities.
brand if they find the online purchase They study needs and try to understand
experience difficult. how consumers evaluate products and
services to make decisions about what to
purchase. The businesses recognize that
Identifying Customer Needs consumer needs can be quite different,
Successful companies are usually those so they try to identify groups of consum-
that meet customer needs. Think of your ers who have similar characteristics and
favorite businesses or the products you needs. They feel that they can do a better
purchase regularly. They are usually not job of satisfying consumers if they can
the only choices you have, but they meet develop products and services that respond
your needs in specific ways better than the to what the consumer wants and expects.
other choices. The reasons may be higher
quality, convenience, better prices, or a
unique image. Satisfying exchanges occur Satisfying Customer Needs
when you spend your money for products The business that is
and services that meet your needs, and the concerned about con-
business is able to make a profit on the sale sumer needs believes in
of its products. the marketing concept.
Meeting customer needs is not easy. Its activities begin with
First, many customers are not sure of a focus on the customer
their needs or may have conflicting needs. and a belief that if it can satisfy customer
Second, while consumers have many needs, needs better than its competitors, it will
they typically have limited amounts of have the best chance for success. The busi-
money available to satisfy those needs. ness studies markets to identify groups
They may not have enough money to buy a of consumers with unsatisfied needs on
specific product even though they believe which to focus its efforts. Through exten-
it is the one that best meets their needs. sive marketing research, the business gath-
Finally, the needs of individuals and groups ers and analyzes consumer information. It
of consumers can be quite different. Their categorizes customers according to similar
perceptions of the products or services that characteristics, needs, and purchasing
will meet their needs are also quite differ- behavior. Groups of similar consum-
ent. Compare your feelings about specific ers within a larger market are known as
products or services with those of your market segments.
friends or family. You will find that there After distinct market segments have
often are differences of opinion. been identified, the business analyzes each
Businesses tend to deal with customer of them. It tries to determine which market
needs in one of two ways. Some businesses segments can be served most effectively and
don’t view the specific needs of consumers which have the strongest needs, the most
as important. They believe either that con- resources, and the least competition. It tries
sumers don’t understand their own needs to identify other characteristics that can
or that businesses can influence consumer provide the business with opportunities for
needs with well-designed products and success. Studying and prioritizing market S
effective prices and promotion. In other segments to locate the best potential based N
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on demand and competition is known as business can then use the information it
market opportunity analysis. has collected from the research to make
Once segments have been identified production and marketing decisions spe-
and prioritized, the business selects those cifically focused on that target market.
segments on which it will focus its
efforts. The segments selected become the
business’s target market. A target market Checkpoint
is a clearly defined segment of the market
to which a business wants to appeal. The What is a market segment?
Planning the Offering

uch of the planning example, if an improvement is made to a
M
efforts of a company
are used to determine
what to sell and how it will
product, then the company might need
to increase the price. Developing the best
marketing mix requires the cooperation
be presented to the cus- of many people as well as careful planning
tomer. Products and services to be offered and creativity.
need to be developed. Marketing strate- A business uses the marketing concept
gies need to be planned in order to make because it believes that the best decisions
the products and services available to the can be made when the needs of consumers
targeted customers. are an important focus of the planning.
A business that believes in the market- By combining the planning of product,
ing concept bases the planning process distribution, pricing, and promotion, as
on customer needs. It knows that product shown in Figure 4-2, the company has the
planning and marketing must work hand
in hand. Therefore, it will carefully
coordinate the development of the
marketing mix.
Product
The Marketing Mix that offers
choices
The marketing mix is a blend of the four
marketing elements—product, distribu-
tion, price, and promotion. Many
decisions are needed to insure that a
satisfying product is made available to
Distribution Price
the selected markets at the time, in the that provides
Satisfied that gives
Customers
location, at the price, and with the infor- convenience value
mation that best meets customers’ needs.

An effective strategy will bring together
many complex activities. A business will
be able to control a large number of the
activities, but it will usually have to rely Promotion
on other businesses to help with its plans. that aids decision
making
Creating the Right Mix

Some of the decisions in the marketing FIGURE 4-2
S mix are obvious while others are not. The Effective marketing strategies combine the parts
N results of one decision affect others. For of the marketing mix to satisfy customers.
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best opportunity to develop a satisfying,
competitive, and profitable mix. Business
people need to understand each of the mix
elements and all of the choices available in
order to develop a good marketing mix.
Developing Products
When the term product is
used, many people think
of the basic offering of a
company, such as an auto-
mobile, a desktop computer, or a meal
at a restaurant. But there is much more
to the product. Each competitor must
make decisions that will make the prod-
©PERMISSION GRANTED BY AMERICAN HONDA MOTOR CO., INC.

uct offered under its brand different from
and better than the products offered by
competitors.
Parts of the product decision that can
improve customer satisfaction include
special features such as a unique design,
construction, size, color, or operation.
Added accessories can make the product
easier to operate and more efficient.
Products can be improved by offer-
ing services to customers. Services can be
provided before or after the sale. They can
be related to the purchase, delivery, instal-
lation, use, or maintenance of the product.
Hybrid car manufacturers found ready customers and rising
Guarantees and warranties should be con-
profits while other auto companies struggled for sales.
sidered as a part of some products because
they make customers more confident in
the purchase of the product.
Another part of the product decision not available when you needed them or
is the use of the product. Often products were not found where you expected
have more than one use. Customers may to find them. Products may have been
be dissatisfied if they are not able to use damaged during shipment, poorly
the product in the way they want. Packag- packaged, or assembled incorrectly.
ing is needed not only to protect the prod- Poor distribution leads to customer
uct but also to make it easier to use and to dissatisfaction.
provide customer information. While some products and services are
exchanged directly between the producer
Making Distribution and the customer, usually other businesses
Decisions Distribution must be involved in the distribution pro-
is a critical part of a busi- cess. Manufacturers must rely on whole-
ness’s marketing decisions. salers and retailers to get products to the
It has an important impact consumer. Similarly, a retailer must locate
on customer satisfaction by making the sources of the products its customers want
product available where and when the and obtain them.
customer wants it. You can probably iden- An interesting activity is to try to trace S
tify many examples of products that were the distribution path for products you N
101
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purchase. Sometimes it is almost impos- to understand and plan. Theoretically,
sible to identify the companies involved price is determined from the interaction
in some part of the distribution process or of supply and demand. That relationship
even the company that manufactured the is important in setting the best price, but
product. Even though many of the busi- it is almost impossible to set the price of
nesses that are part of the distribution a specific product in a specific business
process are not obvious to the consumer, using only supply and demand. Busi-
each business involved and the activities nesses must develop specific procedures
it performs are important. Activities such to set prices that are competitive and
as order processing, product handling, allow the business to make a profit.
transportation, and inventory control must First the business needs to know its
be completed efficiently in order for com- objectives in pricing its products and
panies to get the product to the customer. services. If the goal is to increase the sales
If one fails, the entire marketing effort volume of a particular product rather than
may fail. make the most profit possible on each sale,
a different price will be used. Many busi-
Pricing Products and nesses set their prices the same or slightly
Services lower than their major competitors. That
Price is probably the most pricing strategy may be necessary in some
difficult marketing decision situations, but it can also create problems.
Virtual Marketing
Consumer Products Giant Taps launch for several reasons. The price—$44
Internet for New Product Launch for two weeks’ worth of applications—was
high enough to overcome consumers’
The Procter & Gamble Company is the world’s reluctance to pay shipping charges for inex-
leading marketer of consumer packaged pensive items, yet low enough that people
goods. It knows how to use all types of would be willing to risk that amount of
advertising and how to manage distribution money on a completely new product.
channels to get its products prominently P&G also used the web site to gather
displayed on store shelves around the globe. information for future marketing efforts.
So why did it quietly roll out an innovative In addition to getting buyers’ names and
new product on an Internet web site months addresses, P&G offered free shipping if
before it was made available to retailers? a buyer gave it the names of three other
P&G wanted to create word-of-mouth people who might want to try Whitestrips.
buzz for its new product, Crest Whitestrips
teeth whitening treatments, by making Think Critically
the product available even before it hit 1. Why are consumers reluctant to pay
store shelves. So even as it was completing
shipping and handling charges for
product test marketing, P&G sold more than
inexpensive items?
250,000 units through dental offices and the
Internet. 2. What do you think P&G hoped to gain by
Dentists gave the product credibility, releasing Whitestrips months before it
S and the Internet was a good fit for the began retail distribution?
N
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Why do some businesses offer special promotions such as double coupons or other discounts?
Calculating the price to be charged product with customers’ feelings about the
involves several elements. The price must value of the product. The goal is a fair price
be acceptable to customers, but it must and a reasonable profit.
cover all costs and allow for a reasonable
profit. Production, marketing, and operat- Planning Promotion
ing costs make up a large percentage of Promotion communicates
the final price of most products, so the the value and benefits of a
net profit available is very small. If prices product or service to help
are not carefully calculated, businesses consumers make decisions.
may not make a profit after expenses are Advertising and other promotional meth-
tallied. ods are powerful tools if used to support
Another part of the pricing decision effective marketing programs. However,
is how price is presented to customers. they can easily be misused and can have
Normally, retailers use a price tag or no impact or even a negative effect on
sticker, and customers pay the price that is consumers.
marked. Price may be communicated by Think of promotions you believe are
manufacturers through catalogs or price particularly good. Now try to determine
sheets or by sales representatives. the impact of a specific promotion on
It is common for businesses to offer your purchase behavior. It is difficult to
discounts from their list prices to some or determine the influence of just one promo-
all of their customers. Prices can also be tion on a decision, even if it is memorable.
changed by markdowns, allowances, trade- There are more messages around us each
ins, and coupons. Finally, credit is com- day than we can ever notice or to which we
monly used to allow customers to purchase can respond.
a product without paying the full price at When planning promotion, business
the time of purchase. people select from a variety of methods.
In pricing products and services, mar- The most common methods are advertis- S
keters must try to balance the cost of the ing, personal selling, sales promotion, N
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visual display, and publicity. The choices by itself. It is used to communicate the value
will be based primarily on the objectives and benefits of other product and marketing
the company wants to accomplish and the decisions to the consumer. Promotion can-
audience it wants to reach. Each method not do a great deal to help a company that
varies in the cost per person, number of has a poor product, excessively high prices,
people reached, types of messages carried, or ineffective distribution.
and other factors. Careful planning needs
to be done to reach the target markets
with an understandable message that helps Checkpoint
them make appropriate decisions.
Promotion is a unique type of market- Why should marketing mix elements be
ing tool. It does not create economic utility planned together rather than separately?

Determine the best answer. 5. Visual Art Draw or use technology to create
1. When using the marketing concept, planning a picture, graphic, or other visual representa-
begins with tion of the marketing mix used by a company
a. determining customer needs for one of its products. Make sure your visual
b. identifying a product includes each of the four elements of the mar-
c. assessing competitors keting mix.
d. building a budget 6. Language Arts Some companies have a
2. Studying and prioritizing market segments to specific target market for their products and
locate the best potential based on demand services while others appear to be market-
and competition is known as ing to everyone. Locate an advertisement for
a. market research a company that demonstrates a clear target
b. the marketing concept marketing strategy and another that does not.
c. market opportunity analysis Based on the purpose of the promotion mix ele-
d. target marketing ment, determine how the language used in the
two advertisements helps communicate the
3. True or False: In order to develop an effective
marketing strategy. Use the two ads to verbally
marketing mix, the product needs to be well
describe your conclusions to other students.
developed before planning other mix ele-
ments. Connect to
4. The marketing mix element that does not cre- 7. You are part of a team responsible for planning
ate economic utility by itself is a marketing mix for a new fast-food breakfast
a. product item targeting health-conscious families. De-
b. distribution velop a description of each mix element. Make
c. price a three-minute team presentation of your deci-
d. promotion sions and explain to your teacher (judge) how
you applied the marketing concept.
S
N
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Understanding Consumers and 4-3
Competitors
GOALS KEY TERMS
• Detail the stages of consumer decision making. decision, p. 105
• Understand how business can use the marketing

concept in various types of competition.
People follow a fairly predictable series of steps in making purchase decisions. They
follow those steps to identify and evaluate various products and services that might
satisfy their needs. By providing the right information at the right time when con-
sumers are making a decision, businesses try to demonstrate to consumers that their
products will deliver the best value. If that does not happen, consumers will likely
choose another product. Much of a business’s marketing strategy depends on the
type of competition it faces from other businesses. The number and type of compet-
ing businesses affects the choices consumers have and how businesses will compete
with each other.
Identify a major purchase you have made recently. How did you go about decid-
ing what product to buy and how much to pay? Did you feel you had a number of
good choices and adequate information to make the decision? Discuss your pur-
chasing process with other students to see if it was similar to or different from theirs.
Consumer Decision Making

onsumers make decisions every
C day. A decision is a choice among

alternatives. Decisions are made to
satisfy a need or solve a problem. Con-
sumers want to choose the alternative
that provides the most satisfaction or the
greatest value. Without choices, there
would be no need for a decision.
If marketers want to satisfy cus-
tomer needs, they must understand how
consumers choose what they will buy.
Researchers have developed a number of
©DIGITAL VISION
theories about what influences consum-

ers to make decisions. However, there
is general agreement that people follow
a series of decision-making steps when If you were shopping for a computer, how would you S
making a commitment to purchase. decide which one to buy? N
105
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It is not always easy to recognize the Some consumers spend very little time
stages as a person makes a decision. and use a small amount of information to
You may have to review several purchase evaluate choices. Others are very deliber-
decisions you have made in order to see a ate. Some people are careful and objective
pattern. If you often buy the same product while others are much less rational.
or service, you have probably formed a
habit. In that case, you may not go through Stage 4—Decide When the con-
all of the steps that you would use when sumer is comfortable with the evaluation,
making a new decision. Purchase decisions a decision is made. The decision will be
become routine and simple when repeated. to select one of the available choices,
The decision-making process is more to gather more information, or to do
evident with an infrequent, important nothing at that time.
decision. Stage 5—Assess The final step in the
process is to determine whether or not
The Stages of a Decision the choice was correct. If the consumer
tried a specific product, it will be evalu-
Figure 4-3 illustrates the five stages in
ated to see if it satisfied the need. If it did,
consumer decision making. Consider
the decision will likely be repeated the
an important decision you have made as
next time the same need occurs. If it did
you study each stage to help you under-
not satisfy the need, the purchase decision
stand it.
will probably not be repeated.
Stage 1—Recognize The typical Understanding the decision-making
purchasing process begins when the con- process is an important marketing skill.
sumer recognizes that a need exists. Prior Knowing where consumers are in that
to that time, the consumer may have been process helps marketers offer the right
aware of many products and services but information at the right time. The result
took no action. Once a specific need is should be a more effective exchange.
identified, the consumer moves through
the stages of decision making. If the need
is urgent, the process may occur quickly. FIGURE 4-3
If not, the consumer may take time before Consumers make a series of decisions when
a decision is made. deciding on a purchase.
Stage 2—Identify Once a need is Recognize a Need

recognized, the consumer becomes inter-
ested in finding a solution. That interest
leads to identifying products or services
that relate to the need and sources of Identify Alternatives
information that can help the consumer
make an effective decision.
Stage 3—Evaluate When several Evaluate Choices
choices have been identified, the consumer
then gathers information and uses it to
evaluate the choices. An evaluation is done
to determine if any one choice seems Make a Decision
to be better, more available, or more
affordable than other choices. Consumers
must determine if one product or service
S meets their needs better than the other Assess Satisfaction
N products and services being evaluated.
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Relying On Information
Wo r k i n g i n Te a m s
Marketers are often
described as creative Have each team member in turn describe a
people. Indeed, a great recent purchase and how the purchase decision
deal of creativity is was made. As a team, discuss whether or not
needed to plan a mar- the decision seemed to follow the stages of the
keting mix. Developing new product decision-making process. What types of deci-
features and uses, preparing promo- sions seem to follow the steps and what types
tional materials and activities, and do not?
demonstrating value to customers
depend on the creativity of the people
involved. Marketing is increasingly
becoming a scientific process. Information and weaknesses of competing companies.
is gathered to improve decisions, and alter- Finally, businesses study alternative mar-
native methods are studied to determine keting strategies to determine which ones
which are most effective. are most effective and most profitable.
Conducting research is an important Marketers are using more and more
marketing activity. Marketers need to be information to make decisions. Most
skilled in organizing research and using companies are developing marketing in-
research results. The most important type formation systems that collect and store a
of research for most businesses is the study variety of information. That information is
of potential and current customers. Com- readily available, often through the use of
panies need to be able to clearly identify computer databases, when decisions need
their customers, characteristics that make to be made.
groups of customers different from others,
their important needs, and how they Checkpoint
make purchase decisions. Additionally,
research about competitors will identify Why are the stages of consumer decision
the type of competition and the strengths making important in marketing planning?
Responding to Competition
he private enterprise economy offers is usually very intense. Consumers can
T many opportunities for businesses. A

person who wants to start a business
and has the necessary resources can prob-
select from among a number of products
and services. They expect real value from
businesses. Otherwise, they will purchase
ably do so. Our economy is also good for from a competitor. Value is not always
consumers. Because of the opportunities the same for every consumer. It may
for people to operate businesses, consum- mean higher quality, more service, or
ers typically have many available products lower prices. Businesses that are unable
and services from which to choose. to meet customer expectations better than
Even though private enterprise offers their competitors may not be able
many opportunities, it also presents chal- to survive.
lenges to business people. When there are Marketers need to be able to identify S
many businesses in a market, competition the type of competition a company faces N
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and develop an appropriate marketing Distribution can focus on making the
strategy. Using the marketing concept product available at better locations and
provides direction for developing effective times, with more careful handling, or
strategies. greater customer service. Pricing can offer
alternative methods of payments or greater
ease of obtaining credit. It can provide ex-
Intense Competition tended time for payment or leasing rather
The most difficult type of competition than ownership. Promotion can provide
businesses face is a market in which busi- more personalized or detailed informa-
nesses compete with others offering very tion. It can use non-traditional methods or
similar products. One example is pure media. It can also communicate with the
competition, where there are many busi- customer after the sale to aid in the use of
nesses offering the same product. Another the product.
example is an oligopoly where only a few
companies compete in the same market
but offer products in which consumers see Limited Competition
few, if any, differences. Business people Some businesses have the advantage of
can study the customers in the market to offering a product or service with little or
determine if there are some groups who no direct competition. In economic terms,
are not currently satisfied with the choices this situation is known as a monopoly.
available. Businesses facing limited competition
In the past, businesses facing intense often operate in very different ways than
competition responded by emphasizing those facing intense competition. They do
price or promotion. When they found that not have to worry as much about price or
customers saw no important difference even promotion since consumers are re-
among competing products, they believed stricted in their choice of products. There-
they had to reduce prices to make a sale. fore, a business will usually concentrate on
Companies that emphasized promotion maintaining its advantage in the market. It
tried to convince customers that their will try to keep competing businesses from
products were better than those of com- entering the marketplace. It will protect
petitors. In some cases, they created minor its location and concentrate on keeping its
differences and then promoted those dif- product or service as unique as possible.
ferences as being important to consumers. Customers using the products and ser-
In other cases, they attempted to create vices of a monopoly business often become
unique brand names and images so that dissatisfied with their lack of choice. They
customers would remember the brands believe that without competition they pay
and select them from the available choices. higher prices and receive poorer service.
Companies that face intense competi- They must also deal with a company that
tion need to examine their marketing mix. may be more concerned about protecting
With careful study of consumer needs and its market and making a profit than about
their experience with available products, meeting the needs of consumers.
businesses may be able to identify ways Consider the only hospital in a com-
to change or improve products, features, munity where the next closest hospital is
or the services offered with the products. 60 miles away. That hospital would be in
New product uses might be identified. The a market much like a monopoly with no
goal of any product change is to make the direct competition. It would be difficult
product different from that of competitors for consumers to drive the 60 miles every
so that it is more satisfying to the target time they needed health care. The hospital
market. administrators would not have to be par-
S There may also be opportunities in ticularly concerned about the people who
N other parts of the marketing mix. need hospital services. They could offer the
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Digital Digest
Using Scanners to Collect Marketers can use this information
Market Data to determine if a certain promotion is
successful. They can also make certain
Most people are familiar with the devices ca-
conclusions about their market and can
shiers use to scan purchases in grocery store
better target future efforts. For example, if
checkout lanes. The scanners read bar codes
a customer buys diapers and baby formula,
from the products and automatically ring
marketers might also send that customer
up the correct price for the item. But that is
information about other products and
not all those electronic devices do. They also
services for parents of young children. So
feed data into a computer that keeps track
while a grocery store’s discount cards can
of inventory for the store. If the store runs
save customers money, they are even more
low on a certain item, the computer can
valuable to marketers.
automatically order more from the supplier.
Scanners also provide useful information Think Critically
to marketers. When a purchase is made us-
1. How does good inventory
ing a credit card or store discount card, the
management affect customer
purchase information is logged into a data-
base. That database shows who the custom- satisfaction?
ers are, what and when they buy, the price 2. How can detailed sales data help gauge
they pay, and whether they use coupons. the effectiveness of a sales promotion?
services that provided the highest level Monopolistic Competition

of profit. Customers might not be happy, Most businesses face competition some-
but they would have little choice of an where between monopoly and intense
alternative. competition. They have many competitors,
While it may not be as profitable in but customers see some differences among
the short run, the hospital administra- the choices. The customers will attempt to
tors could adopt the marketing concept determine which of the available products
to make operating decisions. As a result, and services best meet their needs. It is im-
consumers will be more likely to use the portant for the companies to have clearly
local hospital and to encourage others to identified differences that result in custom-
use it. They will be less likely to look for ers selecting their brands from among all
other places and other methods to meet of the available choices.
their health care needs. Companies in monopolistic competi-
The same analysis could apply to the tion find the marketing concept to be of
only convenience store, supermarket, or most value. Since customers already recog-
other retail business in a neighborhood. It nize the unique choices available to them,
could also apply to the only distributor of they attempt to select the brands that
fuel or agricultural supplies in an area or are most satisfying. Companies that use
to a government agency or school system. the marketing concept focus on specific
Each of these businesses has the charac- groups of customers and attempt to iden-
teristics of a monopoly and can decide tify their needs. Then they will use the full
whether or not to adopt the marketing range of decisions within the marketing S
concept. N
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mix to develop products and services orders and payments on its web site or by
for those customers. Changes and im- telephone and has the order ready at curb-
provements can be made in the product, side for the customer at a convenient drive-
distribution, price, and promotion that up location. In each case, a change is made
make the brand not only different from in the marketing mix that is designed to
its competitors but also more attractive to improve the mix, make it different from
potential customers. the competition, and respond to an impor-
Here are some examples of the use of tant need of the target market.
the marketing concept. A manufacturer
of portable CD players makes its product
smaller and more durable and offers the Checkpoint
product in a variety of colors and styles.
A day-care center keeps children overnight Why is the marketing concept particularly
to meet the needs of parents who have useful for businesses facing monopolistic
evening jobs. A supermarket accepts competition?

Determine the best answer. 5. Technology Using the drawing tools of a word
1. A choice among alternatives is a(n) _____. processing program, create a flowchart that
illustrates each of the stages of the
2. In order for the decision-making process to
decision-making process. Fill in the flowchart
begin, a consumer must
with information about an important
a. recognize a need
purchasing decision you made.
b. have prior experience with products
c. identify possible products that will satisfy 6. Management For each of the three types of
the need competition discussed in the lesson, identify a
d. all of the above business in your community that you believe
faces that type of competition. For each busi-
3. In the final stage of the decision-making pro-
ness, decide whether or not you believe the
cess, the consumer
business is using the marketing concept in its
a. makes a choice of the best alternative
response to competition. Act as the marketing
b. may decide not to make a purchase
manager for one of the businesses and write
c. gathers information about the price
a paragraph explaining how the marketing
d. assesses whether or not the choice made
concept could be used more effectively by the
was correct
business.
4. A strategy for a company in intense competi-
tion that uses the marketing concept is to Connect to
a. reduce prices below their competitors’ 7. Your marketing research team must prepare a
prices short survey to determine the most important
b. create a unique brand name for its reasons consumers are loyal to a specific busi-
products ness or brand. Survey 15 people and analyze
c. change the marketing mix to make it dif- the results. Prepare a two-page research report
ferent and more satisfying to customers with two supporting charts or graphs. Provide
d. increase the amount of promotion the report to your teacher (judge), and be pre-
S pared to answer questions about the research.
N
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The Varied Role of Marketing 4-4
GOALS KEY TERMS

• Explain how the role of marketing differs in channel of distribution, p. 112
various types of businesses. channel members, p. 112
• Identify ways marketing is used by non- non-business organization, p. 113
business organizations.
Marketing activities must be performed every time an exchange of products and

services occurs. That exchange may occur between businesses, a business and a
consumer, or even between consumers. The same basic marketing functions and
activities are used in all exchanges. Each exchange involves a supplier, a consumer,
and a complete marketing mix. However, there are differences in the ways that vari-
ous types of businesses use marketing tools. It may be surprising to learn that the
same marketing tools are used by non-business organizations and even individuals.
Marketing principles can apply to a variety of types of exchanges even when profit is
not the ultimate motive.
Make a list of three products or services used in your classroom. Then inves-
tigate how each was marketed to the school by various businesses. Now identify
three products or services your school provides to its consumers. Discuss how mar-
keting activities are a part of those exchanges.
The Varied Uses of Marketing

here are many different types of busi- get to their customers. Unless manufac-
T nesses. The entire marketing mix and

all marketing functions are important
to all businesses. However, each type of
turers and producers distribute products
directly to the users, they must rely on
other businesses to make good decisions
business will need to place more emphasis about product distribution, prices charged
on some of its marketing decisions than on to consumers, and even consumer promo-
others. tion. Even if manufacturers and producers
do not sell directly to the final consumers
Producers and Manufacturers of their products, they still must under-
Producers and manufacturers develop the stand and respond to the needs of consum-
products and services needed by other ers. In addition to the design of products,
businesses and by consumers. Because of other marketing activities must meet
that role, the product element of the mar- consumer needs as well. Manufacturers
keting mix usually receives the most atten- and producers must also be able to satisfy
tion. Distribution is also important as the the needs of the businesses involved in the S
companies must make sure the products marketing channels for the products. N
111
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Channel Members
A channel of distribution
is made up of all of the
businesses involved in
completing marketing
activities as products move
from the producer to the consumer.
Channel members are the businesses used
to provide many of the marketing func-
tions during the distribution process. For
those channel members, less emphasis
will be placed on the product element of
the marketing mix although they must
have the products that customers want. If
the product does not meet their custom-
ers’ needs, the customers are likely to hold
the channel member as responsible as the
producer or manufacturer.
After decisions are made about what
products and services to offer, channel Does a service business need to develop a
members then focus their attention on marketing mix? Why or why not?
the other mix elements. Wholesalers
emphasize distribution planning. Many for service businesses. The business must
wholesalers help their customers develop procedures to insure quality ser-
with financing and provide marketing vice every time.
information. Distribution planning is also impor-
Retailers are responsible for most final tant because the service must be available
pricing decisions. They use a variety of where and when the customer wants it. If
promotional activities to encourage con- the business is not conveniently located,
sumers to purchase their products. Chan- sales may be lost. If the business offers
nel members must work closely with both more services than the customers want,
producers and their customers to make expenses will be high.
sure the entire marketing mix is satisfac- Service businesses usually have more
tory to everyone involved. control over pricing than businesses that
sell products. It is more difficult for cus-
tomers to determine the appropriate price
Service Businesses for a service or to compare prices since
Service businesses face different businesses may offer the service
unique marketing chal- in a different way. Services are difficult
lenges. Most service busi- to promote since the customer may not
nesses work directly with be able to see or examine them. Services
their customers rather than that customers are not familiar with may
through a channel of distribution. There- require a great deal of promotion.
fore, they are responsible for the entire
marketing mix. Also, services are usually
developed and delivered by people, making
it more difficult to control the quality of
the service. Checkpoint
Because of the characteristics of ser- What is the main way that marketing for
S vices and the expectations of customers, service businesses differs from marketing
N the product mix element is very important for other types of businesses?
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Judgment Call
Gray Marketing Manufacturers commonly complain
Controlling the channels through which about gray marketers and try to stop them
a company’s products are distributed and with legal action. They claim that gray mar-
sold can be an important part of building a keters damage their products’ reputations
brand. That is particularly true for companies and confuse consumers. They also interfere
that sell their products internationally. Diffi- with exclusive marketing contracts that
culties can arise if an unauthorized business manufacturers have made with authorized
imports products into a country and com- distributors. Gray marketers argue that man-
petes with the authorized distribution chan- ufacturers simply want to control prices and
nel. This practice is called gray marketing. gouge consumers for as much as they can.
Unlike the “black market,” the gray market is They say their efforts provide consumers
legal. Gray market products are simply sold with the same products at lower prices.
outside the normal distribution channels by Think Critically
people or companies that have no relation-
ship with the producers of the products. 1. How does the prohibition of gray mar-
Someone may buy a product cheaply and keting enhance a company’s ability to
then import it legally into another country maximize its profits?
where it is sold at a price below the normal 2. Do you think gray marketing is an ethical
market price. business practice? Why or why not?
Marketing by Non-Business
Organizations
he successful use of marketing has to recognize that marketing can help them
T moved from the business world to

other non-business organizations.
A non-business organization has as its
achieve their goals.
It is not unusual today to see market-
ing being used by museums, libraries,
primary focus something other than pro- symphonies, athletic teams, churches, and
viding products and services for a profit. clubs. The unique characteristics of several
Previously, many people who headed non- types of non-business organizations sug-
business organizations such as government gest how they might approach marketing.
agencies, churches, schools, museums, and
even professional organizations viewed Government Agencies
marketing in negative ways. Because of Most government agencies have many of
those views, they did not see how market- the characteristics of a monopoly. They sel-
ing applied to or could help their orga- dom have competition for the services they
nizations. Today, people are more aware provide. Citizens usually pay for fire and
of marketing. They see many businesses police protection, garbage collection, street
using marketing effectively. Because of a repairs, and other city, state, and federal
better understanding of marketing and services through taxes. As a result, they
its goal of creating satisfying exchanges, have no choice but to pay the cost of those S
non-businesses organizations have begun services established by the government. N
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Government agencies have also
worked with the pricing element of
the marketing mix. While they cannot
reduce the prices of services, they have
made it possible to use credit or debit
cards for payments or to spread pay-
ments over a period of time rather than
requiring full payment all at one time.
Promotion has also become a popular
marketing tool for government agencies
to inform customers of services and to
build a positive image.
Nonprofit Organizations
Nonprofit organizations have a unique
©USED WITH PERMISSION OF THE AMERICAN RED CROSS

situation. They do not operate with a
profit motive. However, they still need
adequate resources to provide services
to people in need. Often they must rely
on fundraising from people who will
not directly benefit from the organi-
zation’s services. They must be able to
convince people of the value of those
services and the need to support the
organization financially. Promotion is a
very important marketing mix element
for many nonprofit organizations.
Nonprofit organizations provide prod-
A simple safety message reminds people of the
ucts and services for their clients. There-
importance of the Red Cross.
fore, the product mix element is important
It becomes easy for those providing the to make sure the products and services
services to feel they know what citizens provided meet the clients’ needs. Since
want and how best to provide it. They may many organizations serve clients across the
not be concerned about a high level of country and even worldwide, distribution
customer service. They may be more con- decisions are also important. Distribution
cerned about controlling costs to meet may involve shipping food and clothing to
their budget. impoverished parts of the country or trans-
Today, however, many government porting people to help with relief efforts.
officials and employees recognize the
importance of providing quality services
and responding to customer questions
and concerns in positive ways. They are Fa s t FAC T S
making information and services available
in more convenient and accessible ways. According to a survey by the National
Many government agencies have begun League of Cities, 75 percent of U.S. cities
using e-government, where information is have a web site. The survey also found
readily available through a well-designed that almost half of those cities offer their
and secure web site. Citizens can transact citizens online payment options for city
much of their business with government services, utility bills, and even parking
S using the Internet. tickets and traffic citations.
N
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Supporting Non-Business
Organizations
Many organizations seek help from
people who understand marketing and Religious institutions, use marketing strategies to
know how to use the marketing concept attract and keep members. Access school.
to identify target markets and develop cengage.com/marketing/marketing. Click on the
marketing mixes. With the help of mar- link for Chapter 4, and visit the web site for Mustard
keters and increased understanding of Seed Studio, a leading church marketing company.
and use of marketing tools, those orga- What strategies does Mustard Seed Studio suggest
nizations have seen positive results. They churches use to create a “guest-friendly environ-
now view marketing as an important ment”? (Hint: Click the Guestology link.)
part of their efforts.
Checkpoint
Why is marketing important to
non-business organizations?

Determine the best answer. 5. Visual Art Draw or use technology to create a
1. The marketing mix element that usually re- visual representation of a channel of distribu-
ceives the most attention from producers and tion involving three or more businesses that
manufacturers is _____. produce and distribute a product that you have
a. product purchased. The visual should show each busi-
b. distribution ness and the marketing activities that it per-
c. price forms as a part of the channel of distribution.
d. promotion 6. Government Locate the web site of a local,
2. Wholesalers emphasize _____ while retailers state, or federal government agency. Analyze
are responsible for most final _____ decisions. the web site for evidence of the use of market-
ing. Based on the web site, do you believe the
3. Which marketing mix element do service
agency understands the marketing concept?
businesses usually have greater control over
Prepare a two-paragraph report describing
than do businesses that sell products?
your findings and conclusion.
a. product
b. distribution
c. price Connect to
d. promotion 7. As the membership chairperson for your local
4. Non-business organizations have something DECA chapter, you are responsible for develop-
other than _____ as their primary focus. ing a marketing plan for increasing member-
a. customer needs ship. Prepare three computer slides that sum-
b. profit marize your decisions about a target market
c. marketing and marketing mix. Use the slides to present
d. all of the above your ideas to your teacher (judge). S
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Now that you have completed the chapter, check offer a definition of a market segment and
your understanding of the lessons with these ques- market opportunity analysis?
tions. Record the score that best represents your explain why it is important for a business to
understanding of each marketing concept. define its target market?
1 = not at all; 3 = somewhat; 5 = very well explain why product planning and marketing
If your score is 42–50, you are ready for the assess- planning must work together?
ment activities that follow. If you score 33–41, you list and briefly describe each of the stages of
should review the lessons for the items you scored consumer decision making?
1–3. If you score 32 or less, you will want to carefully provide examples of how the marketing concept
reread the lessons and work with a study partner on can be used in intense, limited, and monopolistic
the areas you do not understand. competition?
Can you— identify and defend the marketing mix elements
identify four ways that marketing is different that are important to each of the major types of
today than it was in the past? businesses?
explain why even successful businesses with explain why marketing is important to
superior products should still be concerned non-business organizations?
about customer needs?
describe how a marketing strategy is different
when the marketing concept is used to develop it?

1. Studying and prioritizing market segments to

locate the best potential based on demand and a. channel members
competition
b. channel of distribution
2. Occurs when marketing is considered an c. decision
essential part of the business and is involved in d. integrated
all important business decisions
e. market opportunities
3. A plan that identifies how a company expects to f. market opportunity analysis
achieve its goals g. market segments
4. Has something other than providing products h. non-business organization
and services for a profit as its primary focus i. strategy
5. New markets and ways to improve a company’s j. target market
offerings in current markets
6. Groups of similar consumers within a larger
market
7. A choice among alternatives
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8. True or False: Marketing consists of only a few ba- 17. The first step in the con-
sic activities such as promotion and distribution. sumer decision-making
9. True or False: In the past, marketing was used process is recognizing that
basically as a problem-solving tool, such as a way a _________ exists.
to reduce inventory. 18. True or False: In a limited-
10. True or False: Spending money to improve mar- competition situation, it is
keting usually results in increased profits for the not important for marketers to pay attention to
company. the effectiveness of their mix elements.
11. True or False: Following the marketing concept 19. In monopoly situations, businesses face which
requires a total commitment to satisfying cus- type of competition?
tomers’ needs. a. intense
b. limited or none
12. True or False: Understanding and meeting
c. monopolistic
consumer needs is relatively easy to do because
d. unlimited
most people have the same needs.
20. Service businesses face unique marketing chal-
13. True or False: The marketing mix elements all act
lenges because services are delivered by people,
independently of each other.
making it difficult to assure consistent ________
14. True or False: Because of so many other variables, each time.
it is impossible to set a product or service price
21. When businesses regard marketing as a provider
based strictly on the concepts of supply and
of opportunities, they look for which of the fol-
demand.
lowing?
15. True or False: The promotion element of the mar- a. new markets
keting mix is the communication link between b. ways to improve existing products
the seller and the buyer. c. changing customer needs
16. True or False: Because effective marketing re- d. all of the above
quires large amounts of information, most com-
panies are now developing marketing informa-
tion systems that collect and store information.

22. Marketing involves understanding customers such as electricity, natural gas, telephone, cable,
and their wants and needs. To demonstrate two etc.). Create a poster that compares the market-
views on customers, draw two large circles on a ing strategies of each company by highlighting
piece of paper. Within each circle, create a col- differences in the advertisements.
lage of pictures. One should contain customers 24. Brand names often have a significant impact on
that are all alike and would respond to a mass- the consumer’s perception of quality. Survey 10
marketing approach. The other circle should people to find their perception of the quality of
contain pictures of customers who represent the products represented by the following brands:
different market segments and would respond to Nike, Chrysler, Microsoft, Sony, and Kellogg’s. Ask
target marketing. them to use a rating scale where 1 is the worst
23. The type of competition faced affects the type of quality and 10 is the highest quality. Use a com-
marketing strategy a company will use. Locate an puter spreadsheet program to create a chart.
advertisement for a business from your commu- Record each person’s responses in your chart and
nity that faces intense competition (auto dealer- find an average quality rating for each product.
ship, supermarket, cellular telephone service, Prepare three written conclusions from the data.
etc.) and another advertisement for a company 25. Develop a marketing strategy including a S
that faces limited competition (utility company description of a target market and a complete N
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marketing mix for a house painting service. Make 26. Use an Internet search engine, an online library
sure that you consult the textbook to include all research service, or a web site such as www.
of the variables of each mix element. Describe findarticles.com that searches magazines and
the decision-making process you believe the tar- professional journals to find a recent article on
get market will follow to choose a painting ser- the use of marketing by non-business organiza-
vice. Identify and justify the type of competition tions. Then use a word processing program to
such a service would face in your community. compose a 150- to 200-word summary of the
article’s main points.

27. A service that is gaining in popularity is a shuttle to ensure you provide a satisfying product,
service for children whose parents work. These effective distribution (place), a reasonable
shuttle services provide rides to and from after- price, and effective promotion of the new
school activities such as dancing, gymnastics, business?
music lessons, and sports practices. The service 28. The study of customers and their wants and
is gaining in popularity since more families are needs is primary for a successful business. As the
unable to transport their children because the needs and wants of customers change, market-
activities occur while both parents are still at ers must be able to identify new markets or
work. customer groups for old products or services.
You are responsible for completing a market Pick-up trucks, fast food, and photo process-
opportunity analysis, determining the type of ing services are products that have been on the
competition a children’s shuttle service would market for a long time. Traditional markets are
face, reviewing the stages of decision making for changing, so marketers are looking for new mar-
a parent considering the service, and describing kets for each of those products. For each prod-
each of the marketing mix elements you would uct, prepare a table that describes and compares
recommend. (a) a traditional market, (b) the marketing mix for
To analyze the potential for a children’s the traditional market, (c) a new market, and (d)
shuttle service in your community, prepare the marketing mix for the new market.
written answers to the following questions:
29. A markup is the difference between the price
a. What individuals, groups, or organizations are
a business pays for a product and the price it
potential customers for the service?
sells the product for. It is usually expressed as a
b. What type of information is needed to
percentage of the price paid by the business. For
determine if there are enough potential
example, if a retailer pays $1 for a box of laundry
customers for the business? What are some
detergent and sells it to its customers for $1.50,
possible sources to determine the number of
its markup is 50 cents divided by $1, or 50%.
potential customers?
A bicycle shop buys six models of bikes for
c. What are two possible market segments for
the following prices: $66, $99, $142, $180, $245,
the service, and what are the important needs
and $300. Determine the effect of various mark-
of each segment?
ups by designing an electronic spreadsheet that
d. What type of competition would exist for this
will calculate prices for the bicycle shop. Input
service in your community—intense, limited,
the amounts the shop paid and develop formu-
or monopolistic competition? Who are the
las to calculate selling prices for the following
major competitors?
markups—25%, 33 1/3%, 48%, and 60%. Then use
e. What information would a customer need
the spreadsheet and each of the four markup
about the service at each stage of the
percentages to calculate the total cost and total
decision-making process?
revenue for the bicycle shop if it purchased and
f. Based on your market analysis, what would
sold three of each of the bicycle models.
be the most important factors to focus on
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Creative Marketing
Project Event
The Creative Performance Indicators
Marketing
Project gives
Evaluated
participants • Describe the project in an organized,
an analyti- clear, and effective presentation.
cal and creative approach to the marketing (Communication)
process by actively engaging students in the • Identify the marketing information needs
marketing activities of their community. It is of this research project. (Marketing-
designed to encourage students to recognize Information Management)
marketing as a force for the economic and • Interpret descriptive statistics used in the
social good of the community. Your project decision making process. (Marketing-
might concern itself with finding new markets Information Management)
for local products, promoting the commu-
nity’s resources, increasing the trading area • Explain the findings and recommenda-
of facilities, increasing local sales, increasing tions. (Communication)
local employment, providing better shopping • Demonstrate professional
facilities, or solving marketing problems or appearance, poise, and
challenges affecting the local community. confidence. (Communication)
This project is limited to 30 numbered
Go to the DECA web site for more
pages, including the appendix and excluding
detailed information.
the title page and table of contents. Major
parts of the written project include the Execu-
tive Summary, Introduction, Procedures and Think Critically
Research Methods Used, Findings and Con- 1. What are the greatest assets
clusions, Recommendations, Bibliography, that your city has to offer a
and Appendix. potential business?
You have been hired by your city to con- 2. Why must you describe
duct research for attracting an appropriate the workforce in detail
company and additional business activity when trying to attract a
to your community. You must consider the business to a community?
population of your city, the available work-
3. How can tax incentives be
force, economic incentives, and the market-
used to attract business to a
ing and distribution of the products/services
community?
produced by the company you are trying to
attract to your community. You will prepare a 4. Why is it important to describe the
written entry for this project and an oral pre- demographics of your community when
PHOTOS: ©DECA INC.
sentation to sell your research findings. The presenting to a potential business?

oral presentation must cover all performance
indicators. You must present a compelling
reason for a company to locate in your city.
w w w. d e c a . o r g S
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4-1 • Changes in Today’s DECA
Marketing
Prep 119
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Chapter 5
Marketing
Information
and Research
5-1 Understanding the Need
for Market Information
5-2 Finding and Managing
Marketing Information
5-3 Using Marketing
Research
5-4 Collecting Primary Data
Newsline )))
The New American Restaurant
The increase in the choices and identified several segments of • The Festive segment is
popularity of ethnic restaurants has consumers that have different attracted by the atmosphere.
been one of the most noticeable expectations and needs for ethnic A unique and enjoyable
trends in the restaurant industry. In meals. experience is as important
fact, three types of ethnic cuisines— as the food. They want a full
• The Basic Family segment
Italian, Mexican, and Chinese—are menu, hearty portions, and
expects familiar foods, a great
so commonplace today that they are entertainment.
value, and a family dining
no longer considered ethnic. Today,
atmosphere or carryout.
the most popular categories of eth-
nic restaurants are Japanese, Thai, • The Authentic and Mild segment Think Critically
Caribbean, and Middle Eastern. is composed of younger, upscale 1. Why have the variety and types
In the past, most of the ethnic consumers who want well- of ethnic foods and restaurants
restaurants were small, independent prepared, pleasantly flavored increased in recent years in the
businesses owned and operated by ethnic foods. United States?
immigrants to serve others with the • The Adventurous and Spicy
2. Identify some restaurants
same ethnic background. Today, large segment wants a menu that
in your community that
national and international restaurant is new and full of surprises.
These consumers are willing to have ethnic menus and
chains are located in the shopping
malls and entertainment districts try flavors with which they are themes. Do they seem to be
of towns and cities. A study by the unfamiliar, and they insist that the directed at any of the segments
National Restaurant Association menu be authentic ethnic food. identified?
CH 05-B4491-DS_REV2.indd 120 12/4/07 10:08:14 PM


• Acquire foundational knowledge of marketing • Describe the need for marketing information
information management to understand its nature • Explain the nature of marketing research
and scope
• Explain types of primary marketing research
• Understand marketing-research activities to show
• Identify sources of primary and secondary data
command of their nature and scope
• Explain research techniques
• Understand data-collection methods to evalu-
ate their appropriateness for the research • Identify information monitored for marketing
problem/issue decision making
• Evaluate marketing research procedures and find-
ings to access their credibility
Visual Focus
Marketing information and marketing
research are important marketing resources.
With information, decisions are objective
and accurate. Without information, past
experiences and personal opinions will often
influence those decisions. This chapter will
help you recognize the types of information
needed for marketing decision making, how
the information is obtained and used, and
effective research procedures.
Focus Questions:
What is your first impression when viewing
the advertisement? Does the image encour-
age you to read the ad? What type of product
or service is Pitney Bowes describing? Who
does it appear the company wants to see the
ad? Why do you believe that companies need
©PITNEY BOWES
precise information about their customers?

Locate an advertisement that includes
research or other specific information about
customers or competitors that was used by
the business in developing and marketing its
product or service. Share your choice in a class
discussion.
CH 05-B4491-DS_REV2.indd 121 12/4/07 10:09:13 PM

5-1 Understanding the Need for
Market Information
GOALS KEY TERMS
• Explain the importance of information in making mar- discretionary purchases, p. 123
keting decisions.
• Describe the categories of information needed by
marketers.
People who value the marketing concept understand why market information is
important. When businesses use the production philosophy, they make decisions
based on their own experiences and their ideas about what is needed. The market-
ing concept, in contrast, is based on satisfying customer needs, so it is essential to
know and understand prospective customers. When implementing the marketing
concept, businesses start with information to be able to identify customers and their
needs, attitudes, and expectations. With information, marketers can confidently
select the markets they will serve and plan effective marketing mixes tailored to
those customers.
As a class, agree on several products and services that most students buy on a
regular basis. Individually identify why you buy each product or service, what needs
it satisfies, and the important factors you look for when you purchase each product.
Compare your purchasing behavior with other students. Discuss similarities and dif-
ferences and how that information could be helpful to marketers.
Starting with Information

ost businesses today do not have a and service choices quite differently.
M production emphasis. They do not

believe that customers will buy a
product simply because they produce it.
Businesses know that if they are to meet
the specific needs and expectations of
consumers, they must have detailed and
Important factors facing businesses today specific information about them. They
increase the need to gather and study must be able to determine the similarities
information. They recognize that an under- and differences among market segments
standing of consumers, expanding choices, and decide how they can best meet the
competition, and the global marketplace unique needs and wants of those segments.
will help them make better decisions.
Expanding Choices
Consumer Differences Customer needs are changing, and so
Most businesses no longer believe that all are the choices customers make to satisfy
consumers are alike and all want the same those needs. Many consumers are able to
things. Instead, they recognize that various satisfy their basic needs much more easily
S consumers have very different needs and than was possible in the past. Therefore,
N wants and that they likely view product they have moved beyond basic needs and
122
122 CHAPTER 5 • Marketing Information and Research
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World View
Online Music Stores Think music that is available in Japan, for example,
Globally, Price Locally may not be available to U.S. customers and
vice versa.
The Internet has revolutionized the way
The real benefit of segregated markets is
people buy music. Downloading music has
to the online music stores. Keeping markets
become the preferred method of purchase
separate allows stores to better control the
for many consumers. Online music stores,
price of their music. Based on demand and
such as Apple’s iTunes, allow customers to
what people are willing to pay, a music store
purchase music instantly and as individual
may charge more to download the same
songs if they don’t want to buy an entire
song in one country than in another.
album. Albums are never sold out, and there
are no shipping costs. Think Critically
Just because people everywhere in the 1. Do you think segregated markets are fair?
world have access to the Internet does not Why or why not?
necessarily mean that they can all buy the
2. What would happen to the price of music
same music at the same price. Music licens-
if online music stores desegregated their
ing agreements are complicated and usually markets and allowed customers to buy
stipulate in which countries certain music music from any country they wanted?
can be distributed. As a result, the same
are devoting more resources to satisfying determine their strengths and weaknesses
their wants with discretionary purchases. will help businesses to be more competitive.
Discretionary purchases are not essential, As consumers’ wants and needs have
so consumers can decide whether or not to expanded, products and services have
purchase them. changed as well. In the past, products may
Consumers have many choices of most have been quite basic with few additional
products and services, and much more features or options available for consumers.
information about those choices, so their When products have limited differences,
decisions are more informed. In order to businesses try to compete for sales by
develop a marketing mix that will satisfy emphasizing such things as their brand
consumer wants, businesses must have a name, availability, or price. Businesses
clear understanding of expanding con- also try to compete by developing unique
sumer choices and consumer purchasing designs, product improvements, or special
decisions. features. However, such changes can be
expensive and may not always meet cus-
Competition tomer needs.
Competition is becoming much more The correct product design and market-
intense for most businesses. It is more dif- ing decisions can be very profitable, but the
ficult to make marketing decisions that will wrong choices can result in losses for the
ensure customers will prefer one company’s company. Decision makers want informa-
products to those of competitors. Gather- tion so that the best and most profitable
ing information about competitors’ prod- product and service choices that improve on S
ucts and marketing activities in order to competitors’ offerings can be implemented. N
123
5-1 • Understanding the Need for Market Information 123
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The Global Marketplace information about the country and its
As businesses develop an international people as well as new competitors can help
focus, the differences among customer determine how to become an effective
groups and the number of distinct market global business.
segments can become even greater. Even
if businesses believe that they understand Checkpoint
the consumers in their own country quite
well, they will not have as much confidence When a business uses the marketing con-
about consumer groups in other countries cept, what is the first thing it needs to begin
that they have never served. Gathering marketing planning?
Deciding on Information Needs

any marketing decisions are made were made. Original prices of products
M with too little information or the

wrong types of information. It is
also possible to become overwhelmed with
sold, markdowns, and the number
of items returned or unsold are also
recorded.
too much information, making it difficult In addition, the marketing manager
to use it to make good decisions. Consider distributes copies of a report that was pur-
the approaches of two apparel companies chased from a national apparel manufac-
as they decide on their apparel lines for the turing association. It presents information
upcoming year. on total consumer apparel purchases in
the United States for each of the past five
Approaches to Planning years for ten major categories of apparel.
J’Borg Apparel is deciding on next year’s Sales are broken out for four geographic
designs for its lines of shirts and shorts. regions of the country and are categorized
The members of the design team meet and by age and gender and by type of retail
share their ideas about possible changes. store where products are sold. The report
Several of the designers suggest that J’Borg also identifies the top six brands of apparel
should keep its basic designs from this year and shows the percentage of total sales
because they have been so successful. They contributed by each brand over the five-
think the company should simply develop year period. The final section of the report
new colors and some additional accesso- discusses the anticipated changes in the
ries. Another group believes that customers economy and in customer expenditures for
may be tiring of the company’s current ca- apparel for the next year.
sual offerings and will want more tailored Finally, the marketing manager
styles. They argue that entirely new designs shares the results of a marketing research
for its lines of apparel should be developed. study completed during the past month.
J’Borg’s primary competitor is Domi- Four groups of consumers from across
nique Designs. Dominique’s designers are the country were invited to a meeting to
also meeting to consider changes in prod- discuss their attitudes about apparel and
uct lines. Before the meeting, they request their ideas about purchases they expected
information from the company’s market- to make. The consumer groups discussed
ing manager. The marketing department ten questions about designs, brands, and
provides records on each of the company’s value. The results of the discussions are
products. Those records identify the quan- summarized in the research report. All of
tity sold by size and color for each week of the designers for Dominique have studied
S the year. They also show the region of the the market information, and they discuss
N country and the retail store in which sales it before deciding on next year’s designs.
124
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How will each of the companies decide
whether to make design changes and the Fa s t FAC T S
types of designs to use for the next year?
Which of the companies do you believe Arthur Nielsen, Sr. was a pioneer in the
will make decisions that are most likely to field of marketing research. He founded
be successful? What is the biggest differ- ACNielsen Company in 1923, best
ence in the way Dominique Designs makes known for the Nielsen television ratings.
decisions compared to J’Borg? One of his more valuable research tools
was to determine a company’s share of
the market among competitors.
Categories of Information
Put yourself in the position of the market-
ing manager for a national chain of yogurt
stores. It is your responsibility to collect from each of the categories. You will want
information to help store managers decide to help store managers determine who
what they can do to increase sales and their customers are, where they live, how
profits. What information do you think is much they spend on desserts, how they
needed? make decisions on what and when to
Each type of business needs specific purchase, and how they feel about your
information, but there are general cat- store and its brand of yogurt.
egories of information that all businesses You will want to know what new flavors
should consider. Those categories include to add, if other food products should be
consumers, the marketing mix and the sold, whether specific locations or certain
business environment. Figure 5-1 provides store layouts are more effective, the prices
examples of the types of information for to charge, and the most effective promo-
each category. tional messages and methods. A study of
As the marketing manager of the internal operations such as costs of opera-
yogurt stores, you will need information tions, training requirements for employees,
FIGURE 5-1
Marketers need information to make effective decisions
Types of Information Needed for Effective Marketing Decisions

Consumers Marketing Mix Business Environment
• age • basic products • type of competition

• gender • product features • competitors’ strengths
• income • services • competitors’ strategies
• education • product packaging • economic conditions
• family size • guarantees • government regulations
• occupation • after-sale customer service • new technology
• attitudes • product price • consumer protection
• primary needs • credit choices • ethical issues
• purchase frequency • discounts • tax policies
• brand preferences • location and method of sale • proposed laws
• information needs • type of distribution used • international markets
• media preferences • promotion and sales methods
• shopping behavior • promotional message
• promotional media
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and management methods may help deter- marketing information improves the deci-
mine the best ways to operate the stores. sions of businesses, and effective marketing
Your store managers will want to information reduces the risk of decision
know if the economy will change in the making. If a business can make better deci-
next year, if there will be new competi- sions that increase the likelihood of making
tors or if current competitors are making a profit, the time and money spent gather-
important changes, if taxes or government ing information is a good investment.
regulations will increase, and even specific
information such as whether the city is
planning to make street improvements in Checkpoint
front of a store.
There are many reasons to collect What are three general categories of infor-
information. However, all the reasons can mation needed by businesses for effective
be summarized in two statements. Effective marketing decisions?

Determine the best answer. 6. Psychology Businesses respond to differences
1. True or False: Most businesses no longer be- in consumer needs by offering choices of the
lieve that all consumers are alike and all want same product. Select a company that offers at
the same things. least three choices of a product. Examine the
product and product information to determine
2. Most consumers have moved beyond basic
the differences and the customer characteristics
needs and devote more resources to satisfy-
or needs to which each appeals. Prepare a one-
ing their wants with purchases.
page report or a summary chart of your analysis.
3. When products have limited differences, busi-
7. Economics Review several recent issues of a
nesses try to compete for sales by emphasiz-
local or statewide newspaper. From the news
ing all of the following except
reports, identify five factors that could affect the
a. their brand name
economic environment for consumers and
b. availability
businesses in the next six months. Suggest how
c. price
each factor might affect businesses in your
d. all of the above are emphasized
community.
4. When moving into international markets,
businesses are likely to face customers Connect to
a. who are quite similar to existing customers 8. Your marketing research team works for a local
b. who are already well satisfied by movie theater. Your goal is to increase the num-
competitors ber of movie-goers and the average amount
c. for whom they have little information or each customer spends on concessions. As a
experience team, determine three specific types of informa-
d. with no need for the company’s products tion you will need for each category: consum-
5. Effective marketing information ers, marketing mix, and business environment.
the decisions of businesses and Decide why each type of information is needed.
the risk of decision making. Make a team presentation of your ideas to your
S teacher (judge).
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Finding and Managing Marketing 5-2
Information
GOALS KEY TERMS
• Describe common sources of internal and internal information, p. 128 input, p. 132
external market information. external information, p. 130 storage, p. 132
• Explain the five critical elements of an marketing information analysis, p. 133
effective marketing information system. system (MkIS), p. 131 output, p. 134
One of the functions of marketing is marketing-information management. In

Chapter 1, marketing-information management was defined as obtaining,
managing, and using market information to improve decision making and the
performance of marketing activities. In order to use information effectively,
businesses have to first know where to find it. Once they have it, they need to
develop marketing information systems to get the most out of it.
If your class decided to operate a concession stand at school events, what
market information would you need to start the business? Identify five sources
you could use to locate needed information. Discuss your ideas with other
students.
Sources of Market Information

here do you go to find the titles of determine what information they need
W the most recent movies available

on DVD or for download from the
Internet? What is a good source of infor-
and where to obtain it, they go through a
similar process. The process can be sum-
marized in the following steps:
mation to help you learn about careers or 1. Identify the types of information
college choices? If you want to know the needed.
best price to pay for a specific model of
automobile, where do you turn for help? 2. Determine the available sources of
Each of these decisions requires informa- each type of information.
tion. For most decisions, there is usually 3. Evaluate each source to determine if
more than one information source. Factors it meets the organization’s needs
that influence your choice of an informa- in terms of accuracy, time, detail,
tion source may include its availability, and cost.
how quickly it can be accessed, how com- 4. Select the sources that best meet the
plete or accurate you believe it to be, and identified needs.
your past experience with the source. 5. Enter the information into a marketing
Business people need information information system. S
to make marketing decisions. As they N
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Marketing information can come from Customer Records and Sales
one of three sources: internal sources, Information Customer information
external sources, and marketing research. is essential in order to plan marketing
Internal and external information sources directed at those customers. Therefore,
are discussed next while marketing re- customer records are an important infor-
search will be discussed in Lesson 5-3. mation source. Many companies keep a
complete record of all transactions they
have with a customer. They record what
Internal Information Sources is purchased, the dates of purchase, and
Internal information is information devel- the quantities purchased. If the customer
oped from activities that occur within the purchases accessory or related products,
organization. A great deal of information then or at a later time, the information
flows through a business. Much of it is use- is also recorded and matched with the
ful for marketing decision making. Often, original purchase. Detailed information
however, the information is not recorded on payments and credit is also recorded.
or is not available to the right people or If the customer requires service, a service
at the time when it would be useful for record is prepared. Customer problems
decisions. For example, salespeople learn a and complaints should also be a part of
great deal from current and their records. When a customer stops
prospective customers.
They get information
about needs, perceptions
of price, satisfaction with
services, or requested
changes in products. That
information may never be
communicated back to the
company. Even if it is, it
may not be part of the in-
formation reviewed when
marketing plans are being
developed.
Most businesses keep
detailed records on pro-
duction schedules and in-
ventory levels. If the people
planning special promo-
tions are expected to in-
crease demand for particu-
lar products, they should
study that production and
inventory information
COURTESY BUSINESS OBJECTS
to make sure the promo-

tions match the available
products. Three catego-
ries of important types of
internal information are
customer records and sales
information, production
S and operations reports, and Detailed analysis of customer information can identify problems
N performance information. before customers are lost.
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buying the product or service, the record Effective security procedures must be put
should not be discarded. It should be in place to protect the information from
analyzed to determine why the customer misuse, loss, or theft.
was lost.
To target products and marketing Production and Operations
activities for specific customers, informa- Reports Production and operations
tion more detailed than sales records is activities are important to marketing.
needed. That information includes demo- Products and services must be avail-
graphic information such as age, family able when customers want them. Quality
size, income, and mailing and e-mail ad- standards need to be met. Expenses need
dresses. Businesses need an understanding to be controlled in order to price products
of customer needs, interests, and attitudes. and services competitively. Information
They need to know how consumers make about production and operations activi-
buying decisions, such as where they gather ties is collected, but it might not be shared
information, what choices are considered, regularly with the people planning mar-
where they decide to purchase, and when. keting activities.
Customer information can be gathered When a business is a part of a distribu-
through market research, but some busi- tion system working with a manufacturer,
nesses have discovered other ways to get it. it is even more difficult to get needed
Detailed profiles might be completed on information about production and opera-
a customer by the salesperson as a part of tions. Often manufacturers do not believe
the selling process. Many realtors ask pro- channel members need that information,
spective buyers a great deal of information or they believe it is confidential and are
in order to locate the best possible home. unwilling to share it.
Salespeople who work in clothing and When companies that make up a chan-
apparel stores develop complete informa- nel of distribution work closely together
tion on their regular customers’ needs and and share operating information, they can
preferences. Customers may be asked to meet customers’ needs much better and
provide profile information in response to can operate more efficiently. In that way
an advertisement, special offer, or informa- all members of the channel benefit. Those
tion request. companies have developed information
A relatively new information tool used systems that can share information about
by some businesses is a customer club. sales, costs, inventory levels, and produc-
Prospective and current customers are tion and delivery schedules.
provided with special incentives to join
the club. In order to join, the consumer Performance Information The
completes a detailed profile form. Based on success of a business is judged by its
that profile, each consumer is sent regular performance. Some people believe the
mailings or e-mail messages providing only important performance measure is
new product information, special purchase profit, and managers certainly must pay
opportunities and discounts, and promo- attention to the bottom line. However,
tional information for products and ser- there are other performance measures
vices the company believes the customer that need to be watched along the way as
will want to buy. well. The types of performance measures
Some companies have used the con- important to most businesses are sales,
sumer club or a similar tool to develop a costs, quality, and customer satisfaction.
consumer database of thousands of people. Performance is typically measured in
When that information is collected and one of three ways. For companies that have
maintained by the company, each individ- operated for a number of years, there are
ual must be informed of the recordkeep- records of past performance. The current S
ing and the company’s privacy policies. sales or costs can be compared to those of N
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external informa-
tion that businesses
should be aware
of and review
regularly.
Government
Reports People
often think of
regulation and
taxation as the
major roles of
government in
business. However,
another important
activity of federal,
state, and local
governments is
to supply informa-
tion that can be
used by businesses
and consumers.
How are a company’s records of past performance useful to marketers?
There are a
number of
agencies that
a previous month or year to determine if regularly collect helpful marketing
performance is improving or declining. information.
A second method is to compare per- Probably the best-known data-
formance with that of similar businesses. collection agency is the U.S. Bureau of
Information on other businesses is avail- the Census. Every ten years, the Census
able from external information sources. Bureau conducts a complete census of the
The most important performance country’s population. The report of that
measure is the comparison of actual per- census is very detailed and specific. It pro-
formance with expected or planned per- vides an excellent source to learn about the
formance. When managers plan marketing number of people and important charac-
activities, they develop goals, performance teristics of individuals and households in
standards, and budgets. Those plans need specific areas of the country. The Census
to be compared frequently with actual of Population data is available in digital
performance to determine if the company form for easier analysis. Some companies
is meeting expectations. analyze census data and sell reports to
businesses.
External Information Sources The population of the United States
External information provides an under- is not the only census completed by the
standing of factors outside of the organi- federal government. Others include the
zation. Marketers cannot plan effectively Census of Manufacturers, Retail Trade,
without understanding consumers, com- Wholesale Trade, Transportation, and
petitors, the economy, and other changes County Business Patterns. Many of the
going on around them. Marketing research studies are completed in full either every
is an important method of collecting and five years or every ten years. Moreover, the
analyzing external information. In addi- Census Bureau issues yearly updates of
S some data that are not as comprehensive.
tion, there are many valuable sources of
N
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There are literally thousands of other as more specialized publications such as
databases, reports, and information Black Enterprise, American Demograph-
sources available from government offices. ics, or E-Commerce Times. Business
One of the most difficult parts of using publications are useful sources of current
government information is determining information on the economy, legislation,
just what is available. Information is devel- new technology, or business ideas. Often
oped on agriculture, education, housing, the publications devote specific issues or
health, and international trade as well as sections to analysis of special topics or
many other areas of interest to businesses. data important to their subscribers.
Much federal government data can
now be accessed through links at its
comprehensive information web site Wo r k i n g i n Te a m s
at FedStats.gov.
Discuss with your team members why both
Trade and Professional businesses and consumers must be concerned
Associations Trade and profes- about the privacy of information that is used by
sional associations are organized to businesses to make marketing decisions. Agree
serve people and businesses with on three recommendations to make to con-
common interests. Members of the sumers and three to make to business people
association may be a part of the same about information privacy.
industry, such as travel, retailing,
exporting, or corn producers. Other
associations, such as the Ameri-
can Management Association and the Commercial Data and Information
National Association of Professional and Services There are a number of busi-
Executive Women, provide services for nesses that collect, analyze, and sell data.
people in particular job categories. Experian, Equifax, and TransUnion are
Most associations provide information the three major credit reporting agencies
specific to the needs of their members. That for consumer credit. Dun & Bradstreet
information may be disseminated through maintains the largest worldwide business
web sites, journals, newsletters, or more de- database and offers tailored reports to its
tailed research reports. Some associations customers. ACNielsen is one of the best
have research services, libraries, or data known of many companies that conduct
services that can be used by members. market research on a number of topics and
sell the information to business customers.
Business Publications Magazines
and journals provide useful information
for business people. Those publications Checkpoint
include general business newspapers and
magazines such as The Wall Street Jour- What is the key difference between internal
nal, Forbes, and BusinessWeek, as well and external market information?
Marketing Information Systems

usinesses need a great deal of infor- pronounced M-K-I-S) is an organized
B mation to operate successfully. With

all of the information needed, busi-
ness people could spend most of their time
method of collecting, storing, analyzing,
and retrieving information to improve the
effectiveness and efficiency of marketing
gathering and studying information. A decisions. S
marketing information system (MkIS, N
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Managing Information make good decisions, you must gather
Each business develops its own marketing information. Input is the information
information system. In some new, small that goes into the system that is needed
businesses, an MkIS may be as simple as a for decision making.
filing cabinet in which the owner collects, A great deal of routine information
organizes, and stores customer informa- results from the regular operations of a
tion, business records, and other infor- business. Routine information about cus-
mation important to the business. Even tomers, competitors, and business opera-
the smallest businesses are now usually tions is used for marketing decisions.
maintaining computerized records as well. Marketers need to know what customers
In large businesses, there may be an infor- purchase, in what quantities, and at what
mation management unit with a dedicated prices. They must know where customers
computer system and a staff of people who buy their products and what factors influ-
collect and analyze information and pre- ence them.
pare reports. Marketing managers carefully Marketing is influenced by the activi-
design MkISs to provide important infor- ties of competitors. Information is needed
mation to make decisions. The information on which businesses are competing in
has to be complete, accurate, easy to use, specific markets, the marketing mixes they
timely, affordable, and cost-effective. use, their strengths and weaknesses, their
All effective marketing information market share, and their profitability. Mar-
systems contain five elements. Those ele- keters can use information about business
ments are input, storage, analysis, output, operations to determine what activities are
and decision making. They are illustrated effective or ineffective.
in Figure 5-2. Occasionally, additional informa-
tion that is not routinely collected by the
business is needed for a decision. In that
Designing a Marketing situation, a marketing research procedure
Information System is used to collect the information.
In planning an MkIS, several questions
need to be answered. The questions and Storage Have you ever rushed to a class
their results are shown in Figure 5-3 on the only to discover that your assignment
next page. was not in your notebook? Many of us
are very good at collecting information.
Input How do you make decisions? If We may not be as good at storing it where
you want to be as objective as possible and we can locate it when needed. Storage
PHOTOS: ©GETTY IMAGES/PHOTODISC
Input Storage Analysis Output Decision Making

S FIGURE 5-2
N An example of a computer-based MkIS.
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FIGURE 5-3
A marketing information system (MkIS) is designed to help marketers obtain, store, organize, and
use information to improve decisions.
Designing an MkIS
Question MkIS Element
What information is needed to develop and implement the marketing Input

strategy?
How should the information be maintained so it is in a usable form, Storage
secure, and easy to access when needed?
What methods should be used to organize and study the information in Analysis
order to make effective marketing decisions?
How and when should the information be made available for most Output
effective use?
What ways should the information be used to improve marketing? Decision Making
involves the resources used to maintain improve decision making. Analysis is the
information, including equipment and process of summarizing, combining, or
procedures, so that it can be used when comparing information so that decisions
needed. can be made. In order to plan a promo-
A storage system in an MkIS has tional budget, a manager may examine
several characteristics. Most important, the budgets for other products or for past
it must protect the information. If infor- years. The effectiveness of one retailer
mation is lost or damaged, it is not use- in a channel of distribution may not be
ful when a decision must be made. Some apparent until that company’s sales are
business information is very confidential. compared with those of similar compa-
The storage system should be designed so nies. The costs of marketing activities for
that only authorized people can access the national and international activities need
information. Finally, the storage system to be combined to determine the total
should be organized so that information is marketing costs.
easy to locate when it is needed. The type of analysis needed is usually
Most of the information storage in determined when planning the marketing
businesses today is done using computer information system. Procedures are devel-
technology. After data is entered into the oped to obtain needed information from
computer, it is stored and maintained on a storage, to organize it, and to complete the
hard drive, recordable CD, flash medium, needed analysis. Specific computer pro-
or other storage device. Careful planning is grams are available that assist with those
done to make sure that back-up copies of all procedures. For example, database and
data are maintained and that information spreadsheet programs have procedures for
is secure. Some information and records common types of business data analysis
are still maintained on paper and must be using pre-developed formulas and graph-
organized and stored in filing cabinets. ing tools. Companies that complete a large
amount of data analysis usually employ
Analysis Information in an MkIS is people skilled in organizing and analyzing S
collected and maintained in order to data. N
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Digital Digest
Digital Photos Speed Products not only stays on top of its market but also
to Market saves lots of money by eliminating the need
for much overseas travel.
As the cost of digital photography declines
The National Football League has also
and makes it affordable for more and more
used digital photography to get products on
people, some businesses are cashing in
the market quickly, taking maximum advan-
on its advantages over film photography.
tage of fans’ Super Bowl enthusiasm before
PetSmart Inc., which sells pet products
it cools off in the days after the game. Using
through stores, a web site, and a mail-order
digital photographs, it cuts at least one
catalog, has used digital photography to
day off its production schedule for Super
slash the time it takes to bring new products
Bowl commemorative books. Those small
to market. What used to take two or three
but critical time savings can translate into a
months is now done in one month.
huge difference in profits.
Digital photographs are transmitted
over the Internet between the company’s
buyers and suppliers. Buyers show suppli- Think Critically
ers what colors they want or send sketches 1. What are the advantages of bringing
of new product ideas. Suppliers transmit products to market more quickly?
images of products in development and
2. What do you think might be some
get instantaneous approval to go ahead or
drawbacks to using digital photography?
instructions to make changes. The company
Output For managers and other deci- Decision Making The purpose of
sion makers, the most important part of a marketing information system is to
an MkIS is the output. Many people never improve decision making. Decisions
see information being collected, stored, should be better and should be made
or analyzed. They are given only summa- more quickly if an MkIS is well designed.
ries or reports to use in decision making. The decision-making process includes
Output is the result of analysis given to who is involved in the decision, when
decision makers. decisions need to be made, any policies
Output is usually written information or procedures that should be considered,
or graphics. It is provided in print form and the information needed by the deci-
or accessed by decision makers using a sion makers.
computer. If it is not well organized or if Some decisions are routine, and the
it uses language or data that is difficult to result of the analysis will determine the
understand, it may be misused or not used decision that should be made. For ex-
at all. ample, information in the MkIS of an
People who need output to make deci- office supply store shows that inventory
sions should have access to it. However, levels of computer paper have dropped to
business output is often confidential, and a level where it needs to be reordered. The
access is restricted and secure. The use of analysis program in the computer deter-
the Internet to store and access informa- mines that 200 cases of paper are needed.
tion makes data security a bigger issue It searches the vendor list to determine
S than it was in the past. which approved vendor has the lowest
N current price. The vendor is selected, the
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reorder quantity is identified, and a pur- guarantee means important changes
chase order is sent to the vendor. This type in the entire marketing mix. Once the
of routine decision requires no manage- company announces the new service,
ment attention. it will be difficult to end the service
Other decisions are unique. A major even if it proves to be too expensive to
credit card company considers whether maintain. That decision requires a
to offer a money-back guarantee on all great deal of time and information, and
products consumers purchase using the many of the company’s managers will
card. The guarantee is viewed as an impor- be involved in making it.
tant service that will encourage people to
use the credit card and could attract many
more customers. The results will affect Checkpoint
the company, the businesses that accept
the credit card, and competing credit What are the five elements of an effective
card companies. The decision to add the marketing information system, or MkIS?

Determine the best answer. 5. Technology Use the Internet to locate three
1. Which of the following is not an example of sources of information you would recommend
an internal information source? to a small business owner as an aid in planning.
a. customer records Use computer presentation software and de-
b. production reports velop three slides that describe the information
c. census data sources and why you are recommending each
d. sales, costs, and quality reports one.
2. True or False: There are a number of busi- 6. Success Skills Choose one of the following
nesses that collect, analyze, and sell data that personal decisions—choosing a college or
businesses can use to meet their information applying for a full-time job after graduation.
needs. Describe five types of information you will
need for the decision and five information
3. The resources used to maintain information,
sources you will use. Now write a two-sentence
including equipment and procedures, so that
description of each of the components of an
it can be used when needed is
MkIS that will help you make the decision.
a. input
b. storage Connect to
c. analysis
7. Some business people are concerned about
d. output
the time and expense required to gather and
4. With an effective MkIS, no management at- analyze all of the information needed to make
tention is needed for decisions that are marketing decisions. Develop a two-minute
a. internal persuasive speech to convince a business
b. external owner of the value of marketing information.
c. unique Make sure to address both concerns of time
d. routine and cost. Give your speech to your teacher
(judge). S
N
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5-3 Using Marketing Research
GOALS KEY TERMS
• Describe how to define and develop an understanding marketing research, p. 136 sample, p. 138
of a problem as the first steps toward solving it. secondary data, p. 137 random sampling,
• Identify the steps needed to gather and study data primary data, p. 138 p. 138
relevant to a problem.
population, p. 138
• Explain how to prepare reports and present proposed
solutions.
A well-organized and efficient marketing information system should provide the infor-
mation needed for regular and routine decisions. However, marketers are also required
to make decisions that relate to one-time problems or new situations. That often
presents the need for information that has not been anticipated or previously collected.
Marketing research uses tried and tested problem-solving procedures to gather the
information needed.
Suppose the number of students in your school is increasing so rapidly the current
facilities are no longer adequate but more space is not available. The school board asks
for alternatives for handling more students including alternative schedules, temporary
facilities, or other possibilities. How could you use marketing research to help them
gather information to aid them with the decision? Discuss your ideas with other students.
Seeing the Problem Clearly

uppose a business is considering enter- method is used to ensure that a careful and
S ing a new market in which it has no

previous experience. Maybe a compa-
ny’s engineers have developed a prototype
objective procedure is followed in order to
develop the best possible solution.
product that has never been sold before. In FIGURE 5-4

situations like that, the company’s MkIS Effective marketing research uses the scientific
will likely not have adequate information problem-solving procedure.
to support the required marketing deci-
sions. Marketing research is a procedure Implementing a Marketing
designed to identify solutions to a specific Research Study
marketing problem through the use of 1. Define the Problem
scientific problem solving.
2. Analyze the Situation
You have probably studied and used
scientific problem solving in many other 3. Develop a Data-Collection Procedure
classes. If you have, you already know the 4. Gather and Study Information
steps involved in that process. Those steps
S are shown in Figure 5-4. The scientific 5. Propose a Solution
N
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Define the Problem identification of a solution. If the decision
Marketing research is used when a busi- maker is confident in the proposed solu-
ness needs to solve a specific and unique tion and has limited time or money to
problem. The first step is to be certain study the problem further, the marketing
that the problem is clearly and carefully research process will come to an end. A
defined. That is not always an easy step. good marketing information system will
Sometimes the problem is very clear— to frequently provide the necessary informa-
identify the characteristics of a market or tion so that further study is not needed.
select a new advertising medium. In other
cases, you may not know the real problem. Develop a Data-Collection
If sales are declining, the problem might Procedure
be that customers’ needs are changing, After thoroughly reviewing the situation
they are dissatisfied with some part of and the available information, the re-
the marketing mix, or a competitor may searcher decides what additional informa-
have introduced a new product choice. tion is needed and how it should be col-
Consumers may believe the economy is lected. In this step, the actual marketing
not strong and may be less willing to spend research study is planned. The researcher
money. Usually decision makers and re- needs to know where to obtain informa-
searchers gather and study specific infor- tion and the best and most efficient ways
mation before the problem becomes clear. to obtain the information. There are two
It is important to prepare a written types of data that can be collected—sec-
statement of the problem and have several ondary data and primary data.
people review it to make sure it is under-
standable. The problem should be specific Secondary Data Information already
enough that researchers know what to collected for another purpose that can
study, whom to involve in the study, and be used to solve the current problem is
the types of solutions or results that might secondary data. Examples of secondary
be appropriate.
Analyze the Situation

An important part of scientific prob-
lem solving is to understand the cir-
cumstances surrounding the problem The Statistical Abstract of the United States
well enough to determine how to solve is one of the best external sources to find
it. Analyzing the situation allows the information to use as part of marketing plan-
researcher to identify what is already ning. Would information from the Abstract be
known about the problem, the infor- considered primary data or secondary data?
mation currently available, and even Explain. Access school.cengage.com/
possible solutions that have already marketing/marketing and click on the link
been attempted. for Chapter 5. Suppose you manufacture a
During the analysis step, the re- kosher food product that you think would be of
searcher reviews available information interest to Jewish Americans. Use information
and gathers information from people found in the Abstract to find three states that
who might have ideas or additional might be good markets for your product. (Hint:
information. Reviewing similar prob- Click the Population link at the left of the home
lems or previous studies can help the page.) Explain your reasoning.
researcher decide how to approach the
current problem.
It is possible that a careful situa- school.cengage.com/marketing/marketing
S
tion analysis by itself may result in the N
137
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data include company records, govern- obtained through data collection
ment reports, studies completed by col- designed specifically in response to
leges and universities, information from current needs of the company.
industry trade associations and other
business groups, and research reported in
magazines. Checkpoint
Primary Data Information collected Once a problem has been clearly defined,
for the first time to solve the problem what three things should a marketer
being studied is primary data. It is identify?
Gather Information
ave you ever participated in a mar- the researcher will use random sampling.
H keting research study? A common

research method is to question study
participants. A great deal of specific infor-
With random sampling, everyone in the
population has an equal chance of being
selected in the sample.
mation can be obtained using ques-
tionnaires presented online or sent
through the mail, with telephone
interviews, or by stopping people in
shopping malls to ask questions. No Work with a team. Discuss with your team
matter what method is used to gather members how you would go about identifying
the information, procedures must be a random sample of the students in your school
carefully developed and followed to for a survey? For what types of student issues or
be sure the results are accurate. concerns might a random sample of all students
Select the Participants not be the best approach?
The selection of participants in mar-
keting research is one of the most
important decisions to be made. In most
situations, there are many more potential Collect the Data
consumers than a company can afford to Research procedures should be carefully
involve in the research. Researchers usu- planned in advance to ensure that needed
ally collect information from a small per- information is obtained and that the col-
centage of possible consumers. In order for lection and review of information is done
the results to be accurate and the research objectively. Procedures for primary data
to be useful, that smaller group must be collection are particularly important.
representative so that its members will give When gathering information directly from
responses similar to those of the larger other people, researchers must be careful to
group. Research results will be misleading maintain the privacy of the individual and
if they do not reflect the views or behavior treat the person ethically. A great deal of
of the prospective customers. consumer research is conducted by tele-
Researchers use several terms to de- phone calls to people’s homes. The number
scribe the people who are the focus of study. of calls and the time of day when people are
All of the people in the group the company called may upset many people. Some busi-
is interested in studying are known as the nesses unethically tell consumers that they
population. A smaller group selected from are conducting a research study when they
S the population is a sample. To make sure a are really collecting personal information
N sample is representative of the larger group, or attempting to sell a product or service.
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Analyze the Data
Once information is collected, it needs to
be reviewed to determine whether it can
aid in developing a solution to the prob-
lem. For small amounts of information or
simple studies, the information may not be
difficult to review. However, most market-
ing research studies collect a large amount
of information that requires a great deal
of analysis. Therefore, most research is
analyzed using computers and statistical
programs in order to increase the speed
and accuracy of obtaining the results.
After the study is complete, researchers
examine the information collected. That
information may be in the form of an-
swers to surveys, observations that have
been recorded, or data collected from an
experiment. The information needs to be
organized so that it is meaningful and easy
to study in order to solve the problem for
which the research was conducted.
Numerical Data Numerical data are
COURTESY HYPERION
the easiest to organize. Researchers total

the number of responses to each ques-
tion or for each factor being observed.
When more than one group is involved
in the research, it is typical to compare Completing business on the Internet provides ready access to
the responses of the groups. The simplest important customer information.
form of comparison is done by calculat-
ing the percentage of responses or average questions or observers describe how a
response (mean, median) of each group. consumer acted in a specific situation,
Advanced levels of comparison can be there is not a common set of specific
made to determine the relationships answers recorded. There are special meth-
between two or more variables. For exam- ods for people trained to analyze that
ple, the researcher may want to study the type of information. Results can be classi-
relationship between the number of times fied into broad categories that are identi-
an advertisement runs on a television fied before the information is collected or
station and the number of customers who categories that are determined by looking
call a business seeking information about for similar ideas from the responses. That
a product. Another comparison could type of classification allows for summa-
be to determine if there is a relationship ries of the non-numerical information.
between the price of a product and the
level of customer satisfaction identified
through a survey of recent purchasers. Prepare Results
The results of the study are usually orga-
Non-Numerical Data Some research nized into tables, charts, and graphs. Pie
information is not numerical, so it is charts and bar graphs are common ways
much more difficult to analyze. When of summarizing information. This makes S
customers respond to open-ended it easier for decision makers to analyze a N
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great deal of information in a brief time important marketing skill. Marketing re-
and to make comparisons of information search departments and companies employ
from different groups and sources. research analysts to complete those tasks.
The results of the research are often
summarized and analyzed in more than Checkpoint
one way. That allows marketers to consider
several possible solutions. Studying and Why is it important to select the right
analyzing marketing research is an participants from which to collect data?
Propose a Solution
he purpose of marketing research is
T to identify strategies for a company to

follow in implementing and improv-
ing marketing activities. Scientific problem
solving often begins with the development
of a hypothesis (or possible solution) to the
problem. After the research results have
been organized, they need to be studied
to determine if the findings support the
proposed solution or suggest an alternative
solution.
In most cases, the marketing research-
ers completing the study do not make the
final decisions about solutions. Instead,
they prepare a report of the research results
that is presented to decision makers who
carefully study the report. Since decision
makers use the results to help them with
decision making, the report needs to be How do marketing research reports help in the
accurate, understandable, and meaningful. decision-making process?
receiving the report may misunderstand or

Research Reports misinterpret the results.
Marketing research reports are usually A research report, whether written or
presented orally and in writing. Effective oral, is usually organized just like the study.
communication is an important skill for all A research report begins with a state-
marketers, especially market researchers. ment of the problem or the purpose of the
When a report is being prepared, two items research and includes a brief discussion of
are very important. First, the people pre- why the study was needed. Then it summa-
paring the report must know who will be rizes the secondary data that was collected.
receiving and studying the report. Just as a The third part is a description of the
marketing mix should respond to the needs procedures used in the study. This includes
of customers, the research report must be the population studied and the way a
prepared to meet the needs of its users. Sec- sample was obtained. It also describes the
ond, the report must clearly describe the method used to collect information includ-
purpose of the study and the research pro- ing surveys, observations, or experiments.
cedures followed to collect the information. The report continues by presenting the
S Without an understanding of the problem results of the research and concludes with
N being studied and the methods used, those a summary and recommendations.
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Understand Basic Statistics

Numbers are important to marketers and to every Do you have an
business person. Business people are presented adequate amount
with a variety of numerical data and must be able of information to
to understand the information and use it to make make a deci-
decisions. Are sales, profits and expenses increas- sion? One or
ing or declining? Are products profitable or not? two test scores
Do we have a greater share of a market than our tell you little
competitors? about your possible
Consumers may not use numbers as fre- semester grade. Know-
quently as business people but must also be able ing how three or four
to understand numbers they encounter—”50% students performed does not give a true indica-
off ”; “10.5% financing available.” How do those tion of how you performed in a class of 40.
numbers influence your decisions? Is the information representative of all of
Statistics is a type of mathematics that ana- the information available? If student scores on
lyzes and presents numerical data in understand- this test are very much higher or lower than typi-
able forms including tables, charts, and graphs. cal tests, you won’t know very much about your
Statistics are used to describe the characteristics overall performance.
of a group of numbers so they can be interpreted, Is the information presented in a way to
compared, and used for decision making. aid understanding or does it confuse or mis-
Your teacher hands back a test, and you lead? Tables, graphs, and charts may leave out
received a “B” for a grade. While you may feel important information or present it in such a way
good (unless you expected an “A”), you really that it misrepresents the real meaning.
don’t know a lot about your performance. If you
answered 86 of 100 items correctly, you know a Develop Your Skill
bit more about your performance. If your teacher Over a period of several weeks, collect ten
tells you the average score of the 40 students in examples of statistics used by businesses in news
the class was 83, you know even more and can stories and advertisements. Classify each exam-
compare your performance to others. ple in a 3-row ⫻ 2-column table according to the
How would the additional information pro- following categories.
vided below affect your understanding of your Row 1—the statistics DO or DO NOT present an
performance and that of the other students? adequate amount of information to be under-
• Student test scores ranged from 97 – 63. standable and useful.
• More students scored 85 than any other Row 2—the statistics DO or DO NOT appear to be
score. representative of all of the related information
• The distribution of grades was 4 A’s, available.
13 B’s, 20 C’s, 2 D’s and 1 F. Row 3—the statistics DO or DO NOT appear

The statistics helps you better understand your to be presented to confuse or mislead the
performance because you recognize how your reader.
grade and score compare with other students like Now, develop charts or graphs that
you who took the same test. To understand and communicate the results of your research in
use statistics you need the following information. an understandable and meaningful way.
S
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Get the Message
Today’s Fragmented Media outlets—a phenomenon known as media
Fifty years ago, people got their informa- fragmentation.
tion from a limited number of media outlets. What increasingly fragmented media
Towns had one or two newspapers; there mean to marketers is that they have to work
were only a few network television and radio harder to reach a broad audience. A TV com-
stations; and there were a limited number of mercial during the most popular show today
magazines. will not reach as many people as one dur-
Today, cable and satellite television ing the most popular show in 1980. Today,
offer hundreds of stations; bookstores carry marketers might have to run the commercial
magazines that cater to every interest, on many different stations.
lifestyle, and hobby; there is AM, FM, and Think Critically
satellite radio; and the Internet is growing
1. What are some advantages to consumers
exponentially. While there are more media
of media that is fragmented?
sources from which to choose, in general,
each one draws less of an audience because 2. How do fragmented media make it easier
viewers are now spread over more media for marketers to reach potential buyers?
Presenting Research When to Use Marketing

Results Research
The most important part of the research Some business people think market-
report is the presentation of the results ing research is too time consuming and
of the research. In a written report, the expensive. These people believe they have
results are presented in the form of tables, enough knowledge and experience to make
charts, and graphs with brief written ex- good decisions. Others rely too much on
planations. In an oral presentation, marketing research. They spend too much
the results are presented using visuals. time and money trying to ensure they have
Those visuals are usually presented as as much information as possible before
computer slides projected during the pre- making decisions.
sentation. They often are supported with Although marketing research can be
printed information with the presenter very expensive and time consuming, it can
providing explanations and answering be a valuable tool. Deciding whether to
questions. use research is based on two factors. How
Finally, the research report concludes much risk is the business facing from the
with a summary that emphasizes the problem being studied, and how much
most important information from the time and money will be required to gather
study. It may also contain recommenda- the information?
tions for solutions if they have been re- If there is little risk or if possible solu-
quested. Sometimes the research will not tions are not particularly expensive to
completely demonstrate that a solution implement, there is little need for research.
will be successful. Marketers will need to However, if a business faces a complex
decide if they have enough information issue that may substantially affect sales,
S or if they need to continue to study the costs, and profits, research will be very
N problem. important.
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Since many decisions must be made marketers recognize the value of using in-
almost instantaneously, most businesses formation to support marketing planning.
maintain research budgets and conduct
ongoing studies to reduce the time needed
to gather information. Businesses try Checkpoint
to reduce the need for special research
studies by building extensive information What two things are important when pre-
databases as a part of their MkIS. Today’s paring a research report?

Determine the best answer. 6. Ethics Use the Internet to locate information
1. The first step in the marketing research pro- on the rights of research participants. Based
cess is to on that information prepare a one-paragraph
a. study secondary data ethics statement that could be used by market-
b. select the sample to be studied ing researchers to make sure they respect and
c. identify the problem protect the rights of consumers who might be
d. propose alternative solutions asked to participate in research studies.
2. Information already collected for another 7. Technology A company randomly surveyed
purpose that can be used to solve the current 350 customers about their preferred method
problem is of receiving information about special promo-
a. primary data tions. The results were: 140, enclosed with the
b. secondary data monthly credit statement; 102, an e-mail mes-
c. research results sage; 68, a special mailing for each promotion;
d. summary data 40, don’t want promotional information sent.
Use computer software to develop a table and
3. With _____, everyone in the population has
a pie chart or bar graph to present the results
an equal chance of being selected in the
of the survey.
sample.
4. True or False: Numerical data are easier to Connect to
organize for analysis than non-numerical data. 8. Your local DECA chapter has a large member-
5. Which is not one of the factors that should ship, but attendance at monthly after-school
be considered when deciding whether to use meetings is frequently low, and only about 30
marketing research? percent of members participate in the compet-
a. How much risk is the business facing? itive events programs. You have been asked to
b. How much time and money will be re- recommend marketing research that will help
quired to gather the information? the chapter develop a solution to the problem.
c. Do decision makers believe they have Develop a written outline of the study, making
enough knowledge and experience to sure to follow the steps in scientific problem
make the decision? solving. Prepare a two-minute presentation of
d. All are important factors. your marketing research plan and present it to
your teacher (judge). Be prepared to answer
questions about your plan.
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5-4 Collecting Primary Data
GOALS KEY TERMS
• Describe the purpose of marketing research surveys. survey, p. 144 observation, p. 146
• Explain the reasons for and limitations of using closed-ended questions, p. 144 experiments, p. 147
observation. open-ended questions, p. 144 test markets, p. 148
• Define various types of marketing research focus group, p. 145 simulations, p. 148
experiments.
When completing marketing research, the data-collection method chosen will

depend on the type of information you need. To find out how people shop for a
product, you might use a different method than you would if you wanted to know
how they use the product. A different method would be used to determine con-
sumers’ attitudes toward advertising than to identify the quantity of a product they
consumed during the year. The data-collection method should be as efficient as
possible to collect accurate data.
Survey a dozen people, and ask them to tell you the current time without
looking at a watch or a clock. Note the actual time of each observation, and make a
chart of the differences between the responses you get and the actual times. Discuss
with other students what the exercise tells you about appropriate data-collection
procedures and accuracy.
Conducting Surveys
survey is a planned set of questions to • agree or disagree
A which individuals or groups of people
respond. The survey can be completed
orally or by recorded responses. People can
• select a, b, c, or d
• rate this item on a scale of 1-10
be surveyed in person, through the mail, Occasionally, researchers will use
by telephone, by e-mail or online, or even open-ended questions to allow respon-
by using interactive technologies. With dents to develop their own answers with-
some methods, consumers are presented out additional information about possible
with questions on a computer or television choices. Examples of open-ended questions
screen. They may key their responses on include:
the computer keyboard, push buttons on a • What are the most important features
special keypad provided by the researcher, of this product?
or enter information on a touch-tone
telephone. • How does the durability of brand A
Most surveys use closed-ended compare to brand B?
questions that offer two or more choices • How did you feel about your shopping
S as answers, such as: experience at Z-Mart?
N • yes or no
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What are the advantages of conducting a survey in person?
Focusing on the Issues Questioning with Clarity

Open-ended questions are often used when It is important that survey questions are
researchers are attempting to identify the carefully written. Each question must aid
problem or are completing a situational in the collection of information that will
analysis. They may not be certain of which help to solve the problem. They must be
alternatives to include in a closed-ended written in such a way that each respondent
survey. In that case, researchers may dis- understands what is being asked, is encour-
cuss the problems with consumers using aged to respond honestly, and is not di-
open-ended questions to get more specific rected toward one answer so that the results
information.
A popular research method used to
gather information using open-ended ques- Fa s t FAC T S
tions is a focus group. A focus group is a
small number of people brought together Face-to-face interviews have been the
to discuss identified elements of an issue most popular method of collecting mar-
or problem. Focus group participants are keting research information. However,
carefully selected to ensure that the group is in recent years, its use has declined from
representative of a larger group of people or about one-third of all research to less
because participants are experts about the than 20 percent. Telephone surveys are
topic being studied. A skilled moderator now the most popular data-collection
uses a planned set of open-ended questions method, with online surveys growing
to guide the discussion and gather ideas. rapidly to be used almost as much as
The discussion is videotaped or recorded, face-to-face. S
and a summary is prepared for analysis. N
145
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are biased. Questions should be short, clear, objectives of the research. Many people
and simple. Each question should deal with will not answer surveys that appear to be
only one concept and use language that is too long or complex. Gathering unneces-
easily understood by the respondent. sary information can be both misleading
The survey should be organized in a and, in some cases, unethical. It may also
way that makes it as easy as possible to provide confusion in solving the market-
complete. Directions should be given so ing problem by introducing information
that the respondent knows how to record that is not relevant.
answers and what to do with the survey
when finished. The respondent should be
assured that the answers will be treated Checkpoint
confidentially.
Surveys should ask only those ques- What is a common reason to use open-
tions that are necessary to accomplish the ended survey questions?
Making Observations
second method of gathering research timing of purchases, how payment was
A information is by observation.
Observation collects information by
recording actions without interacting or
made, whether coupons or other promo-
tions were used, and what items were pur-
chased at the same time. You can
communicating with the participant. The learn about purchasing behavior in that
purpose of observation research is to see way without asking the consumer any
the actions of the participants rather than questions.
to have them recall or predict their Another unique equipment-based ob-
actions. This usually results in greater servation method is the use of eye-tracking
accuracy and objectivity. However, using photography. A retail store may be inter-
observations to gather data normally ested in how customers examine displays.
requires more time and expense than Through the use of close-up photography,
using surveys. It is difficult to gather infor- researchers record where the eyes look
mation from a large number of partici- first, how long customers focus on cer-
pants using observation. tain products, how they search the entire
Observations must be carefully display, and what they look at when mak-
planned in order to keep from changing ing a product choice. This information can
the participants’ actions as a result of the be very helpful in organizing displays and
observation. If people know they are being placing specific brands in the displays. The
watched, they may do things very different- same type of equipment is used to study
ly. Trained observers typically know what how consumers read magazine and news-
to observe and how to record information paper advertisements or view web pages on
quickly and accurately. In some situations the Internet.
observations can be made using technol- Some observations are made without
ogy with video cameras, audio tape record- consumers even being aware that they are
ings, or with other types of equipment being observed. Researchers are interested
designed to gather information about the in learning how participants behave in
actions of people. A common example of normal situations. In other cases, re-
the use of equipment is the bar code scan- searchers may ask people to participate
ners used at the checkout counters of many in a planned situation. In these cases, the
S retail stores. They can record the types and researcher wants to learn how people re-
N quantities of products purchased, the spond to specific, controlled activities. For
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Virtual Marketing
Interactivity Propels Kiosks employee, a kiosk can supply customers
At one time, retailers thought video kiosks with information, distribute coupons and
were going to revolutionize the way people other individualized promotions, or process
shop. But aside from bank ATMs, kiosks orders and sales transactions.
were slow to catch on. The development of For retailers and shoppers, kiosks can
the World Wide Web and high-speed data deliver the combined advantages of in-store
transfers, however, may have supplied the and online shopping. Because they are so
missing ingredients needed for kiosks to versatile and inexpensive, they are particu-
take off. larly effective for small retail chains that can
Interactive kiosks can be networked and react quickly to changes in the market.
monitored from a central location through Think Critically
a retailer’s web site. Instead of delivering
1. How many times in the past month
the same information or promotions to
have you used a kiosk? What did you
every user, they can identify individuals and
use it for?
customize each presentation based on their
buying habits or personal preferences. 2. Name some applications for kiosks that
Moreover, the enhanced capabilities of you have seen recently.
interactive kiosks arrived at the same time 3. Describe some new applications
that the cost of hardware and software was for kiosks that you think would be good
coming down dramatically. For a fraction marketing tools for retailers or other
of the monthly cost of a minimum-wage businesses.
example, a business might want to know

how customers would react if a different Checkpoint
type of sales presentation is used. Another
Why are the results of observations gener-
example would be to study consumer
ally considered more accurate than survey
responses to a new piece of equipment,
results?
such as the keypad layout on a cell phone.
Performing Experiments
he most precise and objective infor- Experiments are not used as often in
T mation is obtained through experi-

mentation. Experiments are carefully
designed and controlled situations in
marketing research as surveys or
observations. That may be because it is
difficult to carefully control factors
which all important factors are the same related to a marketing experiment while
except the one being studied. Scientific making them realistic for consumers. It
research is done by planning and imple- also takes a great deal of time to organize
menting experiments and then recording an experiment and operate it long enough
and analyzing the data. Marketers use to determine if significant differences
experiments to determine whether changes result. The actions of competitors can
in a single element of the marketing mix affect experiments undertaken in actual S
will affect customer behavior. markets. N
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©GETTY IMAGES/STOCKBYTE
Marketers often conduct experiments where one group of participants is given different marketing
mix information than other groups. What do you think marketers can learn from this kind of
experiment?
Implementing the marketing concept specific cities or geographic areas in which

suggests many opportunities for research marketing experiments are conducted.
to determine the best market segments to The test markets are selected because they
serve and the appropriate mix elements to reflect consumer and competitive charac-
provide. A company may want to deter- teristics important to the company.
mine if a customer’s geographic location To prepare for a test market, com-
makes a difference in purchasing behavior. panies gather detailed information about
An experiment in which two groups of consumers, competitors, and past market-
customers from different areas are pro- ing activities in the area. The companies
vided the same marketing mix may help to try new product ideas or make marketing
answer the question. A business owner may changes in the test markets. They col-
be uncertain about the effect of a price in- lect data on the product performance for
crease on sales volume. An experiment can a period of several weeks or months and
be developed in which everything except compare it with previously gathered infor-
the price is held the same for two groups of mation. In this way, they can attempt to
customers. One group is given a discount predict the performance in their total mar-
while the other is not. The experiment can ket based on the results in the test market.
demonstrate changes in the amount of
sales resulting from the price difference.
Simulations
Sometimes experiments are not possible
Test Markets in actual markets. Simulations are experi-
Because of the need for control over ments where researchers create the situa-
important conditions, experiments are tion to be studied. For example, a business
difficult to manage. Some companies have may want to see how children respond
S developed test markets. Test markets are
N when playing with a new toy. Rather than
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observing children playing in their homes and react to it. Architects can use computer
or schools, the business may organize a software to develop a complete external
play center. Then they bring groups of view of a proposed building from all sides.
children into the center and observe them The software allows the viewer to enter all
under more carefully controlled circum- doors and immediately see the interior of
stances. An automobile maker trying to a room. The software could be used to test
improve the driving experience can build consumers’ attitudes about changes in the
a small area that duplicates the front seat architectural plans of the building before
and dashboard of a car. By changing the final design decisions are made.
design and positions of the seat, steer-
ing wheel, and controls, the company can Checkpoint
determine which is most satisfying.
Many simulations are now done on What is the main benefit of using experi-
computers. Computer graphics allow ments compared with other methods of
research participants to visualize a change collecting primary data?

Determine the best answer. 5. Communication Join with five to eight
1. Examples of answers to closed-ended survey students to form a marketing research focus
questions include all of the following except group. Assign one member as the facilitator
a. yes–no and one member as a recorder. The topic of the
b. choose a, b, c, or d focus group is positive and negative customer
c. rate the items on a scale of 1–10 service experiences. When you have finished,
d. all are examples have the recorder summarize the results of the
discussion.
2. A small number of people brought together
to discuss identified elements of an issue or 6. Science Prepare a two-paragraph written
problem are called a(n) comparison of the similarities and differences
a. focus group between conducting an experiment in a sci-
b. simulation ence laboratory and conducting a marketing
c. test market experiment in a test market. Based on your
d. experiment understanding of the scientific process, make
two recommendations of how to conduct ef-
3. True or False: To make surveys shorter, each
fective marketing experiments.
question should try to incorporate several
concepts that need to be tested. Connect to
4. An effective test market is one 7. Your marketing research team is responsible
a. in which there is very little direct for surveying parents about the important fac-
competition tors they consider when choosing a restaurant
b. that is cheaper to reach than other markets for dining with their children. Prepare a written
c. where the business has never sold survey with three closed-ended and two open-
products ended questions that demonstrate principles
d. that reflects important consumer and of effective questions. Present your survey to
competitive characteristics your teacher (judge) and explain why each
question was included and the value of the
results of the research. S
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Chapter 5
1 Assessment

Now that you have completed the chapter, check differentiate between internal and external infor-
your understanding of the lessons with these ques- mation and offer examples of each?
tions. Record the score that best represents your identify the five elements of a marketing infor-
understanding of each marketing concept. mation system and explain the purpose of each
1 = not at all; 3 = somewhat; 5 = very well element?
If your score is 42–50, you are ready for the assess- explain the importance of correctly identifying a
ment activities that follow. If you score 33–41, you problem in order to solve it?
should review the lessons for the items you scored list the steps of the scientific problem-solving
1–3. If you score 32 or less, you will want to carefully process?
reread the lessons and work with a study partner on outline the main sections of a research report?
the areas you do not understand. identify several characteristics of effective survey
Can you— questions?
explain why marketing decisions are better when provide an example of using observation as a
decision makers gather and analyze information? marketing research method?
identify the three main categories of information explain the advantages and disadvantages of
needed for marketing planning? using experiments for marketing research?

Match the terms listed on top of the next page with the definitions. Some terms may not be used.
1. A procedure in which everyone in the popula- 9. Information collected for the first time to solve
tion has an equal chance of being selected in a the problem being studied
sample 10. A procedure to identify solutions to a specific
2. The result of analysis that is given to decision marketing problem through the use of scientific
makers problem solving
3. Questions that allow respondents to develop their 11. The resources used to maintain information,
own answers without information about possible including equipment and procedures, so that it
choices can be used when needed
4. Information that goes into the system that is 12. Information developed from activities that occur
needed for decision making within the organization
5. A planned set of questions to which individuals or 13. The process of summarizing, combining, or
groups of people respond comparing information so that decisions can be
6. All of the people in the group that a company is made
interested in studying 14. Information already collected for another pur-
7. An organized method of collecting, storing, pose that can be used to solve current problems
analyzing, and retrieving information to improve 15. A way to collect information by recording ac-
the effectiveness and efficiency of marketing tions without interacting or communicating with
decisions the participant
8. Specific cities or geographic areas in which mar- 16. Controlled situations in which all factors are the
keting experiments are conducted same except the one being studied
S
N
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a. analysis l. open-ended questions
b. closed-ended questions m. output
c. discretionary purchases n. population
d. experiments o. primary data
e. external information p. random sampling
f. focus group q. sample
g. input r. secondary data
h. internal information s. simulations
i. marketing information system t. storage
j. marketing research u. survey
k. observation v. test market

17. True or False: Focus groups can be composed of problem or are completing
participants who are experts on the topic rather a situational analysis.
than a random sample of the population. 23. True or False: Marketing re-
18. True or False: Marketing research helps business- search follows the steps of
es that are involved in international competition. scientific problem solving.
19. True or False: Businesses that have effective mar- 24. True or False: The most
keting information systems do not need to use precise and objective information about a poten-
marketing research. tial market segment is obtained through focus
20. True or False: Surveys should only ask questions groups.
that are needed to accomplish the objectives of 25. True or False: A great deal can be learned about
the research. purchase behavior by observing consumers.
21. True or False: Whether or not to use marketing 26. True or False: Secondary data is usually less ex-
research depends solely on its cost. pensive to obtain than primary data.
22. True or False: Open-ended questions are often
used while researchers are trying to identify a

27. A marketing information system (MkIS) has five Use the library or Internet to identify two infor-
components: input, storage, analysis, output, mation sources for each of these categories. For
and decision making. An MkIS can be developed each information source, prepare a note card
for many different applications, but each should that describes the publication name, publisher,
include the five components. You want to get a copyright date or frequency of publication, and
high grade on your next marketing test, so you type of information included in the publication.
decide to develop an effective system to organize If you can obtain a copy of the publication, select
and review the information you are learning. Plan a small sample of the information it contains and
an MkIS you could use. Using pictures or brief summarize it on your note card.
descriptions, identify your a) inputs, b) storage, c) 29. Identify which of the five steps in scientific prob-
analysis, d) outputs, and e) decision making that lem solving is described by each of the following
will result in a high grade on your test. marketing research activities.
28. Categories of information for marketing re- a. After receiving the surveys from the
searchers include business data, consumer respondents, the analyst tabulates the results
information, economic information, government and prepares charts illustrating the survey S
data, and information about specific industries. results. N
151
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b. The manager reviews sales records for the d. The managers listened to the report of the
past five years to see if there have been research results and decided to implement
changes in the geographic location of the top three recommendations of the
customers during that time. research team.
c. After considering several methods to collect e. In a discussion with salespeople, the marketing
information, researchers decide to organize manager agrees that there has been an
two test markets using different distribution increase in the number of customer complaints
methods to determine which is most effective. about the cost of repair parts for the product.

30. The band boosters at your school are planning a a. Determine the total number of participants
fundraising activity. They want to sell two-pocket who prefer each store and each brand. (To
folders that can hold full-size papers. The fold- determine the total, add the numbers in each
ers would be printed and assembled by a local column.)
company and sold to students and faculty. The b. Using the totals from Part a, calculate
boosters want your help in determining a design the percentage of the total number of
for the folder, the price to charge, and the best participants who prefer each store and each
ways to promote the folder in school to achieve brand. (To calculate the percentage, divide
a high sales volume. Prepare a proposal of three the total of each column by the total number
to five pages describing a marketing research of participants.)
study that will help the boosters answer their c. For each of the age categories, calculate the
questions. Include the following sections in percentage of respondents who prefer each
your proposal: identify the problem, design the store and each brand. (Divide the number of
research method, select the participants, analyze respondents in each preference category by
the data, and report the research results. The the total number of participants in that age
proposal should identify ways that include all category.)
three types of data collection—survey, observa- d. Illustrate the rank order of stores and the
tion, and experiment. rank order of brands for each age category.
31. An important part of the marketing research pro- (Rank order shows the store and brand that
cess is analyzing the data after it has been col- is most preferred, next most preferred, and
lected. The chart below shows the data collected so on.) Then illustrate the rank order of stores
from a study of store and brand choices for four and brands when the responses of all age
age groups of consumers. One thousand people categories are combined.
were surveyed, and the respondents indicated e. Using the information you have summarized
their preferred store and brand. for parts a through d, develop two conclu-
sions about store and brand preferences for
Calculate the following information from the data
the sample surveyed.
and develop tables, charts, or graphs to illustrate
the results.
Age Store Preference Brand Preference

Bardoes Kelvins 1-2-3 Motif Astra France
16–20 38 82 130 80 106 76
21–25 56 20 174 156 90 18
S 26–30 110 64 76 104 98 60

N 31–35 44 120 86 54 30 128
152
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Retail Marketing
Research Event
You have Bibliography and Appendix These are the
been hired last two sections of the report. The appendix
by a major is optional.
home improvement chain store to conduct
customer research. The company’s current ad- Performance
vertising campaign emphasizes personalized Indicators Evaluated
customer service, using actual testimonials
from satisfied customers. Now the company • Describe the business and the
wants to survey a cross section of customers geographic, demographic,
to determine if the store is delivering on its and socioeconomic factors for
promises. The purpose of your research is to the community where the busi-
determine customer perception of the com- ness is located. (Economics)
pany, expectations for customer service, and • Describe the current product/
level of customer satisfaction. You will analyze service offered and the product/ser-
current media and its effectiveness and pro- vice offered by the competition.
pose institutional promotion campaign activi- (Product/Service Management)
ties for the home improvement store chain. • Design the study and the instrument to
The written entry will consist of the conduct research. (Information
following parts: Management)
Executive Summary Write a one-page
description of the project.
• Analyze the preferred customer re-
search. (Information Management)
Introduction Describe the business or orga-
nization and the target market. This part of • Describe the goals, objectives, rationale,
the written entry should include geographic, activities, and timelines for a promotional
demographic, and socioeconomic factors campaign. (Promotion)
about the community. Go to the DECA web site for more detailed
Research Methods Used in the Advertising information.
Media Analysis Describe the design for the
advertising media analysis and methods used Think Critically
to conduct the advertising media analysis.
1. Why should a popular national home
Findings and Conclusions Describe the ad-
improvement store conduct customer
vertising media available and provide a cost
research?
analysis of it. Describe the advertising media’s
potential impact on the target market. Pro- 2. What incentive could be offered to cus-
vide a rationale for the selection of the most tomers to make sure they respond to a
cost-effective media. survey?
Proposed Institutional Promotion 3. Why is it important for a store to validate
Campaign Highlight the goals, objectives,
PHOTOS: ©DECA INC.
its level of customer service before high-

and rationale of the institutional promotion lighting the service in advertisements?
campaign. Outline the proposed institutional
promotion campaign activities, timelines, and
S
the budget. w w w. d e c a . o r g N
153
5-1 • Understanding the Need forDECA
Market
PrepInformation 153
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Chapter 6
Marketing Starts
with Customers
6-1 Understanding Consumer
Behavior
6-2 What Motivates Buyers?
6-3 Influencing Consumer
Decisions
Newsline )))
Sony Builds a Consumer Shopping Experience
Many consumer electronics manu- purchasers. There are now over employees help demystify tech-
facturers are moving their sales to 50 SonyStyle® locations in 22 states. nology through demonstrations,
the Internet or reaching customers Sony has expansion plans for the opportunities to try the technology
through giant consumer electronics retail concept in the United States as in realistic environments, and a high
stores such as Best Buy and Circuit well as other countries around the level of customer support including
City. The belief is that sophisticated world. customization, delivery, and in-home
purchasers know what they want As customers enter the store, installation.
and will use the Internet to get the they are greeted by a concierge The stores have become a good
best price or shop the large stores to who quickly helps them identify source of information on consumer
be able to quickly compare several their needs and directs them to the behavior. Employees can watch cus-
brands and models. correct product displays. Rather than tomers to see which products elicit
Sony is maintaining a third long lines of products on shelves “oohs” and “aahs” and which are
alternative, a retail store that sells that consumers typically find in ignored. They can see firsthand how
only Sony products. Despite the other stores, Sony’s products are customers make decisions and what
failure of single-brand stores such as displayed in lifestyle settings, such questions they have.
Gateway, Sony believes that many as a living room, bedroom, or
consumers want a place where they home office. Employees encour- Think Critically
can comfortably examine and learn age consumers to interact with the 1. Why would Sony want to appeal
about the growing range of con- products in the open and inviting to women shoppers with the
sumer electronics products. Thus atmosphere.
SonyStyle® stores?
the SonyStyle® retail stores were While everyone is invited into
created. The stores focus on offering the Sony stores, they are especially 2. What are the advantages and
customers pleasurable and comfort- designed to cater to women. Recent disadvantages of the unique
able shopping experiences. The first consumer research found that store layout for customers?
Sony product gallery was opened women initiate nearly half of all pur- For consumer electronics
on Michigan Avenue, Chicago’s main chases of consumer electronics manufacturers?
shopping street for upscale products. The store and its
CH 06-B4491-RP_REV2.indd 154 12/4/07 10:48:01 PM


• Acquire foundational knowledge of customer/ • Explain customer/client/business buying behavior
client/business behavior to understand what • Discuss levers employees can use to motivate
motivates decision making decision making
• Foster positive relationships with customers to • Demonstrate a customer-service mindset
enhance company image
• Reinforce service orientation through
• Acquire product knowledge to communicate communication
product benefits and to ensure appropriateness of
• Identify company’s unique selling proposition
product for the customer
• Identify internal and external service standards
Visual Focus
Consumers must be aware of a product and
a specific brand before they will purchase
it. Then they must recognize that it meets a
specific need better than any other choices
available to the consumer. Connecting con-
sumers, their needs, and a company’s product
is an important role of marketing. So often,
marketing starts with an important problem
prospective customers are likely to face.
Focus Questions:
The medication featured in the Dimetapp ad is
actually designed for children. Yet, parents will
make the decision whether or not to buy it. Is
the advertising appealing to children, par-
ents, or both? In what ways? What is appeal-
ing about the product that would influence
parents to purchase Dimetapp Cold & Allergy
rather than another brand of medication?
Locate an advertisement that clearly iden-
©WYETH
tifies a customer problem or need. Share your

example in a class discussion.
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6-1 Understanding Consumer Behavior
GOALS KEY TERMS
• Describe the importance of understanding consumer behavior, p. 156 want, p. 158
consumer behavior. final consumers, p. 157 need, p. 158
• Demonstrate an understanding of business consumers, p. 157
consumers’ wants and needs.
In order to apply the marketing concept effectively, marketers study consumer behavior.
There are two basic types of consumers—final consumers who make purchases for their
own consumption and business consumers who make purchases for their business or
to resell to customers. Both final consumers and business consumers make purchases
to satisfy their wants and needs. By understanding the reasons consumers buy and the
needs and wants they are attempting to satisfy, marketers can make sure their products
and services match what consumers are looking for.
Make a list of ten things you’ve bought recently and describe the most important
want or need that each of those purchases was meant to satisfy. Are your wants and
needs easy to identify or not?
Consumer Behavior
f there is one idea that is key to It is important for marketers to under-
I understanding marketing, it is that

marketing begins with customers.
The marketing concept states that
stand consumers and their buying be-
havior. There are several ways to analyze
customer needs and to use the information
marketers must be responsive to
their customers. Successful busi-
nesses are those that continually
consider the consumers’ wants
and needs as they plan and imple-
ment their marketing strategies.
You cannot implement the
marketing concept without
understanding customers.
Understanding customers is not
simple. The study of consumers
and how they make decisions is
©DIGITAL VISION
called consumer behavior.

Consumer behavior includes factors
S that influence how people purchase
N and use products and services. Why do marketers need to study consumer behavior?
156
156 CHAPTER 6 • Marketing Starts with Customers
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World View
Television Advertising Around commercials at all. In other countries around
the Globe the world, governments and television net-
works sometimes limit the amount of televi-
In the United States, television commercials
sion time that can be dedicated to advertising.
are the most popular advertising medium in
Or, as is the case in many countries, people just
terms of dollars spent. In 2006, U.S. advertisers
don’t watch as much television as they do in
spent over $65 billion on television advertis-
the United States. In these places, advertisers
ing. This number makes up over 40 percent of
must find alternative ways to reach customers.
total advertising. Advertisers spent approxi-
mately $30 billion on magazine advertising, Think Critically
the second most popular medium. During
1. In a country with limited TV advertising,
one hour of network television, as much as
what other techniques could you use to
18 minutes may be devoted to commercials.
advertise? What factors might influence
In other countries, though, the oppor-
the type of advertising you use?
tunities for television advertising can be lim-
ited. In the United Kingdom, for example, two 2. Internet advertising is growing each year.
of the largest national channels have no paid How is advertising on the Internet like TV
advertising? How is it different?
to make wise marketing decisions. There Internet for a new camera lens are both final
are two types of consumers of interest to consumers.
marketers—final consumers and business
consumers. Business Consumers
A second category of consumers does
Final Consumers not make purchases for personal use.
Final consumers buy products or services Business consumers buy goods and ser-
for personal use. The traditional view of a vices to produce and market other goods
consumer is someone who enters a retail and services or for resale. An example of a
store, purchases a product, takes it home, business consumer is the manufacturer of
and uses it. Today the shopping the notebook you purchased. The manufac-
experiences of final consumers may be quite turer buys paper, glue, ink, wire, and other
different from that view. Consumers pur- materials to produce the notebook. It will
chase a mix of products and services
and gather information and make
purchases in many different ways, Wo r k i n g i n Te a m s
including the Internet. When you go
to a local store to purchase a notebook Form a team and identify ten products and ser-
for your marketing class, you are a vices that members believe are typically used by
final consumer. Family members final consumers. Now review each product and
taking a trip to a regional shopping service on the list and discuss whether it could
center are final consumers. A be used by a business consumer. As a team,
homeowner contracting with a identify similarities and differences in how the
landscaping service to provide products and services would be marketed to
monthly lawn maintenance and a each of the groups. S
photography buff searching the N
157
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also purchase the raw materials and other computers, furniture, and all the items
products it needs to produce other prod- needed for business operations. Even
ucts it will sell or will use to package, store, though it consumes the products and ser-
ship, and promote its products. In each vices as a part of its operations, it is still a
case, when the manufacturer purchases business consumer.
materials to produce products it will sell to
its customers, it is a business consumer.
Businesses also buy products and ser- Checkpoint
vices that are used in their daily operations.
The company purchases paper, pencils, Why is it important to understand
security services, cleaning services, consumer behavior?
Consumers’ Wants and Needs

ll consumers have wants and needs. A each level. Everyone must satisfy the physi-
A want is an unfulfilled desire. Con-

sumers want pizzas, BMWs, vacation
trips to France, a different hair color, a new
ological needs. They are not options. You
must eat, sleep, and breathe to exist. After
these needs are generally satisfied, you can
DVD player, or tickets to the Super Bowl. start to satisfy security needs. While it is
The products and services people purchase important to be secure, it is only important
to satisfy wants are not essential for liv- to be secure after you have satisfied your
ing but are important for maintaining a physiological needs. To go one level higher,
desired lifestyle. social needs are certainly important, but
A need is anything you require only after you meet important physiologi-
to live. Needs are considered to be the cal and security needs.
root of all human behavior. You need Gaining respect and recognition from
nutritious food, a good night’s sleep, others satisfies esteem needs. Running for
shelter from the weather, air to breathe, student council might be an attempt to
and clean water. satisfy esteem needs. The need for self-
actualization usually involves intellectual
growth, creativity, and accomplishment.
Hierarchy of Needs Attending college or taking music lessons
Abraham Maslow’s classic work on the might satisfy needs for self-actualization.
motivation theory has helped marketers
immensely in their study of needs. Maslow,
a psychologist, identified
five areas of needs that Self-Actualization
people have (see (to realize your potential)
Figure 6-1). They are Esteem
physiological, security, (respect and recognition)
social, esteem, and self- Social
(friends, love, belonging)
actualization needs.
Security
Maslow believed that (physical safety and economic security)
these groups of needs
Physiological
are satisfied in a hierar- (food, sleep, water, shelter, air)
chy and that other needs FIGURE 6-1
S become important as Maslow’s hierarchy of needs illustrates the progression people
N they satisfy the needs at follow in satisfying needs.
158
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Different People, Different and has a security system would satisfy the
Levels need for security. For a family with young
children, a house that is in a neighbor-
Marketers must recognize that people are hood with lots of young families might
at different levels on the hierarchy of needs. satisfy social needs. A house might satisfy
Some people are focusing on security needs esteem needs if it is well maintained and
while others are satisfying esteem needs. the yard is landscaped. Self-actualization
Regardless of what needs individu- needs might be satisfied by a home that is
als are attempting to satisfy, marketers designed or even built by the owner.
must identify the important needs of their
customers if they want to satisfy them.
Housing provides a good example of how
consumers’ needs differ. The physiological Checkpoint
need for housing is served by a home that
provides protection from the weather. A What are the five levels of Maslow’s hierar-
house that is in a fairly safe neighborhood chy of needs?

Determine the best answer. 6. Visual Art Use copies of old magazines and
1. The study of consumers and how they make newspapers to locate and clip pictures and
decisions is called other illustrations that represent each of the
a. advertising levels of Maslow’s hierarchy of needs. Use
b. consumer behavior them to create a poster or other visual that
c. psychology illustrates the hierarchy in the correct order
d. the marketing concept of needs satisfaction.
2. _____ consumers buy goods and services to 7. Math A building materials and supply store
produce and market other goods and ser- sells to business and final consumers. Last
vices or for resale. month the average sale to business con-
sumers was $856.08, and the average sale to
3. An unfulfilled desire is a
final consumers was $43.95. There were 128
a. want
business customers averaging 5 purchases
b. need
during the month, and 2,593 final customers
c. buying behavior
that averaged 2.3 purchases per month.
d. purchasing factor
Calculate the total monthly sales for each
4. The level of needs identified by Maslow that customer type, the overall total monthly
everyone must satisfy is sales, and the percentage of total sales for
a. self-actualization each customer category.
b. social
c. security Connect to
d. physiological 8. Your advertising team must develop two
5. True or False: Generally, most people 30-second radio advertisements for the new
are at the same level on the hierarchy of Xclaim automobile. The first should appeal to
needs. consumers’ safety needs. The second should
appeal to their self-esteem needs. Record the
advertisements and present them to your
teacher (judge). S
N
159
6-1 • Understanding Consumer Behavior 159
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6-2 What Motivates Buyers?
GOALS KEY TERMS
• Distinguish the types of buying motives. motivation, p. 160 patronage motives, p. 162
• Describe the five steps of the consumer buying motives, p. 161 buying behavior, p. 163
decision-making process. emotional motives, p. 161 consumer decision-making
rational motives, p. 162 process, p. 163
People have motives for the reasons they buy products and services. Motives can
be emotional or quite rational. Often consumers don’t think consciously about what
motivates their decisions, but there are always important influences on a decision.
Whatever the motivation, the consumer decision-making process generally involves
a series of steps. Sometimes those steps are completed quickly with little consider-
ation while at other times it is a long, thoughtful process. It is important for mar-
keters to understand consumer motivation and decision making in order to be an
effective influence in the final decision.
Think carefully about a recent major purchase you made. Describe the steps you
went through from the time you began thinking about the need until you actually
made the purchase. What was your initial motivation? Where did you find informa-
tion on choices available to you? How many different alternatives did you consider?
What was the main influence on your final choice? How happy were you with your
decision? Discuss your purchasing process with other students to determine similari-
ties and differences.
Motivation
ll of our actions are influenced by
A motivation. Motivation is the set of

positive or negative factors that direct
individual behavior. People have both
short- and long-term motivation. We are
motivated to develop the knowledge and
skills needed for a good career and salary.
We are also motivated by happiness and
enjoyment.
©DIGITAL VISION
When you wake up in the morning,

you may have a negative motivation to
stay in bed for another hour of sleep.
S You also recognize that you should get What factors might motivate people to continue
N out of bed and prepare for school. The their education and obtain a college degree?
160
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Judgment Call
The Scales are Tipping A series of lawsuits in recent years has
Americans spend approximately $35 billion led to new regulations by the Federal Trade
dollars a year on diet pills, books, clubs, and Commission (FTC) in an attempt to crack
programs in an attempt to look good and down on deceptive marketing practices in
stay fit. Because this is a relatively new trend, the diet industry. While these regulations
regulations have been lax. But there is a lot have not completely stopped deceptive ad-
of money at stake, and a recent study found vertising, they are working to make it a fairer
that 15 percent of ads for diet products were market for consumers.
deceptive. Think Critically
Diet companies often use doctored
1. Use the Internet to find diet industry
before-and-after photos as evidence of their
companies charged with deceptive
effectiveness. And they sometimes claim
advertising. How do you think those
that their products help people lose weight
lawsuits have affected those companies?
permanently, which is usually not the case.
(Notice that the fine print on these ads al- 2. How might a diet company ensure it is
most always says “Results not typical.”) not engaging in deceptive advertising?
motivation for that choice may just be the or passion often compel consumers to buy.
chance to socialize with friends. There is Marketers realize that a person’s emotional
also the longer-term motivation to com- motives are frequently very strong and can
plete the courses needed for your high be an important influence on decisions
school diploma, which will lead to college, and behavior. For example, Hallmark ad-
a job, and your long-term career goals. The vertisements encourage you to buy greet-
importance of the negative and positive ing cards based on the emotions of love
influences will determine the choice you and affection. Because of your feelings for
make each morning. others close to you or because of a special
Motivation is an important factor in event such as Mother’s Day, a birthday, or
your behavior as a consumer. Your deci- a friend’s illness, you want to express your
sions to spend money on products and feelings with a card and a short note.
services are influenced by what marketers McDonald’s appeals to the emotions
call buying motives. Buying motives are of parents who may feel some guilt about
the reasons that you buy. There are three the lack of time they have to spend with
categories of buying motives that drive their children or the need for family meal
consumers to purchase products or services times. They use their advertising to show
or respond to ideas: emotional motives, busy young parents taking children to
rational motives, and patronage motives. McDonald’s restaurants on a Saturday
morning or on the way to or from their
child’s activities. With that emotional
Emotional Motives appeal, a decision to stop at McDonald’s
Emotional motives are reasons to pur- may be influenced more by the thoughts
chase based on feelings, beliefs, or atti- of creating a happy family experience S
tudes. Forces of love, affection, guilt, fear, than by the actual items on the menu. N
161
6-2 • What Motivates Buyers? 161
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Rational motives include factors such
as saving time or money or obtaining the
highest quality or greatest value. Ratio-
nal buying motives may influence many
purchases, but they are especially impor-
tant for many expensive purchases. Even if
emotions play a role in your purchase of a
house or car or your selection of a college,
you will still want to consider the quality
and value of your choice.
How do you decide to buy a new
computer system? While your current
computer may work well, you may want to
upgrade to get a more powerful or faster
operating system, an upgraded sound or
graphics card, or the latest software and
Internet security. These are all attributes
that affect the functioning of the computer.
Automobile purchases can be
emotional but usually include a number

of rational motives. As a prospective
owner, you may consider the quality
history of the car, the service and repair
record of the dealership, and the mainte-
nance costs. Fuel economy versus power
How might fear have an effect on consumer may be an important factor. Do you want
buying behavior?
to purchase the additional safety options
or the extended warranty? All of these are
Fear is also an emotional motivator a part of the rational decision making that
that is used to encourage consumers to goes into most automobile purchases. But
buy products. People who buy security rational motives can be influenced by your
systems for their home or automobile are emotions when you catch sight of that new
motivated by the fear of having their home Mercedes convertible!
burglarized or their vehicle stolen. One of Business consumers have both
the appeals used to market organic foods is emotional and rational motives as well.
the fear of pesticides and other dangers in However, they try to avoid basing
our food supply. With the recent outbreaks purchases on emotions since it does not
of illnesses and deaths from the consump- make good business sense. The emotions of
tion of tainted meats and vegetables, fear, friendship, and enjoyment may result
consumer motivation to make sure food in poor purchase decisions for a business if
purchases are safe to eat has increased. those emotions are allowed to influence the
Marketers understand emotional motiva- process. Instead the business will evaluate
tion and use it to plan marketing mixes choices, looking for the best price, fastest
that appeal to those motives. delivery, favorable credit terms, and high-
est quality products. Those are all rational
Rational Motives motives.
Emotional motivation is not always appro-
priate or effective. Consumer behavior can Patronage Motives
be influenced by rational as well as emo- The third type of buying motivation is the
S tional motivation. Rational motives are patronage motive. Patronage motives
N reasons to buy based on facts or logic. are based on loyalty. Patronage motives
162
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encourage consumers to purchase
from a particular business or to buy a
particular brand.
Loyalty is influenced by positive
previous experiences or a close
identification with the product or
business. Consumers develop that
loyalty for various reasons. They
might like the low prices, high
quality, friendly staff, great customer
service or convenient location. They
may be loyal because it is a business
or brand name their family has used
for years and years. People are often
loyal to a local or neighborhood
business. Some identify with the
people who work in the business,
who are featured in advertising for
the product, or who appear to have
COURTESY OF 3M
the same beliefs and values as the

customer.
Patronage purchasing is not
limited to large, expensive purchases.
It can involve a favorite restaurant, Loyalty and patronage motives can be strengthened
a brand of soda, a salesperson the by keeping your name in front of customers.
customer feels comfortable with, or
point to remember is that people who are
a regularly visited web site of a business.
motivated by patronage are very loyal to
Business consumers can be influenced by
the product, service, or brand. Businesses
patronage motives in the same way that
encourage and cultivate patronage motives
final consumers are influenced. They may
so that customers are less likely to consider
return to the same business time after
the products of their competitors.
time to purchase raw materials and sup-
plies because they have been satisfied with
the quality and service in the past. They Checkpoint
may prefer a local supplier rather than risk
working with a company that is located in Describe the three different categories of
another state or country. The important buying motives.
The Consumer Decision-Making Process

he decision processes and A consumer goes through five steps
T actions of consumers as they buy

services and products are known as
buying behavior. Marketers know it is
when making a purchase decision, as
shown in Figure 6-2 on the next page. The
consumer decision-making process is
advantageous to understand the process the process by which consumers collect
customers go through when selecting and analyze information to make choices
goods or services so that they can assist among alternatives. Decision making as
the customers in making the best possible it applies to a specific purchase moves S
decisions. through problem recognition, information N
163
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search, alternative evaluation, purchase, The Consumer Decision-Making Process
and postpurchase evaluation.
Problem Recognition
Po Eva
There is no reason for consumers to
st lu
pu at
buy a product or service if they are
rc ion
ha
currently satisfied. While we all have
se
wants and needs, one or more must
Pu
rc
become important enough to us to
h
as
e
Al val
influence our actions. The first step in
te ua
E
rn ti
the decision-making process then is
at on
iv
when the consumer recognizes a need,
e
In Se
fo a
desire, or problem. For example, unless
rm rch
at
you decide you want to learn to play the
io
n
piano, there is no need to select a piano
Pr og
Re
ob nit
c
instructor. However, if that becomes an
le io
m n
important goal, then you will begin the
task of choosing the instructor who will
give you lessons. Once you recognize the
FIGURE 6-2
need, you are on the decision-making
Consumers follow a series of steps each time they
path to buy a product or service. make a purchase decision.
An important part of the first step
is the strength of the need and the already be able to identify choices. With a
urgency to satisfy the need. We have many new problem you have not encountered in
needs at any given time, but some become the past, identifying possible solutions may
strong and even urgent at particular times. be quite difficult.
If you haven’t eaten for most of the day, Satisfying a hunger need may be rela-
you will likely be quite hungry and look tively easy because you can identify your
for food choices. If you have been work- favorite foods and restaurants, and you
ing very hard for some time, you may try know how much money and time you have
to identify ways you can relax and enjoy available. While the choice will not be the
yourself. When a need is strong or urgent, same each time, you will usually be able to
it may result in a much faster decision with identify a few businesses or products that
fewer choices. When a need
is not as strong or urgent, you
may delay the decision-making
process or take more time to
complete some of the steps.
Consumers go through five steps when making
Information Search purchasing decisions. Web sites such as
After a need or problem has Edmunds.com help consumers with some of
been identified, the consumer those steps. Access school.cengage.com/
gathers information about marketing/marketing and click on the link for
alternative solutions. The Chapter 6. Browse through the site, and then
process you use to identify select two steps in the consumer decision-
alternatives depends on your making process and explain how Edmunds.com
past experience. If the need is might be helpful in completing each step.
one you have satisfied before
S or that others you know have school.cengage.com/marketing/marketing
N had experience with, you may
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seem appropriate based on your
specific needs at the time. If you are
in an unfamiliar location or decide
you want to try something very dif-
ferent, you will need to use a differ-
ent process to identify alternatives.
Choosing a piano teacher is an
example of a unique problem. It is
not likely you have gone through
that decision-making process
before. After you recognize the
need to learn to play the piano, you
will need to find ways to accom-
plish that goal, including locating a
good teacher. You may talk to your
parents or friends for advice and
recommendations. You might look
through the phone book or search
the classified section of the newspa-
per or even use an Internet search
hoping that piano instructors have
developed web sites. You might ask
for recommendations from a local
business that sells pianos. Your If you were considering taking music lessons, how would
goal, of course, is to identify choices the consumer decision-making process help you?
of instructors so that you can work
with the one that fits your level of experi- Evaluate Alternatives
ence, schedule, and resources. After gathering information, the con-
When identifying alternatives, consumer evaluates the various alternatives
sumers also gather information about each to determine which is best. Sometimes
alternative. The type and amount of infor- this involves summarizing the informa-
mation gathered will differ from situation tion, comparing the pros and cons of each
to situation. It will depend on what infor- choice, making tradeoffs between price
mation is readily available, the amount of and various options, and ranking the
time the consumer has to gather informa- alternatives. Evaluating piano instructors
tion, the importance of the need, and the might involve determining whom you can
type of information the consumer believes afford, what hours the instructor is avail-
is needed to make an effective decision. able, and the reputation of each instructor.
Consumers may not know what infor- Based on these evaluations, you will make
mation is important at the time they are a decision.
identifying alternatives. They may gather It is possible that you may decide you
initial information only to learn later that do not have adequate information to make
they do not have the right type or amount a decision, that you do not have adequate
of information they need. They may rely resources to make a purchase, or that
on others to help them determine the your need is not strong enough to justify
information they need if they are not well the cost compared to other important
informed about the problem or have not needs. Depending on that information,
experienced the problem previously. Over the consumer may decide to forgo satisfy-
time and with experience, consumers being the need or to gather more informa-
come more effective in identifying alterna- tion. The consumer may even decide to S
tives and gathering information. consider new alternatives. N
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After you make a purchase, why should you do a postpurchase evaluation?
Purchase can pay cash each time, or if you want to

If a suitable choice is available that will pay for a full month of lessons in advance,
satisfy the need or solve the problem, and you can save $3 per lesson.
if the consumer has enough money to pay
for the choice, the purchase will be made. Postpurchase Evaluation
The purchase step involves agreeing with Each time a purchase is made and the
the business selling the product on what product or service is used, the consumer
you will buy, the cost, payment method, will begin to realize whether it met the
and how you will receive the product need or solved the problem. The consumer
or service. As you can see, the purchase will either be satisfied or dissatisfied with
decision involves agreement on the entire the purchase. After you have had several
marketing mix. piano lessons, can play some simple songs,
In the case of your decision to take pia- have worked with the instructor, and can
no lessons, you choose to take lessons from tell how lessons are fitting into your sched-
a retired professor from the local univer- ule, you will have a better idea of whether
sity who comes highly recommended by or not you really are committed to the
several of your friends. She will give you a time and effort required to learn to play
half-hour lesson each Saturday morning at the piano well. If you are satisfied with
your home at a price of $23 per lesson. You your lessons and your decision, you will
probably continue and may even recom-
mend your instructor to your family and
Fa s t FAC T S friends. If you are dissatisfied, you will
probably find a new instructor or quit tak-
A recent study from Cornell University ing lessons altogether.
found that Americans’ favorite “comfort” The postpurchase decision involves two
foods are: potato chips (23%), ice cream parts. First you will determine whether
(14%), cookies (12%), chocolate (11%), the need or want was as important as you
S and pizza or pasta (11%). originally believed. You may decide the
N need was not important enough to warrant
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the effort and expense, so it will not receive telephone numbers for customer service
as much attention the next time it arises. departments let consumers easily call and
You may decide the need was important to ask questions or express concerns. Often
you, but the choice you made is not provid- the company will provide a follow-up tele-
ing the satisfaction you believed it would. phone call or other contact or arrange
In that case, you will usually not make for a free service visit or other after-sale
the same decision again. Instead, you will service. The goal is to reassure customers
learn from your experience. The next time that they made the right choice, resolve
you recognize the same need or encounter any customer problems and concerns
a similar problem, you will choose a differ- immediately, and increase customer
ent alternative and evaluate the informa- satisfaction with their decision.
tion more carefully.
Recently, marketers have been paying
more attention to postpurchase satisfac- Checkpoint
tion. They want to make sure that custom-
ers are satisfied with their purchase and What are the five steps in the consumer
will become regular customers. Toll-free decision-making process?

Determine the best answer. 6. Psychology Work with a team to prepare a
1. Reasons to purchase based on feelings, bulletin board display that demonstrates the
beliefs, or attitudes are motives. use of the three types of buying motives by
a. emotional businesses. Provide examples of products and
b. rational services that are effectively marketed using
c. patronage emotional, rational, and patronage motives.
d. consumer 7. Language Arts Compose a fictional story
2. True or False: Patronage motives are based on (humorous, mystery, or romance) about a
loyalty. person who encounters a major problem and
solves that problem through the purchase
3. The decision processes and actions of con-
and use of a product. Build the story around
sumers as they buy services and products are
each of the steps of the consumer decision-
known as
making process.
a. purchase decisions
b. buying behavior Connect to
c. the consumer decision-making process
8. Your marketing research team has been
d. postpurchase evaluation
identifying sources of information that stu-
4. The first step in the consumer decision- dents use most often when making purchase
making process is decisions. Prepare a short questionnaire (two
a. information search to four questions) and distribute it to 15 stu-
b. purchase decision dents in your school. Analyze the results and
c. alternative evaluation develop a three-minute oral presentation of
d. problem recognition your results with two supporting charts or
5. Recently marketers have been paying more graphs. Present the report to your teacher
attention to postpurchase . (judge) and be prepared to answer questions
about the research.
S
N
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6-3 Influencing Consumer Decisions
GOALS KEY TERMS
• Describe important influences on the consumer personal identity, p. 168 lifestyle, p. 169
decision-making process. personality, p. 169 culture, p. 170
• Explain how consumers and businesses use each of attitude, p. 169 reference group, p. 171
the three types of decision making. self-concept, p. 169
Purchase decisions by consumers are very complicated processes. It is not as simple as

seeing a product and deciding to buy it. Many factors can influence consumers’ buy-
ing decisions, including individual personality characteristics and personal image, the
social and cultural environment of the consumer, and the influence and effect of others
with whom the consumer identifies. How and which of those influences affect deci-
sions depends in large part on the consumer’s experience with the product or service
being purchased and whether the consumer views the purchase decision as routine
or complex. As marketers are able to analyze and understand the factors influencing
purchase decisions, they can make decisions that influence and support their prospec-
tive customers.
List three products that you buy often and usually buy the same brand. What
typically leads to the decision to buy the product? Why have you developed a prefer-
ence for the particular brand? For each product, list three things that would make
you switch to a competitive brand. Discuss with other students why brand names are
important for some purchases and are less important for others.
Influences on Buying Decisions

n order to remain profitable, businesses characteristics and the cultural and social
I must provide customers with prod-

ucts and services that meet their wants
and needs. Knowing what influences a
environment.
Individual Characteristics
customer’s buying decision is a key part of Each consumer is different from all
implementing the marketing concept. By others. Even though a person is a member
understanding what motivates and influ- of a family, community, and other impor-
ences customer purchases, businesses are tant personal, social, and career groups
able to provide the products and services at and organizations, a person’s identity is
the right place and time. a major influence on decisions and
Many internal and external factors actions. Personal identity is the charac-
S influence purchase decisions. Two teristics and character that make a person
N very important factors are individual unique. Important factors that make up
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Digital Digest
Direct Mail: More Than Just Companies pay a lot of money for these
Junk targeted mailing lists. For example, a store
can buy a mailing list for men, age 18–25,
You have probably heard of “junk mail.” You
living in a certain area, who own SUVs. Tar-
probably even get some of it, such as cata-
geted lists like this ensure that companies
logs, coupons, promotional flyers, and free
reach the people most likely to buy their
samples. Companies call this direct mail and
products and weed out those who might
spend millions of dollars a year to make sure
consider their mailings “junk.”
it gets to you. A lot of technology goes into
creating large databases that contain not Think Critically
only people’s names and addresses but also
1. Describe three pieces of direct mail sent
demographic data such as age, sex, income,
to your home recently. What products
number of children, and purchase trends,
were they promoting? Did the mailing
such as what a person buys, when, where,
affect your purchase decision?
and how much they pay. The data can then
be sorted into mailing lists of people who fit 2. Search the Internet for companies that
certain profiles. provide direct mail database services.
Describe the services each one provides.
personal identity are personality, gender, belief about his or her identity, image, and
ethnicity, and age. capabilities. Lifestyle is the way a person
lives as reflected by material goods, activi-
Personality The first individual char- ties, and relationships. Decisions about type
acteristic that influences buying behavior and location of jobs, housing, family size,
is personality. Personality is an endur- leisure activities, and community involve-
ing pattern of emotions and behaviors ment are all a part of a person’s lifestyle.
that define an individual. How would you
describe your personality? Are you outgo- Gender An individual’s gender influ-
ing, serious, or shy? How do you express ences many decisions and actions. Dress,
your personality in the products and ser- grooming, social relationships and activi-
vices you choose, including your clothing, ties, family roles, and career choices are
hobbies, social activities, and even deci- frequently different for men and women.
sions about whether to save money for the While gender roles and influences are
future or spend it on immediate needs? changing over time and may be strongly
Personalities influence buying deci- influenced by family and culture, market-
sions because everyone has individual ers identify differences in the product and
preferences based on attitude, self-concept service choices of each gender.
and lifestyle choices. Attitude is a frame
of mind developed from a person’s values, Ethnicity A set of characteristics unit-
beliefs, and feelings. You may already have ing a group based on ancestry, country of
formed attitudes about the value of edu- origin, language, and traditions is known
cation, the use of credit, or the need for as ethnicity. The impact of ethnicity on a
conservation that shape your purchasing person’s attitudes and actions varies based S
decisions. Self-concept is an individual’s on individual identity and the views N
169
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and values of others. Some individuals on values and behaviors. Traditionally,
have a strong ethnic identification and culture has been defined by the activities,
demonstrate it in many lifestyle choices relationships, and institutions shared by a
including dress, social activities, and food group of people over many generations. A
choices, among other factors. person’s culture may place a high value on
families, so a great deal of time is spent on
Age A person’s age has a major influ- family activities, and family members ex-
ence on consumer behavior. The age of ert a strong influence on individual choices
a person generally indicates the types of and decisions. In other cultures, individual
products and services he or she will be independence is valued, and young people
interested in and the brands and features are prepared and encouraged to take
that are important. The evidence of the personal responsibility for important deci-
importance of age can easily be seen in sions at an early age.
television shows, movies, and magazines Today in the United States and some
that are often developed for a specific age other parts of the world, due to the mobility
group. Not only are the shows, movies, of people and increasing diversity, culture
and magazine articles different for adoles- is less important to many people than their
cents, 20-somethings, and baby boomers, social environment. A social environment
but the advertising that appears in each is made up of the groups and organiza-
of the media is specifically targeted to the tions that people live and interact with on
precise age range. a regular basis. It has an influence on the
values and behaviors of the people who are
Cultural and Social members of the group or organization.
Environment Social environment may be defined
The second important influence on buy- by a community, a neighborhood, or even
ing decisions is a person’s cultural and a social or business organization. Your
social environment. Culture is the history, school is a part of your social environment.
beliefs, customs, and traditions of a group. In many parts of the United States, high
A group’s culture has a strong influence school students have a car at their disposal.
COURTESY OF VOLVO CARS OF NORTH AMERICA
S Auto manufacturers try to establish an image that appeals to personal identities

and social influences of prospective customers.
N
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In other areas, high school students do not particularly if you want to identify with a
even expect to get a driver’s license, much group in which you are not a member, you
less own a car. will shape your behavior and your image
Some of the strongest influences on around what you believe the group ex-
individual choices and behaviors are pects. Marketing that connects consumers
drawn from a person’s reference groups. A with the images and actions of their refer-
reference group is a group of people or an ence group and encourages them to “join
organization that an individual admires, the group” by purchasing and using the
identifies with, and wants to be a part of. products and services preferred by group
Reference groups might be clubs, social members is often very effective.
or civic organizations, business groups, or
even informal groups of peers and others Checkpoint
who have characteristics or lifestyles to
which individuals aspire. If you are cur- What are the four factors that make up per-
rently a member of a reference group or sonal identity?
Figure This
Breakeven Point the flyers is $2,400. The selling price of each
The breakeven point is the number of unit sweater is $50, and the variable cost of each
sales a company must make to cover the sweater is $10. The breakeven point for the
expenses of a venture. Below the breakeven flyer is 60 sweaters.
point, expenses exceed revenues, and a com-
pany will lose money. At the breakeven point,
$2,400 = $2,400 = 60
$50 − $10 $40
sales will exactly cover all expenses. Once the
breakeven point is exceeded, a company will If the store sells fewer than 60 sweaters,
begin to make a profit. the store will lose money on the flyer. If it sells
To calculate the breakeven point, you exactly 60 sweaters, the cost of the flyer will
must first find three different variables. You be covered exactly. If it sells more than
need to know the total fixed cost of an activ- 60 sweaters, the store will make a profit
ity or process, the selling price per unit, and from the use of the flyer.
the variable cost per unit of a good or service. Think Critically
The breakeven point is the total fixed cost
1. At the same clothing store, a display unit
divided by the difference between the selling
for jeans costs $1,800. If the jeans sell for
price and the variable cost per unit.
$45 with a variable cost of $9, what is the
Total fixed cost breakeven point for the display?
Breakeven point =
Per unit price – per unit cost
2. What would be the breakeven point if the
For example, a clothing store at the mall store installs a second $1,800 display unit
wants to print and distribute flyers advertis- for a different brand of jeans that sell for
ing its new line of sweaters. The fixed cost of $54 with a variable cost of $18 each?
S
N
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Planning a Career in... Customer Support
“My stepmom is a stickler for food safety.

If there’s a product in the pantry that
doesn’t have an easily understood
expiration code, she will call the
company and ask how she can de-
termine the expiration date. She Needed Skills
says she just wants to serve • Most positions require at least a high school
us the freshest food possible. diploma.
Sometimes she calls the
food companies for cooking • Complex or regulated products may require
advice. She says it’s never representatives to have a college degree.
too late to learn a few new • The ability to remain positive and composed is
cooking tips.” important when faced with concerned custom-
Did you ever have a question about a product ers and supervisors who monitor some contacts.
that required a call for help to a company’s toll-free
number? Has your family ever tried to get an inac-
• Bilingual skills will increase marketability.
curate charge on a credit card bill adjusted?
Most corporations employ customer support What’s it like to work in...
representatives to answer product questions, Customer Support
resolve customer issues, and follow up with As a customer service representative for a hospital
purchasers to make sure they are satisfied with the billing department, Vinnie often encounters emo-
products. Customer support personnel may meet tionally draining situations. Vinnie just completed
customers in person or respond by telephone, a conference call with two insurance companies
e-mail, or even live online chat sessions. and the parent of a young cancer patient. Midway
through chemotherapy, the parent’s insurance car-
Employment Outlook rier changed. New authorizations were required,
• Faster-than-average growth is expected in this and a few bills were overdue because of the transi-
field. tion. In addition to caring for a very ill child, the
• About 20% of customer support jobs are part- exhausted parent had to spend time resolving the
time. insurance issues. Vinnie was able to resolve the
• Automated telephone systems, the Internet, and insurance issue and devise an affordable payment
fewer barriers to locating call centers overseas plan for the overdue bills.
will impact job availability in the United States. During the afternoon, Vinnie had a conversa-
tion with the son of a new elderly patient. The son
Job Titles was trying to determine if his father had coverage
for medical care. The changes in government insur-
• Customer Care Representative ance programs for the elderly often lead to confu-
• Bilingual Service Representative sion about benefits.
• Account Coordinator
• Online Operations Associate
• Customer Support Administrator W h a t A b o u t Yo u
• Order Expeditor Do you have the patience and compassion re-
S quired to assist customers with a variety of ques-
N tions and problems?
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Types of Decision Making
onsumers spend varying amounts of needed continuously as a part of the
C time and consider different factors

when making decisions. It takes differ-
ent decision-making skills to buy tooth-
production process. The business will
often use one supplier and will reorder from
that company whenever necessary. The
paste for less than two dollars that you business may have a backup supplier
will use in the next month than it does to to maintain a reliable supply in case of
decide to borrow more than one hundred problems with the preferred supplier.
thousand dollars to buy a house that you
plan to live in for ten years or more. The Limited Decision Making
three types of decision making are routine, Limited decision making takes more time
limited, and extensive decision making. than routine decision making. Often,
limited decision making is associated
Routine Decision Making with a product that is more expensive or is
Routine decision making is used for purchased less frequently. When you go to
purchases that are made frequently and the mall to buy a pair of jeans, you might
do not require much thought. For routine try on several styles, compare prices, and
purchases, the consumer is familiar with consider the color and feel of the fabrics of
the products available, often chooses the a few selections before you make a deci-
same brand repeatedly, or can make an sion. This is an example of limited decision
easy substitution if the usual choice is not making. You will usually identify and com-
available. plete a reasonable comparison and evaluate
Food and snacks, personal supplies, a few alternatives before making a decision.
and basic necessities are most often pur- You are not absolutely certain of the best
chased using routine decision making. You choice, but you generally know what you
buy them regularly when you know you are looking for and the important factors
will need them or when you run out. You that will influence your decision.
either choose your favorite brand if you However, limited decision making
have a strong preference or choose among is not strictly for more expensive items.
two or three brands if
you view them as simi-
lar. In that case you will
buy the one that is most
convenient or has the
lowest price at the time.
You basically give very
little thought to the
purchase since it has
become a part of your
routine and there is
nothing that causes you
to change that behavior.

Businesses use rou-
tine decision making
when making regular
purchases such as oper-
ating supplies or
standardized raw Does choosing a movie involve routine decision making or limited S
materials that are decision making? How might it involve both types of decision making? N
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Something as simple as buying a soft drink analyzed by consumers in order for them
can involve limited decision making. If to be comfortable with the decision.
you are a Coke drinker and the store you Extensive decision making is used in
stop at is out of Coke, what do you do? You business when a purchase has not been
may consider some other flavor choices made before or when it involves a large in-
that are Coke products, or you may decide vestment. Perhaps a business needs a new
that Pepsi is a reasonable alternative this mainframe computer or needs to order
time. Choosing a movie for an evening’s several new delivery vehicles. The purchas-
entertainment with friends is another ing agent will conduct an extensive search
example of limited decision making. You for the best deal before a purchase deci-
may already have a preferred movie and sion is reached. The company may require
theater, so the decision is routine. How- suppliers to prepare a written proposal
ever, often you will spend time on the with complete descriptions of the product
Internet reviewing the new releases and being offered for review by several people
checking theater times and locations be- in the business who have special expertise
fore making the final decision. about the type of product being selected.
Businesses use limited decision making Extensive negotiations may occur with the
for many purchases, such as office equip- vendors before a final decision is made.
ment, furniture, and even selecting
a parcel delivery service to use. The
business knows generally what it Wo r k i n g i n Te a m s
needs, but it sees value in comparing
several alternatives to determine if Form a team and identify a product that the
there are price or quality differences. team agrees would typically be purchased us-
Even for purchases that are usually ing each of the three types of decision making.
routine, such as office supplies, lim- Now compare where each product is usually
ited decision making might be used purchased, what factors are most important in
if a new supplier offers substantially deciding what to purchase, and what informa-
lower prices that the purchasing tion consumers need in order to decide what
agent needs to evaluate or if a change product or brand to purchase.
in equipment or procedures requires
the purchase of a new product that
the current supplier does not carry.
Marketers’ Role in
Extensive Decision Making Decision Making
The third type of decision making is ex- Why do marketers need to understand the
tensive decision making. Extensive deci- decision-making process used by prospec-
sion making occurs when the consumer tive customers? Marketers want to match
methodically goes through all five steps their products and services to the needs
of the decision making process. Normally, and expectations of customers. They want
extensive decision making is for expensive to be able to provide the information
purchases, like an automobile, home, or customers want in order to make the best
family vacation. Consumers do not make choice. If consumers choose a product us-
the decision lightly. They spend time and ing routine decision making, they do not
effort evaluating alternatives and arriving want to be overwhelmed with information.
at a decision. They want to carefully review On the other hand, if they are making a
their needs and match them with the best difficult choice using extensive decision
choice possible. Differences among choices making, they will want more information
S may not be evident or may involve a related to the factors they view as most
N number of factors that need to be carefully important.
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Marketers want the opportunity to business. Without the needed information,
explain the benefits of their products and the customer will likely move on to anoth-
services and to demonstrate how they er choice. On the other hand, if customers
can satisfy consumer needs. By studying routinely buy the same thing because they
consumers, businesses should be able to are brand loyal, the business will focus on
develop products and services that match making the product available and remind-
the needs and expectations of their cus- ing customers of the value of the brand.
tomers. When those customers are taking
the time to consider alternatives, marketers
have the opportunity to explain their prod- Checkpoint
ucts through appropriate communication
channels. The customer may want only Rank the types of decision making
a limited amount of information or may according to the time and research
expect extensive communication with the typically devoted to each by the consumer.

Determine the best answer. 6. Sociology Ask a parent, an older relative, or
1. Which of the following is not one of the impor- a leader of a community cultural organization
tant factors that make up personal identity? to discuss the influence that culture or ethnic-
a. gender ity has had on his or her life. Prepare a written
b. age summary of the person’s views. Compare those
c. personality views and attitudes with your own and de-
d. all of the above are important factors scribe the differences and similarities.
2. is a frame of mind developed from a 7. Technology Use the Internet to locate de-
person’s values, beliefs, and feelings. tailed information on three different brands
a. Attitude of a digital camera. Use a word processing,
b. Self-concept database, or spreadsheet program to prepare
c. Lifestyle a table that compares the three brands based
d. Culture on at least five features of the cameras, noting
3. Which of the following is most likely to be differences and similarities among the brands.
one of your reference groups? Also identify the price of each brand. Based on
a. your ancestors the analysis, which brand would you choose?
b. your teachers for the current school year Why?
c. the members of a local business Connect to
organization
d. a student organization to which you 8. A shoe manufacturer is introducing a new
would like to belong moderately priced athletic shoe targeted at fe-
males between the ages of 12 and 15. The com-
4. True or False: Routine decision making is used pany wants to use a strong reference group
for purchases that are made frequently and appeal to promote the shoe. Develop a unique
do not require much thought. brand name and sketch a simple print adver-
5. Marketers will have the greatest opportunity tisement to introduce the shoe. Make sure the
to explain the benefits of their products and reference group appeal is evident in the ad.
services and how they can satisfy consumer Present your ideas to your teacher (judge) and
needs when customers use decision explain why you believe the advertisement will
making. be effective. S
N
175
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Now that you have completed the chapter, check explain the difference between a want and
your understanding of the lessons with these ques- a need?
tions. Record the score that best represents your list the five levels of Maslow’s hierarchy of needs
understanding of each marketing concept. in order?
1 = not at all; 3 = somewhat; 5 = very well provide examples of rational, emotional, and
If your score is 42–50, you are ready for the assess- patronage buying motives?
ment activities that follow. If you score 33–41, you explain what occurs in each of the stages of con-
should review the lessons for the items you scored sumer decision making?
1–3. If you score 32 or less, you will want to carefully describe how factors that make up personal
reread the lessons and work with a study partner on identity affect buying behavior?
the areas you don’t understand. explain the differences between culture, social
Can you— environment, and reference groups?
explain why an understanding of consumer explain why and when consumers use routine,
behavior is important to businesses that believe limited, and extensive decision making?
in the marketing concept? describe what a marketer should do when
differentiate between final and business consumers use limited or extensive decision mak-
consumers? ing and when they use routine decision making?

1. The study of consumers and how they make

a. attitude
decisions
b. business consumers
2. Those who buy a product or service for
c. buying behavior
personal use
d. buying motives
3. An unfulfilled desire e. consumer behavior
4. The characteristics and character that make a f. consumer decision-making process
person unique g. culture
5. The reasons that people buy h. emotional motives
6. The forces of love, affection, guilt, fear, or passion i. final consumers
that compel consumers to buy j. lifestyle
7. An individual’s belief about his or her identity, k. motivation
image, and capabilities l. need
8. The process by which consumers collect infor- m. patronage motives
mation and choose among alternatives n. personal identity
9. An enduring pattern of emotions and behavior o. personality
that define an individual p. rational motives
10. A group of people or an organization that an q. reference group
r. self-concept
S individual admires, identifies with, and wants to
s. want
N be a part of
176
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11. Marketing begins with a. problem recognition
a. selling a good product b. information search
b. understanding customers c. alternative evaluation
c. pricing the product correctly d. purchase evaluation
d. developing a consumer survey 16. Gender, ethnicity, age, and
12. Dinner in an exclusive restaurant and the newest personality are factors that
model cell phone are usually classified as make up
a. wants a. personal identity
b. needs b. attitude
c. motives c. culture
d. buying decisions d. social class
13. Maslow classified esteem needs as 17. Encouraging consumers to “join the group”
a. physical and economic safety through the purchase of products and services is
b. realizing your potential based on
c. friends, love, and belonging a. rational buying motives
d. respect and recognition b. personality
14. Business people and purchasing agents are usu- c. reference groups
ally motivated by d. routine decision making
a. rational motives 18. When a business investigates new vendors or
b. emotional motives locates a supplier for a new component part, it
c. buying motives uses what type of decision making?
d. objective motives a. routine decision making
15. In the decision-making process, when the con- b. limited decision making
sumer gathers information about various c. extensive decision making
products or services, it is called d. repeated decision making

19. Some products are sold to both business con- 21. You are the manager of a new furniture store
sumers and final consumers. Name at least one that is opening in three days. You believe
business consumer use and one final consumer strongly in the marketing concept and want your
use for each of the following items: pencils, salespeople to pay attention to customers’ needs
balloons, rubber bands, radio, sofa, all-terrain as they help perform their sales duties. Write an
vehicle, bagels, pesticide, suitcase, blankets. Here e-mail to them to remind them of the elements
is an example: of the marketing concept, why it is important,
Item Business Use Final Consumer Use and what they can do to put it into action with
each customer. Use the following words or
banana restaurant family lunches
phrases: customers, buying behavior, consumer
20. Marketers strive to capture your attention with decision-making process, needs, wants, buying
advertisements that use meaningful buying mo- motives, lifestyle, and extensive decision-making
tives. Choose an advertisement from each of the process.
following media: magazines, Internet, television,
22. Using Internet news services, find a corporate
and radio. Select ads that demonstrate each of
announcement of a new product or service. Ana-
the three types of buying motives—emotional,
lyze the announcement to identify the personal,
rational, and patronage. Make copies of the
cultural, social, and reference group influences to
magazine and Internet ads. Prepare a written de-
which the product or service appears to appeal.
scription of the television and radio ads. Classify
Cite specific language in the announcement that S
the type of buying motive used in each
provides evidence of the appeal being used.
advertisement. N
177
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23. Some consumer advocates believe that marketers identifying buying motives and using them in a
use research on consumer motivation and buying marketing campaign an ethical or unethical prac-
behavior to exploit them with emotional appeals tice? Write an essay that takes a position on this
and social pressures. What are your thoughts? Is ethical question and defends your viewpoint.

24. In order to learn more about customers, many other items relevant to your school. Survey at
organizations use customer feedback cards like least 15 students.
the one shown below for a restaurant. The orga- After the surveys have been completed and
nizations use the information to improve their collected, use a computer spreadsheet program
products and services and increase customer to record and tabulate the responses. Then deter-
satisfaction. mine the mean, median, and mode for each ques-
In an effort to help your school provide better tion. (As you will recall, the mean is the average of
service, work with other students to develop a all the responses to a question, the median is the
customer feedback card to give to students at middle value when all responses are arranged
your school. The customer feedback card should in order, and the mode is the response that was
be designed to find out from students what they given most frequently.) Prepare tables, charts,
like and dislike about your school. You may wish and graphs to display the survey results. Based
to ask questions about the curriculum, classes, on the results, draw several conclusions about
teachers, atmosphere, spirit, extracurricular student attitudes. Make recommendations for
activities, grades, homework, facilities, and any improvements to your school.
Fine Foods and More

We value your opinions and strive to meet your expectations. Tell us how you like us by circling
the rating that best represents your view of our restaurant.
What did you think of our:
Poor Excellent
Menu 1 2 3 4 5
Portion size 1 2 3 4 5
Atmosphere 1 2 3 4 5
Service 1 2 3 4 5
Cleanliness 1 2 3 4 5
Prices 1 2 3 4 5
Thank you for sharing your views with us!
25. Companies that provide cellular telephone ser- Assume you are a marketing specialist for
vices are now marketing telephones equipped a cellular telephone company. Identify a target
with a digital camera and audio recorder. The market for the new phones and service. As a part
owner can take a picture or short video clip, of the target market description, identify impor-
record an audio message, and forward them to tant needs, personal identity characteristics, and
one or more recipients using the Internet. To use the personal and social influences for the pro-
the new features, the customer must purchase spective customers. Then describe the consumer
a more expensive wireless plan or pay an addi- decision-making process customers would follow
tional charge for each video message sent. Many and the buying motives to which you would ap-
consumers like the new features but not the high peal. Use a computer to design a one-page prod-
S cost of the service. uct brochure you would use to introduce the
N new cell phone and service to the target market.
178
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Automotive Services
Marketing Individual
Series Event
Quick Stop is Performance Indicators
a busy gas sta-
tion/convenience
Evaluated
store. You are the • Explain the nature and scope of the prod-
assistant manager uct/service management function.
for this popular service station. The recently (Product/Service Management)
added pumps that allow customers to pay • Identify routine activities for maintaining
with credit cards at the pump are very popu- business facilities and equipment.
lar. Unfortunately, the pumps often need re- (Operations)
pair because they do not read the credit cards • Describe the product mix that will be used
correctly, and/or they do not print a receipt. to meet customer expectations. (Product/
Recently, you have listened to many Service Management)
angry customers complain about high gas
prices. Customers become increasingly frus- • Explain the nature of positive customer/
trated when they have to go inside the store/ client relations. (Emotional Intelligence)
station to pay for or obtain a receipt for their • Evaluate the customer experience.
gas purchase or when pumps are covered (Product/Service Management)
with plastic bags, indicating that they are
not operational. Frustrated customers have
indicated that they will take their business to
a competitor.
Your task is two-fold—you must convince Think Critically
the owner of the station to repair the gas 1. Why must self-service stations
pumps immediately, and you must create a carefully maintain their
special promotion to bring back customers pumps?
to your service station. You will present your 2. What type of incentive would
proposal to the owner of the service station. be good for loyal customers of
the service station?
Description of the Proposal
Write down the main points that you want to 3. How will improved customer
emphasize to the owner of the service station. service affect the number of
employees needed to work
Description of Promotion Plan each shift at the service
Outline your plan for a promotion to keep station?
loyal customers coming to your service sta-
4. How do rising gas prices affect
tion. Remember, they are upset about high
customer satisfaction at a
gas prices and problems with the “pay at the
service station?
pump” service and inoperable gas pumps.
Role-Play
Translate what you have learned into effec-
tive, efficient, and spontaneous action, dem- S
onstrated in a role-play. w w w. d e c a . o r g N
179
6-1 • Understanding ConsumerDECA
Behavior
Prep 179
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Chapter 7
Competition Is
Everywhere
7-1 Focusing on Market
Segments
7-2 Positioning for Com-
petitive Advantage
7-3 Competing for Market
Segments
7-4 Learning about the
Competition
Newsline )))
New Cars for New Buyers
One of the most successful design with basic models priced the new models. The Internet is
automobile manufacturers is not below $16,000. A choice of options being used heavily to promote the
satisfied with the status quo. In that appeal to the Y-generation can new cars. Scion ads and product
2003, Toyota introduced Scion, a be added using personal design information now appear on many of
new brand of automobiles, to U.S. kiosks located in shopping malls, at the targeted audience’s favorite web
consumers. Toyota says that Scion street festivals, and concerts, as well sites.
is aimed at “trend-setters.” In as in auto showrooms and on the
reality, the goal of Toyota is to Internet. Think Critically
provide a unique automobile for the Toyota’s research shows that 1. What are the advantages and
next generation of automobile buy- young customers make purchases in disadvantages to Toyota of
ers. Scion is designed for the different ways than their parents do. developing a new line of auto-
65 million 8-to-22-year-olds who are They don’t trust auto salespeople, mobiles under a different brand
projected to buy four million cars want to be on the cutting edge, name?
by 2010. look to their peers for information,
Toyota and its luxury brand Lex- and like offbeat promotions. Scion 2. Why would Toyota target
us have become brands of choice for has successfully gained attention by people under the age of 16 who
many baby boomers. However, the using young promotional represen- cannot even drive an automo-
average age of Toyota purchasers is tatives who set up displays in shop- bile yet?
getting older. Toyota has a well- ping center parking lots and other 3. Now that the Scion models have
established image of quality, but it is open spaces where people gather. been available for several years,
sometimes viewed as having stodgy, Banners, kiosks, and blaring music
do you believe Toyota’s market-
middle-of-the-road designs. Enter attract attention. The reps give away
ing strategy was effective? Why
Scion, a boxy, funky, brightly colored gifts and recruit people to test-drive
or why not?
CH 07-B4491_PB1_REV2.indd 180 12/4/07 11:01:34 PM


• Understand the concept and strategies utilized • Identify ways to segment markets
to determine and target marketing strategies to a • Describe the nature of target marketing
select audience
• Develop customer/client profile
• Employ marketing information to plan marketing
• Identify market segments
activities
• Employ marketing information to determine and
• Describe the use of target marketing in pro-
meet customer needs
fessional selling
Visual Focus
Most products and services compete with
other similar brands. Each company must find
ways to make its brand different and more
desirable to its customers. This chapter will
help you learn how businesses use informa-
tion about customers and competitors to
develop successful marketing strategies for
their product and services.
Focus Questions:
Ice cream is a commonly purchased product,
COURTESY OF PJ MADISON’S. USED WITH PERMISSION.
and consumers have many choices of brands,

flavors, and prices. In what ways is PJ Madi-
son’s trying to suggest its ice cream is differ-
ent and better than other brands? What types
of consumers do you believe will be attracted
to the advertisement? In your view, is the ad
effective at encouraging customers to try PJ
Madison’s ice cream? Why or why not?
Locate an ad for ice cream or another
dessert that might compete with PJ Madison’s.
In a class discussion, share your ideas about
the similarities and differences in the products
and the customers to which each product
seems to be appealing.
CH 07-B4491_PB1_REV2.indd 181 12/4/07 11:02:19 PM

7-1 Focusing on Market Segments
GOALS KEY TERMS
• Describe how markets can be segmented by market segmentation, p. 183 product usage, p. 184
geographic location, demographic charac- mass marketing, p. 183 benefit segmentation,
teristics, psychographics, product usage, and p. 185
geographic segmentation,
benefits derived.
p. 184 market opportunity, p. 187
• Explain how to evaluate market potential and demographics, p. 184 market potential, p. 187
calculate market share.
psychographics, p. 184 market share, p. 188
Businesses focus their marketing efforts on potential customers who are most likely
to buy their products and services. They identify market segments or groups of con
sumers that share certain characteristics. Those characteristics may be personal factors
such as age, education, income, or gender, or they may identify where consumers live,
their lifestyles, needs, interests, or other factors that influence what they might want to
purchase.
Make a list of six personal characteristics that describe who you are and what you
think would be important factors if you were shopping for a new car. How would each
of those characteristics affect your purchasing decision?
Market Segmentation
n order to compete
I in a free enterprise
economy, businesses
direct all of their
efforts and resources
toward achieving
specific goals. As an
important part of their
efforts, they devise
marketing strategies to
compete for sales dol-
lars, customers, market
share, or whatever goal
they have set. Market-
© DIGITAL VISION
ing segmentation has

become an important
part of the market-
S ing efforts of many Is it possible for this group of teenagers to represent more than one
N companies. market segment? Explain why.
182
182 CHAPTER 7 • Competition Is Everywhere
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World View
One Brand or Many? better meet the demands of specific
markets. A laundry detergent, for instance,
One of the decisions global marketers must
may sell better in one country if it has green
make is whether they are going to market
flakes and is called Swift, and better in
their product under one brand name inter-
another country if it has blue flakes and is
nationally or create smaller brands specific to called Whizz. Creating separate brands gives
each country or region. The Coca-Cola Com- companies the flexibility to do both. That’s
pany sells Coca-Cola using the first approach. why, if you walk through a grocery store in
This allows them to concentrate their money a foreign country, you may find products
and efforts on building one global brand with unfamiliar names made by companies
name. Although the marketing approach you recognize.
may vary from country to country, a Coke will
Think Critically
be a Coke, whether it’s served in Los Angeles
or Hong Kong. Pick a well-known international brand. Use
The drawback to the one-brand ap- the Internet to research how it is marketed in
proach is that it limits the degree to which another country. How does it differ from the
products can be tailored to each market. By way it is marketed in the United States?
creating different brands, a company can
The Benefits of Segmentation mass marketing. While market segmenta-

A market segment is a group of individu- tion directs a company’s efforts at a specific
als or organizations within a larger market group of consumers with unique needs,
that share one or more important charac- mass marketing directs a company’s mar-
teristics. These shared characteristics result keting mix at a large and heterogeneous
in similar product or service needs. Every- group of consumers. With market segmen-
one belongs to many market segments. For tation, the company views its competition
example, you may belong to one segment as only those businesses that have products
of the population that enjoys rock music and services appealing to the selected mar-
and another segment that drinks a certain ket segment. Mass marketing considers all
brand of cola. of the consumers in a market as potential
Businesses use marketing information customers and every other business com-
and market research to complete market peting in that market as a competitor. By
segmentation. Market segmentation is the appealing to a more diverse group of cus-
process of dividing a large group of con- tomers with different needs and competing
sumers into subgroups based on specific with many more businesses, success may
characteristics and common needs. Recog- be more difficult. However, advantages of
nizing the needs of a group of prospective mass marketing include higher potential
customers enables a business to develop sales volumes and efficiencies of scale in a
marketing strategies that match those much larger market. Large companies with
needs. high-volume production and vast distri-
Some businesses may be unwilling to bution networks reaching many national
spend the extra time and money required and international markets can be quite
to gather and analyze information in order effective using mass marketing. Smaller
to segment a market. Instead they use or more specialized businesses have found S
that type of strategy difficult to maintain. N
183
7-1 • Focusing on Market Segments 183
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Companies that believe in the marketing demographic market segments. Marketers
concept recognize that the increased time may segment you according to your age,
and expense of market segmentation will gender, ethnicity, religious affi liation, and
enable them to identify groups of custom- even your body type.
ers and understand their needs.
Psychographics People’s interests and
values are referred to as psychographics.
Segmentation Categories Examples of psychographics are the way
Using market segmentation, consumers you spend your time and make your life-
can be divided into groups based on geo- style choices. Lifestyle research has been
graphic location, demographic character- particularly valuable in establishing mar-
istics, psychographics, product usage, and ket segments. People’s lifestyles and social
expected benefits. interests combine to influence the type of
housing and transportation they prefer,
Geographic Segmentation Di- where they choose to live, how they spend
viding consumers into markets based their time, and even how often they eat
on where they live is referred to as away from home.
geographic segmentation. These mar- Psychographic segmentation is respon-
kets might be as large as a country or as sible for book stores, coffee shops, sports
small as a ZIP code. Companies vary in venues, home decor, and health care prod-
size and scope, and, therefore, the group ucts because businesses have found seg-
of customers they want to reach can also ments with wants and needs unique from
vary in size. the mass market.
Geographic segmentation is based on
the concept that people who live in the same Product Usage Marketing strategies
geographic area might have the same wants can differ based on product usage,
and needs. Consumers who live in Min- meaning how frequently consumers use
nesota are more likely to have an interest in products and the quantity of product
cold weather sports than people who live used. How frequently do the people you
in Oklahoma. A political party may want know consume particular types of bever-
to send newsletters on a particular issue to ages such as milk, soft drinks, coffee, or
voters in specific congressional districts. tea? Some people have a preferred bev-
erage and drink it several times a day.
Demographic Characteristics The Others vary their beverages at meals but
descriptive characteristics of a market
such as age, gender, race, in-
come, and educational level are FIGURE 7-1
referred to as demographics. In the U.S. population, the demographic characteristics of
Figure 7-1 illustrates how the education and income are closely linked.
population of the United States
can be described using two Average
demographic characteristics— Monthly
education and income. Often Income
$7,000
marketers want to serve a $6,000
$6,224
market segment that has similar $5,000 $4,243
demographic characteristics. $4,000 $2,923
$3,000 $2,397
Types of music, cable TV chan- $2,000 $1,435
nels, magazines, and restau- $1,000 19% 40% 22% 24% 14%
rant menus may be developed $–
No high High school Some Bachelor's Graduate
to appeal to different ages, school graduate college degree Degree
S education levels, or ethnic degree
N groups. You belong to many Percent of Population
184
CH 07-B4491_PB1_REV2.indd 184 12/4/07 11:02:44 PM

may have a particular choice for breaks or
when exercising.
The quantity of a beverage consumed
at one time varies and accounts for the
range of container sizes used for beverages.
Some people consume only a few ounces of
a drink at one time. They may want to pur-
chase a small container or want a reseal-
able container to maintain the freshness of
the beverage. However, with the popularity
of the 32-ounce or larger soft drinks at
convenience stores and fast-food restau-
rants, it is evident that some people expect How can market segmentation be used to devise a
to drink a large quantity at one time. By marketing strategy for a hotel?
segmenting the market based on usage,
business people can make sure each group and requirements of consumers. There
has the preferred size and type of con- are shampoos for consumers with oily
tainer to meet their consumption needs. hair, dry hair, or normal hair. There are
Other examples of marketing products also shampoos for people with dandruff.
based on product usage include planning Those who shampoo daily have different
hotel services for frequent business travelers needs from those who use the product
and offering cellular telephone plans suited once a week or less. There are even sham-
to the number of phones in a family and the poos with conditioners added for people
amount of minutes used in one month. who want one-step hair care. Add the
A part of product usage is customer various scents and additives and you can
experience. Experience ranges from none see the infinite number of segments that
to extensive. Of experienced users, some are created by benefits derived.
have tried the product and don’t like it.
Others believe it is one of several appropri- Segmenting the
ate alternatives, but they have no prefer- Business Market
ence. Still other customers purchase and Just as marketers segment the consumer
use it regularly as their preferred choice. markets, they also segment business
The type of experience will help determine markets. Business markets are segmented
whether a market segment represents a by the type of company and the major
valuable group of potential customers and activities and operations of the business.
what type of marketing effort is needed. The size of the business and its geographic
location, including whether the company
Benefit Expectations As you operates in multiple states and even in-
learned earlier, each product or service ternationally, may be important segment-
on the market has a value or utility to ing criteria. Finally the types of products
the consumer. Consumers have specific and services purchased, the volume and
benefits they expect to receive when frequency of purchasing, and the type of
using a particular product or service. buying procedures used help to segment
Benefit segmentation divides consumers business customers.
into groups depending on specific values
or benefits they expect or require from
the use of a product or service. An exam- Checkpoint
ple of using benefit segmentation can
be seen with shampoo. There are many Why do businesses that believe in the mar-
market segments for a product as simple keting concept use market segmentation S
as shampoo based on the expectations rather than mass marketing? N
185
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Be an Effective Listener
There are a number of areas in your life where lis- Feedback is given to the speaker by a
tening is required. How well you listen can affect verbal or non-verbal response.
your success in many ways. Improving Your Listening
Academically, it is important to listen during
Skills
class. Focused listening and careful note taking
will help you prepare for homework, projects, Some listeners are unaware
and tests. of barriers to effective listen-
Listening in social situations is also impor- ing. The listener’s precon-
tant. A friend may need you to listen to a problem ceived attitudes about
and provide emotional support. When you are at the speaker or the topic
a party, listening to the conversation of people can interfere with under-
around you may give you clues about their inter- standing the message.
ests. By mentioning one of their interests, you can Background activity or noises that distract the
start or participate in a conversation. listener’s attention can interfere with listening. A
In business, listening can mean the difference speaker’s biases can also impact the information
between success and failure. Businesses must being conveyed. You should always assess the
listen to employees’ and customers’ opinions in accuracy of the speaker’s message.
order to be effective. Body language should convey that you are
In all situations, it is important to use “active interested in what is being said. Maintaining eye
listening.” Active listening goes beyond simply contact, smiling, and leaning toward the speaker
hearing what the speaker has said. It involves all signal that you are listening attentively.
recognizing the emotions behind what was said. Listening can be improved with practice.
Suppose your friend, who is trying to qualify for a Techniques to improve listening skills include
college scholarship, says, “That calculus test was being prepared to listen, reducing distractions,
hard. I got only a C+.” Using the active listening asking questions to clarify main points, refraining
technique, you might reply by saying “It sounds from judgment, and paraphrasing what was said
like you are worried about how that grade will to confirm your understanding. In complicated
impact your chance to get a scholarship. Do you or prolonged listening situations, consider taking
want to talk about it?” notes.
Being a good listener requires patience and Develop Your Skill
generosity. You should give the speaker your full
Let your parents know that for one week you
attention and stay focused on the topic.
are going to try to improve your listening skills.
Components of Effective Listening Whenever your parents talk to you, give them
There are several specific components to effec- your full attention. Eliminate any background
tive listening. They are decoding, comprehension, noise, including TVs, computers, or iPods. If they
drawing a conclusion, and feedback. are outlining family plans for the week or giv-
Decoding a message involves translating ing instructions, take notes on what they say to
what the speaker said into the real meaning of capture the main points. See how smoothly the
the message. Comprehension involves determin- next day flows. Continue this practice through
ing how the message relates to the overall topic. Friday. On Saturday, ask your parents for feedback
When the listener decides how to respond to the on whether they have observed an improvement
S message, the listener is drawing a conclusion. in your listening skills.
N
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Identifying and Analyzing
Market Segments
here are two reasons to segment a 4. Identify the segments that exist in the
T market. First, by carefully analyzing

a market based on segmenting char-
acteristics, a business has a better under-
market. Based on the information
collected, several potential segments
are identified and described based on
standing of the market and the potential unique characteristics that influence
customers. Second, with detailed informa- the market potential, such as geo-
tion on market segments, a business can graphic location or product usage.
identify the best market opportunities. 5. Use market information to choose the
A market opportunity is an identified markets that present the greatest and
market with excellent potential based on least amount of potential. Those with
careful research. the greatest potential will be analyzed
further to select the target markets
Identifying Possible Segments that will be the focus for the company’s
To successfully segment a market, a busi- marketing efforts.
ness must recognize possible factors that
affect consumer purchasing and collect in- Determining Market Potential
formation to determine if market segments Once market segments have been iden-
are alike or different in their purchasing tified, they must be analyzed. To be an
behaviors and consumption patterns. effective market segment, it has to have
Identifying market segments involves the the potential to be profitable with needs
following steps: that the company can satisfy through its
1. Select a market or product category marketing efforts. Each segment should be
to study. The market will be a large evaluated on the following criteria:
group of consumers who have similar 1. Number of potential customers
but broad needs, such as entertainment 2. Customers’ interest in the product or
or transportation, or who are likely to service and other mix elements
purchase a category of products such 3. Amount of money customers have
as computers or sporting goods. The available to make the purchase
market or product category is often one
4. Business’s ability to communicate
in which the business has experience,
with and distribute the product to
or it may be new. The business may be
consumers.
looking for new product ideas, new
customers, or new opportunities for Since businesses operate to make
both customers and products. a profit, it is important to estimate the
2. Choose a basis for segmenting the market potential. The market potential
market. Determine what factors seem is the total revenue that can be obtained
to lead to the greatest differences
among customers and may affect their
expectations and choices. Fa s t FAC T S
3. Gather information for analysis. This
step will usually involve a combina- According to a study of U.S. consumers
tion of reviewing current customer and their interest in green marketing,
information, identifying and collecting 11% have made green purchasing and
information needed, and completing recycling a part of their lifestyle while
marketing research. 31% don’t know or don’t care about S
green products. N
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from the market segment. Since it is un- The company can also determine the
likely that one company will attract all cus- market potential and market share in units
tomers in a given market, businesses also instead of dollars. If the average price of
calculate their market share. Market share a disposable camera is $9.25, the market
is the portion of the total market potential potential in units is $1,850,000 divided
that each company expects in relation to by $9.25, or 200,000 units. The company’s
its competitors. planned market share is 12 percent of
For example, the total market poten- 200,000 units, or 24,000 cameras (200,000
tial for disposable cameras in one city is ⫻ 0.12). The company has the potential of
estimated at $1,850,000 per year. One selling 24,000 cameras in this market seg-
manufacturer that is introducing a new ment in this city.
disposable digital camera in the city
expects to capture 12 percent of the total
market in the first year. To calculate the Checkpoint
company’s planned market share in dol-
lars, multiply $1,850,000 by 0.12 for a total What is the difference between market
of $222,000. potential and market share?

Determine the best answer. 6. Visual Art Draw a large circle that represents
1. A mass market is _____ than a market the mass market of all television viewers. Now
segment. draw and label five smaller circles within the
a. larger large circle that represent a television show or a
b. more homogeneous cable television channel that has a particular fo-
c. more profitable cus (example: The Food Network). For each small
d. all of the above circle, identify several characteristics of a market
segment that enjoys the shows or channels.
2. Age, income, education, and gender are ex-
amples of 7. Math Sales of MP3 players in 2006 were 34
a. geographic factors million units. Apple had a market share of 74%,
b. demographics followed by SanDisk with 9%, Creative with 4%,
c. psychographics Microsoft with 3%, and Samsung with 2%.
d. lifestyles How many MP3 players did each company
sell? How many players were sold by all other
3. _____ segmentation is based on the value
companies, and what market share did those
customers expect to receive from using a
sales represent?
product or service.
a. Economic Connect to
b. Market
8. Your team members are the managers of a
c. Benefit
new jewelry store opening in your community.
d. Consumer
Identify a specific market segment based on
4. True or False: All market segments present a demographic and psychographic character-
market opportunity. istics to which you will direct your marketing
5. The market _____ is the total revenue that efforts. Prepare two visuals that describe your
can be obtained from the market segment. market segment. Make a three-minute presen-
S tation to your teacher (judge) justifying your
N decisions.
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Positioning for Competitive 7-2
Advantage
GOALS KEY TERMS
• Explain the various bases for positioning a product to market position, p. 189
distinguish it from the competition. consumer perceptions, p. 192
• Describe the three common positioning strategies.
Businesses know that people usually consider a number of products or services as

alternatives when they try to satisfy specific needs. Marketers carefully plan market-
ing mix elements to influence how a product or service is perceived. When planning
a marketing mix, they should consider how it affects consumer perceptions, how it
compares to the mixes of competitors, and how it will be affected by the business
and economic environment.
Make a list containing a brand name for a model of automobile, a line of apparel,
a national restaurant chain, a well-known retailer, and a line of consumer electron-
ics. For each brand, write a one-line description that identifies its main appeal to
consumers and its uniqueness in comparison to competitors.
Basis for Positioning

n order to influence consumers’ pur- consumer’s mind relative to similar com-
I chases, businesses position their prod-

ucts and services to highlight their
differences from those of competitors.
petitive offerings. Companies use a variety
of methods for positioning. An example of
how the various positioning methods can
Market position refers to the unique be used for a product as simple as laundry
image of a product or service in a detergent is shown in Figure 7-2.
FIGURE 7-2
Competitors develop marketing mixes that emphasize the market positions of their products. These laundry prod-
ucts are positioned to appeal to different target markets.
Laundry Product A Laundry Product B

Attribute Cleans quickly and easily Leaves fresh scent
Price and Quality Low price, good value Higher price for highest quality
Use or Application Use as pre-wash on tough stains Use for hand-washing delicates
Product User Homemaker’s reliable friend New generation’s discovery
Product Classification Used by Olympic athletes Used by professional laundries
S
Competitor Gets out dirt Product B can’t Gentler on clothing than Product A
N
189
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Attribute Now, they view it as an effective product
One way to position a product is to high- with uses ranging from deodorizing the
light a product feature or attribute. For refrigerator to brushing teeth.
example, certain toothpastes have ingredi-
ents that whiten teeth. The manufacturer Product User
says “Our toothpaste does everything This positioning strategy encourages use of
every other toothpaste does, and in ad- a product or service by associating a per-
dition, it helps make your teeth white.” sonality or type of user with the product.
The positioning is accomplished with the For a time, Pepsi Cola suggested that Pepsi
specific product attribute and related pro- products were consumed by a young, active
motion that identifies the attribute and its “Pepsi Generation.” Athletic apparel manu-
value for the consumer. facturers use images and obtain endorse-
ments of popular professional athletes.
Price and Quality Some cruise lines, such as Disney Cruises,
This position strategy may stress a higher position themselves as a family-oriented
price as a sign of quality, or it may empha- vacation line.
size a lower price as an indication of value.
Mercedes Benz does not apologize for the Product Classification
high price of its automobiles. Instead, it When positioning according to product
suggests that because they are high-priced class, the objective is to associate the prod-
they offer a unique, high-quality image. uct with a particular category of products.
Wal-Mart implies that its products are For example, Amtrak, which offers rail
well suited for consumers’ needs with passenger service, uses a number of strat-
the advantage of being priced lower than egies that model the look, service, and
competitors’ products. While Wal-Mart’s scheduling associated with airlines. Pork,
image and marketing strategy are much marketed as “the other white meat,” is po-
different from Mercedes Benz, its position- sitioned along with turkey and chicken to
ing goal is accomplished by convincing create an image of a healthier product. The
customers they are getting a good value positioning strategy was selected to change
when they shop at that store. the view that many customers may hold of
pork products and to increase demand.
Use or Application
Stressing unique uses or ap-
plications can be an effective
means of positioning a prod-
uct. Arm & Hammer used to
be a staple for homemakers
who regularly baked bread. As Outdoorsmen have always been challenged to
more and more families began find a way to stay warm and dry in winter
purchasing bread rather than weather. Access school.cengage.com/marketing/
making it at home, the market marketing and click on the link for Chapter 7.
for Arm & Hammer declined SmartWool was founded by New England ski in-
dramatically. The company structors. What type of product is sold by Smart-
changed its positioning strategy Wool? Who do you think is the target market
by developing and promoting for the products sold by SmartWool? How does
new uses and applications for SmartWool position itself in the market?
its products. Today, few cus-
tomers actually purchase Arm school.cengage.com/marketing/marketing
S & Hammer baking soda as an
N ingredient in baking recipes.
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Digital Digest
Marketers Reap New Data marketers can determine how many of them
The compilation of huge databases of were first-time buyers, how many people
household purchasing data is having a big continue to buy the product after trying it,
impact on the way manufacturers of con- how much time elapses before people buy
sumer goods plan their marketing budgets. again, and what other products the house-
While it has long been easy to evaluate holds buy or stop buying.
the short-term effectiveness of marketing Marketers have long known that promo-
campaigns by analyzing data from checkout tions have both short- and long-term effects
scanners, the ability to access household on consumer buying, but until recently they
data now gives marketers a keen insight into could only guess at the long-term impact.
long-term effects. Think Critically
Household purchasing information is
1. If a business finds that an ad campaign
collected every time someone uses a fre-
boosts sales by 5% over the following
quent shopper or loyalty card. Supermarkets
three months, but that 90% of new buy-
and discount stores make extensive use of
ers continue to buy the product over the
them to encourage repeat shopping with
next 12 months, how might that affect its
discounts, rebates, and other promotions
marketing strategy?
tied to use of the cards. With transactions
identifiable by household, marketers can 2. If $2-off coupons increase monthly sales
now piece together strings of household by 50%, but only one out of ten coupon
purchases over time. users buys the product again in the next
For example, when people buy a prod- 12 months, how might that affect a
uct in response to a promotional campaign, business’s marketing strategy?
Competitor 7UP used to promote itself as the

Sometimes marketers make an effort to “uncola” to offer a comparison with and
demonstrate how they are positioned unique position from the two leading
against competitors that hold a strong brands of colas—Coke and Pepsi. Avis
market position. As the Korean automobile developed a marketing strategy identifying
manufacturer Hyundai introduces new, the company as “Number 2” among car
larger and more luxurious models, it has rental brands but trying harder. The strat-
begun to compare itself to the well-known egy was aimed at positioning itself against
luxury brands sold in the United States. Hertz, the leading brand at the time.
It does not believe that consumers will Anytime you see an ad comparing one
immediately begin to believe that Hyun- product with a well-known competitor’s
dai has the most luxurious products, but products, you can assume that a competi-
it wants consumers to consider its models tor positioning strategy is being used.
when they are considering the purchase of
a luxury automobile. Ford recently ran a
campaign in which consumers favorably
compared the style and handling of the Checkpoint
Ford Fusion with that of market leaders S
Toyota and Honda. What are six common bases for positioning? N
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Selecting a Positioning Strategy
ll businesses need to develop a posi-
A tioning strategy. A positioning strat-

egy will outline how a company is
going to present its product or service to the
consumer and how it will compete in the
marketplace with other businesses offering
similar products and services. Position-
ing strategies usually revolve around three
major areas:
1. Consumer perceptions
2. Competitors in the marketplace
3. Changes in the business environment
Consumer Perceptions
Consumer perceptions are the images
consumers have of competing goods and
services in the marketplace. The objective
is for marketers to position their products Why is consumer perception important for a
to appeal to the desires and perceptions of restaurant?
a target market. A group of consumers that Competition
has a distinct idea of the image desired
for a product or service might represent a Businesses are concerned about the percep-
target market. A business will do well with tion consumers have of the company and
a target market when those consumers its products in relation to those of competi-
perceive the attributes of its products as tors. The ideal situation is when consumers
being close to their ideal image. perceive a business’s products to be supe-
Over the years, Hershey has done an rior to its competitors’ products or ser-
excellent job of responding to consumer vices based on the attributes the company
perceptions. For years, its product was emphasizes in its marketing strategy.
perceived by many consumers as the ideal A great deal of marketing effort is used
chocolate bar. However, in recent years, in competitive positioning. The pricing,
several competitors have entered the pre- promotion, product development, and dis-
mium chocolate market, forcing Hershey tribution strategies are all planned with an
to expand its product line and increase its eye toward the competition. Certain prod-
promotional efforts. ucts, such as soft drinks, must be carefully
positioned in relation to competi-
tion because image is important to
Wo r k i n g i n Te a m s consumers as they choose a brand.
Coca-Cola and Pepsi Cola have staged
As a team, list three well-known brands of
a very fierce and competitive promo-
consumer products. Each team member should
tional battle in recent years to gain a
write a statement describing the image of each
stronger competitive position. This
brand as he or she perceives it. Compare the
competition has been referred to as
statements for each brand and determine the
the “Cola Wars.”
amount of agreement on the image. Discuss
Companies must be careful not to
the reasons for similarities and differences in
S base their positioning decisions solely
perceptions.
N on the actions of their competitors.
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Each company has unique strengths and Restaurants and food processing com-
weaknesses as well as specific goals. A companies have had to respond to the concerns
petitor’s new marketing strategy should be about trans fats and their negative effects
watched carefully, and information should on diet and health. Colleges have discov-
be collected on the effect it has on a compa- ered that they must respond to the needs
ny’s customers and its market share. of non-traditional students, including
more part-time and older students. Col-
Business Environment leges have responded by offering conve-
Organizations should continually pay at- nient schedules, adding more parking, and
tention to possible changes in the business expanding courses offered via the Internet.
environment that might affect the position In each case, these business environment
of their products or services. These include changes have affected marketing strategies
new products entering the market, chang- and even the types of products and ser-
ing consumer needs, new technology, vices offered.
negative publicity, and resource availabil-
ity. Manufacturers of golf clubs have been Checkpoint
significantly affected by the introduction
of new materials used in shaft construction Why should businesses be cautious when
as well as new club head designs. using competitive positioning?

Determine the best answer. 5. Communications Use print, Internet, radio, or
1. Another name for a product feature is a(n) television advertisements to prepare an exhibit
a. marketing mix element of the six methods of positioning described in
b. positioning strategy the lesson. The exhibit can be in the form of a
c. attribute poster, audio or video recordings, or another
d. image medium.
2. When pork developed an image as “the other 6. History Use Internet or library research to
white meat,” the method of positioning was identify and study a company that has oper-
a. price and quality ated for more than 50 years and has made a
b. product user major change in the market position of a key
c. product classification product. Write a one-page report that de-
d. competitor scribes the reasons for the change, including
responses to consumer perceptions, competi-
3. Which of the following is not one of the areas
tors’ actions, or changes in the business envi-
that typically affects the selection of a posi-
ronment.
tioning strategy?
a. pricing Connect to
b. consumer perceptions
7. A new bank in your community has asked your
c. competitors in the marketplace
marketing team to propose an idea for a suc-
d. changes in the business environment
cessful market position. Prepare a print adver-
4. True or False: The most important influence tisement that clearly communicates the image
on a company’s positioning decision should you have selected. Present the advertisement
be the actions of competitors. to your teacher (judge). Identify the basis for
the market position chosen and explain why
your team believes it will be effective.
S
N
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7-3 Competing for Market Segments
GOALS KEY TERMS
• Explain direct vs. indirect competition and price vs. direct competition, p.195
non-price competition. indirect competition, p. 195
• Describe the benefits of competition to consumers. price competition, p. 196
non-price competition, p. 196
Markets are important because they contain the potential customers for marketers’
products. Competition is the rivalry between two or more businesses to secure a
dominant position in a market. The products of some businesses are almost identical,
resulting in stiff competition and pressures to reduce prices in order to attract cus-
tomers. Other businesses have products that have notable differences, making
competition less intense.
List two products that you buy that have recently undergone important changes
and improvements. Identify the businesses you believe are the major competitors
in that market and identify how those businesses compete with each other. Now list
two products you buy that have not changed in any important ways for several years.
Again, identify the businesses that are the major competitors offering that product and
note how those businesses compete. Which of the products has more or less competi-
tion? Discuss with other students the effect competition has on changes and improve-
ments to products.
Types of Competition for

Positioning Decisions
ust as there are different types of
J market segments and positioning

strategies, there are different types of
competition that businesses face when
positioning their products. To be able to
compete successfully, businesses must
be able to identify and reach a market
segment that has a need for their prod-

uct or service and position itself effec-
tively against its competitors.
The type of competition faced by a
business will affect its positioning. There
are two major types of competition that
businesses must recognize and ad- What positioning strategy might a small neighbor-
S dress—direct versus indirect competition hood grocery store use to compete against larger,
N and price versus non-price competition. national supermarket chains?
194
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Get the Message
The Power of Word-of-Mouth recommendations. For example, a shoe com-
Marketing pany might send shoes to a celebrity to wear,
or a pharmaceutical company might try to get
When a friend recommends a movie to you,
a doctor to recommend a certain medication.
you are more likely to go see it than if you
When Google launched Gmail, its e-mail
just saw a movie preview. That’s because you
service, it gave free accounts to key influ-
trust your friends more than you trust an ad
encers. Individuals could not get a Gmail
for the movie. Of course the movie preview
account unless they were invited by a cur-
will say the movie is great—that’s the job
rent member. Limiting the supply created
of a movie preview. But your friends have
buzz and drove up demand, and Gmail,
nothing to gain by you seeing the movie, so
through word-of-mouth marketing, quickly
they’ll give you their honest opinion.
became a major player in the world of e-mail
The idea behind word-of-mouth
providers.
marketing is to get people who like a product
or service to tell others about it. When people Think Critically
are talking positively about a company’s
1. For what types of products might word-
products, it is sometimes referred to as “buzz.”
of-mouth marketing be effective?
A company can create buzz in several ways.
It will sometimes target influencers, or 2. How has e-mail affected word-of-mouth
people whom others look to for advice or marketing?
Direct and Indirect McDonald’s goal is to convince every cus-

Competition tomer that it offers the best choice among
all competing brands.
Direct competition is competition in a Indirect competition occurs when a
market with businesses that offer the same business competes with other companies
type of product or service. This is a com- offering products that are not in the same
mon form of competition. For example, product category but that satisfy similar
Holiday Inn and Ramada Inn compete customer needs. A movie theaters com-
with each other for travelers’ dollars. Nike, petes directly with other area theaters,
Adidas, Reebok, and other sport shoe but it competes indirectly with video
manufacturers compete head-to-head. rental stores, the on-demand feature of
Businesses that compete directly many cable television services, and even
must know who their competitors are. more broadly with other entertainment
McDonald’s has obvious competitors such choices.
as Hardee’s, Burger King, and Wendy’s. If McDonald’s promotes its products
It also competes against other fast-food as easy and convenient to obtain, then
restaurants such as KFC, Taco Bell, and it might be in indirect competition with
locally owned fast-food restaurants. These meals offered at the deli counters of many
are all direct competitors even though they supermarkets and convenience stores.
may offer different menu items. McDon- McDonald’s might also find itself compet-
ald’s competes head-to-head with these ing with easy-to-prepare frozen meals that
businesses. It tells consumers why its menu can be popped into the microwave for a S
items taste better and are a better value. quick and easy individual or family meal. N
195
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COURTESY OF DAFFY’S
A low price is often not enough to convince customers to purchase a company’s products.
Remember that you have limited on the basis of price and value is called
dollars to spend on a meal, and there are price competition. Look in your local
many factors that can affect your choice of newspaper at the various grocery store ad-
the type of meal and the place to purchase vertisements and you will see an excellent
it. How does McDonald’s compete with example of price competition. Restaurants
all of the indirect competitors available to use price competition with their lunch or
consumers in the marketplace? early evening dinner specials. Another
The marketing managers at McDonald’s example of price competition is airfares.
have some important decisions to make. If a new airline enters a market, it will
One decision they must make involves what often offer very low fares for the first
features of their products they will highlight weeks or months. In response, usually
or what benefits they will emphasize. Will the competing airlines offering flights
it be quality, variety, price, convenience, or between the same cities will also lower
a friendly family atmosphere? Each market their fares.
segment places value on different things, The opposite of price competition is
and each business must appeal to the char- non-price competition, which occurs
acteristics of that segment or segments on when businesses decide to emphasize
which it focuses. McDonald’s will compete factors of their marketing mix other than
differently for a market segment that wants price. Those factors might include product
a fast breakfast before school or work than
it does for the young family segment that
wants affordable and nutritious menu Fa s t FAC T S
choices for both adults and children.
In a recent survey of consumers consid-
ering the purchase of a high-definition
Price and Non-Price television, 16% said screen size would
Competition be the most important factor in their
Since many consumers have limited dol- decision while 24% valued the brand
lars to spend on each of their purchases name over other factors. However, 60%
and are looking for the best value, some reported the main influence in their
S marketers decide to emphasize price when purchase decision would be price.
N they compete. Rivalry among businesses
196
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quality, brand name, location, or special that is looking for factors other than price
customer service. Non-price competition when making a purchase. The small busi-
occurs for several reasons. First of all, ness could emphasize individualized atten-
some businesses do not have a great deal tion, delivery, set-up, and after-sale service,
of control over their price in relation to or even the long history of the business
competitors. Insurance companies may not owners in the community as a balance for
have much control over the price they can higher prices.
charge for policies because a state gov- Non-price competition is effective
ernment agency regulates the industry’s when the market segment values some-
prices. Therefore, they focus on non-price thing other than price. The consumers
issues, such as an easy-to-complete appli- must recognize a unique quality in the
cation, personalized services from an in- product that leads to a product preference
surance agency, and prompt claims service regardless of the price. These qualities
when the policyholder suffers a loss. might be service, quality, credit, location,
Another reason a company might guarantees, or a unique image.
choose to use non-price competition is
because its product is higher priced. A
small business may not be able to compete Checkpoint
with large companies due to higher costs
and lower volume. The small business may What are the two major types of competi-
want to identify a specific market segment tive strategies employed by businesses?
Benefits of Competition
onsumers benefit in many ways from mountain bike, and they created a new
C competition. One benefit is that the

consumer receives the best price for
products. Competition forces businesses to
cycling product known as a cross-bike.
offer reasonable prices for the products and

services that consumers use. If businesses
want to be successful, they must price their
products in line with others in the same
classification. As a result, the consumer is
given the most value for the least amount
of money.
A second benefit of competition is that
it encourages improvements in products
with the addition of unique features and
benefits. Each company is looking for a
way to make its product distinctive so that
it attracts the attention of the market seg-
ment. The benefit to the consumers is that
they continue to see changes and improve-

ments in product features and quality,
often at little additional cost.
Third, to match their competition,
businesses must continuously search for
new product ideas. Bicycle manufactur-
ers saw a need for a bicycle that was a cross How can cyclists benefit from competition S
between a traditional racing bike and a among bicycle manufacturers? N
197
7-3 • Competing for Market Segments 197
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Rugged, lightweight, and easier to pedal movies. Each channel competes with the
and maneuver, the cross-bike is popular other channels for viewership, and cable
among weekend bikers and avid members and satellite services compete to provide
of bicycle clubs. The model now makes up these services. The market is so large that
about 10 percent of all bicycle sales. major telephone companies are now seek-
Finally, competition offers consumers ing changes in laws to be able to offer
the benefit of a wide variety of products television services via the telephone lines
from which to choose. The market seg- they already run into neighborhood homes.
ments are so diverse that businesses make Viewers benefit from that type of com-
sure that there are products to meet con- petition by gaining more entertainment
sumers’ wants and needs. An example choices.
of this is the range of television channels
available to viewers. Today, with cable or Checkpoint
satellite television services, viewers can
access more than 200 television channels as What benefits do consumers derive from
well as music channels and premium competition among businesses?

Determine the best answer. 5. Geography Use an Internet mapping program
1. When a supermarket offers prepared meals such as Google Maps to prepare a map of a
for consumers to purchase on the way home large shopping area in your community or a
from work, restaurants would view that as larger city close to you. Use the mapping fea-
a. direct competition ture to locate several businesses in direct com-
b. indirect competition petition with each other. Then locate several
c. price competition other businesses that offer indirect competi-
d. non-price competition tion. Print a copy of the map and use it to mark
the business locations and type of competition
2. The newspaper ads featuring weekly specials
offered by each business.
at supermarkets are examples of
a. indirect competition 6. Consumer Economics Visit a large electronics
b. price competition store or use the Internet to identify three com-
c. brand preference petitive brands of a popular electronic product.
d. none of the above Gather the following comparative information:
(1) brand name, (2) current list price and cur-
3. True or False: A negative effect of competi-
rent sale price, (3) three features that are similar
tion is that consumers usually end up paying
to those of competitors, (4) two features that
higher prices for products and services.
are different from competitors. Develop a table
4. Which of the following is not a typical busi- to compare the brands using your findings.
ness response to competition?
a. reduce the variety of product choices Connect to
b. search for new product ideas 7. Develop a two-minute informative speech on
c. improve product quality and customer how principles of the free enterprise economy
service contribute to the benefits that consumers re-
d. identify additional market segments ceive from competition described in the lesson.
Deliver your speech to your teacher (judge).
S
N
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Learning about the Competition 7-4
GOALS KEY TERMS

• Discuss the types of information businesses need to market intelligence, p. 202
know about their competitors. trade shows, p. 202
• Describe the kinds of activities businesses engage
in to gain marketing intelligence.
In order to compete with other businesses, a company needs to find out all it can
about those competitors. Athletic teams have used scouts for many years. They
attend the competitors’ games to analyze their strategies, tactics, strengths, and
weaknesses. The information is used to prepare their own teams to be more effec-
tive competitors. The same is true in business. In order to compete effectively, busi-
nesses take a number of steps to learn as much as they can about their competitors.
Instead of scouting, the process is called gathering market intelligence.
Let’s say you work for an automobile dealership and are given the assignment to
gather market intelligence on competing dealerships. What type of information do
you believe you would need to obtain? What are some information sources and data
collection methods you would use? Are there any intelligence gathering methods
you would not use based on ethics?
Types of Competitive Information

arketers want to develop each ele- features, options, or additional services?
M ment of the marketing mix for their

products and services to best meet
the wants and needs of their consumers.
For example, if Chrysler reduces the price
of all of its cars and trucks as part of an
end-of-year promotion, there will be a sig-
But understanding wants and needs of nificant difference between its prices and
market segments is not enough. In order the prices of its competitors if the competi-
to make sure the company’s offerings will tors do not offer similar price incentives.
be the best available, a business must be Even though Toyota may believe that it
aware of the strategies that will be used by has established a brand preference in the
competitors. A company needs to gather minds of many consumers, will Chrysler’s
information on each of the competitors’ price cuts be enough to influence consum-
marketing mix elements. ers? For some people, the answer would
be yes because for that segment, price is
Pricing Strategies the most significant factor when making
When businesses are in direct competition, a final choice between competing Toyota
competitors’ pricing strategies are very im- and Chrysler models. For others, the an-
portant. Are competitors planning a sale, swer would be no because they value other S
or are they going to raise the price and add factors, such as quality, more than price. N
199
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Virtual Marketing
The Effect of the Internet on through many cable providers. Experts
Television predict that in the near future, viewers will
have the ability to watch whatever they
Back when television was introduced, many
want, whenever they want, with the click of a
people thought it would be the end of radio.
mouse. Every show, movie, and music video
Before television, families crowded together
will be available to download and watch in
in their homes at night to listen to the net-
an instant. But like radio, television won’t
work programs on the radio. So when people
become obsolete. It will just be very different
started watching their shows on television,
from what we’re used to now.
it seemed like radio was on the way out.
Instead, radio was transformed by television.
Think Critically
It shifted from carrying live programs and
radio dramas to focusing more on music, 1. What effect will the ability to download
news, and sports, the mainstays of radio shows have on television commercials?
today. Will it make it easier or more difficult for
Similarly, we can expect that the intro- advertisers to reach viewers?
duction of the Internet will forever change 2. What types of television programs might
television as we know it. We’re already seeing still be broadcast and watched in real
it with on-demand television shows offered time by by most people?
Distribution Decisions Product/Service Planning

The second area to gain information about The third type of competitive information
is competitors’ distribution systems. Are needed involves changes to the products
products conveniently available to cus- and services offered. One of the great-
tomers in a large number of locations or est challenges to a business is anticipat-
is distribution selective? Are competitors ing the introduction of a new product or
making products available via the Internet service by a competitor. A new product
or catalog sales, making it more conve- usually will result in at least a temporary
nient for customers to order and obtain the shift in consumer purchases until custom-
products? ers decide whether or not they like the
An important part of satisfying the new product. If customers prefer the new
wants and needs of the consumer is to have product, it may be difficult for a business
the product in the right place at the time the to attract them back even when it is able to
customer wants to purchase it. If the compe- obtain and offer a similar product choice.
tition is planning on distribution changes, When Pepsi introduced a clear cola,
its products might be more convenient to Coke did not put a comparable product on
purchase than yours. However, making the market to compete. Coke may have de-
products available at more locations adds cided that the clear cola was not significant
to the cost, which usually must be passed competition, or it may have believed that
on to the customer, or it will result in lower the product would not succeed. However,
profits for the company. Making distribu- if it had been successful, Coke would have
tion changes usually requires a great deal of had to scramble to develop a competing
S time and may involve other businesses, so brand, or it would have risked losing
N they need to be planned carefully. market share.
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Promotional Efforts
More attention may be focused on compet-
©1996 AMERICAN EXPRESS TRAVEL RELATED SERVICES, INC. REPRINTED WITH PERMISSION
itors’ promotional efforts than on any of
the other mix elements. Promotional strat-
egies can be changed quickly. A unique
promotional activity can grab consum-
ers’ attention. A well-timed promotion
can have a direct effect on the sales of the
business running the promotion and on its
competitors.
If a furniture store runs a promotion
offering discount prices and special financ-
ing for an upcoming weekend, how should
competitors respond? Will they have time
to plan and promote a similar sale? Should
they allow the competitor’s plans to in-
fluence their marketing strategy if it has
already been determined? What effect will
the promotion likely have on the competi-
tors’ sales during that weekend and for
several weeks if the promotion results in
high sales volume for the business?
Most promotions are designed to sup- Effective promotion can reinforce the image of a well-
port other changes in a business’s market- known brand.
ing mix—a new product introduction,
opening a new location, or a special sale What are the competitive strengths
or price incentive. Competitors need to and weaknesses of the other companies?
consider how to respond not only to the Do they emphasize customer relationships
promotion but also to the other changes in and service, or do they appear to be more
the marketing mix. focused on mass markets and low prices?
Do they have well-known brands with
strong customer loyalty? Do they have
Competitive Market Position flexible and efficient distribution strate-
There are other factors that affect each gies? Are they viewed as innovative market
business’s competitive edge. Is a new leaders, or are they more traditional and
competitor entering the market? If so, conservative in their business practices?
what has that competitor’s success been in Factors such as these can make the dif-
similar markets? Has your business identi- ference between success and failure of
fied a new market segment it wants
to serve? If so, is the competition for
that segment the same as or different Wo r k i n g i n Te a m s
from your current markets? What
will be the effect of entering the new As a team, identify a new consumer product
market on your existing customers? that has recently been introduced which is of
How does the financial strength interest to team members. Discuss the market-
of your competitors compare to ing mix being used to market the product. What
your own? Do they have the money would it take to get you to try the new product?
available to develop new products Why might you decide to continue with your
and improve old ones? Do they have current product choice rather than switch to the
the financial flexibility to respond to new product? S
pricing changes? N
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a product or service in the marketplace.
Studying competitors to understand the Checkpoint
strengths and weaknesses and to be able to
anticipate and be prepared for competitors’ What are the five types of information
actions is essential for the future success of that businesses need to know about their
a business. competitors?
Collecting Competitive Information

he process of gaining competi- 5. Study customers and customer records
T tive market information is called

market intelligence . As a part of
their marketing information systems and
to learn about the competition.
6. Attend trade shows. Trade shows are
exhibitions where companies associ-
marketing research procedures, businesses ated with an industry gather to show-
determine the types of competitive infor- case their products. You can gather
mation they need, the best sources for each information on what your competitors
type of information, and the procedures are displaying and hear customer views
they will use to obtain and analyze the of the latest products.
information for marketing planning. 7. Use the Internet. The Internet is be-
coming one of the best sources of cur-
Information Sources rent competitive information. Com-
Businesses engage in the following pany web sites provide a great
activities to gain information about the deal of information intended for
competition: customers and investors but useful to
1. Direct salespeople and other employees competitors.
to be alert to information about com-
Businesses do not collect competitive
petitors’ products, prices, and antici-
information randomly. Large businesses
pated changes.
have staffs responsible for working with
2. Purchase and analyze competitors’ market intelligence and conducting mar-
products. The information can be used keting research, including research on
to make product changes and recog- competitors. Their objectives are to iden-
nize the areas where the competitive tify the strengths and weaknesses of key
products have advantages and disad- competitors, assess their current marketing
vantages. strategies, and predict their future actions.
3. Collect and study newspaper and
magazine articles, government and Ethics in Information
university research reports, and other Gathering
public information on competitors, Some individuals and companies have
new product research, and marketing used unethical methods to obtain infor-
trends. Companies may use employees mation. It is not always easy to clearly
or hire information services to collect determine whether or not a method is
the latest industry news. ethical. However, the usual standard is that
4. Subscribe to professional association if a competitor has information it con-
S and trade group publications and spe- siders to be private and does not disclose to
N cial research reports. people outside the business, obtaining and
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using that information would be unethi- Companies should communicate their
cal. In the same way, obtaining informa- expectations about the confidentiality
tion through false pretenses or misleading of information to employees, suppliers,
information or by accessing data from and customers. Many companies include
restricted locations is unethical. In some guidelines in their codes of ethics about
instances, it may also be illegal. sharing information with others and ob-
Unethical actions might involve co- taining and using competitive information.
ercing a customer or supplier to provide
competitive information. More complex
and illegal activities are dumpster diving Checkpoint
(sorting through a competitor’s trash) and
attempting to bribe an employee for access What are some of the best information
to private information. sources of market intelligence?

Determine the best answer. 6. Writing You are the marketing manager of
1. True or False: Because businesses using the a local supermarket. Prepare a list of 20 ques-
marketing concept thoroughly understand tions (4 questions about each of the market-
the needs of a target market, there is little ing mix elements and 4 questions about the
need to gather information about supermarket’s competitive market position)
competitors. that you need to answer in order to understand
the business’s competitors. Compare your
2. Which of the following mix elements can be
questions with other students’ questions.
changed very quickly by a competitor?
a. product features 7. Language Arts You and a colleague are
b. distribution gathering information from a competitor’s
c. promotion public web site when you access a link to a
d. all can be changed very quickly confidential report on a new product under
development. It is obvious that the report was
3. True or False: An example of a change in
intended to be confidential, but the link had
competitive position is the entry of a new
not been protected. Role-play with another
competitor into the market.
student what you would do with the report,
4. Marketing _____ is the process of gaining what you would say to your boss, and whether
competitive market information. you would inform the competitor about the
5. Which of the following is an unethical source unprotected report.
of competitive information?
a. information gathered from searching the Connect to
trash of a competitor 8. You are responsible for market intelligence for
b. information gathered by purchasing and the Scion division of Toyota. Locate advertise-
analyzing a competitor’s product ments or other product information on the
c. information gathered from a survey of a Honda Element. Prepare a one-page written
competitor’s customers competitive analysis describing the strengths
d. all are unethical sources of information and weaknesses of each of the mix elements
for the Honda Element. Present your report
to your teacher (judge) and be prepared to
answer questions.
S
N
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Now that you have completed the chapter, check offer examples of three methods to position a
your understanding of the lessons with these ques- company’s products and services?
tions. Record the score that best represents your suggest how consumer perceptions, competi-
understanding of each marketing concept. tion, and the business environment can affect
1 = not at all; 3 = somewhat; 5 = very well positioning decisions?
If your score is 42–50, you are ready for the assess- identify examples of direct and indirect competi-
ment activities that follow. If you score 33–41, you tors for a business?
should review the lessons for the items you scored suggest how a business can use non-price rather
1–3. If you score 32 or less, you will want to carefully than price competition?
reread the lessons and work with a study partner on discuss several ways that consumers benefit
the areas you do not understand. from the competition among businesses?
Can you— provide examples of competitive information a
provide reasons why it is important of a business business should collect for each marketing mix
to complete market segmentation for its pro- element?
spective customers? define market intelligence and identify useful
list examples of each type of segmentation: sources of intelligence?
demographic, psychographic, product usage, explain why ethics is important in collecting and
and expected benefits? using market intelligence?

1. The process of dividing a large group of consum- 10. Directs a company’s marketing mix at a large and
ers into subgroups based on specific characteris- heterogeneous group of consumers
tics and common important needs
2. Dividing consumers into markets based on a. benefit segmentation
where they live b. consumer perceptions
3. People’s interests and values d. demographics
4. An identified market with excellent potential e. direct competition
based on careful research f. geographic segmentation
5. The total revenue that can be obtained from the g. indirect competition
market segment h. market intelligence
i. market opportunity
6. The unique image of a product or service in a
consumer’s mind relative to similar competitive j. market position
offerings k. market potential
l. market segmentation
7. The images consumers have of competing goods
and services in the marketplace m. market share
n. mass marketing
8. Occurs when a business competes with other
o. non-price competition
companies offering products that are not in the
same product category but satisfy similar cus- p. price competition
tomer needs q. product usage
r. psychographics
S 9. Rivalry among businesses on the basis of price
s. trade shows
N and value
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11. True or False: A market segment must be defined 18. True or False: There are
by its demographic characteristics. relatively few consumer
12. True or False: Each segment of a market presents benefits from competition
a viable market opportunity for a business. compared to the benefits
businesses receive from
13. True or False: In order to compete effectively
increased sales and higher
with other businesses, marketers must create a
profits.
unique image of their product or service in the
consumer’s mind. 19. True or False: In order to compete effectively, it
is important to learn as much as possible about
14. True or False: In today’s economy, price competi-
your competitors’ marketing strategies.
tion must be used with direct competitors.
20. True or False: It is illegal for businesses to use
15. True or False: Marketers do not need to know
trade shows to gather competitive information.
how consumers are using their products, as long
as they are using them. 21. True or False: A publication of a trade or profes-
sional association is an example of an informa-
16. True or False: An example of indirect competition
tion source that a business could use to gain
would be competition between a bowling alley
information about competitors.
and a video arcade.
22. True or False: Companies should communicate
17. True or False: The type of competition that
their expectations about the confidentiality of
stresses convenient location or ample parking is
information to employees, suppliers, and
called attribute competition.
customers.

23. Use the Internet to access the Census Bureau’s how the businesses using non-price competition
Statistical Abstract of the United States and use emphasize other factors that customers should
the data to identify distinct market segments consider.
based on the types of characteristics listed be- 25. It is important to position a product or service
low. List the segments and the relevant popula- in relation to your competitors. The objective of
tion data from the Statistical Abstract. For each positioning is to cause your product or service to
group of segments, name a product or service occupy a prominent position in your customer’s
for which the segmentation you identify would mind in comparison to the competition. Using
be significant. For example, if you segmented the list below, decide which of the six position-
people by region of the country, the segments ing methods would be most important for each
would be significant if you were marketing heat- product or service. After you have made your
ing and air-conditioning equipment. selection, give a reason why you selected that
a. geography technique.
b. age a. urgent care medical centers
c. education b. imported perfume or cologne
d. income c. home office furniture
24. Businesses decide to compete using price or d. personal fitness classes
non-price competition. Locate two newspaper e. farm tractors
advertisements that clearly demonstrate a strat- f. environmentally safe laundry detergent
egy of price competition and two advertisements 26. A medium-size rural community has three
that stress non-price competition. Cut and paste major grocery stores that have 94 percent of the
each advertisement onto separate sheets of paper. total market. The remaining 6 percent is shared
For each ad, highlight and use margin notes to by small, locally owned stores. It is estimated
describe how the businesses using price competi- that the total market potential for grocery S
tion characterize or draw attention to the price and items for this town is $37.5 million. There are N
205
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approximately 25,000 potential customers in this share is left for the other two major stores (in
town. dollars)?
a. What is the total market share in dollars for 27. An important part of competitive success is gath-
the three major grocery stores? ering market intelligence on competitors. Select
b. What is the total market share in dollars for one of the types of businesses below. Make a
the small, locally owned stores? list of five types of market intelligence needed
c. What is the market share in dollars for each by the business and identify why it is valuable in
major grocery store if they all have an equal planning a marketing strategy. For each type of
share of the market? business listed, identify one possible source of
d. One of the major grocery stores has recently that information.
remodeled and expanded and has begun a. pizza delivery
to stay open 24 hours. As a result of these b. intercity bus line
changes, this store has increased its market c. travel agency
share to 45 percent of the total market. What d. furniture rental store
is its new market share in dollars? e. radio station in a large city
e. Assuming that the locally owned stores still
have 6 percent of the market, what market

28. You are a marketing consultant in your local to receive up-to-date competitive price informa-
community. There is an association of downtown tion. You have decided to open a business with
business people called the Business Improve- several classmates called Partners In Pricing. PIP
ment Bureau. It is an organization that is inter- will use various methods to determine the prices
ested in improving the marketing practices of of an assortment of products and services sold
the individual businesses as well as improving by area businesses. It will also collect consumer
the business economy of the entire community. perceptions of competitors’ prices.
Members have lunch together once a month and You will offer the service of finding out what
usually invite a guest speaker. Assume you have competitors’ current prices are for products and
been invited to speak to the organization this services. You will comparison shop in stores;
month about positioning in the market. Prepare call for prices on the telephone; read advertise-
a presentation, including visual aids, for a speech ments in newspapers, magazines, and circulars;
to the Business Improvement Bureau. The talk and visit with business and organization owners
and discussion are scheduled to last approxi- directly to acquire this information. You will also
mately ten minutes. Your presentation could conduct frequent consumer surveys via tele-
include a discussion of positioning, the results phone and interviews in area shopping malls.
the members could expect with effective posi- Prepare for marketing your business by
tioning, and a discussion and examples of the describing how you would use each of the
six positioning techniques. Make sure to explain positioning techniques for PIP. That is, what at-
how positioning can work for the entire business tributes would you claim to have, what is unique
community as well as for individual businesses. about your price and quality, and how will your
Your visual aids should emphasize the important customers be able to use the information you
aspects of your speech. provide them? Also, who are your competitors,
29. Because of a recession, you have become aware how would you classify yourself in the larger
of an intense interest in your area in pricing. arena of business, and who will be your most
You think there is a business opportunity in this prominent users? Use your answers to these
phenomenon. Specifically, you think that busi- questions to prepare a threefold brochure or a
S nesses and organizations in your area would pay promotional web site that you will use to recruit
N your first customers.
206
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Sports and Entertainment
Marketing Management Team
Decision Making Event
The Dynamos Performance Indicators
are a new profes-
sional soccer franchise located in Houston,
Evaluated
Texas. A new stadium for the team is being • Determine the relationship between gov-
planned. Sugar Land and Pearland are ernment and business. (Economics)
Houston suburbs that have made serious • Identify factors affecting a business’s profit.
bids for the soccer field to be built in their (Economics)
communities. • Identify information monitored for market-
Downtown Houston has Minute Maid Park ing decision making. (Marketing-
for professional baseball, Toyota Center for Information Management)
professional basketball, and Reliant Stadium
• Explain the need for sport/event market-
for professional football. The light rail system
ing information. (Marketing-Information
transports fans to all three sporting venues.
Management)
New restaurants and hotels have located near
Minute Maid Park. The city of Houston has a • Describe the nature of target marketing in
piece of property near Minute Maid Park that sport/event marketing. (Marketing-
it proposes be used to build a professional Information Management)
soccer field for the Dynamos. The city will give • Develop sport/event product positioning
the Dynamos a property tax break. strategies. (Product/Service Management)
Houston is a diverse city with a large • Sell sport/event sponsorships. (Selling)
Hispanic/Latino population. Sugar Land is an Go to the DECA web site for more detailed
upscale planned community with a popu- information.
lation of 100,000 located 30 minutes from
downtown Houston. Pearland is a rapidly
growing suburb also located 30 minutes from
Think Critically
downtown Houston. 1. Why must a sports venue have the
Your team will meet with the general versatility to house other entertain-
manager for the Dynamos to discuss the pros/ ment events?
cons of all proposed locations for the soccer
2. Why do cities compete for profes-
stadium. You must convince the GM to locate
sional sporting venues?
the stadium in downtown Houston. Your pre-
sentation must describe the target market for 3. Why are government incen-
soccer, the product/service offered, potential tives important when deciding
corporate sponsors, proposed publicity for where to locate?
the team, multiple uses for the new soccer
4. Who are the target markets?
stadium, and the economic impact of
What promotions can be used
locating in downtown Houston.
PHOTOS: ©DECA INC.
to attract the target markets to

You have 30 minutes to prepare your
presentation, 10 minutes to present it to the the stadium?
judge, and 5 minutes to answer the judge’s S
questions about your proposal.
w w w. d e c a . o r g N
207
7-1 • Focusing on Market DECA
Segments
Prep 207
CH 07-B4491_PB1_REV2.indd 207 12/4/07 11:05:00 PM

Chapter 8
E-Commerce and
Virtual Marketing
8-1 What Is E-Commerce?
8-2 The Growing Importance
of E-Commerce
8-3 Virtual Marketing and
Distribution
8-4 The Role of Promotion
©DIGITAL VISION
for E-Commerce
Newsline )))
Consumers Say No to Pets.Com
It seemed like the ideal e-commerce for success come to such an unfor- the businesses they shop regularly
business. With millions of pet owners tunate end? The company’s owners rather than a new Internet company.
spending money on pet supplies, blamed the Internet economy, Even though most people knew
toys, and food, an online business pointing to a large number of the company’s name and loved the
where those consumers could e-commerce businesses that also advertising, they weren’t willing to
conveniently make purchases could failed at about the same time. How- make online purchases for their pets.
not fail. Pets.com had the financial ever, it was a classic misunderstand-
backing of Amazon and Disney. ing of marketing. The company’s Think Critically
It invested heavily in advertising failure pointed out that customer 1. Why is the purchase of pet
featuring the famous “singing dog” needs and choices affect the suc- products less convenient using
hand puppet. Pets.com got world- cess of a product. While pet owners the Internet than shopping at a
wide attention and name recogni- spend millions of dollars each year local business?
tion by spending over $1 million for buying a variety of products, there
advertising during Super Bowl XXXIV are thousands of businesses sell- 2. If you were the marketing man-
to introduce the puppet. The adver- ing those products, including local ager of Pets.com, what would
tisement was so popular that the supermarkets, discount stores, and you have done differently to
company was able to sell hundreds corner convenience stores. Most attract customers and sell your
of thousands of the hand puppets. pet owners don’t need to and don’t products?
Yet late that same year, Pets.com want to go online to order pet food 3. Search the Internet to find
announced it was closing its web or pet supplies and then wait a week news reports of other Internet
site, laying off its employees, and or longer for delivery. They want
companies that have failed and
ending business. to be assured of the quality of the
try to determine the reasons for
Why did a company that products they purchase for their
appeared to have everything needed pets and are more likely to trust their failure.
CH 08-B4491-DS_REV2.indd 208 12/4/07 11:10:43 PM


• Use communication skills to foster communica- • Explain the nature of effective communications in
tions in e-business e-business
• Foster positive relationships with customers to • Demonstrate a customer-service mindset in
enhance company image in e-business e-business
• Utilize sales processes and techniques to deter- • Reinforce service orientation through communica-
mine and satisfy customer needs in e-business tion in e-business
• Manage channel activities to minimize costs and • Explain the nature of channel strategies in
to determine distribution strategies in e-business e-business
Visual Focus
In many ways, the Internet has become the
new shopping mall. It is the place where
people go to shop for things they need, to
socialize through online interactions, and
to form virtual communities. The Internet
provides both opportunities and challenges.
This chapter describes the development and
growth of e-commerce. It shows how busi-
nesses are improving their use of virtual mar-
keting to support their traditional marketing
methods and are increasingly using it as their
primary method to reach customers.
Focus Questions:
Do you agree that using the Internet is the
same as socializing and shopping with your
friends at the mall? What problems might a
business encounter if it tries to use the Inter-
COURTESY, CISCO SYSTEMS, INC.
net only to sell products without realizing the

other ways people use the Internet?
Use the Internet to find an example of
how businesses are using social networking
and communication tools to reach a target
audience as suggested in the Cisco ad. Share
CH 08-B4491-DS_REV2.indd 209 12/4/07 11:11:17 PM

8-1 What Is E-Commerce?
GOALS KEY TERMS
• Describe the three stages of development for e-commerce, p. 210
e-commerce businesses. click-only businesses, p. 211
• Discuss the importance of the marketing concept to brick-and-mortar businesses, p. 211
successful e-commerce. brick-and-click businesses, p. 211
The beginning of e-commerce in the 1990s threatened to change the way busi-
nesses operate. After only a few years, though, many of the new companies operat-
ing solely on the Internet went out of business or were struggling to make a profit.
They learned quickly that just providing easy access to their business through the
Internet was not enough to ensure success. Consumers want assurance that they will
get a quality product, they can make a payment with security, the product will be
delivered quickly, and they can count on customer service if needed.
Make a list of the advantages and disadvantages of using the Internet to buy
products and services. Discuss with other students how businesses that use the
Internet can increase customers’ confidence in making online purchases.
The Expanding World of E-Commerce

t is hard to believe that the use of the has become a multibillion-dollar part of
I Internet to buy and sell products had

its beginnings just over ten years ago.
Today, many people use a computer daily
our economy.
The introduction of the personal
computer in the
to gather product information, locate late 1970s made
businesses, compare prices, and make it possible for
purchases. The Internet has become an people to have
important way for businesses to reach both an important
final consumers and other businesses. But tool available
e-commerce is still a relatively new way of at home and at
doing business, and companies continue to work. Electronic
learn how to use the Internet effectively. communication
E-commerce involves business ac- between com-
© GETTY IMAGES/PHOTODISC
tivities, including the exchange of goods, puters became

services, and information, completed realistic with
electronically via the Internet. It includes the introduction
purchasing and selling products online, of the World
providing and exchanging business infor- Wide Web in
mation, and offering customer service and 1991. Since
S support. In a very short time, e-commerce that time, with Why do you think e-commerce
N improved and has become so popular?
210
210 CHAPTER 8 • E-Commerce and Virtual Marketing
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lower-cost computer tech-
nology and growing access
to the Internet, millions of
people around the world
can instantly access infor-
mation and communicate
with each other.
By 2007, more than 200
million people in the United
States or about 70 percent of
the population had Internet
access. Internet access has
grown rapidly worldwide
with over one billion users
COURTESY OF OMNI HOTELS
in 2007. That is a 209 per-

cent increase since 2000.
Those connections give
businesses and individuals
instantaneous global ac-
cess. Almost all businesses
of significant size use
computers and the Internet Using the Internet to advertise enables hotels like Omni to communicate with
in their daily operations. travelers worldwide.
In a relatively short time,
e-commerce has become a
vital part of the business economy. From Bricks to Clicks
Businesses can use the Internet for only a
few activities, and some can operate their
Business on the Net entire business using the Net. Companies
Not all businesses can complete all that complete almost all of their busi-
of their activities using the Internet, ness activities through the Internet are
but the Internet can be used for many known as click-only businesses. Click-
activities. An automobile manufacturer only businesses were first known as dot.
uses video conferencing to bring designers com businesses, which came from the
from several countries together to work end of the web address for a commercial
on new models of cars and trucks. A business—.com. While click-only busi-
company headquartered in the United nesses have received most of the public-
States transmits data overnight to Ireland ity for moving business to the Internet,
where accounting specialists maintain many other businesses have developed
many of the company’s financial records. ways to use the Internet to support their
A Canadian telecommunications equip- business activities. Companies that
ment producer trains technicians world- complete most of their business activi-
wide by connecting the desktop com- ties by means other than the Internet are
puters of trainees and trainers using called brick-and-mortar businesses. The
a sophisticated audio-video system. A name “brick-and-mortar” suggests that
chemical company in Ohio has sensors the company relies on actual buildings
installed in the chemical tanks of such as retail stores, offices, or factories
customers. When the level drops to a to conduct its business. Companies that
certain point, the sensors trigger a com- combine traditional business operations
puter program that automatically orders with the use of the Internet are known as S
a new supply of the specific chemical. brick-and-click businesses. N
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Stages of
Development
Businesses generally progress
through three stages as they
develop their e-commerce
presence on the Internet.
They begin by offering in-
formation only. Then they
REPRODUCED WITH PERMISSION OF YAHOO! INC. ©2005 BY YAHOO! INC.

progress to interactive
capabilities and finally to
full integration of business
transactions on the Web.
Information Stage
Most existing businesses
first begin using the Inter-
net for e-commerce by
developing a simple web
site. This form of one-way
communication through
the Web is known as the
information stage. The
web site provides basic
information to help pro-
spective customers as they Yahoo’s web site demonstrates all three stages of e-commerce
gather information about development—information, interaction, and full integration.
products and companies. addition to e-mail, companies can add
As the business gains more experience a database where customers can search
with the Internet, it will add additional for specific information about available
information, including complete product products, features, and services. They
descriptions, payment methods, customer can check product availability, calculate
services, and even product manuals. product costs and shipping charges, and
The limitation of the information stage determine how long it will take to have
is that customers cannot use the web site to an order delivered. An order form may be
interact with the business. They must still included on the site along with a product
visit the business in person or use the tele- catalog. Customers can complete, print,
phone or mail to obtain information that is and then e-mail, fax, or mail the form to
not on the web site or to make a purchase. the company, but they cannot place an
Interaction Stage The second order directly from the web site.
stage of e-commerce development is
interaction. In addition to providing Wo r k i n g i n Te a m s
information, the company uses its
web site to interact with consumers. With your team members, discuss the types of
The simplest form of interaction is businesses that may benefit from using an
the use of e-mail. People viewing information-only web site rather than develop-
the company’s web site can click on ing an interactive or fully integrated web site.
a link to bring up an e-mail form Can your team members identify any types of
that they can use to request infor- businesses that probably would not benefit
S mation, ask questions, or contact from any type of e-commerce activities?
N specific people in the company. In
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Get the Message
The Closing of the Digital Divide But according to a 2006 study, 74 percent of
Back in 2000, there was much talk of the white adults go online, compared with
“digital divide”—the disparity between the 61 percent of African-Americans and 56 per-
high percentage of whites who used com- cent of Hispanic-Americans. It seems as if the
puters compared to the lower percentage “digital divide” has begun to close.
of minorities. Some said the digital divide Think Critically
could be attributed to the high cost of com-
1. What factors might have contributed to
puters, but it was viewed by many educa-
the closing of the digital divide?
tion, business, and community leaders as a
big problem. Knowledge of computers was 2. How would this information impact mar-
becoming more critical in educational suc- keters hoping to target minorities? What
cess and in the business world, and minor- approach might such marketers take now
ity students could not afford to be left out. that they would not have taken in 2000?
Full Integration Stage Companies companies. Many customers will still pre-
that want to take full advantage of the fer to complete some or all of their busi-
Internet in their business move to full ness in traditional ways. But full integra-
integration. With all of the Internet tools tion gives customers the option to use the
available, an entire business transaction Internet for part or all of their business
can be completed on an integrated site. transactions.
Customers can get necessary product,
pricing, and shipping information. They
can place an order and pay for it, track Checkpoint
their shipment until it is delivered, and
obtain customer, assistance before and What is the main difference between a
after the sale—all using the Internet. company in the interaction stage and one
Companies with integrated use of the in the full integration stage of e-commerce
Internet do not have to be click-only development?
Success in E-Commerce
any of the first Internet businesses customers are uncertain of the quality of a
M were very much like the early

production-oriented businesses.
They did not understand the importance
company’s products, do not receive mer-
chandise they order in a timely fashion, or
are concerned about the security of using
of marketing. They believed that if they a credit card on the Internet, they will not
had an attractive web site and advertised make purchases online.
their products extensively to prospec- Many e-businesses were not success-
tive customers, they would be successful. ful because they did not apply the market- S
They soon learned an important lesson. If ing concept. Businesses that have been N
213
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effective in e-commerce know that they Disadvantages of
must identify target markets and develop E-Commerce
a marketing mix that meets the target
market needs. They must also provide a Not everything
high level of service in the operation of about the de-
their web site and completion of all velopment of
marketing activities. the Internet as a
business tool has
been positive. It
Advantages of E-Commerce provides an easy
Businesses that use the Internet have way for people
several advantages over those that do not. to start a new
They have immediate access to prospec- business without
tive customers all over the world. They can understanding
introduce new products or update prod- what is neces-
uct information instantaneously. Internet sary for success.
access and communications are no longer Customers who
confined to desktop computers but can be placed orders with What are some of the advan-
accomplished through mobile wireless de- new businesses tages of e-commerce to
vices such as wireless notebook computers, often found that consumers?
PDAs, and cell phones. products were not
The Internet has become an impor- as described on the web site, not delivered
tant marketing research tool. It allows on time, or damaged when received. Errors
businesses to gather detailed and specific were made in order processing. Customer
information about prospective and cur- service was difficult to obtain. Returning
rent customers that can be used to tailor a an unwanted or defective product was
satisfying marketing mix. often difficult.
Customers’ concerns and questions Businesses learned that it is much more
can be sent to a company at any time, and difficult to predict demand for products
a response can be delivered immediately. when product information is available
Customers can order products day or worldwide on the Web. Customers expect
night, 365 days a year. They can review to be able to obtain answers to questions
operations manuals and other product and receive support any time of the day,
information that have been placed online. seven days a week, putting pressure on the
The Internet has resulted in the devel- business to expand those services. Distri-
opment of products that can be delivered bution channels, warranty and repair ser-
from computer to computer. E-tickets are vices, methods for accepting returns, and
replacing paper tickets for air travel. You secure web sites for accepting credit card
can purchase postage or concert tickets payments need to be developed to serve
online and print them at home rather than customers who order online.
visiting the post office or box office. One of the greatest disadvantages of
The Internet has expanded competi- e-commerce is the changing nature of
tion. Small businesses can more easily competition and the purchasing behavior
compete with larger businesses because of of customers. A brick-and-mortar com-
the lower costs needed to start and oper- pany generally competes with similar
ate an e-business and the ability to access businesses in the same geographic area. In-
customers easily with less promotion. ternet businesses face competition from all
Companies can enter international mar- other businesses offering similar products
kets by translating the Internet site into the on the Web. Many consumers use the Web
language of the country in which it wants to gather information and compare prices
S
to sell its products. and then go to a local business to make the
N
214
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purchase. In this way, Internet businesses services that customers want. It must also
aid local businesses without getting the be able to distribute them effectively, make
benefit of actually selling a product. purchases affordable, make ordering and
payment of products easy, and provide in-
The Marketing Concept formation in the form of descriptions and
Applied to E-Commerce pictures to answer important customer
questions. The business must also answer
E-commerce has demonstrated the impor- questions, provide expected services, and
tance of the marketing concept to success- solve problems after the sale. All parts
ful businesses. When information about of the marketing mix—not just selling a
a company’s products and services can product online—are important for suc-
be viewed by people in many locations, cessful e-commerce.
it is especially important for the busi-
ness to understand who its target market
customers are, what their needs and wants Checkpoint
are, and how those needs and wants can be
satisfied with a marketing mix. The busi- How does competition change for busi-
ness must be able to offer the products and nesses involved in e-commerce?

Determine the best answer. 6. Social Studies Use of the Internet in the
1. True or False: To be involved in e-commerce, United States varies based on several demo-
a business must sell products and services graphic characteristics including age, gender,
using the Internet. education, income levels, and ethnicity. Use the
Internet to locate information on differences
2. By 2007, the percentage of the U.S. popula-
in the level of U.S. Internet usage based on
tion with Internet access was about
three demographic factors. Prepare a table and
a. 25 percent
a chart or graph that presents the information.
b. 50 percent
c. 70 percent 7. Foreign Language Locate the web site of a
d. 95 percent U.S. business that provides an alternate site in
a language other than English. Locate the web
3. Companies that combine traditional business
site of a company in a non-English speaking
operations with the use of the Internet are
country that provides an alternate site in Eng-
known as brick-and-_____ businesses.
lish. Study the web sites and identify any differ-
4. The stage of e-commerce development in ences other than the language in the organiza-
which customers can gather information tion of the alternate web sites of each country.
and communicate with the company but not
place an order online is Connect to
a. information 8. Your team is conducting research on customer
b. interaction satisfaction with e-commerce. Develop a four-
c. limited integration item questionnaire to determine what custom-
d. full integration ers like and dislike about online shopping.
5. True or False: Most of the early e-commerce Survey at least 15 people of different ages.
businesses were successful because they Summarize the data and prepare a two-page
understood and used the marketing concept. report of your findings. Present the written
report to your teacher (judge) and be prepared
to answer questions. S
N
215
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8-2 The Growing Importance of E-Commerce
GOALS KEY TERMS
• Identify evidence of the growth of the Internet. B2C, p. 217
• Describe the various business uses of the Internet for B2B, p. 217
e-commerce.
Consumers are most familiar with the businesses from which they make regular pur-
chases or that advertise regularly. But not all businesses sell to final consumers. Many
businesses serve other businesses, so consumers are less familiar with them. Busi-
ness-to-business marketing is an important part of the economy. Just as businesses
that sell to final consumers are adapting to the use of the Internet, e-commerce is
becoming an important part of business-to-business marketing as well.
Use a business or telephone directory or the Internet to identify three businesses
that sell directly to final consumers, three businesses that sell to other businesses, and
three businesses that sell to both final consumers and other businesses. Determine
which appear to use the Internet as a part of their marketing efforts and which do not.
Growth of the Internet

o one recognized the potential of the
N
FIGURE 8-1
Internet when it was first developed in Countries with the highest number of Internet
the 1950s as a military and research users in 2007 (in millions).
tool. It developed slowly until businesses
and consumers accepted and used personal Country No. of Users
computers and technology allowed for the United States 211
rapid exchange of information using spe-
China 137
cially designed software and modems.
The Internet has grown rapidly in Japan 86
the last decade of the 1900s and during Germany 51
the first years of the twenty-first century.
Today, more people around the world have India 40
access to computers and Internet connec- United Kingdom 37
tions. Over 120 million business, organiza- South Korea 34
tion, and individual registered web sites
were active worldwide in 2007, with mil- Brazil 32
lions more being added each year. France 31
An estimated one billion people world-
wide can access the Internet for business Italy 31
S or personal use. As shown in Figure 8-1, Russia 24
N the United States leads the world in Canada 22
216
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Internet use with approximately 21 per- $110 billion in 2006, growing at a rate of
cent of all users. However, that percentage 24 percent in just one year. That seems
has dropped from 50 percent in less than like a large amount, but it represents only
ten years as other countries expand their 2.8 percent of all retail sales. In com-
Internet access at a faster rate than in the parison, U.S. B2B (business-to-business)
United States. For example, China’s Inter- Internet sales for 2007 topped $800 bil-
net use has more than tripled in just four lion. Many people and businesses around
years but still reaches only 10 percent of its the world do not yet purchase online or
population. make only a small percentage of their total
Business use of the Internet is also purchases online. Even more are not yet
increasing. While there are many other connected to the Internet, so B2C and B2B
business uses of the Internet, an important sales likely will increase by millions and
measure of Internet usage by business is even billions of dollars in future years.
the sale of products and services. Because
e-commerce is quite new, estimates of the Checkpoint
volume of products and services sold vary
greatly. According to the Census Bureau, Why is it likely that B2C and B2B sales on
B2C (business-to-consumer) Internet sales the Internet will continue to grow in future
in the United States were approximately years?
Business Uses of the Internet

ome companies are reluctant to use the distribute newsletters, reports, and other
S Internet because they do not believe

it is useful for their type of business
activities. They assume that the Internet
information to employees and investors.
Improved communications with cur-
rent and prospective customers can occur
can be used only for selling products. But using the Internet. Consumers use the
many other business activities can be com- Web to locate products and businesses.
pleted online that benefit both the business Companies can provide more detailed
and its customers. information than is possible with tradi-
tional methods. They can post their hours,
Communicating identify contacts for information, and even
The Internet is a very efficient and effective provide a map and driving directions to
communications tool for both individu- the business. Today, if a business has not
als and businesses. From the beginning posted information about its business,
of the Internet, the primary way people location, products, and services on the
have communicated is through e-mail. But Internet, it will miss many prospective
many tools are currently available, and customers.
new ones are being developed to aid in
person-to-person and business-to- Fa s t FAC T S
business communications. Examples in-
clude chat rooms, bulletin boards, personal Each day that they are online, Internet
messengers, webcams, and online white- users are exposed to more than 1,000
boards that allow several people to share ads on average. That is more than
application software and collaborate using double the number of ads users were
text and graphics tools. Businesses use exposed to in 2000. S
the Internet to quickly and inexpensively N
217
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World View
E-Readiness Government leaders and business
Which country is best prepared for the people watch the rankings to make sure their
growth of the Internet? It may surprise you countries remain competitive in e-readiness
that it is not the United States. The Economist and to determine the other countries that
developed an e-readiness index that mea- will make good technology partners and
sures a country’s technology infrastructure, e-commerce markets.
government support and policies, personnel Think Critically
prepared to work in Internet-related jobs,
1. What does e-readiness mean in relation to
and the computer literacy and technology
the growth of e-commerce?
access of the country’s citizens.
The country with the highest e-readiness 2. Should U.S. government and business
rating in 2006 was Denmark, followed by the leaders be concerned about the country’s
United States, Switzerland, Sweden, and the ranking in the e-readiness index? Why or
U.K. The United States had led the rankings why not?
until 2002 when reduced investments due to
recession dropped it to third at that time.
The Internet has become a common allows the company to collect information
way for businesses to communicate with about the customer, including an e-mail
other businesses to place orders, pro- address. That information is valuable in
vide product information, or share data. future communications and promotional
Business people send e-mail messages, activities.
exchange documents, offer training, and Information can be obtained on
update records online. where customers purchase their prod-
ucts, reasons for purchasing, and whether
Gathering Information the customer owns or plans to purchase
Businesses also use the Internet to obtain related products. The information can help
information to make decisions. Much in- the company provide improved marketing
formation is free and is provided by gov- mixes in the future.
ernment agencies, colleges and universi- Many web sites include a place to re-
ties, libraries, and even private businesses. quest information, be placed on a mailing
Other information can be purchased from list, or obtain answers to questions. That
research companies, professional and trade capability allows the company to develop
associations, and businesses that gather a list of prospective customers and their
and publish information. It then can be specific interests.
accessed directly from the company’s web Information about competitors is easier
site or downloaded in a research report. to obtain using the Internet. Businesses
The Internet has improved the capa- put a great deal of information about their
bility to gather information on current products and operations on the Web. It is
and prospective customers. Customers relatively easy to learn about competitors’
who have purchased products are encour- products, prices, credit terms, distribution
S aged to submit product registration and policies, and the types of customer services
N warranty cards. The registration process offered.
218
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Planning a Career in... E-Marketing
“While doing my Earth Day homework, I

took an online quiz about the environ-
ment. I noticed all of these environmen-
tally friendly products and non-profit
organizations advertised on the quiz
web site. After learning about threats
• A solid business background, strong analytical
abilities, and effective written communications
to the environment, I was glad to see
skills are needed.
organizations and products designed
to help the environment.” • A technical background in computer hardware
Have you ever gone to a web site and software, including database software,
and been intrigued by the links to open sourcing, web application programming,
other sites that have similar informa- and search engine design, is a requirement for
tion? Have you followed a link and some jobs.
decided to make a purchase from that
site? What’s it like to work in...
E-marketing is a rapidly evolving E-Marketing
means for businesses to reach consum- Evelyn, a digital marketing manager for a profes-
ers. Whether visiting a web site of a sional baseball team, was reviewing a report of the
company selling products, an informa- number of visits to the team’s web site. Of par-
tion site of an organization, an online ticular interest was the amount of traffic resulting
advertisement linked to a web search, from a link from a sports memorabilia web site on
or an individual blog, you have probably which the team had purchased advertising space.
been affected by e-marketing. A growing A phone call interrupted the report review.
number of exciting careers are part of the The electronic team newsletter, available to fans
e-marketing industry. either by signing up to be added to a distribution
list or by clicking a link on the team web site, was
Employment Outlook scheduled for release the next day. Confirmation
• Faster than average growth is expected. was needed regarding which product promotions
• As the number of uses of the Internet and ac- would be included in the newsletter.
cess by consumers increase, demand for profes- In the afternoon, Evelyn ran an Internet sales
sionals who can optimize the effectiveness of review meeting. Sales of tickets, clothing, and
e-commerce will increase. memorabilia were correlated to variations in web
site traffic. To determine the most effective adver-
Job Titles tising methods, the group reviewed the relation-
• Interactive Marketing Manager ship between banners, sponsored sports web sites,
• Marketing Web Master and keyword advertising links from other sites to
• E-commerce Project Manager increased web site traffic and resulting sales.
• Search Marketing Specialist
• Online Marketing Manager

• E-commerce Marketing Analyst W h a t A b o u t Yo u
Needed Skills Would you like to help increase online revenue
• Varying educational levels from high school through the creative use of Internet marketing?
diploma to Ph.D. are needed in the broad range Are you interested in being part of a new and S
of e-marketing careers. exciting career area? N
219
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Improving Operations other states or countries using traditional
The performance of business and market- sales and promotion methods. The Internet
ing activities has been improved as a result makes it possible for the business to com-
of business use of the Internet. Salespeople pete nationally and internationally without
can log on to the company’s web site and the cost of salespeople. The small business
determine the availability of products to can use the Internet to identify other busi-
ensure that an order can be filled imme- nesses that can assist with distribution,
diately. A production manager can access customer service, and even billing and
the records of a transportation company collecting payments when making sales to
to see when an expected shipment will be customers located long distances away.
delivered. Engineers in three locations can
collaborate on a product design by exam-
ining a three-dimensional drawing online
and making changes that each of them can Checkpoint
see instantly.
A small business usually does not have How can a business use the Internet to
the resources to reach customers located in improve operations?

Determine the best answer. 6. Math Assume there are one billion Internet
1. True or False: The number of U.S. Internet users worldwide. Use the information from
users as a percentage of all users worldwide Figure 8-1 to calculate the percentage of total
is actually declining. users for each country. Calculate the number
and percentage of users represented by all
2. Following the United States, the country with
other countries combined. Prepare a pie chart
the largest number of Internet users is
to show your results.
a. England
b. Germany 7. Communication Locate the web site of a
c. Canada business that provides several ways for users
d. China to communicate with it. Print a copy of the web
page(s) and use a marker or pen to identify
3. The dollar value of business-to-business (B2B)
each of the communication methods. Write a
sales in the United States is _____ that of
one-paragraph description of each method and
business-to-consumer (B2C) sales.
indicate whether you believe it is a useful and
a. larger than
easy-to-use form of communication for the user.
b. smaller than
c. about the same as Connect to
d. Data on Internet sales are not collected.
8. You have been asked to give advice to the
4. True or False: To use the Internet effectively, owner of a small office supply business on
businesses must be able to sell products how the Internet can make the business more
online. competitive with larger businesses. Prepare
5. True or False: Small businesses are less able to three recommendations for specific ways the
compete with larger businesses as a result of business can use the Internet. Present your
the growth of the Internet. ideas to your teacher (judge) and justify each
recommendation.
S
N
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Virtual Marketing and Distribution 8-3
GOALS KEY TERMS
• Differentiate virtual marketing from traditional virtual marketing, p. 221
marketing. product fulfillment center, p. 225
• Describe distribution methods used in e-commerce.
• Identify distribution problems experienced by
e-businesses and how they can be resolved.
When customers place an order for a product using the Internet, they want to be
assured that the order is correct, that payment has been received, that the products
have been shipped, and that they will be received in a reasonable amount of time.
They also want to be able to easily and inexpensively return the product if it does
not meet their expectations.
Work with a group. Using the Internet, identify a company that accepts product
orders online. Identify the ways the company provides information to the customer
about how the product will be shipped, the status of the order, and return and
refund procedures. Compare your findings with those of other groups and discuss
the online procedures that seem to be effective.
Marketing Via the Internet

hile marketing is an important • distribution of electronic versions of
W function for all businesses, it is
especially important for
e-commerce businesses. The functions
products and services such as e-tickets
and e-books
• processes for making electronic pay-
and activities of marketing are the same
for click-only and brick-and-mortar ments and managing finances such
businesses. However, with e-commerce, as secure credit card transactions and
the importance of certain marketing func- online banking and bill payments
tions and the way some marketing activi- • communication and promotion strate-
ties need to be completed may change. gies such as Internet advertising,
E-commerce usually requires a combina- e-mail, live chats, blogs, and virtual
tion of traditional marketing and virtual communities where people with simi-
marketing. lar interests can exchange information
Virtual marketing is the completion of
While virtual alternatives have been
marketing activities primarily through the
developed for many marketing activities,
use of computer and Internet technologies.
most e-commerce businesses also need to
Examples include:
be able to use more traditional forms of
• market research using online surveys marketing. Companies that sell products
and other electronic data-collection online will need effective order processing, S
methods product storage, and transportation N
221
8-3 • Virtual Marketing and Distribution 221
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traditional media for advertising and
Wo r k i n g i n Te a m s promotion.
Rather than simplifying market-
As a team, discuss the advantages to consumers ing, e-commerce requires even more
and businesses of virtual products such as attention to marketing planning. Not
e-tickets for airlines, online postage, and digital only are the needs and wants of cus-
music and movie downloads. Why might con- tomers important, but their experience
sumers or businesses choose not to use these with technology and use of the Internet
products even if they result in cost savings? must also be considered when deciding
whether to engage in e-commerce or
systems. For customers who are not com- how to effectively use virtual marketing.
fortable with electronic payments, com-
panies need to have alternative payment Checkpoint
procedures. Some customers may not
yet search for product information on Why does e-commerce make marketing
the computer, requiring the use of more complex?
Distribution for E-Commerce

ffective distribution is an important More and more companies are inte-
E part of satisfying customer needs.

Customers want to locate products and
services easily and conveniently. When
grating product purchasing into their web
sites. Online shopping carts are designed
to easily complete an order, make imme-
they purchase a product, they want it diate payment, and securely submit the
delivered quickly and undamaged. If they order. Order confirmation occurs almost
experience problems, customers expect instantly to assure the customer that the
prompt, reliable service. order has been received. Even for busi-
Distribution is the marketing function nesses that do not offer online purchas-
that can determine success or failure for a ing, a web site can provide information
company engaged in e-commerce. Major on completing an order by telephone or
distribution changes in e-commerce have provide an order form that can be printed
occurred involving access to products and and faxed or mailed to the company with
services, order processing, and distribution payment.
methods.
Order Processing
Finding and Buying Products Completing a sales transaction can be a
Before the development of the Internet, complicated process within a company.
customers were limited to making most of When a customer purchases a product, the
their purchases from nearby businesses or order must be submitted to the company.
from companies that sold their products The departments responsible for filling,
through catalogs, telephone sales, or direct packing, and shipping the order must
mail advertising. receive the order information. Information
With Internet access, customers can must also be sent to the accounting de-
locate and purchase products from any partment for billing and processing of pay-
company that has a web site. While it has ments. It may be necessary for the produc-
opened up new markets for businesses, the tion department to be notified of the order
S Internet has also dramatically increased so that the products are available to fill the
N the competition they face. order or to replace the inventory sold.
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Judgment Call
The Trouble with Cookies permit cookies on their browsers. Businesses
Cookies are small files that a web server have a legitimate desire for information
sends to your web browser when you access about customers, but to whom does such
a site. They then transmit information from information belong? Privacy issues will
your computer back to the site. These files increasingly be public-relations issues for
identify you to the web site server and can businesses, and in some cases, legal ones if
log which pages you visit and what links data are not carefully used.
you connect to. Ideally, cookies benefit
consumers by saving frequently entered
Think Critically
information, allowing improved web design
for easier use, and customizing products. 1. Should a company be required to get
Because cookies are often invisible to consent if it sends and receives cookies
users, and the transmitted information var- from the person’s computer?
ies, some users regard them as an invasion 2. If you operated an e-commerce business,
of privacy and disable them in their brows- would you favor the use of cookies with
ers. But some sites bar visitors who do not your customers?
In the past, the process for filling Product Distribution

customer orders required many pieces It may be difficult to see how the Internet
of paper to be sent to every department can improve the physical handling and
and person involved. The Internet has distribution of products. Many products
streamlined order processing. An order will continue to be shipped in the same
can be placed online by the customer, a ways they have in the past. Automobiles
company salesperson, or another business will travel from the manufacturer to
that sells the company’s products. Even dealers by ships, trains, and trucks. Ex-
before the order is placed, the customer or press packages, fresh flowers, and gourmet
salesperson can determine if the product foods will be transported on airplanes to
is in stock and how long it will take to fill insure rapid shipment. It is not possible for
and ship the order. The customer can also those types of products to be distributed
choose a faster shipping method and will using the Internet.
know the additional cost of that choice.
When the order is submitted electroni- FIGURE 8-2
cally, the necessary information is sent Average cost savings for businesses when cus-
via computer to each of the departments tomers use the Internet to make purchases.
involved. The customer or salesperson
can check on the status of the order as it is Product Savings
processed, filled, and shipped. Computer software 99%
The use of the Internet for order pro-
cessing reduces the number of errors since Banking services 89%
the accuracy of the order can be more eas- Airline tickets 87%
ily checked. There is also a large savings in
Stocks 78%
order processing and distribution costs for
many companies when the Internet is used. Books 56%
Example savings are shown in Figure 8-2. Toys and gifts 48%
S
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In the case of some other services and Some companies have changed the form
products, the use of the Internet makes of their products for distribution using the
distribution easier and much less expen- Internet. Newspapers and magazines have
sive. Computer software companies do not created online editions. Film processors
have to produce diskettes or CDs. Instead, now offer to burn customers’ photos onto a
customers can download the software CD or transfer them to a web site. As cus-
from the company’s web site. The federal tomers become more comfortable with the
and state governments do not have to print Internet, more products will be purchased
and mail tax forms and instruction book- and distributed online.
lets for those taxpayers willing to go online
and access the forms and instructions. Checkpoint
They can print the forms or complete them
online and submit the completed forms What are the three major areas of change in
and even any payments due electronically. distribution resulting from e-commerce?
Distribution Problems and Solutions

oday, one of the concerns that keep transmitted or while it is stored on their
T many people from buying products

online is uncertainty about product
distribution. The key distribution prob-
computer or the business’s computer. The
second concern is that the business will
misuse the information after the order has
lems facing many e-commerce businesses been processed. Many businesses sell cus-
are the security of transactions, expanded tomer information to other companies that
distribution requirements, and customer intend to contact those consumers about
service demands. their products.
E-commerce companies have gone
Transaction Security to great lengths to provide security for
Almost all people with Internet access customer information. They use security
use it to gather information about pos- technology that makes it almost impos-
sible purchases. They use search engines to sible for in-
compare and locate products and find the formation to
lowest prices. Over half of all Internet con- fall into the
sumers make at least one online purchase wrong hands.
every three months. But nearly two-thirds They also of-
of all purchases started by customers are fer customers
ended before the customer submits the the option of
order. In that case, the business not only transmitting
loses the sale but probably has lost the cus- information
tomer due to problems with the purchas- by fax or
ing procedure. phone.
One of the greatest concerns of cus- Com-

tomers is the security of the information panies have
they provide when placing an order, such developed
as their name, address, telephone number, services that
and credit card number. Consumers have allow cus-
two security concerns. The most impor- tomers to What security concerns do
S tant is that their personal information will prearrange customers have when shopping
N be stolen and misused while it is being transfers of online?
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payments from their bank account to
the company’s account so a credit card
number does not have to be entered
online. Credit card companies offer
insurance so that they will be respon- Woot.com is an e-retailer that specializes in tech
sible for any losses if others misuse products—or product, actually, since Woot sells
credit card information as a result of only one item a day until it is sold out or prior to
Internet purchases. Businesses are now 11:59 PM central time when it is replaced. Access
required to provide privacy policies to school.cengage.com/marketing/marketing and
customers and usually allow customers click on the link for Chapter 8. Click the what is
to choose whether they want to receive woot? tab. In what ways does Woot seem differ-
e-mails and promotions from the com- ent from other e-commerce web sites you have
pany, whether the company can share visited? Browse the site. Can you identify any ef-
the customer’s e-mail address with fective promotional methods that Woot is using?
partnering businesses, and whether the
customer wants the company to store
personal information in its databases. school.cengage.com/marketing/marketing
Expanded Distribution and Successful e-businesses have found

Customer Service ways to improve distribution. Companies
When the Internet revolution hit in the such as UPS and FedEx offer pickup and
late 1990s, many people opened delivery services to meet the needs of
e-businesses. Even experienced brick-and- e-commerce. Shipments can be tracked
mortar businesses tried to take advantage instantly, and customers can go online to
of e-commerce by creating a web site to sell determine when they will be delivered.
their products and services. Those companies make it easy for cus-
Many of the e-businesses soon ran tomers to return a product by providing
into trouble, however. If customers placed preprinted labels, return instructions, and
an order online, the product still needed free pickup service.
to be packed and shipped. When an order Some e-businesses have now made
was received, customers often had ques- arrangements for customers to return
tions or needed help with assembly. If the unwanted merchandise to local businesses.
product was damaged or was not exactly That arrangement is easier for a company
what customers wanted, they wanted to be that is also a brick-and-mortar business,
able to return it easily for an exchange or but it is more difficult for a company that
refund. is click-only.
The new e-businesses often were not Customer service centers have been set
prepared to handle the many necessary up to respond to Internet customer ques-
distribution activities. Even experienced tions and to offer help around the clock.
businesses found that they had to distrib- Most web sites have links to frequently
ute products in different ways to many asked questions so that customers can get
more locations than before. As brick- an immediate answer to common prob-
and-mortar businesses, they were used to lems. Instruction manuals, product war-
customers coming to them with problems ranties and registrations, and places to
or to return and exchange merchandise. order replacement parts are all online.
However, their usual distribution methods New types of businesses have been
no longer worked for Internet customers. developed to serve the distribution
Customers became dissatisfied when they needs of e-commerce businesses. A
could not get the service they expected, so product fulfillment center provides S
they would stop using the e-business. some or all of the activities required to N
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fill customer orders. Amazon.com is an offer quick delivery to customers’ homes
example of a successful product fulfillment and effective customer service policies
business. It does not produce products. including payment processing and easy
Instead, it sells the products of other busi- returns.
nesses by completing order processing,
product storage, order filling and packing,
transportation, payment processing, and Checkpoint
customer service. Its distribution system
uses regional warehouses and efficient What are the main distribution problems
computerized order processing systems to facing businesses using e-commerce?

Determine the best answer. 6. Visual Art Locate the web site of an
1. Which statement about e-commerce market- e-commerce business. Study the product dis-
ing is true? tribution procedures used by the company.
a. E-commerce businesses use different Create a poster that illustrates how the main
marketing functions than brick-and- distribution activities are completed from
mortar businesses. the placement of the order to receipt of the
b. All marketing activities of e-commerce order by the customer.
businesses are completed online. 7. Math In one day, an airline sells $2,940,500
c. Marketing activities are less important for in tickets to customers. The cost to process
e-commerce businesses. and mail a ticket averages 8% of the price of
d. none of the above the ticket. How much does the airline spend
2. _____ marketing is the completion of mar- on those ticketing costs each day? Using the
keting activities primarily through the use of information from Figure 8-2, how much
computer and Internet technologies. money can the airline save if it can convert
65% of those sales to e-tickets?
3. Which of the following is an example of e-
commerce rather than traditional marketing? Connect to
a. catalog sales
8. You are an online customer service repre-
b. direct mail marketing
sentative for an e-commerce business. You
c. electronic shopping carts
receive a telephone call from a prospective
d. telephone ordering
customer who wants to make a purchase
4. True or False: Companies have actually from the company but is worried about the
changed the form of their products to allow privacy of personal information and security
for distribution using the Internet. of credit card account information if it is en-
5. A company that provides some or all of the ac- tered online. With another student, role-play
tivities required to fill customer orders is a(n) a telephone conversation with the customer
a. e-commerce business in which you reassure the customer about
b. virtual marketer completing an online order from your com-
c. product fulfillment center pany. Present the role-play to your teacher
d. parcel delivery service (judge). Make sure to demonstrate effective
customer service, human relations, and com-
S munications skills during the role-play.
N
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The Role of Promotion for E-Commerce 8-4
GOALS KEY TERMS

• Describe how companies use promotion on the Internet. pop-up, p. 228
• Identify ways to increase the effectiveness of online rich media, p. 228
promotion. business blogs, p. 229
The Internet was supposed to provide businesses with an inexpensive way to reach
millions of prospective customers. A business could place an advertisement with an
eye-catching product image in hundreds of places on the Web. Consumers would
see it as they browsed, and it would cost much less than a comparable newspaper or
magazine ad. With that promise, many companies switched some of their advertising
budget from more traditional media to the Internet. Today businesses are rethink-
ing how to advertise on the Internet. Many web sites and search engines are overrun
with advertisements. A study found that less than one percent of the advertisements
resulted in customers visiting a company’s web site. The cost of putting an ad on the
Web has dropped sharply.
Work with a group. Look through several different types of web sites. Identify a vari-
ety of ways that companies advertise their businesses and products online other than
with their own web site. Discuss which methods seem to be effective and which do not.
Communicating with Internet Users

ost people today are not using the Internet for promotion. Even brick-and-
M Internet to purchase products when

they are online. In fact, only two
percent of Internet users say they go online
mortar businesses are developing infor-
mational web sites that allow prospective
customers to easily gather information and
with the intention of making a purchase. make purchasing decisions before visiting
Over 80 percent say their primary reason the store.
for going online is communication. Con-
sumers are more likely to use the Internet Advertising Expenditures
to gather information on products and Many companies are turning to Internet
compare alternatives. advertising to promote their products and
The purpose of promotion as part of a services. In 1998, U.S. businesses spent
company’s marketing mix is to communi- less than $2 billion for online advertising.
cate information to encourage customers By 2007, that amount had grown to $9.7
to buy the business’s products and services. billion just for the use of actual advertise-
Since consumers are using the Internet for ments. Newer forms of promotion are con-
communication, promotion can be an ef- stantly being developed that call attention
fective use of the Internet. to a company’s name and products, provide
Both brick-and-click and click-only specific information in non-ad formats, or S
businesses can benefit from using the link information to a company’s web site. N
227
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Figure This
Reach and Frequency Companies are often interested in an ad’s
It is very important for companies to know GRP, or gross rating point. To calculate the
how many people they are reaching with GRP, multiply the reach times the frequency.
their TV advertising. Two numbers help them
figure this out. Think Critically
The first measure is the reach. Reach
1. A company sets a goal of achieving a GRP
is how many people see the ad. It may be
of 210. It feels that for its TV commercial
expressed as a total number or, more often,
to sink in, people need to see it three
as a percentage of overall households with
times. To achieve its GRP goal, what does
TVs. Nielsen ratings are the reach expressed
the company’s reach need to be?
as a percentage. If a TV show had a Nielsen
rating of 10, then 10% of households with 2. There are 110 million television house-
televisions were tuned to that show. holds in the United States. Forty-five
Another measure, frequency, is the million of those television households
number of times the average person sees a watched the Super Bowl game. During
commercial. A frequency of 3 means that, on the game, Pepsi ran a commercial three
average, people saw the ad three times. times. Figure the GRP for that commercial.
Internet advertisers have become cau- skyscrapers (vertically on the page mar-
tious with advertising expenditures. They gins), small boxes within the text, or
are looking for ways to measure the ef- buttons that opened links to full-page
fectiveness of online advertising methods advertisements. Today, advertisers use the
before increasing spending. latest technology including pop-ups, short
video clips, and rich media. A pop-up
Promotion Methods is an advertisement that opens in a new
Companies involved in e-commerce window when a web page is being viewed.
use several commonly used promotion Rich media include a variety of digital
methods to reach customers and promote technologies that provide interactive
products. Four primary methods include multimedia experiences for users.
online advertisements, web site sponsor- The Internet Advertising Bureau has
ship, priority placement in web search established standards for the size, ap-
engines and comparison shopping ser- pearance, and use of Internet advertising
vices, and informational web sites. methods. They recommend that users
should be exposed to only one pop-up for
Online Advertising Companies each visit to a web site, and the pop-up
compete on the Web for the attention should be labeled with the sponsor’s name.
of Internet users. They place their ads Advertising videos should be limited to
on pages that prospective customers are 30 seconds, and users should be able to
most likely to visit and use creative ad control both video and audio.
designs. Varied sizes, colors, and place-
ments of ads encourage Internet users to Web Sponsorship An effective way
pay attention to the information. to build recognition of a company’s name
For many years, online advertisements and products with prospective customers
S were placed on web pages. They appeared is to sponsor a related informational web
N as banners (across the top or bottom), site. The sponsor’s name is included on
228
CH 08-B4491-DS_REV2.indd 228 12/4/07 11:14:19 PM

informed, they are more likely to
Fa s t FAC T S purchase related products and services.
An example of a consumer information
In 2007, Asia was the continent with web site maintained by a company is
the largest number of Internet users, Petersons.com, which provides informa-
accounting for nearly one-fourth of all tion on choosing a college or university.
users. Africa added users at a faster rate
than other continents with a 640 percent
growth rate between 2000 and 2007.
Other Types of Promotion
Businesses have developed many other
ways to promote their products and ser-
the web site so that visitors see the name vices to Internet users. Companies develop
each time they access the site. For exam- e-mail lists using the addresses of people
ple, a bank could sponsor a web site that who have previously purchased products or
helps consumers understand how to lease sent inquiries to the company and by pur-
or finance the purchase of an automobile. chasing e-mail lists from other companies.
They can then e-mail those consumers with
Priority Placement When you use a special offers or new product information.
search engine such as Google or Yahoo! to You may have seen online coupons
find information, you might believe that similar to the coupons you receive in the
the list presented is in random order or in mail or in newspapers and magazines. The
the order of popularity of the web sites. coupons are used either by printing and
However, most search engines allow com- mailing the coupon with an order or by
panies to pay to have their web site appear entering a special code on the order form
at the top of the list when the search results when purchasing online.
are shown. Some search engines make Internet promotions are used to
it clear when links are sponsored while encourage consumers to request free
others do not. Rather than displaying paid samples, send for CDs that provide de-
sponsors at the top of a search list, some tailed product information, or visit a local
search engines display the sponsor’s name, store where the company’s products are
a link to its web site, and a brief descrip- sold. New audio-visual technology allows
tion or promotional message in a column businesses to provide three-dimensional
beside the search results. This technique is views of their products online so that cus-
sometimes called classified advertising. tomers can examine them as if they were
Several web sites have been developed actually handling the products.
to help consumers identify sources for Companies are increasingly using
products they want to purchase and com- more informal and personalized methods
pare product features and prices (NexTag, of Internet communication. They include
mySimon, Buy.com). While some of those online newsletters, e-mail messages sent
web sites are independent, others feature to regular customers, and business blogs.
the products of companies that have paid Business blogs are regularly updated on-
to be listed. Those companies’ products line journals written by company experts.
will appear at the top of the list, but the Businesses also communicate through
customer will still be able to compare the established online interest or social groups
features and prices of all products. or by establishing their own discussion
and news groups that customers can join.
Information Web Sites The Internet
is a vast source of information on almost
any topic. Companies and organizations Checkpoint
develop free web sites on topics of inter-
est to their prospective customers. They What four methods can a company use to S
believe that as customers become better promote its products online? N
229
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Preparing for E-Commerce Marketing
ost consumers are satisfied with
M
FIGURE 8-3
their shopping experience when Customer satisfaction with types of shopping.
they make purchases using the
Internet. In fact, as shown in Figure 8-3, Type % Satisfied
Internet shoppers are more satisfied with Shopping online 73%
the online shopping experience than with
Shopping in stores 60%
the other ways they make purchases.
The reasons for the higher level of sat- Shopping with catalogs 56%
isfaction include convenience, saving time,
and getting everything from one source. 6. Is there a secure method for customers
They also value the competitive prices they to buy products online? Is there an
often find on the Internet. alternative method for customers who
don’t want to buy online?
Planning the Shopping 7. Are product delivery methods and
Experience costs clearly explained?
Marketing using the Internet is quite dif-
ferent from marketing to customers who 8. Are customers given information on
actually visit a store. When a consumer how they can return products that
shops using the Internet, the business don’t meet their needs?
typically does not have direct contact with When companies carefully plan the
the person. The design of the web site and shopping experience for Internet custom-
effective communication principles are ers, provide needed information, and make
needed to attract consumers to the busi- shopping easy and enjoyable, customers
ness and to help them make a purchase. In will be willing to buy online.
order for promotions to result in a sale and
a satisfied customer, the company must ad- Effective Promotion Methods
dress the following questions. Customers are clear about the features that
1. How does the customer typically use are helpful when shopping online. Those
the Internet to gather information? features are listed in Figure 8-4. You can
What search engines are used? see that almost all of the features cus-
tomers identified involve communication
2. Is the information customers need to between the business and the customer.
place an order easy to locate and un- So promotion needs to be more than just
derstand?
3. Are the web pages well organized? Is it FIGURE 8-4
easy to move forward and backward? Features likely to increase online purchasing.
Is it easy to locate product informa- • Close-up images of products
tion and prices, purchase products, and
make payments? • Information on product availability
4. Are web pages attractively designed? • Product comparison guides

Do pictures and graphics effectively • Easy-to-use search function
show products and how they are used? • Toll-free customer service number
5. Is it easy to get common questions • Consumer reviews and product evaluations
answered? Can customers contact the
S company for assistance in selecting and • Easy-to-use “shopping cart” and check out
N purchasing products? feature
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advertising that creates customer aware- • Information collected about who visits
ness of the business and its web site. Pro- the company’s web site, when they visit,
motion should strive to meet consumers’ how much time they spend, which
communication needs. pages and links are most popular, and
Effective promotional tools for what information influences them to
e-commerce include the following: make a purchase
• An easy-to-remember, meaningful • Online chat rooms, discussions, and
Internet address clubs to exchange information with
• Well-designed online advertisements customers
• Advertisements in other media such as • E-mail promotions and announce-
newspapers and television ments to customers to encourage
regular visits to the web site
• Registration with search engines to
identify the company to people
gathering information about its Checkpoint
products Why are customers generally more satisfied
• Customer service personnel to help with online shopping than with shopping in
customers and answer questions stores?

Determine the best answer. 6. Ethics Write a three-paragraph analysis of the
1. True or False: The main reason most people following statement: “Presenting sponsored
go online is to gather product information business links as the first entries in an Internet
and make purchases. search without disclosing that the companies
paid for that placement is unethical.”
2. Which of the following is not a method of
e-commerce promotion? 7. Economics The final price of a product from
a. online advertisements an e-commerce business is often not the listed
b. web site sponsorship price. Choose a product that costs at least $50.
c. information web sites Gather information from several companies
d. all are promotional methods that sell the product using a price comparison
web site. Prepare a table that compares the
3. A _____ is an advertisement that opens in
companies offering the three highest-priced
a new window when a web page is being
and three lowest-priced products. Show the
viewed.
initial product price, shipping charges, taxes,
4. Customers have the highest level of and total price to be paid.
satisfaction with which type of shopping?
a. online Connect to
b. retail store 8. Your team members must prepare an
c. catalog e-commerce promotional plan for a farm that
d. none of the above sells organic fruits and vegetables. Identify
5. True or False: A meaningful, easy-to- three different promotional methods that
remember Internet address is actually an will be used and prepare a visual example of
effective promotional tool for e-commerce each. Present your plan and examples to your
businesses. teacher (judge) with reasons for your decisions. S
N
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Now that you have completed the chapter, check identify several factors that contributed to the
your understanding of the lessons with these ques- growth of e-commerce in the past 20 years?
tions. Record the score that best represents your offer examples of several business uses of the
understanding of each marketing concept. Internet other than selling products?
1 = not at all; 3 = somewhat; 5 = very well discuss how virtual marketing is different from
If your score is 42–50, you are ready for the assess- and similar to traditional marketing?
ment activities that follow. If you score 33–41, you explain why distribution can be the marketing
should review the lessons for the items you scored function that determines success or failure for an
1–3. If you score 32 or less, you will want to carefully e-commerce business?
reread the lessons and work with a study partner on identify the three key distribution problems that
the areas you don’t understand. face many e-commerce businesses?
Can you— describe the four primary promotional methods
identify the meaning of click-only, brick-and- used in e-commerce?
click, and brick-and-mortar? provide examples of how e-commerce busi-
describe the differences among the three stages nesses can increase the effectiveness of their
of development for an e-commerce business? online promotions?
identify reasons why e-commerce businesses
that don’t understand the marketing concept
often fail?

1. The completion of marketing activities primarily 9. An advertisement that opens in a new window
through the use of computer and Internet tech- when a web page is being viewed
nologies 10. Companies that combine traditional business
2. Business-to-consumer operations with the use of the Internet
3. A variety of digital technologies that provide
interactive multimedia experiences for
users a. B2B
4. Companies that complete almost all of their b. B2C
business activities through the Internet c. brick-and-click businesses
5. Involves business activities, including the ex- d. brick-and-mortar
change of goods, services, and information, com- businesses
pleted electronically via the Internet e. business blogs
6. Regularly updated online journals written by f. click-only businesses
company experts g. e-commerce
h. pop-up
7. Companies that complete most of their business
activities by means other than the Internet i. product fulfillment center
j. rich media
8. Provides some or all of the activities required to
k. virtual marketing
fill customer orders
S
N
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11. The use of the Internet as a place to buy and sell 15. True or False: The United
products had its beginnings States leads the world in
a. just after World War II the number of Internet
b. in the early 1970s users.
c. about 1985 16. True or False: The total
d. in the mid-1990s amount of business-to-
12. E-commerce includes all of the following except consumer Internet sales is much larger than
a. in-store sales business-to-business sales.
b. online product purchases 17. True or False: Some products can actually be
c. exchange of business information distributed directly to consumers’ homes using
d. customer service the Internet.
13. Which of the following is not one of the stages of 18. True or False: While being able to process an or-
e-commerce development? der using the Internet is an important customer
a. incorporation service, it actually costs more than a traditional
b. integration sale.
c. information
19. True or False: Most Internet shoppers go online
d. interaction
for the purpose of gathering information rather
14. Many of the first e-commerce companies were than to make an online purchase.
unsuccessful because they
20. True or False: Today, most consumers are satis-
a. had poor web site designs
fied with their shopping experience when they
b. didn’t promote their products
purchase a product on the Internet.
c. didn’t understand the marketing concept
d. set prices too low

21. Some companies are well suited to be as their education and income levels, interests
click-only businesses, and others are better and hobbies, and other information that would
suited to remain brick-and-mortar businesses. help the company understand and meet the
Use a business directory for your community and customers’ needs. Assume you are in charge of
identify five businesses that you believe could designing an online registration form for a travel
be effective click-only businesses and five others agency. Using a computer, develop ten ques-
that you believe should operate as brick-and- tions that would help you plan travel services for
mortar businesses. Write a rationale for each the customer. Explain why each of the questions
business you selected. Share your lists with other is important.
students and compare your answers. 24. The growth of the Internet has been remarkable
22. Businesses can move through three stages of as more and more people gain access to it and
Internet use as they develop e-commerce strate- businesses move into e-commerce. Statistics for
gies. Use the Internet to find an example of a Internet use are reported on many web sites. Use
business web site for each of the three stages. the Internet to locate two different web sites that
Print the company’s home page. Show each ex- report data on the amount of Internet sales in
ample to the class and explain why it illustrates several countries, including the United States, for
the stage you selected. several years. Prepare a bar chart that presents
23. Some business web sites ask customers to data from both web sites. It is likely that the data
complete an online registration form before they will not be the same on each web site. Why do
purchase from the company’s web site. As a part you believe it is difficult to obtain accurate data
of the registration process, the company asks on the use of the Internet? S
customers to provide specific information such N
233
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25. You are the advertising copywriter for PetSit, equipment used to be able to instantly track
a company that provides pet care/boarding each package, how and when the information is
services. You have been asked to develop a series entered into the computer system, and how the
of Internet advertisements. Use the Internet company provides security for the information.
to identify three different styles and sizes of Use a word processing program to prepare a
Internet advertisements frequently used by written report on your findings.
businesses. Using a computer graphics program, 27. In Lesson 8-4, eight questions were posed that
design ads for the PetSit company using each of businesses should use to evaluate the effective-
the ad styles you identified. ness of their web sites. Use the Internet to locate
26. Package distribution companies such as FedEx two business web sites that allow customers to
and UPS now provide online tracking services. make purchases online. Use a computer spread-
With that service, a shipper or customer can sheet program to design a table like the example
obtain up-to-date information on the location below. Use the table to compare the two web
of a package being shipped and the expected sites. For each question, provide a rating of 1 to
delivery date. Using the Internet or by arranging 5 with 1 being a low rating and 5 a high rating.
an interview (face-to-face, telephone, or e-mail) After completing all questions, total the points
with a representative of a package distribu- to give each business an overall rating.
tion company, learn about the technology and
Business 1 Business 2 Questions
1. Is it easy to locate the web site using search engines?
2. Is the information customers need to place an order easy

to locate and understand?
3. Are the web pages well organized? Is it easy to move for-

ward and backward? Is it easy to locate product informa-
tion and prices, purchase products, and make payments?
4. Are web pages attractively designed? Do pictures and

graphics effectively show products and how they are
used?
5. Is it easy to get common questions answered? Can cus-

tomers contact the company for assistance in selecting
and purchasing products?
6. Is there a secure method for customers to buy products

online? Is there an alternative method for customers who
don’t want to buy online?
7. Are product delivery methods and costs clearly explained?
8. Are customers given information on how they can return

products that don’t meet their needs?
S
N Total Points
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Internet Marketing
Management Team
Holiday Joy You will present your recommendations
is an online to the vice president. You will have ten
specialty store minutes for your presentation, and the
offering gifts, ranging from $5 to $50, for judge has five minutes to ask questions.
nationally recognized holidays. Customers
who order gifts online can use all major credit Performance Indicators
cards to pay for their purchases. Females, Evaluated
aged 55-70, make up 70 percent of the • Describe the unique aspects of Internet
customer base for Holiday Joy. Many of the
sales. (Selling)
customers prefer shopping at home instead
of going to the store or mall. Follow-up cus-
• Explain online sales strategies. (Selling)
tomer surveys indicate that high-quality gifts • Discuss the features of an online sales
are the main reason for repeat business at campaign. (Promotion)
Holiday Joy. Customers also like the reliable, • Conceptualize web site design. (Promotion)
speedy delivery of orders. • Explain the relationship between customer
Holiday Joy would like to expand its service and distribution. (Distribution)
target market to attract younger consumers • Explain the nature of positive customer/
aged 25-54. The vice president of Holiday Joy client relations. (Emotional Intelligence)
has asked your team to develop a fundraising • Explain the nature of online advertise-
strategy to increase Internet sales for the ments. (Promotion)
company. The fundraising activity is to be
implemented by student organizations such
information.
as DECA. You must develop a plan to be used
by student organizations that describes how Think Critically
to distribute information to the expanded
target market (females aged 25-54) and 1. Why must the web site for
assist customers in placing their orders Holiday Joy be easy to use?
online. You must also develop a system to 2. What is the benefit of having
ensure the sale is credited to the appropriate students assist customers with
school organization. the online ordering process?
In addition, Holiday Joy wants your 3. How does ordering online make the
suggestion for a reasonably priced gift to sales process simpler?
give customers who purchase more than 4. What incentives could Holiday Joy
PHOTOS: ©DECA INC.
$50 of merchandise. The vice president use to increase sales within its new
would also like your suggestions on how target market?
to update the web site to promote products
more effectively.
S
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Chapter 9
Developing a Marketing
Strategy and Marketing Plan
9-1 Elements of a Marketing
Strategy
9-2 Marketing Mix Alternatives
9-3 Analyzing Consumer
Purchase Classifications
9-4 Marketing Planning
9-5 Developing a Marketing
Plan
Newsline )))
Refocusing on Customers
Croemers department store opened Croemers learned that its primary instituted that focused on a direct
in 1917. Over the years, the store customers viewed it as their source appeal to its target market rather
concentrated on serving an upper of unique products that they than the broad-based mass media
middle-class market segment. It couldn’t easily find in competing approach used by the discounters.
offered clothing, jewelry, appliances, stores. These customers said that if Croemers was soon able to regain
furniture, linens, and home accesso- Croemers met their expectations for control over costs, increase profit
ries, with an emphasis on customer quality and service, they wouldn’t margins, and reestablish strong ties
service. Croemers developed a loyal switch to competitors just based on with its target market. Its new suc-
group of customers and achieved price. cess was the result of careful plan-
high sales and profits. But the busi- Croemers prepared a detailed ning and responding to customers’
ness almost went bankrupt learning marketing plan using the results needs.
about the importance of a marketing of the research. The company’s
plan. buyers worked with selected Think Critically
Two large national chain manufacturers to develop a smaller 1. Why is it that Croemers was
discount stores opened in the same but more profitable line of quality able to succeed for years with-
city, offering some of the same products that were not carried in out a marketing plan but then
products as Croemers. Croemers saw the discount stores. They added a suddenly found itself losing its
an immediate impact on profits as new line of high-end products under customer base?
many of its customers were attracted their own brand name, Croemers
to these businesses by extensive pro- Exclusive. The company imple- 2. How is it possible for Croemers
motion and lower-priced products. mented a comprehensive training to increase profits while the
The company turned to a program for all employees to build a discount stores are taking a big
marketing consultant who helped commitment to customer service. portion of the sales it used to
it complete a marketing study. A new promotional program was make?
CH 09-B4491_PB1_REV3.indd 236 12/6/07 7:44:06 PM


• Generate product ideas to contribute to ongoing • Identify product opportunities
business success • Explain the concept of marketing strategies
• Employ marketing information to develop a mar- • Explain the nature of marketing planning
keting plan
• Define business mission
• Determine strategic marketing planning structure
• Set marketing policies
Visual Focus
An effective ad combines an attention-getting
image and a brief written message to leave
a memorable impression. It should commu-
nicate a unique appeal to a specific group of
customers. This chapter will help you under-
stand the importance of a clearly developed
marketing strategy focused on the needs of
a target market as well as how to develop a
comprehensive marketing plan to implement
the strategy.
Focus Questions:
What memorable impression is Nabisco trying
to leave with consumers who view this ad?
How are the words and images in the ad used
effectively? What consumer needs are the
focus of the ad? Do you believe Nabisco has
clearly demonstrated how the product ap-
peals to those needs?
Locate two examples of ads—one that
©KRAFT
has an effective, memorable focus directed at

a specific customer need and one that does
not. Discuss your choices in class.
CH 09-B4491_PB1_REV3.indd 237 12/6/07 7:48:41 PM

9-1 Elements of a Marketing Strategy
GOALS KEY TERMS
• Describe how market segments are defined. marketing strategy, p. 238
• Understand the four criteria that an effective target
market must meet.
Marketing requires much more than advertising and selling. In fact, marketing is even
more complex than the major marketing functions. Effective marketing develops
satisfying exchange relationships between businesses and their customers. In order to
accomplish that, businesses need to develop a marketing strategy. The process begins
with identifying a target market or markets, first by carefully studying several market
segments and then by choosing a target that provides the best opportunity for the
company to offer a satisfying marketing mix.
Make a list of five personal characteristics that affect your wants and needs. Iden-
tify the personal characteristics that you believe are similar to and those that are differ-
ent from the characteristics of most of your family members, friends, and classmates.
Do you believe the differences affect your wants and needs as well as the choices of
products and services that interest you? Discuss your views with other students.
Differentiating Market Segments

marketing strategy is the way mar- nearly impossible for a business to serve all
A keting activities are planned and

coordinated to achieve an organiza-
tion’s goals. An organization that believes
customers well. What if a business came
into your classroom to sell items for stu-
dents who will be graduating next spring?
in the marketing concept develops market- It is likely that not everyone in the room
ing strategies to profitably satisfy customer is a senior, so some would automatically
needs. In most instances, those organiza- not be customers. Each person has differ-
tions follow a two-step process. First they ent plans for graduation. Some students
carefully select a target market. Then they have no plans yet and will not have any
develop a marketing mix for that target for several months. Others probably made
market. plans as early as last summer and may
have already purchased many of the things
Start with a Market they will need. In some families, gradua-
A market includes all of the consumers tion ceremonies are an important tradition
available for a business to serve by selling with specific procedures to be followed. In
S a product or service. However, because the other families, it is up to each graduate to
N people in a market can be so different, it is determine his or her plans.
238
238 CHAPTER 9 • Developing a Marketing Strategy and Marketing Plan
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Recognize Differences and Important Factors Used to Segment a Market
Similarities
Your class is a very small market. It is likely n ts a
nd Needs
Wa ographics
that the business visiting your class will be Dem cs and
ph i Lifest
interested in all prospective graduates from y ch ogra
B ehavior
y le
g
your school and from other schools in P s
B uy i n
des
Attitu
your city and state. It might want to serve
graduating students from colleges and
universities as well as from high schools.
Some companies offer products for gradu-
ates from adult education programs, junior
high schools, and even “graduates” from
preschools. The differences among all of
the people who buy graduation products
will affect purchasing decisions and the
information they need.
Segmenting Factors FIGURE 9-1

Markets are made up of many segments. Businesses study a variety of information to
Segments are components of a market identify unique market segments.
in which people have one or more
similar characteristics. Characteristics Markets can also be described by psy-
used to segment markets are shown in chographic or lifestyle characteristics
Figure 9-1. The most important factors including activities, attitudes, customs,
used to segment a market are the wants and traditions. The attitudes of potential
and needs of consumers. People make consumers are especially important in
purchases to satisfy wants and needs. segmenting markets. How do consumers
If a product does not appeal to an impor- feel about the type of products and specific
tant consumer want or need, it will remain brands of the products?
unsold. People in a market segment have Another way to segment is by identify-
one or more strong wants or needs in ing the way consumers make their pur-
common. chase decisions or their buying behavior.
A second identifying factor is de- These factors could include their previous
mographic characteristics such as age, experience with products, what sources of
income, location, and educational level. information they use, whether decisions
are more rational or emotional, and
how much time they take in gath-
Wo r k i n g i n Te a m s ering and evaluating information
before a decision is made. Marketing
Work with your team members to complete a information systems and marketing
demographic analysis of all of the students in research are used to gather informa-
your class. Identify five or more demographic tion in order to divide markets into
characteristics and two or three categories for segments.
each characteristic. For example, the character-
istic could be “age” and the categories could be
“14–15,” “16–17,” and “18 and older.” Develop a Checkpoint
table that shows each of the characteristics and
the number of students from your class that fit Why are people’s wants and needs an
within each of the categories. important basis for identifying market S
segments? N
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Using Communications Technology Professionally

Gone are the days when people went to their E-mail signatures should
mailboxes hoping for a long awaited letter from include only pertinent contact
an old acquaintance. With 24/7 contact available, information. Including political
be it through e-mail, cell-phones, instant mes- or religious quotes or symbols
saging (IM), text messaging, web sites, or blogs, or links to web sites or blogs
individuals in modern society are accustomed to may violate your employer’s
receiving information in a continuous, ongoing e-mail policies.
stream. Many employers
With the number of electronic communi- monitor employees’ use
cation tools available, it is easy to forget that of e-mail and the Web. You
communication is the objective. Communication should know and adhere
devices are merely the tools that facilitate that to your employer’s usage
goal. policies.
Just as courtesy is necessary for face-to-face Keep in mind that the
communication, it is also required for electronic Web and its various components, such as web
communication. These courtesies are particularly sites or blogs, are internationally accessible to
important for business interactions. most users. Use restraint when posting infor-
Patience is important. Although a request for mation on web sites. Confidential or negative
information can be delivered instantly, a response information regarding an employer should not be
cannot necessarily be provided immediately. The posted on personal blogs.
recipient’s schedule and the need to gather infor- As part of the background check for job
mation before responding will affect response applicants, many employers search the Web
time. to see if information is available on the job
During meetings, personal interactions take applicant. Publicly recorded instances of bad
priority over anyone who might be available behavior could impact your chances of getting
electronically. While meeting with others, com- hired.
munication devices that would cause distractions
should be turned off.
Develop Your Skill
Developing strong interpersonal relation- Consider some sensitive information you need to
ships with coworkers is extremely important. communicate to three people. Outline what your
These relationships are strengthened through message is and why you need to share it. Define
face-to-face interactions. Therefore, although it the goal you want to achieve by conveying your
may be tempting to IM or call your coworkers, it message.
is often worthwhile to periodically walk down the Prepare three scripts for communicating the
hall and have a brief chat with them. message—one for a phone conversation, one for
Texting and instant messaging use a form of an e-mail, and one for an IM. Using each type of
abbreviated spelling designed to facilitate fast technology only once, deliver the message to all
communication and to minimize key strokes. three people.
While these conventions are appropriate for elec- Which type of delivery medium was
tronic communications, they are not appropriate most effective at conveying the message you
for written communications in the workplace. intended? Which delivery method promoted
Utilize good grammar and standard English when ongoing, harmonious relationships with the
S preparing formal written documents. people involved?
N
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Selecting Target Markets
ather than trying to satisfy every In the earlier example of a business
R person in a market, a business will be

more successful in meeting customer
needs by concentrating its attention on a
selling graduation products, the market of
all students who will be graduating should
be studied. Segments can then be identified
specific target market. A target market is based on the type of school, its location,
a clearly identified segment of the market and when the graduation will occur. Other
to which the company wants to appeal. In segments could be based on factors such
order to be an effective target market, it as the age, gender, or even income of the
must meet four criteria: graduate.
After identifying several segments,
1. The people in the target market must
the company would study needs, attitudes,
have common, important needs and
and family customs to see if they are simi-
must respond in a similar way to
lar or different among various segments.
marketing activities designed to satisfy
Also, information will be collected to
those needs.
see when and how each segment makes
2. The people outside of the target market purchase decisions about graduation
should have enough differences from products. Then, the business will identify
those in the market that they will not which segment offers the best marketing
find the marketing mix satisfying. opportunity. That will become the target
3. The company needs adequate infor- market.
mation about the people in the target It is possible for the company to select
market so that they can be identified more than one segment for a target market.
and located. To be successful, the segments must have
4. The important wants and needs of the enough common needs that they respond
target market and their buying behav- in the same way to marketing efforts. For
ior must be understood well enough example, males and females from the
that an effective marketing mix can be same school may be a part of one target
developed. market. Or all graduating seniors from
S
Do these graduates meet the four criteria for being an effective target market? Why or why not? N
241
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high schools in the Midwest may
be similar enough to be considered one
target market. Larger companies often
work with several target markets at the
same time. Each of the target markets
requires unique marketing mixes that
respond to the differences between the
target markets.
©DIGITAL VISION
Checkpoint
What four criteria must be satisfied in order How many different market segments can you
to have an effective target market? think of for this group of students?

Determine the best answer. 5. Technology Locate the web site of a company
1. True or False: A target market includes all of that manufactures computers. Review the web
the consumers available for a business to site and identify three unique market segments
serve by selling a product or service. for which the company produces computers.
Using information from the web site, describe
2. The most important factors used to segment
the main factors that make each segment dif-
a market are
ferent from the others.
a. types of competition
b. consumer needs and wants 6. Economics Use the library or the Internet to
c. demographic characteristics identify publications or other sources of infor-
d. buying behaviors mation about the demographic characteristics
of your community provided by a government
3. Which of the following would not be a char-
agency. Prepare an alphabetized bibliography
acteristic of an effective target market?
of the publications with a brief description
a. People in the target market have similar
of each.
important wants and needs.
b. Adequate information is available to iden- Connect to
tify and locate the consumers.
7. You are a consultant to a company that manu-
c. People outside the target market can be
factures athletic uniforms. To sell its uniforms,
encouraged to buy the product.
the company produces a large catalog and
d. Buying behavior of the market must be
sends it to every sports team it can identify.
understood.
Prepare a three-minute presentation for the
4. True or False: If a business decides to serve company’s president on the value of focus-
more than one target market, each target ing marketing efforts on one or more target
market will require a different marketing mix. markets using a unique marketing mix for
each target market. Provide an example target
market and marketing mix. Present your ideas
S to your teacher (judge).
N
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Marketing Mix Alternatives 9-2
GOALS KEY TERMS
• Describe aspects of a basic product that can be altered brand, p. 245
to improve its market appeal. image, p. 245
• Discuss important influences on distribution, pricing, guarantee, p. 245
and promotion.
warranty, p. 245
• Define four stages of a product life cycle. product life cycle, p. 248
The most important work of marketers is to design and implement the marketing
mix. The four elements of the marketing mix include all of the activities that market-
ers will complete to satisfy the target market. Marketers recognize that there are
many ways to make a product more appealing to customers in addition to making
changes in the product itself. Effective marketing involves careful study of each of
the marketing mix elements to determine what can be changed and to identify the
effect of the changes on the target market and on company profits.
List three products you have purchased recently that you believe met your
needs and expectations. Describe the marketing mix of each product and identify
what parts of the marketing mix made the choice better than other products you
could have selected.
Fine-Tuning the Product

ave you ever shopped for an item and more satisfying to the customers. But
H only to find that you really have very

few choices? While there may be
two or three brands available, each of the
that means they will probably not be able
to focus on a large market.
The product or service as a marketing
brands is almost identical to the others. mix element includes anything offered
This problem often occurs when businesses to the customer by the business that will
try to sell products to a large market. They be used to satisfy needs. Even for very
have to offer a product that will appeal to simple products, there are many choices
the average consumer. If you are not aver- businesses can make when developing the
age, you probably won’t find the resulting product element of the marketing mix. In
product particularly satisfying. addition to the basic product, other com-
It is very difficult for a business to components include features, options, services,
pete when its products are almost identical brand names, guarantees, packaging, and
to those of its competitors. When custom- alternative uses. The goal is to create a
ers see few differences, they will often look product that is quite different from com-
for the lowest price, which reduces the petitors’ products and that responds to the
profit margin for businesses. To avoid this specific needs of the target market.
situation, businesses can try to make their Not all of the components will be used S
products different from the competition with every product or service. In some N
243
9-2 • Marketing Mix Alternatives 243
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cases, all the target market wants
is the basic product. At other
times, services and a guarantee
are important. Both research and
creativity are needed to develop
an effective product. Marketers
need to be familiar with all of the
possible changes that can be made
in a product and select the most
satisfying combination to serve a
target market.
Basic Product
The most important part of this
mix element is the basic product
offered. The basic product is a A computer is a basic product. How could each of the prod-
computer, an automobile, a pair of uct mix elements be used to ensure the computer meets
jeans, or a box of breakfast cereal. the needs of various target markets?
It is the first factor considered by
the consumer in deciding whether moisturizers, a conditioner, and a pleasant
or not to purchase. If the basic product scent. Consumers expect many of these
does not meet an important need, the con- features, and they will not buy products
sumer will not consider it. A service can that do not include them.
also be the basic part of a marketing mix.
Movie theaters, child care, home cleaning,
and tax preparation businesses all offer a
Options
basic service. Features are added to improve the basic
product. Some businesses make decisions
about the features they offer to customers.
Product Features Customers are not given choices. They must
Businesses can add features to a basic prod- accept the features the company offers.
uct to make it different from and better Other companies give customers choices of
than competitors’ products and services. the features to be included on the product
Most basic products are sold with many they purchase. Those choices are known as
additional features. Consider the prod- options. When you order telephone service,
uct offerings of automobile dealers. Every you are given choices such as call waiting,
automobile today has hundreds of features. call forwarding, and three-way calling.
Some, such as seat belts, outside rearview Some customers choose one or more of
mirrors, safety bumpers, and emission these options, while others choose just the
control equipment, are required by law. basic service.
Others—carpeted floor mats, heated seats,
locking gasoline covers, and multi-speaker
music systems—are included to satisfy the Associated Services
common needs of automobile purchasers. If your family has purchased a major appli-
Examples of features on other products ance such as a washer or refrigerator, you
include a shirt that offers tailoring, easy- were probably offered a maintenance con-
care fabric, double-sewn buttons, and tract by the salesperson. The maintenance
multiple color choices. A telephone contract is an associated service that will
may have voice mail capabilities, 50- pay for repair work if the appliance fails
S number memory, redial, and a volume to operate properly. There are many cases
N control. A shampoo may contain special where services provided with a product
244
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make the product easier to use
for consumers. If you purchase a
computer system, you might want
someone to set it up and test it to
make sure it works properly. When
purchasing or leasing a car, you
may have the option of purchasing a
service package that provides basic
maintenance for a set number of
miles or years.
Brand/Image
A brand is a unique name, symbol,
or design that identifies a product,
service, or company. At first, the
brand may not seem to be an im-
portant part of a product or service.
However, you can probably iden-
tify products that you buy where
the brand name is one of the most
important factors in your decision.
In fact, you may refuse to buy a pair
of jeans, athletic shoes, or even a can
of soda unless it is a specific brand.
The brand of certain products is an
important factor in making a pur-
©2004 HOYU CO., LTD.
chase decision for many people.

Your parents may not always
understand why you want to
buy specific brands of certain
products, but they are probably
just as loyal to particular brands of Products that offer features to meet consumer needs are likely to have a
automobiles, foods, office equip- higher rate of success.
ment, or magazines.
One of the important reasons
for brand loyalty is the image of the assurance that the product will be
brand. The image is a unique, memorable repaired or replaced if there are problems.
quality of a brand. Some brands have an A guarantee is a general promise or
image of quality, others of low price, and assurance of quality while a warranty
still others of innovation. To be effective, is a specific written statement of the
the image must match the important needs seller’s responsibilities related to the
of the consumer. guarantee.
Guarantee/Warranty Packaging
When customers purchase products or An often-overlooked part of the market-
services, they want to receive a good value. ing mix is the package. Packaging provides
If they are concerned the product is poorly protection and security for the product
constructed, will not work properly, or until the consumer can use it. It has other
may wear out quickly, they may be unwill- purposes as well. The package can provide
ing to purchase it. Companies offer guar- information that helps the customer make S
antees or warranties with products as a better purchasing decision. It can be N
245
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Uses
The final part of the product element
of the marketing mix is the use of the
Every year online magazine Brandchannel.com product. It is possible that products
surveys thousands of ad executives, brand manag- and services can be more satisfying
ers, and academics to find out which brand they to customers or can appeal to new
believe has had the biggest impact—either positive markets if other uses are found. A
or negative—on our lives. Access school.cengage. classic example of expanding markets
com/marketing/marketing and click on the link for through new product uses is baking
Chapter 9. Write down three or four product/service soda. Because very few consumers
brands you think might be on the list. Then compare bake their own bread today in the
your answers with the lists on Brandchannel. How United States, sales at a baking soda
do they compare? (Hint: click the see the full results manufacturer began to decline. In a
link under each top five list to see all the brands.) study of consumer behavior, it was
Finally, take a look at the results from other parts of discovered that consumers use the
the world. Which of the “top ten” Asian and Latin- product for many purposes other
American brands are you familiar with? What about than baking. Some use it to freshen
the European/African brands? How do you account refrigerators, garbage disposals, and
for the differences? litter boxes for pets. Others use it to
brush their teeth. Through promot-
ing those and other uses and actu-
school.cengage.com/marketing/marketing ally creating some new products,
the company has increased its sales
dramatically.
useful in promoting the product by at-
tracting attention and illustrating the
product in use. Packaging can even make
the product more useful for the consumer.
Producers of orange juice found that sales Checkpoint
increased when a plastic spout with a cap
that could be screwed on and off was added Name the seven aspects of a product that
to their cardboard carton. can be changed to improve its appeal.
Distribution, Price, and Promotion

he complete product or service offered service planning, there are many possible
T by a company is certainly an impor-

tant element of the marketing mix.
However, unless the product is known to
distribution decisions. Some important
questions that should be answered in plan-
ning distribution include:
consumers in the target market, is avail-
able when they want it, and sells for a
• Where will the customer be best able to
obtain the product?
satisfactory price, the company will not be
successful. • Where will the customer use it?
• Are there special requirements
Distribution to transport, store, or display the
product?
Distribution is the marketing mix element
that facilitates the physical exchange of • When should distribution occur?
S products and services between businesses • Who should be responsible for each
N and their customers. Just as with product/ type of distribution activity?
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In addition to these general distribution information and assistance. Promotion
decisions, many products require specific includes the methods and information
attention to physical distribution factors communicated to customers to encourage
including the type of transportation, in- purchases and increase their satisfaction.
ventory control, product handling, pro- Maybe more than any of the other
tective packaging, order processing, and mix elements, it is easy to see a variety of
customer service. promotional choices businesses have. Deci-
sions to be made include:
Price • Will promotions be directed at a
Price as a marketing mix element is de- general market or specific segments?
fined as the amount a buyer pays as well Who is the decision maker? Where are
as the methods of increasing the value of the customers in the decision-making
the product to the customers. There are process?
several decisions about how to develop and • Is the specific goal of promotion to in-
present the price that can affect the cus- crease knowledge, to change attitudes,
tomer’s perception of value. They include: or to influence behavior?
• Does the business want to increase • What specific information does the
sales, increase profits, or enhance the audience need to make a decision?
image of the product? • Will promotion be most effective
• Should price be based on cost, what through advertising, personal selling,
customers are willing to pay, or what sales promotion, publicity, or some
competitors are charging? other form of communication?
• Will there be one price for all • What is the total amount of money
customers? needed for effective promotion? When
• Will customers be allowed to negotiate should the money be spent, on what
price? Will discounts or sales be used? activities, and for which media?
• Will the price be clearly communicated • When and how can feedback be ob-
through a price tag or catalog? tained to determine if customers
• Are there things that clearly satisfy the understood the message?
customer and make the product a bet-
ter value than alternatives?
Promotion Checkpoint
Consumers need information about
product and service choices and help in Besides the total product or service being
making the best purchasing decisions. offered, what other elements must mar-
Businesses use the promotion element of keters consider in developing a marketing
the marketing mix to provide that mix?
Analyzing the Product Life Cycle

ith all of the choices available to graduation products company. If you
W businesses, it may seem that it will

be difficult to determine the best
combination of product, distribution,
were helping the company selling gradua-
tion products plan its marketing mix,
how would you determine the mix it S
price, and promotion to use. Think of the should use? N
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There are three factors to be considered
each time a business plans its marketing Fa s t FAC T S
mix. Those factors are:
According to the Food Marketing
• the type of competition Institute, the average number of items
• the purchase behavior of consumers carried by a supermarket is 45,000.
• the strengths and weaknesses of the
business
so customers are not aware of it or don’t
An important marketing tool to identify realize how it can satisfy their needs. Be-
the type of competition faced by a business cause it is new, there are no other products
is life cycle analysis. A product life cycle that are direct competitors. It will be com-
identifies the stages a product goes peting with older, established products.
through from the time it enters the market As with many new things, few people
until it is no longer sold. will want to be the first to try the product.
Products go through four stages in The business needs to identify those
their life cycle, as shown in Figure 9-2. The consumers who are very dissatisfied with
stages of the life cycle are determined by current products and those who are most
changes in the amount and type of compe- likely to want to experiment with some-
tition. By studying the competition, a busi- thing new. These people are the target
ness can determine the type of marketing market for the new product.
mix needed in each stage of the product The product itself will be very basic
life cycle. since it has just been developed. There will
not likely be many features or options.
Introduction To assure the customers of the quality of
In the first stage of the product life cycle, a the new product, the company may offer
new product is introduced into the market. a guarantee or warranty. A well-known
It is quite different from existing products, brand name may also encourage people to
buy the new product.
The product will not have
STAGES IN A LIFE CYCLE to be widely distributed in
the market since only a small
number of customers will
SALES
buy it initially. It would be
too risky and too expensive
for the company to try to get
widespread distribution. The
company will select those
locations where the target
market will be most likely to
buy this type of product.
The price will be high at
PROFITS first since the company has
many expenses in develop-
ing the product and expects
fewer early sales. People
who are the first to buy a
new product will often pay
Introduction Growth Maturity Decline a higher price. They have no
S FIGURE 9-2
other similar products to use
N Competition affects sales and profits in each stage of the product life cycle. in comparing the price.
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World View
The Emerging Chinese Market Many American companies have taken
While trailing much of the rest of the world notice of China and entered the market.
for years, e-commerce in China is now on the Amazon.com bought one of Dangdang’s ri-
upswing. In 2006, China’s economy was sixth vals in 2004 and now competes directly with
in the world in rate of growth, and the Inter- Dangdang, and Google launched a version
net in China is growing even faster. Between of its web site specifically designed for the
2000 and 2007, the number of Internet users Chinese market. Many experts believe China
in China grew from 10 million to nearly will be an e-commerce powerhouse in the
140 million. decades to come.
Insightful business owners took ad- Think Critically
vantage of the growing Internet market in
1. What advantages would a local com-
China by getting in early. Peggy Yu was one
pany like Dangdang have over a foreign
such person. She started dangdang.com, the
competitor like Amazon in the Chinese
Chinese equivalent of Amazon.com. Dang-
market?
dang was able to meld traditional purchasing
methods with Internet shopping. Dangdang 2. Why might a company like Amazon buy
used couriers to deliver products and col- a local competitor when entering a new
lect cash payments from customers, because market rather than just entering the mar-
credit cards were not widely used. ket with its own name?
Promotion needs to inform the target attract customers. They will add features
market that a new product is available and and options to make their brand better
show how it will satisfy an important need. than the first one. They may also provide
Customers need to know where they can customer services that customers want.
purchase the product. Often promotion Brand name will be very important as each
in the introductory stage of the life cycle business tries to show consumers that its
will emphasize that the product is new and choice is best.
exciting to encourage people who want to Because more consumers are now
be the first to own something. buying the product, it must be distributed
more widely. To be as efficient as possible,
manufacturers will often use other busi-
Growth nesses to distribute and sell their products.
If a new product is successfully introduced, Since customers now have choices, each
it eventually attracts more customers, and business tries to be sure its brand is avail-
sales begin to grow rapidly. Competitors able where and when the customer wants
see that the new product offers opportuni- it. They concentrate on improving their
ties for sales and profits, so they enter the order processing and handling, transpor-
market with their own brands of the prod- tation, and customer service activities.
uct as soon as they can. With this growing Customers see a range of prices during
market and increasing competition, the the growth stage. They have more choices
marketing mix must change. of brands, features, options, and services.
Competitors need to offer something Brands with a quality image charge higher S
different from the first brand in order to prices. Those just entering the market or N
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presenting an economical image have increase, profits in the market start to go
lower prices. Businesses emphasize the down. A few companies may still be profit-
value customers receive from their brand. able, but many struggle, and some will be
Promotion in the growth stage be- unable to survive.
comes more competitive. It is focused on
attracting customers who have not yet Decline
tried the product, as well as demonstrating A market declines when consumers decide
the advantages of specific brands. More that a product is no longer satisfying or
money is spent on promotion. Unique when they discover new and better prod-
messages are directed at specific segments ucts. Sales begin to drop rapidly, and there
of the market. The messages aim to inform is little or no profit available to companies
prospective customers, persuade those with products still in the market. When a
who are making decisions, and remind market declines, businesses try to get out
those who have already purchased about as quickly as possible unless they have a
the effectiveness of their decision. group of loyal customers.
For products in the decline stage of
Maturity the life cycle, there is little opportunity for
During the maturity stage of the life cycle, product improvement. Because sales and
sales peak and profits begin to decline. profits are declining, companies are not
Consumers are aware of the product and willing to invest in product changes. Some
either buy it or not based on their needs. companies may try to identify other uses
Many businesses now offer their own
brand of the product. Therefore, the level
of competition is more intense as busi-
nesses compete for sales.
The products of competing companies
have become very similar in the maturity
stage. The features and options that were
successful have been adopted by all of the
companies while those that were not suc-
cessful have been eliminated.
Since customers view the products in
this stage as very similar, they pay much
more attention to price. Prices will be very
competitive, and businesses will regularly
offer discounts or sale prices to encourage
customers to purchase their brands.
Companies will increase the availabil-
ity of products to make sure customers can
easily obtain them. The products will be
sold through many locations.
Promotion is very important in the
maturity stage. Companies continually
remind customers of their brand name and

try to persuade them that their company’s
brand is the best. Because of the large
number of customers in the market, mass
media and advertising are emphasized. A
great deal of money is spent on promo-
S tion to try to persuade customers. Because During which stage(s) of the product life cycle are
N sales have peaked and yet costs continue to you likely to find products on sale regularly?
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of the product to broaden the market and Since promotion is expensive, com-
retain customers. panies reduce the amount of promotion
Distribution will be cut back to only during this stage. They choose less ex-
the profitable locations. Companies may pensive media and promote much less
save money in distribution by keeping frequently. Since there are fewer customers
inventory levels low and cutting back on interested in this product, companies can
customer service. use more direct methods of communica-
Price is a difficult mix element to tion to keep their loyal customers as long
manage in this stage of the life cycle. Since as possible.
profits are declining, businesses want to
keep prices high. Only the most loyal cus-
tomers will pay that high price, however. Checkpoint
In most cases, prices have to be reduced to
continue to sell the product, and even that What are the four stages of a product
may not be enough to keep customers. life cycle?

Determine the best answer. 6. Visual Art Cut and paste or draw an illustra-
1. True or False: When customers see few differ- tion of a product on poster paper. Identify each
ences among competing products, they will of the components of the product discussed in
usually look for the most well-known brand. the lesson by placing a label and drawing a line
to that part of the product. Label those com-
2. Choices companies give customers of the
ponents that are not visible on the product and
features to be included on the products they
write a brief explanation of each.
purchase are known as _____ .
7. Economics Create a 4 ⫻ 3 table (four rows ⫻
3. A unique, memorable quality of a brand is its
3 columns) using computer software. Identify a
a. brand name
product that represents each of the four stages
b. image
of the product life cycle and write the name of
c. guarantee
the product in the first column. Use the second
d. warranty
column to describe the type of competition
4. The stage of the product life cycle where facing businesses selling that product. In the
both sales and profits increase rapidly as third column, describe the most important
new customers and competitors enter the marketing mix element(s) being used by busi-
market is nesses to compete with each other.
a. introduction
b. growth Connect to
c. maturity 8. Your team is responsible for proposing a
d. decline marketing mix for the company that is selling
5. When consumers decide that a product is no graduation items to the seniors in your school.
longer satisfying or when they discover new Prepare a one-page brochure that identifies
and better products, the marketing is in the the target market and describes each of the
_____ stage of the product life cycle. marketing mix elements your team recom-
mends. Use the brochure to make a team
presentation to your teacher (judge). S
N
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9-3 Analyzing Consumer Purchase Classifications
GOALS KEY TERMS
• Describe the four consumer purchase staple goods, p. 253 price-based goods, p. 255
classifications. impulse goods, p. 253 specialty goods, p. 255
• Explain how the purchase classifications affect emergency goods, p. 254 unsought goods, p. 255
marketing planning.
attribute-based goods, p. 254
By observing and analyzing the way consumers shop, marketers have identified four
basic groups into which products and services fall based on consumers’ perception of
their need for them. These consumer purchase classifications—convenience goods,
shopping goods, specialty goods, and unsought goods—can be used as keys to devel-
oping effective marketing mixes. Each purchase classification requires a different mix
in order to effectively respond to consumers’ needs and wants.
Name four things that you bought in the past month and consider the process that
you went through in making each purchase. What factors influenced your decision?
Did you shop around for alternatives? How long did you take to make the decision?
Do you always buy the same brand, or do you buy whatever brand is readily available
when the need arises? Compare your purchase decision with those of other students.
How Consumers Shop

onsumer purchase classifications marketing strategies. The categories are
C describe the ways consumers shop for

products based on their needs and
perception of products. The classifications
based on two important factors:
1. The importance of the purchase to the
consumer.
are shown in Figure 9-3.
You do not purchase all products in the 2. The willingness of the consumer to
same way. For some purchases you are very shop and compare products before
careful, spending a great deal of time and making the purchase.
comparing several brands before deciding
on the one to buy. For others, you know Convenience Goods
what you want and will buy it as quickly Consumers want to make many of their
and conveniently as possible. Finally, purchases as conveniently as possible. The
there are some products you would not reason for that purchase decision deter-
consider buying. Through careful study of mines whether the product or service is
the ways consumers purchase products, a staple, impulse, or emergency good. All
S marketers have developed the consumer three are convenience goods but for differ-
N purchase classification system to help plan ent reasons.
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CONVENIENCE GOODS SPECIALTY GOODS
ic
us ine
m gaz
a Issu
e
M Th
is
ere
th bt?
as u
W y do
an e i
Vinc cc
bu
Iaco And
l urg
Va
nb
de
an
Br
Staple Impulse Emergency
SHOPPING GOODS UNSOUGHT GOODS
Attribute-based Price-based
Consumer Purchase Classification System

FIGURE 9-3
Marketers develop better marketing mixes by understanding how consumers shop for a product.
Staple Goods Products that are regu- unique items of clothing, and inexpensive
lar, routine purchases are staple goods. new products. Impulse goods are often
You need to buy them frequently, are the items you see displayed near checkout
aware of the needs they satisfy, and prob- counters in retail stores.
ably have a preference of brands. These Consumers do not actively shop for
are products you routinely pick up when impulse goods. They purchase them when
you go to a store. Staple goods include they see the product displayed or adver-
bread, milk, toothpaste, snack foods, and tised. At that point they identify an impor-
many other regularly purchased products. tant need that they believe can be satisfied
Since you know you will need them, by the product. Because of the strong need
you make regular purchases. You will typi- and a belief that there is no real value to
cally purchase them at a convenient loca- be gained in comparing other products or
tion or when you make a routine shopping brands, the consumer makes the purchase
trip. It is not likely you will shop around in immediately.
order to buy a staple good. If the store you
are in does not have your favorite brand, Emergency Goods You may have a
you may buy another brand, or you may favorite brand of gasoline or soft drink.
wait to buy it until the next time you go When given a choice, you select those
shopping. brands and may even go out of your way
to find them. But when the fuel gauge on
Impulse Goods How many times have your car is on empty, you will probably
you walked into a store to buy one or two pull into the most convenient gasoline
items and left with several more purchases station and buy that brand of gas. If you
than you planned? Items purchased on the are very thirsty, you may be willing to
spur of the moment without advance plan- buy another brand of soft drink or even a
ning are impulse goods. Some examples different beverage if your favorite drink is S
are candy, magazines, low-cost jewelry, not available. Products or services that are N
253
9-3 • Analyzing Consumer Purchase Classifications 253
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Judgment Call
Market Intelligence While he waits, Kelvin notices Farmmore’s
Kelvin Gardner is a sales representative for marketing plan on the desk. If Kelvin knew
Agri-Gro, an agricultural chemical producer. more about its plans, he could show how
He sells to farm supply businesses. For four Agri-Gro’s products would help Farmmore
years, Kelvin has been number one in com- be more effective. But he realizes that the
pany sales. However, this year, because the marketing plan is a confidential document.
economy is slowing, customers are delay- Think Critically
ing purchases, and Kelvin has fallen to 10th
1. Should Kelvin look at the plan, or should
place in sales.
he respect its confidentiality?
One company in Kelvin’s territory,
Farmmore, has never purchased chemicals 2. What would be the likely result if he
from Agri-Gro. It has businesses in three picked up the marketing plan and the
of the four states where Kelvin works and VP returned and caught him looking
purchases 8 percent of all chemicals sold in through it?
those states. Kelvin thinks that if he can gain 3. What tactic might Kelvin use to try to
Farmmore’s business, he’ll be back on top. gain some insights into the company’s
Kelvin is meeting with Farmmore’s vice- plans without violating its confidentiality?
president when the VP is called away.
purchased as a result of an urgent need decision. Examples of shopping goods

are emergency goods. Common exam- include clothing, cars, houses and apart-
ples of emergency goods are automobile ments, stereo equipment, major appliances,
towing services, umbrellas, ambulance colleges, dentists, and vacation locations.
services, and plumbing repair services.
As with impulse goods, consumers do Attribute-Based Goods For most
not actively shop for emergency goods. shopping goods, consumers see a num-
They decide to purchase only because the ber of different choices. Each brand may
situation creates an urgent, important have a different set of features or services.
need. Because of the emergency, the con- Prices may vary or some brands may be
sumer is unable or unwilling to shop and purchased on sale or using credit. When a
compare products before purchasing. variety of differences exist and the con-
sumer considers a number of factors to
Shopping Goods determine the best value, the product is
an attribute-based good.
Most of the major purchases made by
consumers are shopping goods. These Price-Based Goods Some people
products and services are typically more evaluate major purchases and decide that
expensive than convenience goods. Con- several products or brands are basically
sumers believe that the need is important, alike. They will each provide the same
the amount of money to be spent on the level of satisfaction. Yet the consumer
purchase is significant, and real differ- believes the price is likely to be quite
ences exist among the choices of products different among the choices. Because the
and brands. Therefore, they are willing need is important and the cost is high,
S to spend time shopping and comparing it is worth the time needed to shop for
N alternatives before making a final purchase the best possible price. Products that
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consumers believe are similar but
have significant price differences
are price-based goods.
Specialty Goods
There are some products and
services consumers purchase that
are so satisfying that the consumer
will not consider buying anything
else as a substitute. Products that
have this strong brand loyalty are
known as specialty goods. People
often think of very well-known and
expensive products as specialty
goods. Automobiles such as Rolls
Royce, Porsche, or Lamborghini fit
this description. Lear jets and Rolex
watches also are specialty goods.
Inexpensive and regularly pur-
chased products are also treated as
specialty goods by some customers.
Do you have a favorite brand of
©ROLEX WATCH USA, INC.

blue jeans? Do you shop for DVDs
and CDs at the same store every
time? Do you and your friends
usually go to the same restaurant
or other business? If you do and
you would not typically consider
another choice, then they would be Consumers seek out brands of certain products, such as Rolex, and
specialty products and businesses. won’t consider purchasing a different brand.
Even such things as chewing
gum and toothpaste can be spe- choice. If that means waiting or traveling
cialty goods if the customer will not buy a to another store, the customer is willing to
different brand. do so. This type of customer loyalty is very
The two factors that determine if a valuable to businesses.
product is a specialty good are its impor-
tance in satisfying an individual’s need Unsought Goods
and the willingness of the customer to
delay a purchase until the specific product While consumers go to great lengths to
or brand is located. In the case of specialty find specialty goods, unsought goods
goods, consumers believe the brand
is the only thing that will provide
satisfaction. That belief is usually Wo r k i n g i n Te a m s
based on very positive past experi-
ences with the brand and less posi- As a team, identify a product for each of the
tive experiences with others. Because consumer purchase classifications. Discuss why
of the strong belief in the brand, the products fit the classification and whether
customers will not compare brands they might be considered as another classifica-
when shopping. They will not make tion by some consumers. S
a purchase until they can find their N
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are those products that consumers do not unsought. As soon as they become aware
want to buy. If you were choosing things of the product, they decide if it is some-
to purchase in the next year, would the thing that might meet a need. If a product
choices include life insurance or legal ser- or service does not fill a customer need,
vices to prepare a will? Those are typically it remains unsought and unsold. Even if
not considered important needs for young the business makes it easy to buy through
people, so they would currently be un- telephone or Internet sales or a salesperson
sought goods in that market. Nevertheless, visiting the person at home, consumers
when you get older and have a career and will not purchase an unsought product.
a family, either or both of those items may
become much more important and could
become shopping goods or even specialty
goods. Checkpoint
When a product or a specific brand of a
product is first introduced into the market, What are the four consumer purchase
consumers are not aware it exists, so it is classifications?
Using Purchase Classifications

in Marketing
ust as life cycle stages provide impor- to remind people of brand and image for
J tant information about competition,

consumer purchase classifications help
marketers better understand consumer
staple goods, the need to be satisfied for
impulse goods, and location and availabil-
ity for emergency goods.
behavior. That understanding is important
in planning the best marketing mix. Each Shopping Goods
purchase classification requires a differ- Because consumers are willing to shop and
ent mix in order to effectively respond to compare, the marketing mix for shopping
consumer needs. goods is different from convenience goods.
Products and services no longer have to
Convenience Goods
Consumers want to purchase conve-
nience goods as easily as possible. They
do not see important differences among
products and brands that make it worth
their time to shop and compare. There-
fore, businesses need to emphasize
product location (convenience) in the
marketing mix. The product mix ele-
ment will focus on brand, packaging,
and image.
Price is important for staple goods.

Prices cannot be set higher than simi-
lar products in the same location, or
the consumer will switch brands. For
impulse goods, price is less important,
S and for emergency goods, price is only a What part of the marketing mix is most important
N minor consideration. Promotion is used for shopping goods, such as furniture?
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be available in the most convenient
locations. Promotion emphasizes the
qualities of the product or service that
consumers believe are most impor-
tant. Promotion often helps consumers
compare products or brands.
Consumers are interested in the
best combination of features, options,
services, and uses. For attribute-based
shopping goods, the product mix ele-
ment is very important. For price-based
shopping goods, price is the most im-
portant. While customers want a qual-
ity product, they believe that several
products are very similar. They search
©DIGITAL VISION
for the best possible price. Businesses
must demonstrate that they have the
lowest price or the best possible finan-
cial terms. They also need to emphasize What are some of the best ways for an owner of a local
price in promotional activities. delicatessen to market his products?
Specialty Goods
Specialty goods are in some ways the Unsought Goods
easiest to market. In other ways, they are The marketing mix developed for un-
somewhat difficult. The emphasis in the sought goods is particularly important. If
marketing mix will depend on why a product is not well marketed, there will
consumers believe the product or service be no demand, and the product will fail. If
is a specialty good. Typically, that status a product is new, the marketing mix will
results from a unique or quality product. emphasize promotion and distribution.
In that case, the business wants to empha- Consumers must be aware of the product,
size the product in marketing planning how it satisfies needs, and where they can
to insure that the quality or uniqueness is purchase it. If a business is successful with
maintained. Promotion reminds consum- those two mix elements, the product will
ers of the reasons they prefer the product. quickly become a convenience, shopping,
It is possible that consumers prefer a or specialty good.
product or service because of its location. If customers are aware of the product
Some people select a bank, a physician, or or service and it remains unsought, the
even a college because it is close to home mix must be very carefully developed. The
or work. Therefore, marketing activities product is most important. The business
for that product would emphasize location must evaluate the product to determine
more than product features. There are some why consumers do not want it. The prod-
instances where price is the reason for spe- uct must be redesigned to make it more
cialty status. Consumers may buy only one appealing to consumers and to relate to
brand because they believe it has the best their important needs. Promotion can
price. Again, marketing would maintain then be used to show consumers how the
that price so that consumers remain satis- product will meet their needs.
fied. Promotion that is able to create excite- Businesses must market unsought
ment, a unique image, or a belief that one goods very carefully. Consumers may
product is far superior to others may result become quite upset if they believe a business
in the product being treated as a specialty is trying to sell them something they do not S
good for at least a short time. need. If consumers develop a negative N
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attitude toward a product or a business, it For example, people who had never pur-
will be difficult to sell them products in chased life insurance may be impressed
the future. Businesses that successfully by the personal attention and knowledge
sell unsought goods use a target market of one insurance agent. They buy not only
strategy. They identify the specific seg- one insurance policy but also additional
ments of the market that have needs related products from the same agent without
to the product or service. They then considering other companies.
develop very personalized marketing mixes
to work with those target markets at times Checkpoint
and locations where there is a good chance
for success. Some businesses are so effective The product location generally is most
with their marketing that an unsought good important for which consumer purchase
becomes a specialty good for customers. classification?

Determine the best answer. 6. Writing Tour a retail store or supermarket
1. Regular, routine purchases are classified as and identify one product that fits each of the
a. staple goods four major categories of the consumer pur-
b. impulse goods chase classifications. Write a one-paragraph
c. emergency goods report on each product describing how it is
d. shopping goods marketed in the store.
2. Consumers who see few differences among 7. Ethics Promotion can be a powerful mar-
several products but will still take the time to keting tool to persuade people to purchase
shop and compare are looking for something they otherwise might not buy.
a. impulse goods However, when misused, it might result in
b. emergency goods dissatisfied customers and a poor image
c. attribute-based goods for the company. Write five guidelines for
d. price-based goods marketers describing the ethical use of pro-
motion when marketing impulse goods and
3. True or False: If a product is an unsought
unsought goods.
good, consumers are not aware that it exists.
4. Consumers want to purchase _____ goods as Connect to
easily as possible. 8. You are introducing a new unsought good—
5. Which of the following is the least an insurance policy that provides protection
appropriate marketing strategy for an for damages suffered from personal identity
attribute-based shopping good? theft that occurs when a person is using the
a. creating a promotion to emphasize the Internet. It will cost $5 a month added to
important qualities that satisfy customer the customer’s Internet bill and will only be
needs promoted via the Internet. Use presentation
b. charging a higher price than competitors software to prepare three slides that out-
because more features are offered line the marketing mix you propose for the
c. distributing the product in the most unsought good. Present your slides to your
convenient locations teacher (judge).
d. making the product the most important
S marketing mix element
N
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Marketing Planning 9-4
GOALS KEY TERMS

• Understand the benefits of marketing planning. marketing plan, p. 260
• Describe the steps in developing a marketing plan.
Developing a marketing plan is one of the most important steps businesses take to
market their products and services. The marketing plan serves as a guide for coor-
dinating marketing activities. Today, almost all successful businesses have a written
marketing plan. Developing an effective marketing plan requires the commitment
of time and attention by top marketing managers and the gathering of information
about the company, competition, changes in the business environment, and current
and prospective customers.
Write a description of the planning process you went through to prepare for a
recent exam or important assignment. How could you have applied better organiza-
tion and planning to improve the results?
The Benefits of Planning

hen a group of friends decides to when a problem occurs. The result might
W take a one-week travel vacation,

they can simply start driving and
choose what to see as they go along. They
be that some decisions are made too late,
without enough information, or without
considering the impact on other parts of
might use their time effectively and have the business. To improve decision making,
a good vacation, or they might not.
A better method may be for the
group to agree on the destination,
travel time, and activities. Then they
can gather information about the
planned destinations and activities.
Using that information, they can
develop a schedule to make the best
use of their time and money.
A business person might try to

get by without any planning before
deciding what products to sell, how
to promote them, what prices to
charge, or how to respond to compe-
tition. In this case, each decision will S
be made when it seems important or Why is planning an important part of almost any activity? N
259
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Virtual Marketing
E-commerce Accommodation Advances in hardware and software can
The Internet has improved the capability of make the Internet accessible to all. Businesses
businesses to market to unique customer and government agencies are working
groups. However, one market segment together to increase Web accessibility for the
has been largely ignored—the estimated disabled. Laws have been passed to support
500 million people worldwide with these actions. E- commerce businesses that
disabilities. respond to the accessibility needs of disabled
The Web may not be accessible to the persons will find new customers for many of
visually impaired. Colorblindness may render their products and services.
web text unreadable on various background Think Critically
page colors. People without use of arms or
1. Why should an e-commerce business
hands cannot manipulate keyboards or use
be concerned about special technology
touch-screen technology. If companies do
needed to serve disabled consumers?
not recognize physical limitations, those
consumers will not have access to company 2. Should a business treat people with
web sites. disabilities as a unique market or as a
part of a larger market of consumers?
the business person gathers information the business from the time of production
about customers and competition, decides until the sale of the product. Coordination
on the profit and sales goals the business of decisions and resources will be needed in
can achieve, and then carefully develops a order for the business to make a profit once
specific plan to guide the purchase, distri- the products have been sold. Many people
bution, pricing, and promotion of products are involved in carrying out the marketing
and services. activities. To make the best use of the time
With careful planning, the group tak- and efforts of those people, their activities
ing a trip and the business person manag- should be coordinated as well.
ing the sale of products have a much better To aid in decision making and the
idea of what they want to accomplish, the coordination of the many people, activi-
best ways to reach their objectives, and the ties, and resources involved in successful
likelihood that they will be able to accom- marketing, businesses develop a marketing
plish what they planned. plan. A marketing plan is a clear written
description of the marketing strategies of
What Is a Marketing Plan? a business and the way the business will
Marketing in most businesses involves a operate to accomplish each strategy.
large number of very complex activities.
To be successful, the activities need to be From Strategy to Plan
coordinated with each other and with the In a marketing strategy, the business
activities occurring in other parts of the identifies the target market to be served
business. A great many decisions must be and develops a marketing mix. The
S made, and often a large amount of money marketing plan is based on a marketing
N and other resources must be committed by strategy.
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Marketing strategies must be devel-
oped very carefully. They need to be based
on a complete study of a market and the
possible ways the business can serve the
market. If marketers are not careful in de-
veloping the strategy, they will be no better
off than the companies with a production
orientation. They will likely make deci-
sions based on their own opinions rather
than the target market’s needs.
A marketing plan is an organized,
objective method of planning each part of
a marketing strategy and determining how
the business should operate to make sure
the strategy is successful. The process of Why are so many business people involved in
developing a marketing plan encourages developing the marketing plan?
the marketer to gather and analyze infor-
mation, consider alternatives, determine strategy describes what the business wants
what competitors are likely to do, and to do, and the marketing plan details how
study possible responses of customers. the strategy will be implemented and
Based on that study, procedures can be evaluated.
planned to achieve the marketing strat-
egy. It is possible to determine in advance Checkpoint
whether the strategy can be implemented
as planned. If not, the strategy can be What are the benefits of developing a
modified to avoid mistakes. The marketing written marketing plan?
Preparing for Marketing Planning

arketing planning is not easy. It
M requires time, information, and

people who understand market-
ing planning procedures. Because of
Fa s t FAC T S
According to a survey by Accenture,
middle managers spend more than a
these requirements, some business people
quarter of their time searching for infor-
believe they do not need or cannot afford
mation necessary to perform their jobs.
to develop marketing plans. They feel their
When they find it, it is often not useful
past experience has prepared them to make
or is even wrong. More than 50 percent
marketing decisions. That attitude gives
of managers believe that their compa-
an advantage to the business people who
nies do a poor job of determining the
carefully prepare marketing plans. They
information each manager needs.
will know when changes are occurring in
the market, how customers are likely to
respond to new marketing strategies, and Planning to Plan
what competitors are likely to do. They will Marketing plans are developed for a
know in advance what needs to be done specific time period, often six months to
to accomplish their objectives rather than one year. Companies may have an overall S
having to wait for problems to occur. marketing plan, but they usually develop N
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a specific plan for each major product. The outside of the immediate control of the
preparation of the plan is usually coordi- business or its competitors. The economy
nated by the top marketing manager with can decline or improve. Laws can be
input and assistance from many other passed by state and local governments
people. Usually, large companies have a that affect business activities. Additional
number of researchers, analysts, and sup- taxes or licenses can increase costs.
port staff working continuously on prepar- Newly developed technology can result in
ing and updating marketing plans. improved products or innovative produc-
tion and marketing procedures. Busi-
Plans Require Information nesses that regularly collect information
The work needed to develop a marketing to determine if changes are likely to occur
plan begins long before the plan is actu- are in a better position to respond to
ally written. A great deal of information changes than businesses that do not pay
is necessary, so the people responsible attention to change.
for marketing planning must make sure Information about Current and
needed information is collected, analyzed, Prospective Customers Under-
and ready for use in the planning process. standing customers makes it possible for
Each business uses somewhat different businesses to develop marketing plans
information for its marketing plan. The to satisfy their needs. Businesses must
following types of information are usually continually gather and study informa-
a part of marketing planning. tion about their customers, including
Performance of the Company In who their customers are and what their
order to plan for the future, marketers needs are. How do customers perceive the
must know what has happened in the past business and its competitors? Would they
and what is expected to happen in the like to see changes and improvements in
future. Information on sales and prof- products and services? It is also impor-
its, effective and ineffective marketing tant for businesses to continue to identify
activities, and the company’s strengths prospective customers and new target
and weaknesses needs to be collected markets to help the business grow.
and reviewed. Marketers need to know
what new products are being devel-
oped, if others are being eliminated,
and if resources are likely to change in
the future.
Performance of Competitors
Customers usually have several brands
of products or services from which to
choose. In order to develop marketing
strategies that will be successful, mar-
keters must evaluate the products and
marketing efforts of those competing
businesses. They must also understand

each company’s strengths and weak-
nesses and what competitors are likely
to do in the future.
Changes Outside the Company
Many things occur that affect the Why is it important for a business to gather
S
potential success of a product but are information from its customers?
N
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Gathering Needed addition, most businesses regularly gather
Information and study information about competitors,
business trends, and the economy. In ad-
Companies that successfully prepare and dition to the information in the MkIS, the
use marketing plans have developed pro- business should be aware of other groups
cedures to gather and analyze information. and organizations that provide planning
Business moves rapidly, and companies information, such as government agencies,
cannot wait until the time they are ready trade associations, and private research
to develop a marketing plan to gather the firms. Finally businesses must be prepared
needed information. to complete needed marketing research
Much of the information used in devel- when adequate information is not available.
oping marketing plans is already available
in the company’s marketing information
system (MkIS). Records of production, Checkpoint
operations, and sales are maintained.
Detailed information on specific customers What four types of information are usually
and their purchasing history is available. In needed for effective marketing planning?

Determine the best answer. 6. Research You are a member of the marketing
1. True or False: As long as a company effec- planning team for a large electronics retailer.
tively communicates marketing plans to Use the Internet to locate current informa-
everyone involved, the plan does not have tion that you believe should be considered
to be in writing. by planners on performance of competitors,
consumers of electronic products, and changes
2. True or False: A company’s marketing plan is
occurring outside the company. Write a memo
based on its marketing strategy.
to your marketing manager summarizing the
3. True or False: A marketing plan is developed information you located.
to last for the entire life cycle of a product.
7. Communication Identify a local business per-
4. Which of the following types of information is son to interview either in person, by telephone,
usually a part of marketing planning? or by e-mail. Ask the person about the impor-
a. performance of the company tance of marketing planning and the proce-
b. performance of competitors dures he or she follows to prepare a marketing
c. information outside the control of the plan. Prepare a written report as an article for a
company newspaper.
d. all of the above
5. The majority of information a company Connect to
needs to develop a marketing plan should be 8. As the top marketing executive, you are meet-
obtained from ing with all of the managers with responsibili-
a. specific marketing research studies ties for marketing activities in your company.
b. information available from government Prepare a three-minute persuasive speech that
agencies and universities describes the value of a marketing plan and
c. information purchased from private the need for managers to follow the plan and
research companies coordinate their efforts with each other. Make
d. information maintained in the company’s sure the speech incorporates the importance of
MkIS customer satisfaction and company profitabil- S
ity. Present your speech to your teacher (judge). N
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9-5 Developing a Marketing Plan
GOALS KEY TERMS
• Identify the five types of market analysis used in devel- market analysis, p. 264
oping a marketing plan. mission, p. 265
• Explain how a marketing strategy is incorporated positioning statement, p. 268
within a marketing plan.
• Explain the need for activity schedules and evaluation
procedures in the marketing plan.
Marketing plans take many forms and can contain different types of information.
They are developed to assist a specific business, so they are written in a way that is
most useful for the people in that business.
Work with a group. If you were asked to develop a marketing plan, what steps
would you need to take to complete your work? What type of information would
you include in the plan? How would you determine if the marketing plan was effec-
tive or not? Share your ideas with others in a class discussion.
Analyzing the Market

marketing plan is a complex and be completed. That analysis will provide
A detailed document that provides

guidance for the implementation of
a marketing strategy. It needs to be care-
information to help develop a marketing
strategy that is competitive, that meets
customer needs, and that can be effectively
fully prepared, clearly written, and effec- implemented. A market analysis identi-
tively communicated to everyone who fies a business’s strengths and weaknesses
has a role in implementing the marketing and the opportunities and threats it faces.
strategy. Marketing plans are developed Because of those four factors, a market-
in three stages—market analysis, marketing analysis is often referred to as a SWOT
ing strategy, and action plans. The results (strengths, weaknesses, opportunities, and
of each stage are described in the written threats) analysis.
plan. Figure 9-4 provides a sample outline An effective marketing strategy builds
of a marketing plan. Each section of the on what a company does well, its strengths.
marketing plan is discussed in this lesson. It recognizes and attempts to improve on
More detailed descriptions of each section any weaknesses that can interfere with
of the marketing plan as well as questions the strategy. A market analysis uncovers
that should be answered to develop each opportunities for new customers and new
section can be found in the Marketing products. It identifies possible threats to
Planning Guide on the textbook web the company posed by competition or
site at school.cengage.com/marketing/ changes occurring in the economy, laws,
marketing. and technology. A summary of the mar-
S Before developing a marketing strat- ket analysis is usually the first section of a
N egy, a careful analysis of the market should marketing plan to provide the objective
264
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information on which the FIGURE 9-4
marketing strategy is based. A complete marketing plan describes the three stages of development.
Company Mission Marketing Plan Outline

The mission or purpose of I. Market Analysis
the company identifies the A. Purpose and Mission of the Business
nature of the business or the B. Description of Current Markets and Strategies
reasons the business exists. C. Primary Competitors and Their Strengths/Weaknesses
It is most often developed D. External Environment Analysis
to describe broad categories 1. Economy
of products or services the 2. Laws and Regulations
business provides (trans- 3. Costs
portation, health care, legal 4. Competition
services) or the types of cus- 5. Technology
6. Social Factors
tomers the company wants
to serve (business travelers, E. Internal Analysis
resorts in the Sun Belt, 1. Strengths
single parents with children 2. Weaknesses
under 18). By identifying the 3. Anticipated Changes
mission or purpose, market- II. Marketing Strategy
ing planners concentrate A. Marketing Goals/Expected Outcomes
their efforts in areas where B. Target Market Description
the company is known and 1. Identifying Characteristics
works best. An example of 2. Unique Needs, Attitudes, Behaviors
a mission statement for an C. Marketing Mix Description
auto dealership is “to offer 1. Product/Service
quality automobiles at fair 2. Distribution
prices, to provide fast and 3. Pricing
effective service, and to treat 4. Promotion
all customers with courtesy D. Positioning Statement
and respect.”
III. Action Plans
A. Activity Schedule
Current Markets
1. Responsibilities
and Strategies 2. Schedule
After identifying the mis- 3. Budget
sion, the planners briefly re- B. Evaluation Procedures
view the current marketing 1. Evidence of Success
efforts of the company. The 2. Method of Collecting Evidence
review identifies the mar-
kets in which the company
is operating and the marketing strategies its advertising costs are increasing at a rate
currently being used and provides a sum- much faster than its sales. In that case,
mary of current results and effectiveness. it needs to determine if the costs can be
This reminds the planners and readers controlled or if the increased advertising
about activities underway in the business. might pay off in the long term with faster
Determining the activities that are sales growth. Some products or markets
working well and those that are not might be outperforming others. Recogniz-
helps planners decide whether to con- ing why those strategies are working well
tinue with the same strategies or to plan while others are not helps determine where S
changes. A company might discover that to direct resources in the future. N
265
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Digital Digest
Seeing Is Believing With the development of wearable
Marketers have long used eye-tracking eye-tracking devices, researchers now have
research to gauge the effectiveness of the ability to see how subjects view things in
advertisements and displays. They refine a much more natural setting. They still know
ads based on what research subjects tend their actions are being watched, but aside
to look at, the sequence in which they look from wearing a headset that records what
at various elements of an ad, and how long they are looking at, subjects can be observed
various images hold their attention. in an otherwise undisturbed setting. The
Previously, researchers used expensive result is research that more closely reflects
gaze-tracking equipment that required real-life reactions to ads and displays.
subjects to hold their heads steady by biting Think Critically
down on a bar so that movements could be
1. Why are natural settings usually better for
captured accurately. Unfortunately for mar-
market research than artificial settings?
keters, that created a very unnatural testing
environment that could not help but affect 2. How can product development be im-
results. proved by using eye-tracking technology?
Primary Competitors business, technology, changes in costs,

An analysis of the competitors in the same and the expectations and needs of society.
product categories and serving similar cus- An example of the effect of technology on
tomer groups is an important part of the businesses was the introduction and accep-
marketing plan. In addition to identifying tance of transmitting legal documents with
each competitor, an objective evaluation of electronic signatures. That change required
the important strengths and weaknesses of the development of new technology to
each competitor is completed. This evalu- create and transmit secure and identifiable
ation helps decide how to compete with electronic signatures for letters, orders,
each of those businesses. For example, if contracts, and other legal documents. It
a competitor is known for keeping prices also required new laws that recognized
very low, it may be difficult for another the new electronically signed documents
company to develop a strategy that em- as legal business transactions. With those
phasizes price. On the other hand, if a changes, many official business communi-
competitor is having difficulty providing cations could be prepared and transferred
repair services for the products it sells, an- almost instantly rather than waiting for
other company may be able to attract new delivery through the mail.
customers by emphasizing its customer Internal Analysis
service department.
The final part of the market analysis should
be a thorough and objective review of the
External Environment current operating and financial perfor-
The market analysis section identifies any mance of the company. This process is
factors outside of the company, called the known as an internal analysis. The com-
external environment, that may affect its pany’s strengths and weaknesses are deter-
S performance. Those factors include the mined by reviewing and comparing cur-
N economy, competition, laws affecting the rent and past performance with company
266
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goals. Analyzing products and production hand, if the company is having difficulty
methods, marketing activities, personnel, competing on the basis of price, strate-
and financial performance can point out gies should be developed to avoid direct
areas where the company is meeting ex- price competition. If distribution costs
pectations and where it is not. The internal are consistently higher than planned or if
analysis can be compared with competitive inventory levels cannot be maintained to
data to determine where the company has achieve needed sales, those operations can
advantages and disadvantages. If a com- be reviewed and changed.
pany has a unique production process that
competitors have been unable to duplicate,
it should be emphasized. If customers Checkpoint
believe the company has a better customer
service record, it will be important to use What are the five types of market analysis
it in the next marketing plan. On the other used in developing a marketing plan?
Developing the Marketing Strategy

n terms of the company’s success, the
I most important part of the marketing

plan is the development of a market-
ing strategy. The marketing strategy is the
description of the way marketing will be
used to accomplish the company’s

objectives. The marketing strategy begins
with the company goals on which the
strategy is based. The goals are followed
by a full description of the marketing
strategy, including the target market,
the marketing mix, and a specific How can setting a specific sales goal help a business
positioning statement. determine the effectiveness of its marketing strategy?
Defining a Target Market

Determining Goals and The marketing strategy will clearly identify
Outcomes the target market to be served. The target
The marketing strategy is based on a market will be defined completely so it can
specific statement of the goals the com- be located, so people in the business under-
pany plans to achieve or the expected stand the market’s characteristics and its
outcomes of the marketing efforts. In that needs and wants, and so it is clear that
way, the company is able to determine the marketing mix is appropriate for that
whether the marketing strategy is effec- target market.
tive. Marketing goals include such things While each target market is unique,
as increasing sales or profits for certain it is possible for an organization to serve
products, increasing the market share for a several target markets at the same time.
product in a particular geographic area or When more than one market is identified,
target market, increasing the effectiveness marketing planners must remember that
of particular parts of the marketing mix each market requires a specific marketing
such as distribution or customer service, mix. A specific product or target market S
or other specific results. may have its own marketing plan or a N
267
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specific section of the overall com-
pany marketing plan devoted to it. Wo r k i n g i n Te a m s
An effective marketing goal contains a specific
Specifying the description of an activity to be completed or
Marketing Mix an outcome to be achieved, a time period for
A complete description of each mix ele- completion, and a specific level of expected
ment is included in the marketing plan. performance to measure whether or not the
Product, distribution (place), price, and goal has been accomplished. As a team, write
promotion are described specifically a marketing goal to improve satisfaction with
and completely so that everyone in- customer service. Discuss what makes the goal
volved in implementing the mix under- effective.
stands what the company plans to do. A
description of the marketing mix is pre-
sented in the marketing strategy section of to shop for all home products needed by a
the marketing plan, and the activities and family on a budget. A home improvement
budgets needed to implement each element service specializes in working with real-
of the mix are developed in later sections. tors and homeowners who are planning to
sell their homes. Its positioning statement
describes how it can help secure a higher
Developing a Positioning selling price for the home as a result of
Statement cleaning, repair work, and an improved
One of the most interesting parts of the visual presentation of the interior and
marketing strategy is the positioning exterior of the home.
statement. A positioning statement is a
specific description of the unique qualities Checkpoint
of the marketing mix that make it differ-
ent from the competition and satisfying to What are the four elements needed in a
the target market. For example, a discount marketing plan to describe the marketing
store positions itself as the one-stop place strategy?
Planning for Action

he marketing strategy will not be suc- Many people both inside and outside
T cessful just because it is described in a

marketing plan. The activities of many
people must be planned, and procedures
the company are involved in marketing.
Their activities must be coordinated in
order to be successful. For example, if a
must be set up to evaluate the activities. manufacturer is introducing a new laptop
The final section of the marketing plan computer, the production schedule must be
identifies actions needed to accomplish coordinated with distribution to retailers,
and evaluate the marketing strategy. the development of printed product infor-
mation for salespeople, and the advertis-
Activity Schedule ing schedule. If the computer is advertised
Completing each part of the marketing to consumers before the retailer has the
strategy requires a series of activities. The product or before salespeople are prepared
needed activities must be determined along to provide product information, both the
with a description of how and when the consumer and retailer will be unhappy
activities will be completed. Responsibil- with the manufacturer.
S ity for completing each activity must be In addition to assigning responsibili-
N assigned. ties and developing schedules, planners
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must determine budgets for the various should be evaluated to determine if the
marketing activities. Without a budget, quality is acceptable and if they were ac-
overspending can easily occur. complished within the established budget
for the activity.
Evaluation Procedures Information collected in the evalu-
Evaluation procedures must be developed ation is used to make improvements in
to determine if the action plan is effective. marketing activities while the plan is being
The evaluation procedures measure implemented. As soon as problems are
whether the marketing activities were identified, actions should be taken to cor-
completed correctly and on time. They will rect those problems. Evaluation informa-
also determine if the marketing objectives tion is also essential when developing the
identified earlier in the marketing plan next marketing plan.
were accomplished.
Information can be collected to deter-
mine if target markets are responding to Checkpoint
the marketing mix and if their needs are
satisfied. Each of the mix elements should Why is an action plan needed once other
be studied. Specific marketing activities parts of a marketing plan are developed?

Determine the best answer. 6. Communication Review advertising or web
1. A marketing strategy should be based on sites of three well-known companies that you
a. a careful analysis of the market believe have unique images. Identify informa-
b. the previous experience of managers tion that you believe provides an effective
c. the strategies of main competitors positioning statement for the company. Write
d. none of the above each positioning statement on a note card. See
if other students can guess the company from
2. A(n) _____ identifies a business’s strengths
the statement.
and weaknesses and the opportunities and
threats it faces. 7. Math A retailer had six-month sales of $83.6
million, with $18.2 million of that amount from
3. A statement that identifies the nature of the
the Internet. It set a goal to increase the per-
business or the reasons the business exists is
centage of total sales coming from the Internet
the company’s
by 4 percent in the next six months. The results
a. positioning statement
were total sales of $87.3 million, with $23.1 mil-
b. marketing strategy
lion from the Internet. What was the percent-
c. mission
age of Internet sales? What amount of Internet
d. goals
sales was needed to achieve the goal?
4. True or False: The final section of a market-
ing plan includes a description of marketing Connect to
activities and evaluation procedures. 8. Your marketing team is advising a new fitness
5. True of False: Even if evaluation shows prob- center, FastFit, which offers 30-minute, high-
lems, a business should not take corrective intensity, aerobic workouts for people with busy
action until the end of the time period identi- schedules. Develop a marketing strategy for the
fied in the marketing plan. business, including a positioning statement.
Present your ideas to your teacher (judge). S
N
269
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Now that you have completed the chapter, check identify several components of the product mix
your understanding of the lessons with these ques- element in addition to the basic product?
tions. Record the score that best represents your discuss ways that each element of the market-
understanding of each marketing concept. ing mix can be changed and improved to meet
1 = not at all; 3 = somewhat; 5 = very well customer needs?
If your score is 42–50, you are ready for the assess- explain how competition changes in each stage
ment activities that follow. If you score 33–41, you of the product life cycle?
should review the lessons for the items you scored describe differences among convenience, shop-
1–3. If you score 32 or less, you will want to carefully ping, specialty, and unsought goods that affect
reread the lessons and work with a study partner on how they are marketed?
the areas you do not understand. justify the importance of developing and follow-
Can you— ing a written marketing plan?
justify why a business should identify a number list five types of information that are analyzed as
of market segments as a part of selecting a tar- a part of marketing planning?
get market? identify the three major sections of a marketing
describe the four criteria of an effective target plan?
market? explain the importance of activity planning and
evaluation for effective marketing?

1. A general promise or assurance of quality
2. Products in which a variety of differences exist, a. attribute-based goods
and the consumer considers a number of factors b. brand
to determine the best value c. emergency goods
3. A clear written description of the marketing d. guarantee
strategies of a business and the way the business e. image
will operate to accomplish each strategy f. impulse goods
4. The way marketing activities are planned and g. market analysis
coordinated to achieve an organization’s goals h. marketing plan
5. Products that consumers do not want to buy i. marketing strategy
6. Items purchased on the spur of the moment j. mission
without advance planning k. positioning statement
7. Identifies the stages a product goes through l. price-based goods
from the time it enters the market until it is no m. product life cycle
longer sold n. specialty goods
8. Products or services that are purchased as a o. staple goods
result of an urgent need p. unsought goods
9. A unique name, symbol, or design that identifies q. warranty
a product, service, or company
10. A specific description of the unique qualities of
S the marketing mix that make it different from the
N competition and satisfying to the target market
270
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The following items describe competitive situations These items describe examples
faced by businesses. For each of the following situ- of customer purchase behavior.
ations, identify the stage of the product life cycle For each of the following situ-
being described. ations, identify the consumer
purchase classification
11. There is little profit in the market, and only the
category being described.
most loyal customers continue to buy.
15. Jai needs to replace his lost calculator. He goes
to several stores but cannot find the TD Model
12. Many companies offer a service that consum-
28 that he prefers. He finally locates one at the
ers view as quite similar. Because of the intense
college bookstore and purchases it.
competition, the businesses emphasize promo-
tion and often give customers price discounts.
16. Driving home from work, Arthur remembers that
he forgot to plan something to cook for the eve-
13. As profits begin to increase in the market, several
ning meal. Since his family will be home when he
new companies decide to offer similar products
arrives, he quickly turns into the deli and pur-
for sale.
chases the evening’s special to take home.
14. A company invents a coating material for auto-

17. A telemarketer calls to describe a new product to
mobile windows that melts ice and snow at low
a consumer. The consumer is not interested and
temperatures. It learns that another company is
hangs up the telephone.
developing a similar product, so it begins selling
the product immediately to beat the other busi-
ness into the market. 18. The customer carefully compares product fea-
tures and price at several stores before making a
decision.

19. People have different needs and different ways 21. Select one of the following products or services
of shopping for products and services. Therefore, to use for your work on this activity: a profes-
it is likely that the same product or service can fit sional music group, athletic/running shoes, or a
into several of the product/service purchase clas- magazine. Identify four people to interview. De-
sification categories. For the following products, termine the information you need to obtain from
describe the consumer purchase behavior that each person in order to develop a target market
would be used for each of the categories in the description and to classify his/her purchase
classification system. behavior in the consumer purchase classification
a. movie c. gasoline system. Conduct the interviews and complete
b. groceries d. hotel room the following activities:
20. Use the Internet to search for announcements a. Develop market segment descriptions of each
and articles about a large public corporation’s person.
plans for a new business venture. Describe the b. Determine whether the four people would
product or service of the new venture and the be part of one target market or more than
marketing strategy, including target markets, the one.
marketing mix, and the positioning statement. c. Identify the appropriate consumer purchase
What types of information did the company classification for each person interviewed and
gather about the external environment and pro- provide a brief statement describing why you S
spective customers in planning for the venture? selected that classification. N
271
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22. The mature stage of the product life cycle is very marketing strategy that could be implemented
difficult, especially for smaller businesses. There to help the hotel compete with the large chains.
are many competitors appealing to a large mar- Provide a rationale to support the strategy.
ket. They have very similar products and are in- 23. For 30 years, a national association of homebuild-
creasing their distribution and promotion. Many ers has collected data on the sales of various
businesses are starting to decrease their prices styles of manufactured windows. One window
to encourage consumers to switch to their busi- style presents an interesting example of a prod-
ness. Since most businesses (and especially large uct life cycle. It was introduced in 1984 and re-
businesses) are appealing to the mass market, mained on the market until 2006. The table below
smaller businesses may have the opportunity to summarizes its market performance during that
be successful by using the marketing concept time. Develop a table that illustrates the follow-
when planning a marketing strategy. ing information for each of the years listed:
You are a marketing consultant for a small
a. average dollar sales per manufacturer
hotel. The business is finding it increasingly dif-
b. average sale price of each window
ficult to compete with the national chains that
c. average cost of each window
have large advertising budgets, can offer a variety
d. total profit or loss for the industry
of services, and are willing to cut their prices to
attract business people and weekend travelers. Input the window data from the table into a
Prepare a four-page report for the hotel owner spreadsheet program. Construct a graph of the
that briefly describes the meaning of the market- life cycle for the window, illustrating total indus-
ing concept and why it can help the hotel de- try dollar sales and the industry’s profit or loss
velop a marketing strategy. Describe an example for each year.
Number of Total Total Sales in Total Product

Year Manufacturers Units Sold Dollars Cost
1984 1 800 $ 36,000 $ 38,400
1986 3 2,800 123,200 126,000
1988 5 4,500 193,500 189,000
1990 6 5,700 245,100 228,000
1992 9 10,800 464,400 410,400
1994 15 22,500 945,000 787,500
1996 15 23,000 954,500 828,000
1998 13 23,000 943,000 851,000
2000 12 22,500 877,500 855,000
2002 8 18,000 684,000 693,000
2004 4 10,500 393,750 404,250
2006 2 4,800 177,600 182,400
S
N
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International Business
Plan Event
The International Planned Financing Provide projected in-
Business Plan Event come and expenses.
provides an op- Bibliography List all resources used.
portunity to apply Appendix Inclusion is optional.
marketing skills in an
international setting. You will prepare a writ- Performance Indicators
ten proposal for a new business venture (a Evaluated
new business or new product or service of an • Exchange information and ideas with
existing business) for a foreign country.
others through writing and speaking.
This project will be completed by one
(Communication Skills)
to three members. Participants will choose
a product or service to introduce to a for- • Participate as a productive team member.
eign country. Each individual or group must (Emotional Intelligence)
conduct thorough research to determine the • Conduct international research to deter-
trade area, economics, culture, and political mine the feasibility of a business idea.
climate of the chosen country. The demo- (Information Management)
graphics and psychographics for your selected • Analyze research data to derive facts and
country must be a good match for your idea. other information needed to make interna-
After you have determined the best inter- tional business decisions. (Information
national market for your product or service, Management)
you must persuade an international banker • Determine factors affecting business
(judge) to grant the loan needed for your busi- risk. (Economics)
ness idea.
This project consists of a written docu- Go to the DECA web site for more detailed
ment and the oral presentation. The oral pre- information.
sentation may be a maximum of 15 minutes
in length. The first 10 minutes will include an
Think Critically
explanation of the project followed by 1. Why have more companies
5 minutes for the judge’s questions. expanded operations to include
The body of your international business international business?
plan will consist of the following parts: 2. Why is it important to under-
Executive Summary Write a one-page de- stand the culture before con-
scription of the project. ducting business with a foreign
Introduction Include a brief description of country?
proposed business, product, or service. 3. What risks are involved in con-
Analysis of the International Business ducting international business?
Situation Provide an economic, political, and
4. What resources can the international
legal analysis of the trading country; provide
entrepreneur use to be successful when
trade area and cultural analysis.

conducting business in another country?
Planned Operation of the Proposed Busi-
ness/Product/Service Describe the pro-
S
posed organization, proposed product/ w w w. d e c a . o r g N
service, and proposed strategies.
273
7-1 • Focusing on Market DECA
Segments
Prep 273
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Chapter 10
Developing Successful
Products
10-1 Starting with a Product
10-2 Components of the Product
©BLEND IMAGES/JUPITER IMAGES

Mix Element
10-3 Products for Consumers
and Businesses
10-4 New Product Development
Newsline )))
What Can We Learn from Labels?
Light. High-fiber. No cholesterol. must appear on packaging for pre- The labeling requirements are
Zero trans fats. What do these terms pared foods such as breads, cereals, not viewed positively by everyone.
mean? Given their use in promotions, canned and frozen foods, snacks, Some believe it is too costly. Others
it appears as if some companies are desserts, and beverages. All food think the rules are not totally effec-
more concerned about sales than producers must use a standard label tive since they apply only to the
about providing accurate informa- with specific information that allows information on product packages
tion. For example, one company consumers to compare products and not to advertising. The informa-
used the word “light” to promote a and determine the impact of the tion is not required on fresh foods or
high-calorie product. When ques- products on their diets. on restaurant menus, although many
tioned, the company said that “light” The information on each label restaurants are now voluntarily
referred to the product’s color rather must be based on a standard serv- providing dietary and nutritional
than the amount of calories. Oth- ing size and a daily consumption information for consumers.
ers have promoted their product as of 2,000 calories. The label must
“now cholesterol free” to influence report the number of calories in each
Think Critically
health-conscious customers. How- serving and the amount of saturated 1. Examine three “light” products
ever, the type of product was never fat, cholesterol, trans fat, sodium, and compare the number of
made with ingredients that contain carbohydrates, and protein in both calories and grams of fat they
cholesterol, so the companies had grams and percentage of the total contain to corresponding regu-
done nothing to reduce cholesterol. daily dietary requirements. lar products. Do they meet the
Many business people, con- Specific meanings have also labeling requirements?
sumer groups, and government offi- been established for nutritional
cials are concerned about misleading words like healthy, lean, low-fat, 2. Do you believe restaurants
or false nutritional labeling on prod- high-fiber, and light. As an example, should be required to provide
ucts. The federal government has companies cannot label their prod- nutritional information similar
issued food-labeling rules that apply ucts as light unless calories and fat to the information provided on
to most packaged foods sold to are at least 30 to 50 percent lower packaged foods? Why or why
consumers. Nutritional information than the original product. not?
CH 10-B4491_DS_REV3.indd 274 12/7/07 5:39:40 PM


• Acquire a foundational knowledge of product • Generate product ideas
management to understand its nature and scope • Determine feasibility of product idea
• Generate product ideas to contribute to ongoing • Identify the impact of product life cycles on mar-
business success keting decisions
• Position products to acquire desired business • Develop positioning concept for a new product
image idea
Visual Focus
Contrasting the old and the new often leaves a
powerful impression in the mind of a cus-
tomer. Many consumers are reluctant to try
brand new products unless they are confident
the product is superior to what they already
use and is a good value. In this chapter, you
will learn how companies plan and market
their products in ways to make sure they meet
consumer needs. Products can be simple or
complex, new or well-known. Each requires
careful planning and an effective marketing
mix to be successful.
Focus Questions:
What is your initial impression when first see-
ing this advertisement? Why do you believe
NTT Do Co Mo chose to use the image of the
Roman aqueducts to introduce its new cell
©NTT DO CO MO USA INC.
phone technologies? After studying the adver-

tisement, do you understand the product be-
ing advertised? What additional information
would you need to help you determine if you
are interested in the company’s products?
Locate an advertisement for a new
product. In a class discussion, compare its
effectiveness with the example ads from other
students.
CH 10-B4491_DS_REV3.indd 275 12/7/07 5:49:02 PM

10-1 Starting with a Product
GOALS KEY TERMS
• Explain how customers view products. product, p. 276
• Describe how marketers keep a consumer focus during

product development.
Businesses tend to view products as merely the physical items they produce and
sell while consumers see products as ways to satisfy their wants and needs. Market-
ers play an important role in bridging that gap. They must make sure businesses
stay focused on consumers’ needs as products are being developed. During prod-
uct development, marketers need to serve as the customers’ representative by
gathering information, suggesting product improvements, and testing marketing
mixes. By doing so, they help others in the business develop products that satisfy
needs better than existing or competing products. That should result in products
customers want as well as profitable sales for the company.
Think about a product in your home that is no longer used because it failed to
satisfy the needs for which it was purchased. If you were going to purchase a prod-
uct to replace it, would you look for a similar but better designed competitive prod-
uct, or would you try to find a new product that is quite different from the product
that was purchased? Discuss your response with other students.
A Product Is More Than It Appears

product is anything tangible offered
A to a market by a business to satisfy

needs. It is important for marketers
to realize that consumers view a product
differently than the business that develops
it. Business people often see their products
as the first part of the definition—anything
offered to a market. Businesses focus on
what they offer—the tangible objects. Con-
sumers have a different view of products.
They are concerned about their needs,
and they view products as ways to satisfy
those needs. The differences in those views
©DIGITAL VISION
can result in problems when businesses

develop and market products.
What are your motives when you de-
S cide you need to make a purchase? While How do businesses and consumers view prod-
N you may plan to purchase a pair of shoes, ucts differently?
276
276 CHAPTER 10 • Developing Successful Products
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World View
What’s on Your Pizza? cheese, but toppings can vary. You might
Pizza is a staple food in the United States, order squid on your Domino’s pizza in Tokyo
with nearly 70,000 pizza shops grossing or pickled ginger in Bombay. This balancing
more than $31 billion in pizza sales annually. act has led to great success for Domino’s.
But U.S. pizza restaurants are also expand- There are now more than 8,000 Domino’s
ing rapidly into European, Asian, and South restaurants in 54 countries, with more than
American markets. $1.4 billion in revenue.
Franchise restaurants are successful Think Critically
when they balance their need for set pro-
1. Why would Domino’s Pizza require in-
cedures and menu items with the ability to
ternational franchisees to use the same
adapt to local tastes and customs. As a cus-
dough, sauce, and cheese while allowing
tomer, you can expect the same store layout,
changes in pizza toppings?
menu, and level of service at all locations, but
you might find unique menu items depend- 2. Should a franchisor encourage businesses
ing on your location. in other countries to experiment with new
For instance, Domino’s requires fran- product ideas? Why or why not?
chisees to use the same dough, sauce, and
a hamburger, or a book, you have reasons those qualities, the product must be useful
for each purchase that go beyond simply to the consumer and meet the consumer’s
owning the product. People buy shoes for needs. If not, the consumer will be unin-
an important basic need, the protection terested in buying the product no matter
of their feet. However, few people think what its physical characteristics.
only of protection when shopping. More Business people make a mistake when
often, they are focused on more specific they don’t think seriously about consumer
reasons for the purchase such as to con- needs or when they believe that the needs
vey a certain style and image, to be able are so obvious that they are not particular-
to play a sport, or to get durable footwear ly important to consumers when making a
at a reasonable price. The purchase of a purchase. Some restaurant owners believe
hamburger is typically a response to hun- they offer great food and that people come
ger. Additionally, taste, cost, and a social to their restaurant mainly to satisfy their
experience may be a more important part hunger. They fail to realize that hunger
of your decision to choose the hamburger is a very basic need and that few people
rather than another food item. When you who eat in restaurants are so hungry that
purchase a book, you are probably more it is the only factor they consider. Instead,
interested in entertainment or education consumers decide on a restaurant on the
than the physical appearance of the book. basis of a large number of factors includ-
ing menu variety, taste, speed and quality
More Than a Physical Product of service, atmosphere, location, and price.
A product is more than a tangible item for If a restaurant owner is not aware of how
consumers. The physical characteristics consumers make choices on the basis of
of the product are important. It must be those needs, the business will probably not
S
durable, attractive, and safe. But beyond be successful. Few products are so good
N
277
10-1 • Starting with a Product 277
CH 10-B4491_DS_REV3.indd 277 12/7/07 5:54:59 PM

that consumers will not consider alterna-
tives, and few consumer needs are so basic Fa s t FAC T S
or so obvious that business people can
afford to ignore them. According to BusinessWeek, the most
innovative companies in the world in
2007 were Apple, Google, 3M, Toyota,
Consumers Know Best
and Microsoft.
A second mistake of some business people
is believing that they are better able than
consumers to define the types of needs Another mistaken approach is to be-
their products satisfy. U.S. automobile lieve that products sold by a business will
manufacturers made that mistake years satisfy many different people. Some busi-
ago when they were convinced that con- nesses believe that the same products and
sumers were much more interested in style same approach to marketing will work the
and design than in safety and economy. same with teenagers as it does with older
They recognized their mistake only after adults.
automobiles from other countries were When business people have been suc-
designed to respond to the most important cessful for a long time or with one group
consumer needs and took away a large part of customers, they often believe they know
of the U.S. automobile market. U.S. manu- what types of products all customers want.
facturers have continued to struggle to Customer needs can change, and different
maintain profitability and to change their consumer groups have unique needs and
approach to the design and production of experiences. Careful study of markets be-
automobiles that customers will view as fore making decisions about new products
superior to foreign competitors. or changes in existing products will pay off
The teenage market is one that is often for businesses that follow that strategy.
misunderstood by businesses. You can
probably identify many businesses that try
to sell products to you but make mistakes
Checkpoint
in trying to match their products with How does a consumer’s view of a product
your needs and interests. tend to differ from that of business people?
S
N What is the advantage of selling products that can be custom ordered, such as furniture?
278
CH 10-B4491_DS_REV3.indd 278 12/7/07 5:55:02 PM

Planning a Career in... Virtual Product Development
“It’s amazing how quickly new cell phone

models are introduced. My stepbrother,
who works in Virtual Product Develop-
ment (VPD), says that VPD software
allows companies to bring new prod- • Creativity, aesthetic sensibilities, and design
ucts to market more quickly than principles training is needed.
ever before. To stay competitive, the
mobile phone manufacturers keep What’s it like to work in…
developing phones with improved Virtual Product Development
functions to meet customers’ evolving
Nitan, an industrial designer for a cell phone man-
needs.”
ufacturing company, is reviewing virtual customer
Did you ever wonder how someone
feedback for two cell phone prototypes. This
takes a great idea and makes it into a
feedback was obtained without ever producing an
manufactured product? VPD utilizes
actual physical product.
state-of-the art software to streamline
Nitan’s VPD supplier developed an interactive,
the development of manufactured items.
web-based game for consumers chosen by the
By providing sophisticated software that
company to test enhanced cell phone features
integrates multiple planning modules,
found on the two prototypes. The game had built-
these software systems allow team
in incentives for accuracy and thorough analysis.
members to quickly redesign products
The web site also provided users the opportu-
while working at different times and dif-
nity to design their own prototypes. Users could
ferent locations.
select the most appealing combination of features
Employment Outlook when designing their ideal cell phone.
Using the combined results from the game
• Computer Software Engineers who design the and design modules, Nitan, in conjunction with
VPD software are expected to experience very
the product engineering team, designed a final
rapid growth in their career fields.
virtual prototype. To confirm that the features
• Industrial Designers who utilize VPD software most important to customers have been properly
to conceptualize new products are expected to incorporated, Nitan will have his VPD supplier
experience average growth in their career field. prepare a 3-D virtual model that will be shown to
Job Titles people within the company, vendors, and consum-
ers for final virtual feedback before a final produc-
• Industrial Design Engineer tion decision is confirmed.
• Virtualization Program Manager By virtually fine-tuning the new cell phone,
• Simulation Engineer Nitan has provided his company with significant
cost savings. He has spared his company the long
• Manager, Virtual Prototyping lead time and expense of manufacturing multiple
• Product Development Manager tangible prototypes.
Needed Skills
• At minimum, a bachelor’s degree is required. W h a t A b o u t Yo u
More complex positions may require a graduate
degree , often with additional technology
training. Would you like to participate in a virtual
development process to help your company S
• Strong, conceptual, problem-solving, analytical, develop customer-focused products? N
and multitasking skills are necessary.
279
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Product Development as
a Marketing Function
ho should be responsible for prod- a product for which the consumer does not
W uct development in a business?

When thinking of new products,
people often have an image of inventors,
see a need or a product that does not ap-
pear to be better than competing products.
Yet, your success depends on selling the
engineers, or scientists working in research product.
labs to create something new. Certainly You can see why salespeople some-
those people are actively involved in most times have a poor image. In this situation,
manufacturing businesses in developing the salesperson must try to convince the
new product ideas, but they can no longer customer that the product is needed or that
afford to work alone. it is better than the competitor’s product
The failure rate for new products is even if it is not. That certainly is not easy,
very high and very expensive. While the and it probably is not the right thing to
figures vary by the type of product, on do. The salesperson who successfully sells
average five of every ten new product ideas the product may still have problems. The
will not be successful. The cost to a com- customer may discover that the product
pany for the development and introduc- did not meet the needs described by the
tion of a new product is typically at least salesperson and may return it for a refund.
several hundred thousand dollars and Even if the product is not returned, the con-
could be as high as several million dol- sumer may be upset with the salesperson
lars. Those figures mean that the time and and will not buy from the company again.
money spent on developing new products The role of marketing in product de-
that fail are lost and can only be recovered velopment has changed. A company that
from successful products. Those successful believes in the marketing concept uses the
products have to be very profitable in order needs of customers as the primary focus
to recover the large losses. The cost of a during the planning, production, distri-
high rate of new product failure has to be bution, and promotion of a product or
passed on to the consumer in the form of service. With that philosophy, marketers
higher prices on the successful products.
Why do products fail? Economic stud-
ies and consumer behavior indicate that
products will be successful if they meet
consumer needs better than other choices.
Therefore, failed products are those that
do not meet consumer needs or are not su-
perior to competing products. Companies
should be able to reduce the rate of product
failure by improving their understanding
of consumer needs and competition.
The Role of Marketing

In the past, marketers were asked to sell
©DIGITAL VISION
the products that a business developed.

That task was easy if consumers needed
the product, but it was difficult if the prod-
S uct did not meet consumer needs well. Put Why do you think new product development is
N yourself in the position of a salesperson of so important in the fashion industry?
280
CH 10-B4491_DS_REV3.indd 280 12/7/07 5:59:13 PM

should not be in the position of having to
sell products that do not meet customer
needs. Marketers should be actively in-
volved with others in the business in the
design and development of new products.
Marketing Activities in
Product Development
Marketing is the eyes, ears, and mouth of
the customer in a business. Marketing is
the direct link between a business and its
customers. Marketers work with customers
every day, whether in selling, promotion, How can marketers gather information to aid in the prod-
product distribution, marketing research, uct development process?
or the many other marketing activities that
occur in a business. Because of that close Marketers who are actively involved
contact, marketers are in a good position in product planning usually develop a
to understand customers—what they like marketing information system. It allows
and do not like, how they view competing the information from many sources to be
products, and whether they are satisfied collected, stored, and analyzed to improve
with current products. Marketers must new product decisions.
represent the consumer in the business as
Design Strategies A new product is
products are designed and developed.
developed to meet company objectives. If
There are three important roles for
the company’s goal is to increase its share
marketers in the product development pro-
of a specific market, it might develop a dif-
cess. Marketers gather information, design
ferent product than if the goal is to enter
marketing strategies, and conduct market
a market it has never competed in before.
tests.
A new company that cannot risk failure
Gather Information The obvious role with a new product may approach product
for marketers in product development is development in a very different way than
market research. Gathering and studying an experienced and profitable company.
market information and using the results A marketing strategy combines deci-
to assist in product planning keeps the sions about a target market and an appro-
focus on consumer needs and competi- priate marketing mix. The actual product
tion rather than on the views of those is only one part of the strategy. Marketers
involved in planning. participate in developing an effective
Information can be collected in many strategy by identifying target markets,
ways and from many different sources. determining company strengths and weak-
Feedback from salespeople is very impor- nesses, and evaluating existing and poten-
tant in understanding both customers and tial competitors. They use that information
competitors. Analysis of sales data will to propose alternative marketing mixes.
determine items that have sold well in the
Conduct Market Tests After a
past and those that have not. It will iden-
product and the remaining parts of the
tify the areas of customer complaints and
marketing mix have been designed, most
product returns. The marketing depart-
companies conduct tests to determine if
ment might meet regularly with consumer
the new product will be successful. Test-
panels to discuss new product ideas and
ing is a way to reduce product failures
customer experiences. Those discussions
and to avoid spending money on products
provide important information for product S
and in markets that will not be successful.
changes and improvements. N
281
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In the past, many companies used planning. Therefore, an important market-
test markets. Test marketing has become ing function is product/service planning—
increasingly expensive and can tip off assisting in the design and development of
competitors to new marketing strategies. products and services that will meet the
Competitors may try to influence the test needs of prospective customers. The key
market results. Companies are constantly parts of the definition are assisting, mean-
looking for new ways to conduct market ing that marketers work cooperatively with
tests. There are now sophisticated com- others in product development, and meet
puter programs that allow companies to the needs, meaning that the products are
simulate the marketing of products and de- designed to satisfy customers.
termine expected levels of sales and profits.
The Product Planning

Function
Checkpoint
Businesses that are marketing oriented What are the three important roles for mar-
involve marketing personnel in product keters in the product development process?

Determine the best answer. 5. Writing Choose a product you have pur-
1. True or False: Consumers view a product dif- chased that did not meet your needs. Write
ferently than the business that develops it. a positive one-page letter to the customer
service department identifying the reasons
2. A product is anything _____ offered to a mar-
for your dissatisfaction with the product
ket by the business to satisfy needs.
and describing how you believe the product
3. Which of the following is not a role for mar- could be improved.
keters in the product development process?
6. History Choose a company or a product
a. gather information
that you believe is a good example of in-
b. sell products after the business develops
novation. Use the library or Internet to learn
them
more about the company or product, its
c. design marketing strategies
history, and the factors that contributed to it
d. conduct marketing tests
being innovative. Prepare an oral report with
4. A key part of the product development pro- visuals summarizing what you learned.
cess for businesses is to
a. keep costs as low as possible Connect to
b. rely on engineers and scientists to identify 7. Your team has been asked to gather con-
new product ideas sumer information for the local cable
c. depend on marketers to lead the product television company. Prepare a five-item
development process questionnaire to determine the attitudes of
d. ensure that product design responds to subscribers about the cable television service
customer needs and the improvements they would like to
see. Give the questionnaire to ten people
and summarize the results using tables and
charts. Give a team presentation of the ques-
tionnaire and results to your teacher (judge).
S
N
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Components of the Product 10-2
Mix Element
GOALS KEY TERMS
• Describe the parts of the product mix element. product line, p. 287
• Outline the three steps of the product design product assortment, p. 287
process. trademark, p. 289
• Explain the importance of product lines, pack- licensed brand, p. 290
aging, and brand development.
When a new product is developed, many decisions have to be made about its final
form and the total product mix. Marketers start with a basic product, whether it is a
toothbrush, an automobile, or a software program. Then they add enhancements
to make it more satisfying to a target market. Finally, they decide on a brand name,
packaging, and accessories that may make the use of the product more satisfying.
Find a product in your home that is more than a basic physical product. What
features, enhancements, and accessories are included? If there is a package, what
purposes does it appear to serve? Discuss how all the parts of the product mix
element combine to offer greater satisfaction than would be possible with just the
basic product itself.
Parts of the Product Mix Element

ven a product that seems very simple
E is made up of many parts. Think of the

toothbrush you used this morning. Is
it like every other toothbrush you could
have purchased? What makes it unique?
Why did you purchase it rather than one
of the many other brands of toothbrushes
available?
The basic product for a toothbrush
is easy to describe—typically a plastic
handle and head with bristles. Even with
that basic product, there are choices. The
handle may be long or short, contoured

for an easier grip, bent to allow the head
to fit comfortably inside your mouth, and
manufactured in several colors. It may
have a hole drilled through it so that you
can hang the toothbrush when you are not
using it, or it may have a rubber pick to How can common consumer products like school sup- S
massage your gums. The head also comes plies be differentiated from competitors’ products? N
283
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in various shapes and sizes. The bristles A manufacturer may guarantee replace-
can be firm, medium, or soft. They can be ment if the product is defective or may re-
short, long, or varied with shorter bristles fund the purchase price to consumers who
in the middle. One manufacturer even are not satisfied. A testimonial is similar to
includes a strip of colored bristles that a guarantee. It is a recommendation from
indicate when the toothbrush needs to be a professional group, such as the American
replaced. Bristles can be manufactured Dental Association, about the quality of
from several different materials. the product.
Even with all of the possible variations, The toothbrush example demonstrates
many people believe that all toothbrushes that every product can be quite complex
are quite similar. Yet there are still more and unique. Businesses have many choices
features to choose from. There are compact in the development of new products.
toothbrushes that col-
lapse into a small case
that you can carry with
you. There are disposable
toothbrushes that come
with toothpaste already
applied. And there are
electric toothbrushes in
many varieties. One elec-
tric toothbrush is part of
a complete dental care
system. The rechargeable
handle can be used with

the toothbrush, a tooth
polisher, a water pick,
and a flossing tool.
Most toothbrushes
are sold with a brand
name. Some are well- Why is product planning important for all products, even simple
known brands under ones such as a toaster?
which many products are sold, such as
Colgate. Others are brands specifically as-
sociated with tooth care, such as Oral-B. Checkpoint
Offering a guarantee is another way to
differentiate products. It may be especially Why does developing even a simple
important to persuade customers to switch product like a toothbrush involve so
to a more expensive electric toothbrush. many decisions?
The Levels of Product Design

roduct design moves through three
P levels. It begins with the basic prod-

uct. Then, the basic product is modi-
fied and improved by adding features and
Basic Product
The most important part of the product
is the basic physical product. It is a read-
ily recognizable product in its simplest
options. Finally, services and complemen- form. Consumers should be able to easily
tary products are planned to make it as identify the important need to which the
S useful as possible to consumers.
N product responds and how to use it. The
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basic product will be much like that of
competitors. Examples of basic prod-
ucts include a house, computer, sham-
poo, bicycle, or automobile.
Marketers often start with a basic product and then
choose enhancements and extensions to make the
Enhanced Product
basic product more satisfying to a target market. An
The basic product responds to an im- article in the online edition of Dairy Foods magazine
portant need of consumers. However, spotlighted the best new products of a recent year.
we know that consumers are usually Access school.cengage.com/marketing/marketing and
trying to satisfy several needs with one click on the link for Chapter 10. Pick one of the products
purchase. They evaluate products to see described in the article and identify the basic product.
which one provides the best and most Then, identify the enhancements/extensions that were
specific satisfaction. Companies add added to the basic product. Finally, determine the fea-
enhancements to their basic products tures most of these “best products” have in common.
to meet those needs.
Enhancements include features and school.cengage.com/marketing/marketing
options. For example, a bicycle can be
manufactured in several frame sizes,
in models ranging from mountain
bikes to racing bikes, and with a single Extended Product
gear ratio of up to 27 speeds. Choices of Businesses can improve the satisfaction
materials used in manufacturing, seat provided by a product in ways other than
design, and tire construction are available. product enhancements. Customer satisfac-
Some bicycles have shock absorbers built tion can be improved if the business offers
into the frame. If you go to a large bicycle services, guarantees, information on ef-
shop or a manufacturer’s Internet site, you fective use of the product, and even addi-
may be able to select from several hundred tional products that improve the use of the
different bicycles or even customize a bike primary product.
unlike that of any other purchaser. Other
types of enhancements to a basic
product are levels of quality,
styling differences, colors, brand
names, and packaging.
Each enhancement changes
the basic product. The change
is likely to be viewed as an im-
provement by some customers,
increasing the satisfaction they
receive from the product. Other
customers may view the change
as unneeded or even dissatisfy-
ing. Enhanced products make it
possible for companies to satisfy
several target markets with one
basic product. Different combi-

nations of features, options, and
even brand names are developed
with the needs of one target mar-
ket in mind.
S
Why do some businesses offer home delivery of their products? N
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Services are an effective way to meet a tripod and flash attachment are needed
additional customer needs beyond those for certain types of pictures? A skilled
directly related to the use of the product. photography equipment salesperson will
Examples of important customer services discuss with you how you will use the
that could influence product choice are camera and the types of pictures you plan
credit, delivery, installation, repair ser- to take. Based on that information, a rec-
vices, and technical support. ommendation of additional products will
Suggesting additional products that be made so that you can get the greatest
should be purchased so that the primary enjoyment and value from your purchase.
product can be used more effectively is
often an important method of improving
customer satisfaction. Would you like to Checkpoint
purchase a new camera only to discover
when you use it that you need a large What are the three levels of product
memory card to store your pictures or that design?
Product Mix Components

hen consumers evaluate products important considerations in planning the
W to determine the one that is most

satisfying, they are interested in
more than just the physical product. Four
product mix are the product line, product
assortments, packaging, and brand
development.
Judgment Call
Whose Interests Are Being sought by businesses include requiring the
Served? losing party to pay the prevailing party’s
legal expenses, limiting contingency fees,
When a product injures people either
and limiting punitive damage awards.
because it fails or because it was poorly
Consumer groups and trial lawyers say
designed, those injured have a right to seek
large damage awards are needed to coun-
damages from the manufacturer. Corpora-
terbalance the huge sums of money that
tions spend billions of dollars annually to
corporations use to defend faulty products
protect themselves financially from these
and tie up injured consumers in court.
product liability lawsuits, both actual and
potential. These costs inevitably inflate the
Think Critically
prices that companies charge consumers, so
consumers end up paying on both ends— 1. Search the Internet for news of a case
whenever they buy something as well as where product liability lawsuits forced a
when products cause injury. business into bankruptcy. What was the
Businesses say the situation has got- problem with the product? What has hap-
ten out of hand and blame the legal system pened since consumers became aware of
and trial lawyers. They contend that the lure the problem?
of multimillion-dollar damage awards and 2. If the possibilities of large damage awards
lucrative contingency fees gives lawyers an and lawyers’ contingency fees were
S incentive to pursue claims whether or not removed, how would it affect consumers’
N they are legitimate. Some of the reforms ability to bring product liability suits?
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Product Line
New or small companies often offer only
one product to a target market. With more
experience and as a company grows, it is
possible to expand into other markets and
develop a product line. A product line is a
group of similar products with slight varia-
tions in the product mix to satisfy different
needs in a market. A company that manu-
facturers bath towels may offer various
colors, sizes, and levels of quality to give
customers choices. A soft drink bottler
not only offers different sizes and types of
containers for a flavor of soda but usually
has many flavors in its product line. It may Why would a shoe manufacturer want to offer more than one
even sell fruit juices and flavored waters in style and quality of shoe?
addition to soft drinks.
As companies add items to their prod- varied sizes rather than just changing the
uct line, they usually increase the number quantity in a package.
of potential customers and the satisfac- Variation in Quality Differences
tion of individual consumers. However, in quality can also be used to develop a
the company is also adding to the costs product line. Items such as paintbrush-
of manufacturing, distribution, inven- es, carpenter or mechanic tools, lawn
tory control, and other related market- mowers, computers, and even clothing
ing activities. An expanded product line often are sold in two or three varying
also requires additional display space for levels of quality. Consumers who use the
retailers. The retailer must make a decision products infrequently may not need the
whether to stock items from the complete best possible quality and would prefer to
product line of the manufacturer or use save money in exchange for accepting a
the space for the products of compet- slightly lower quality. Adding features to
ing companies or even entirely different the basic product may produce several
products. In a supermarket display of levels of product choices that vary in
soft drinks, snacks, or cereal, you can see quality. Automobile and appliance manu-
examples of companies’ extensive product facturers often have a very basic model at
lines and the competition they have for a low price and several other models with
display space. selected features and options at higher
Variation in Quantity Product lines prices.
can be developed in several ways. One of
the easiest ways to expand from one prod- Product Assortments
uct into several is to vary the product size. In addition to product line decisions,
The identical food item may be packaged companies plan product assortments. A
in three sizes—single serving, 4 servings, product assortment is the complete set of
and 10 servings. Facial tissue may be sold all products a business offers to its mar-
in a pocket-sized cellophane wrapper, a ket. Retail stores provide the best example
box of 250 tissues, or a multiple-box pack. of product assortments. Some specialty
Another type of quantity variation is to retailers, lawn and garden centers for
have different sizes for the same basic example, have a very complete assort-
product. For example, bed sheets are sold ment of products homeowners need in
in twin, full, queen, or king size. In this one category. Other general merchandise S
case, the product itself is manufactured in retailers, such as discount and department N
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stores, stock products in many different safe packaging. A manufacturer of indi-
categories. They probably will not have vidual servings of puddings and fruits
as complete an assortment in one line as learned that children would lick the lid
the specialty store, but they respond to a of the container when it was removed. As
broader set of customers’ product needs. a result, the metal lid was covered with
Some manufacturers specialize in one a plastic coating. Glass and other fragile
product category, mattresses for example, products need well-designed packages to
and have a full assortment of products in ensure that they are not broken during
that line. Other manufacturers may have shipment and display.
a product assortment in many different
product categories, such as a full assort- Attraction The promotional value of
ment of camping products or many types packaging is also important for many
of home furniture. products. Impulse items are often pur-
chased because of an attractive package
that clearly shows the use of the prod-
Packaging uct. Perfumes and colognes usually have
Most products are sold in a package. The very expensive and uniquely designed
package serves the dual purpose of pro- containers to convey a certain image.
tection and promotion. In addition, some
packaging improves the use of the product.
Containers with pour spouts
built into the package, resealable
liners, and handles for carrying
are developed to solve customer
problems related to the use of
the product.
Ease of Use When designing
the package, manufacturers
must carefully consider the
ways customers use a product.
For example, if a cereal box
is taller than the shelves on
which it will be stored in the
customer’s home, it will not
be purchased. A manufacturer
of a liquid cleaner found that
people would not buy a large
economy size because the
container could not be lifted
and poured with one hand in
the way people were used to
handling the product. Products
that consumers use in a micro-
wave oven must not have metal
©SKECHERS USA, INC.
in the package.
Safety Safety and protec-
tion are important concerns
when planning the packaging
S of products. Products used by Skechers has become a shoe brand that many teenagers
N children certainly need to have prefer over other brands.
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a unique identification for the com-
Wo r k i n g i n Te a m s pany and its offerings. To ensure that
others cannot use a brand, a com-
Individually make a list of ten well-known brand pany registers a trademark with the
names. Then, compare team members’ lists and federal government. A trademark is
make a second list of the brands that were listed the legal protection of the words or
by more than one team member. For the three symbols for use by a company.
brands listed most frequently, identify two Consider how difficult it would
other brands that compete with each of those be to shop if there were no brand
three brands. Discuss differences in the images names. While some products are
team members have of the brands identified. purchased without considering the
brand (think of the paper you use for
Handling Packaging can also be writing in school), in most cases con-
helpful in the display and security of sumers consider the brand as part of the
products. In stores where products are purchase decision. Positive or negative ex-
displayed for customer self-service, the perience with a brand will influence your
package may need to be designed to hang future purchases. Business people know
from a hook or to lie flat on a shelf. Small that brand recognition resulting from ad-
or expensive items are often packaged in vertising often increases a product’s sales.
large containers to reduce the chance of The goal of a business in using brand-
theft. ing is to gain customer recognition of the
brand in order to increase the likelihood of
Environment There is growing con- a sale. Businesses want brands that convey
cern about the type and quantity of mate- a particular image and that can be recalled
rials used for packaging. Manufacturers to encourage repeat purchases. There are
are increasingly using recycled materials several levels of consumer brand awareness
for packaging and developing materials as shown in Figure 10-1.
that are biodegradable. Many retailers
are reducing the amount
of packaging used or are FIGURE 10-1
helping consumers reuse or Businesses use brands to help consumers make choices. Branding is effective
recycle packages. when consumers prefer or insist on a specific brand.
Brand Development Levels of Brand Recognition

Do you know the brand
names of the shoes and cloth-
Non-recognition Consumers are unable to identify the brand.
ing you are wearing? Do you
have a favorite brand of pizza
or automobile? In what stores Rejection Consumers will not purchase the product because of
do you prefer to shop? Each the brand.
of these questions demon-
strates that the brand of prod- Recognition Consumers can recall the brand name, but it has little
ucts can be very important influence on purchases.
to consumers as they make
purchase decisions. A brand Preference Consumers view the brand as valuable and will choose
is a name, symbol, word, or it if it is available.
design that identifies a prod-
uct, service, or company.
A brand is important to a Insistence Consumers value the brand to the extent that they
company because it provides reject other brands. S
N
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Brands can be developed by manufac- to clothing. Professional and college sports
turers, wholesalers, or retailers. Individual teams license their names and mascot im-
products can have their own brands, or ages for use on many products. Some people
groups of products can carry an identi- prefer to purchase products with those
cal or family brand. Breakfast cereals are brands rather than similar products that do
often sold under a family brand, such as not carry the licensed brand. Professional
Kellogg’s. Some companies offer licensed athletes such as Tiger Woods and Tony
brands to add prestige or a unique image Hawk license their names for use on sport-
to products. A licensed brand is a well- ing goods, apparel, and computer games.
known name or symbol established by
one company and sold for use by another
company to promote its products. Disney Checkpoint
and Sesame Street are examples of compa-
nies that license the use of character names Why would a company want a trademark
and images for products ranging from toys for its brand names?

Determine the best answer. 6. Visual Art Use an advertisement or prod-
1. True or False: The brands of most low-cost uct catalog to locate a picture of a consumer
consumer products are very basic and quite product. Copy or cut the picture and paste it
similar to the other brands of the same on poster paper. Using different colors, high-
product. light the basic product, enhanced product, and
extended product. Identify each of the compo-
2. _____ to a product include(s) features and
nents. Provide a legend to identify the mean-
options.
ing of each color.
3. A group of similar products with slight varia-
7. Research Popular movies and movie charac-
tions in the marketing mix to satisfy different
ters such as Spiderman are often licensed for
needs in a market is a(n)
use by other companies to promote their prod-
a. product line
ucts. For a current or recent movie, identify as
b. brand
many licensed users of the movie or its charac-
c. product assortment
ters as you can find. Create a table that lists the
d. extended product
company, the product, and a brief description
4. The dual purposes of packaging are protec- of how the licensed movie or character is used
tion and in promotion.
a. competition
b. safety Connect to
c. promotion 8. A company has created a new product that
d. none of these combines sunscreen and insect repellant on
5. A _____ is the legal protection of the words individually packaged moist tissues for conve-
or symbols for use by a company. nient use. It has asked you to create a unique
brand name and a supporting image or other
visual for the new product. Complete the proj-
ect and present it to your teacher (judge) with
a brief discussion of why you believe it will be
S effective.
N
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Products for Consumers and 10-3
Businesses
GOALS KEY TERMS
• Define consumer markets and describe what is consumer markets, p. 291
meant by direct demand. direct demand, p. 291
• Explain the importance of the business product clas- business markets, p. 292
sification system.
derived demand, p. 292
• Provide examples of how product classifications are
used in product planning.
Product planning should be based on an understanding of the market in which the

product will be sold. Knowing who will use the product, the purpose for which it
will be used, and the needs customers are attempting to satisfy with the product
will result in a product that is better designed for that consumer. Two broad market
categories exist based on very different reasons for buying products—consumer
markets and business markets.
Name five businesses in your area whose primary customers are other businesses
and five businesses whose primary customers are individual consumers. How would
the businesses have to change if each type was targeting the opposite category?
Consumer Markets
ndividuals or socially related groups
I who purchase products for per-

sonal consumption are known as
consumer markets. When you, your fam-
ily, or your friends buy products for your
own use or for others to use, you are part of
the consumer market. You make purchase

decisions on the basis of the satisfaction
you receive from using the product. If you
are buying the product for a friend or fam-
ily member, you are interested in buying
something that person will find to be satis-
fying. The demand for consumer products What factors might affect direct demand for a cell phone?
is known as direct demand. Direct demand
is the quantity of a product or service their important needs. To satisfy the direct
needed to meet the needs of the consumer. demand, business people must be aware
Because final consumers or their of consumers’ needs and how they choose
family and friends will use the products products to satisfy those needs. The con-
they purchase, they have a clear idea of sumer purchase classification system is re-
the reasons for a purchase. They locate viewed in Figure 10-2. The system is based S
and purchase the products that best meet on two factors: N
291
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CONVENIENCE GOODS SPECIALTY GOODS
Staple Impulse Emergency
SHOPPING GOODS UNSOUGHT GOODS
Attribute-based Price-based
Consumer Purchase Classification System

FIGURE 10-2
Marketers develop more effective products when they understand how consumers shop for them.
1. The importance of the purchase to the market each category of product in con-
consumer sumer markets.
2. The willingness of the consumer to
shop and compare products before
making the purchase Checkpoint
Businesses can use the classifications when What is the connection between direct
planning products and deciding how to demand and consumer markets?
Business Markets
ompanies and organizations that
C purchase products for the opera-

tion of a business or the comple-
tion of a business activity are known
Fa s t FAC T S
The Boston Consulting Group studied
how businesses spend their product
as business markets. Business markets research dollars. On average, 32% goes
include producers, manufacturers, retail to improving existing products, 28%
businesses, nonprofit organizations, to creating new products for current
government agencies, schools, and others customers, 20% to new products for
that provide products or services for new customers, and 20% to reducing
consumption by others. Business markets product and service costs.
make purchase decisions based on what is
needed to effectively operate the business,
to meet the needs of employees and cus- Business markets make purchase
S tomers, and to produce the products and decisions on the basis of derived demand.
N services of the business. Derived demand is the quantity of a
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product or service needed by a business They must meet the specific needs of the
in order to operate at a level that will meet business so that it operates effectively.
the demand of its customers. A movie Often they are custom designed, so they
theater needs to buy enough popcorn, oil, will have little value to other businesses. A
and boxes to meet its customers’ needs for large office building, commercial airplane,
popcorn during the showing of movies. If and sophisticated computer system are
the theater purchases too much, some of examples of capital equipment. Most com-
the product will not be sold, and money panies purchase the products using long-
will be lost. If the theater purchases too term loans from finance companies or the
little, customers will be dissatisfied, and manufacturers. Some capital equipment is
sales will be lost. leased rather than purchased.
Developing products for the business
market requires an understanding of how Operating Equipment
the products are used by the business. A Smaller, less-expensive equipment used in
business product classification system has the operation of the business or in the pro-
been developed to aid in understanding duction and sale of products and services
the business market. The categories are is known as operating equipment. This type
shown in Figure 10-3. of equipment makes production or opera-
tions more efficient and effective. Examples
Capital Equipment of operating equipment are tools, small
Capital equipment includes a business’s machines, and furniture. They usually
land, buildings, and major pieces of equip- have a shorter life than capital equipment
ment. They are usually the most expensive and must be replaced from time to time.
and most important products purchased. They are also more standardized, meaning
Capital equipment Operating equipment
GRAIN
Supplies Raw materials Component parts
Business Product Classification System

FIGURE 10-3 S
Business products are marketed based on how they will be used by business customers. N
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Virtual Marketing
Sales Tax on the Internet unfair advantage to out-of-state sellers over
One benefit of purchasing goods over the local businesses—yet another reason for the
Internet is that out-of-state buyers usually use tax. But to date, states have had success
do not have to pay sales taxes. Typically, the enforcing use taxes only on big-ticket items,
seller only charges sales tax to residents in such as cars and boats.
states where the seller has a physical pres- Think Critically
ence, such as a store, warehouse, or office.
Because sales tax contributes $150 bil- 1. What problems do you think states
lion to the states’ income per year, states encounter in trying to persuade their resi-
stand to lose a lot if Internet sales are not dents to declare what they bought online?
taxed. Therefore, any buyer who lives in a 2. Pick an item on the Internet that costs
state that charges sales tax is expected to more than $100. Figure how much it
pay a “use tax” on all items bought over would cost to buy it from out of state,
the Internet. States have tried to increase
paying shipping costs but no sales tax.
awareness of this use tax by adding it to tax
Compare that amount to how much it
forms and even campaigning to educate
would cost to buy it at a local store, pay-
consumers, but it is difficult to enforce. In
addition to lost revenue, states contend ing no shipping costs but paying a 7%
that not taxing Internet purchases gives an sales tax.
that the same type of operating equipment materials, which are unprocessed products
may be used in many different businesses. used as basic materials for the products to
be produced. Logs are purchased by lum-
Supplies ber producers, oil by plastics manufactur-
The products and materials consumed ers, and grain by cereal processors.
in the operation of the business are sup- Purchasers of raw materials need to
plies. A business needs paper, pencils, and have an adequate supply and a standard-
paper clips, as well as cleaning supplies ized quality of raw materials in order to
and parts for routine repairs of equipment. maintain a planned level and quality of
Some supplies are purchased and used in production. The price of the raw materials
small quantities and are quite inexpensive. is also important since the cost has a big
Others, such as fuel, electricity, or pack- influence on what the company needs to
ing materials, may be needed in large charge for its finished products. The pur-
quantities and are a major expense for the chasing company will want to sign a long-
company. Most supplies are standardized, term contract with the supplier of the raw
meaning they are not uniquely developed materials to ensure that it has a continuing
for one business. They are available from supply and to be assured of the cost.
many suppliers and are used in a large
number of different businesses. Component Parts
Component parts are also incorporated
Raw Materials into the products that a business makes.
Producers and manufacturers buy many However, component parts have been
S products that become part of the products either partially or totally processed by
N they make. Often they purchase raw another company. For example, a
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computer manufacturer will buy computer As with raw materials, the purchasing
chips from a chip manufacturer. These company is concerned that a dependable
chips have already been carefully devel- source of supply is available when needed,
oped and are simply installed as a part of that the component parts meet the quality
the computer assembly. The same manu- standards of the company, and that costs
facturer buys parts for a disk drive from are reasonable.
another company. Those parts must be
assembled as part of the final assembly of
the computers. Checkpoint
Component parts can be designed for
the needs of one company, or they can be What are the five types of products in busi-
standardized for use by many companies. ness product classification system?
Planning Products for Consumer and

Business Markets
he classification systems for consumer needs. Supplies, on the other hand, may
T and business markets are useful to

marketers as they complete prod-
uct planning. Knowing whether the
involve routine purchases where the
customer is a final consumer or a busi-

ness consumer determines whether the
©2001 AMERICAN ADVERTISING FEDERATION. THE INTEL LOGO IS USED WITH THE EXPRESS WRITTEN
product is being developed to meet a
direct demand or a derived demand.
For consumer markets, products treated
as convenience goods require different
planning from those treated as specialty
goods. The product is less important
than the location for convenience goods,
PERMISION OF INTEL AND IS A TRADEMARK OF INTEL CORPORATION.

so the company needs to develop a basic
product at a reasonable cost. A specialty
good is very important to consumers,
so care and attention must go into the
product. It will probably require an
enhanced and extended product to meet
the consumers’ needs.
For business customers, the type of
product and its use are important fac-
tors to consider when planning products.
Capital equipment is a major investment
and an important decision for the cus-
tomer. The business will usually spend
time and involve several people when
planning the purchase. It will work Intel wants both consumers and businesses to know that
closely with the supplier in planning a its Pentium 4 processor is a key component of many brands S
product that will meet the company’s of computers. N
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customer gives little thought to anything place in rooms as a service to their guests.
other than price as long as the supply is With both examples, you can see that while
the type needed by the company. The same the basic product is the same, the extended
type of supply may be purchased over and and enhanced products may be quite dif-
over with one person determining when to ferent. Also, the reasons and methods of
reorder. purchasing will not be the same. Marketers
Some products are sold to both con- need to understand the differences in pur-
sumer markets and business markets. Con- chases between the two types of markets
sumers buy automobile tires for replace- in order to develop effective products and
ments when the original tires on their car marketing mixes for each.
become worn. Automobile manufacturers
purchase thousands of tires to mount on Checkpoint
the vehicles they produce. Consumers
purchase bottles of shampoo for personal Why is it important to understand
care. Hotels buy large quantities of sham- product classifications during product
poo packaged in small bottles or packets to development?

Determine the best answer. 6. Technology Identify five relatively new prod-
1. The correct match of market and demand is ucts that are examples of the use of new tech-
a. consumer market, indirect demand nology. Using the Internet, locate a picture of
b. consumer market, direct demand the use of each technology by consumers and
c. business market, direct demand another picture of its use in businesses. Create
d. none are correct a visual that illustrates the consumer markets
and the business markets.
2. Which of the following is an example of a con-
sumer market rather than a business market? 7. Math A movie theater has determined that
a. a government agency 34% of all moviegoers will purchase popcorn
b. a non-profit hospital and 52% will purchase a soft drink. The aver-
c. a retailer age popcorn sale is $3.75, and the average soft
d. a social club drink sale is $2.50. The theater expects to sell
895 movie tickets on Saturday. Calculate the
3. True or False: Operating equipment is usually
amount of popcorn and soft drink sales the
the most expensive and most important type
theater can expect.
of products purchased by a business.
4. have been either partially or totally Connect to
processed by another company and are incor- 8. You are the fundraising manager for your
porated into products a business makes. DECA chapter. Each year the club works with
a. Raw materials a water bottling company to sell contracts for
b. Component parts weekly home delivery service to consumers in
c. Supplies your community. You believe the chapter can
d. Operating equipment make more money if you also sell contracts to
5. True or False: The same product can be sold to business customers. Prepare a three-minute
both consumer markets and business markets. persuasive presentation of the benefits of sell-
ing to both consumer and business markets.
S Present your ideas to your teacher (judge).
N
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New Product Development 10-4
GOALS KEY TERMS

• Explain what businesses mean by “new” products. new product, p. 297
• Describe the six steps in new product development.
Without new products, companies have a hard time keeping customers satisfied and
matching competition. Yet it is not easy to develop successful new products. The risk
of failure is high, and development and testing costs are great.
Describe a new product that you have tried in the past year. What did you like
about it? What did you not like about it? Was the product highly successful, some-
what successful, or a failure in the market? Describe what you imagine the business
had to do to bring the new product to market. Compare your ideas with those of
other students.
What Is a New Product?

ew products are really brand new in have misused the term “new” for products
F the sense that no other product like it

has been available before. Many “new”
products are changes and improvements
that really were not new, the Federal Trade
Commission regulates how and when the
term can be used. A company can call
to existing products. Others are new to a something “new” for only six months after
particular market but have been sold pre- the introduction or change of a product.
viously in other markets. A new product must be entirely new or
When the personal computer was first changed in an important and noticeable
designed in the 1970s, it was completely way.
new. Computers were not available for in- Fashions, music, ethnic foods, and
dividual purchase and use before the devel- other specialized products may be new in
opment of the personal computer. Today, some markets but well known in others.
there are hundreds of choices of personal A product or service may become popular
computers as features are added and tech- in one part of the country and then spread
nology allows machines to be developed to other parts. Some companies enter
that are smaller, faster, and easier to use.
You are probably familiar with
companies that promote products as Wo r k i n g i n Te a m s
new and improved. Brands of laun-
dry detergent, toothpaste, diapers, As a team, choose a commonly used, inex-
and potato chips often use the words pensive consumer product. Use creative
“new” and “improved” to attract brainstorming to identify ten new uses for the
attention in a competitive market. product. Agree on three that are most likely
In many cases, it is difficult to see to be successful and identify a possible target
what really is new or better about the market for each. S
product. Because some companies N
297
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international trade with products that are on private automobiles to alert drivers if
already successful in their home country. children or obstacles are behind the car.
A new use for a product can be discov-
ered, leading to new markets. Video cam- Checkpoint
eras were first installed on large commer-
cial vehicles to allow drivers to see when Who decides if a product is really new or
backing up. Now cameras are installed merely improved?
The Steps in New Product Development

ompanies use a very careful
C process to identify and develop

new products. The process is
used to screen out products that are
not likely to be successful before too
much money is spent for production
and marketing. The process assures
that the products meet an impor-
tant market need, can be produced
well and at a reasonable price, and
will be competitive with other
products in the market. The follow-
ing steps are part of most compa-
nies’ procedures for new product
development.
Idea Development
The most difficult step in new prod-
uct development is usually finding
ideas for new products. You may see What are some ways that companies can develop ideas
a new product on the market and for new products?
say, “I could have thought of that.”
But few people have successful new seem to be more creative than others, and
product ideas. Since products are devel- those people are often involved in the new
oped to meet consumer needs, gathering product planning process. Tools such as
information from consumers may generate brainstorming, creative thinking exercises,
ideas for new products. Many companies and problem solving are used to identify
have consumer panels that meet regularly product ideas for testing.
to discuss ideas for new products.
Important sources of new product Idea Screening
ideas are problems customers have that do To encourage a large number of new prod-
not seem to be solved with current product ideas, companies do not evaluate ideas
ucts. Often, salespeople who work with in the initial idea development stage. Once
customers every day have ideas for new a number of ideas has been identified, the
products or product improvements based second step is to carefully screen them to
on what they see and hear. select those that have the greatest chance
Developing new product ideas can for success. Businesses develop criteria for
S
be a very creative process. Some people selecting the best ideas, such as:
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Why is it important to perform a financial analysis during the product development process?
• Is there an identified market for the In this step, research is done to clearly
product with a strong need? identify an appropriate target market and
• Is the competition in the market rea- ensure that customers exist with the need
sonable? and money for the product.
• Do we have or can we obtain the re- Next, alternative marketing mixes are
sources to produce the product? planned and analyzed to determine the
possible combinations of product, distri-
• Is the product legal and safe? bution, price, and promotion. Again, each
• Can we produce a quality product at a choice is carefully studied to determine if
reasonable cost? it is appropriate for the target market and
Other criteria are not as straightfor- if the company can effectively implement
ward and may be tailored to company cir- that mix. Based on that study, the best pos-
cumstances. For example, some companies sible mix is selected. It is possible that the
will not want to develop products that com- research in this step will determine that an
pete with their current products. Others effective mix cannot be developed, in which
will select products that can be developed case the product idea would be dropped.
with current equipment and personnel to
control costs. Some companies are seeking Financial Analysis
opportunities to move into new markets, If it is determined that a new product idea
so they want product ideas that meet the meets a market need and can be developed,
new market needs. The initial investment the company will complete a financial
required to produce the new product may analysis. Costs of production and market-
be an important factor for some companies ing, sales projections for the target market,
but may be unimportant to others. and resulting profits will be carefully cal-
culated. Usually companies have computer
Strategy Development models that help with the financial analy-
After determining that the product idea sis. Several levels of analysis are completed
seems reasonable, the business will create to determine the best-case and worst-case
and test a sample marketing strategy as a possibilities. An understanding of the S
first step in developing a business proposal. type of competition (ranging from pure N
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Digital Digest
Debugging New Products can be experimented with and tested if
For manufacturers, prototypes represent necessary, and everyone can examine the
the Catch-22 of new product development. results to make sure that errors haven’t been
Building them is very expensive, takes lots of introduced inadvertently.
time, and requires the collaboration of many As a result, less-error-prone prototypes
people who are rarely in the same place at can be built early in the product develop-
the same time. That last factor inevitably ment cycle. They can be built more quickly
causes misinterpretation and miscommu- and at a lower cost. Since more errors are
nication errors. Not building prototypes or eliminated with the modeling software,
building fewer of them, on the other hand, fewer expensive prototypes are needed be-
often means that errors are not caught until fore a product reaches the production stage.
later in the development process, resulting Think Critically
in late-stage design changes.
1. Why are prototypes so critical in
Innovations in computer-aided mod-
developing new products, particularly
eling systems are helping manufacturers
machinery?
address the dilemma. New systems allow
various people at different sites to view and 2. Why is it more expensive to incorporate
examine a three-dimensional computer design changes to a new product late in
model simultaneously. Proposed changes the development process?
competition to monopoly) and the level of testing strategy is a test market. A limited
demand is important in determining what quantity of the new product is developed,
prices can be charged and the amount of and the marketing mix is implemented in
sales to expect. The results of the analysis a small part of the market to determine
are matched against company goals and if it will be successful. If the market test
profit objectives. is not successful, the company can end
production or change the product before a
Product Development and large amount of money is spent.
Testing
After careful research and planning, the Product Marketing
decision may be made to move forward. The last step in product development is full-
For a manufacturer, that means design- scale introduction into the market. A great
ing the production process, obtaining deal of preparation is needed for this step.
the needed equipment and materials, and All of the marketing mix elements must
training personnel. For a retailer, it in- be planned. Cooperating companies such
volves identifying a producer or manufac- as wholesalers, retailers, transportation
turer to supply the products and negotiat- companies, and advertising agencies need
ing a contract for the production. to be involved. Production levels must be
For very expensive or risky products, high enough to have an adequate supply of
the company may decide to develop a the product available to meet sales require-
prototype, or model. The prototype can be ments. Marketing personnel need to be pre-
S used to test quality and costs before begin- pared for their responsibilities. All activi-
N ning full-scale production. Another ties and schedules must be coordinated.
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If all of the steps in the new product
planning process have been carefully
completed, the opportunity for success is
very high. However, marketers still need to
continue to study the market carefully. It is
possible that conditions will change, com-
petitors may anticipate the new product, or
consumers will not respond as predicted.
Adjustments in the marketing strategy
may be needed as the market develops.
Checkpoint
Name the six specific activities that are part How can changes in the market affect new product
of the new product development process. development in the auto industry?

Determine the best answer. 6. Science Many new products and changes
1. True or False: A company can continue to to existing products are being introduced by
label a product as new for up to 12 months companies in response to environmental con-
after it is introduced. cerns. The effort is referred to as green market-
ing. Select a green product and compare it to
2. The first step in the new product develop-
existing products that are less environmentally
ment process is
friendly. Describe the differences in ingredi-
a. strategy development
ents, product design, or packaging and the
b. idea screening
benefits they provide.
c. idea development
d. none of the above 7. Entrepreneurship Conduct research on a
young entrepreneur whose business resulted
3. A _____ of a product can be used to test
from a new product or service idea. Find out
quality and costs before beginning full-scale
how the person came up with the idea and
production.
then developed it into a successful business.
4. When using a _____, a limited quantity of the Prepare a short oral report on your research.
new product is developed, and the market-
ing mix is implemented in a small part of the Connect to
market to determine if it will be successful. 8. You have been hired as the vice-president of
a. target market marketing for a company that has a history of
b. test market new product failure. They have not involved
c. simulated market marketing in product development in the past.
d. financial analysis Prepare a one-page memo for the CEO on the
5. True or False: Once the product marketing value of involving marketing and following
stage begins, a company should not make a careful new product development process.
adjustments in the marketing strategy. Describe how the company could benefit from
your ideas. Present your memo to your teacher
(judge). S
N
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Now that you have completed the chapter, check explain the three levels of product design: basic
your understanding of the lessons with these ques- product, enhanced product, and extended
tions. Record the score that best represents your product?
understanding of each marketing concept. describe differences between a product line and
1 = not at all; 3 = somewhat; 5 = very well a product assortment?
If your score is 42–50, you are ready for the assess- provide examples of ways packaging is used for
ment activities that follow. If you score 33–41, you protection and promotion?
should review the lessons for the items you scored differentiate between consumer and busi-
1–3. If you score 32 or less, you will want to carefully ness markets and between direct and derived
reread the lessons and work with a study partner on demand?
the areas you do not understand. name the consumer purchase classifications and
Can you— business product classifications?
describe the differences in how business people offer examples of how the same product can
and consumers view products? be marketed to both consumer and business
identify the three important roles for marketers markets?
in the product development process? describe several ways that existing products can
be considered to be new?
list the steps in the new product development
process?

1. Companies and organizations that purchase 9. Anything tangible offered to a market by a busi-
products for the operation of a business or the ness to satisfy needs
completion of a business activity 10. The quantity of a product or service needed by
2. Something that is entirely new or changed in an a business in order to operate at a level that will
important and noticeable way meet the demand of its customers
3. Individuals or socially related groups who pur-
chase products for personal consumption
4. The legal protection of the words or symbols for a. business markets
use by a company b. consumer markets
5. The complete set of all products a business offers c. derived demand
to its market d. direct demand
6. The quantity of a product or service needed to e. licensed brand
meet the needs of the consumer f. new product
g. product
7. A well-known name or symbol established by
one company and sold for use by another com- h. product assortment
pany to promote its products i. product line
j. trademark
8. A group of similar products with slight variations
S in the marketing mix to satisfy different needs in
N a market
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Match each of the products listed in the product column below with the correct
product category.
Product Category Product

11. Convenience good a. $10,000 diamond ring
12. Shopping good b. Boeing 787 airplane
13. Specialty good c. One car battery
14. Capital equipment d. 500 gallons of window cleaner
15. Operating equipment e. Loaf of bread
16. Supplies f. 50 automobile tires
17. Raw materials g. Railroad car full of wheat
18. Component parts h. Cash register
19. True or False: A preference level of brand recog- 23. True or False: Marketers who try to represent
nition exists when a consumer values a brand consumers during product planning will usually
and chooses it if it is available. jeopardize their positions within the company.
20. True or False: When a consumer refuses to buy a 24. True or False: The Federal Trade Commission
brand, it is an example of the insistence level of requires that new products be clearly labeled as
brand recognition. such for no more than nine months after they are
21. True or False: A trademark protects a brand by introduced.
prohibiting its use by unauthorized companies. 25. True or False: As part of the financial analysis of a
22. True or False: If a product is purchased both by proposed new product, businesses look at best-
consumers and businesses, it makes sense to use case and worst-case scenarios.
the same marketing mix for each market.

26. Study advertisements, product catalogs, and Product Descriptions
merchandise available for sale in stores in your a. cellular telephone with camera and MP3
community. Identify at least three products that player
fit into each of the following categories: b. online personal banking services
a. Products that are completely new c. fax-ahead takeout restaurant menu
b. Products that have significant changes or d. computerized tax preparation software
improvements e. stationary bicycle with fitness monitor
c. Products that have been sold elsewhere but
28. Identify any consumer product that has been on
are new to this market
the market for at least five years. On a large sheet
Using those products, create a poster or a of paper or poster board, draw three concentric
display that illustrates the concept of new circles to look like a practice target. Label the in-
products. nermost circle BASIC PRODUCT. Label the middle
27. Business people often describe their products in circle ENHANCED PRODUCT. Label the outer
terms of the physical characteristics and features. circle EXTENDED PRODUCT. Study several brands
Consumers evaluate products on the basis of the of the product you selected to identify the com-
needs that can be satisfied. For each of the follow- ponents that are basic, enhanced, and extended
ing product descriptions, identify the consumer parts of the product. Based on that analysis, use
needs that can be satisfied or the benefits con- words or drawings to illustrate each part of the S
sumers will receive as a result of using the product. product in the appropriate circle. N
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29. Products are planned to respond to consumer a. health f. economy
needs. Those that best meet consumer needs are b. beauty g. excitement
likely to be successful. For each of the common c. education h. hunger
consumer needs listed, identify a product that d. friendship i. convenience
has been successful for several years because it e. safety j. status
meets the need very well.

30. Companies use product lines to be able to serve the company’s salespeople. To assist with plan-
several target markets with the same basic ning, the company conducted a telephone
product. Variations in the product’s size, quality, survey of 360 previous purchasers of the swing
features, etc., are used to meet specific needs sets. One-third of those surveyed were business
of a market. Identify a consumer product that customers, and the remainder were final con-
has a product line of at least four specific and sumers. The survey asked the respondents to
different products. Prepare a chart that describes identify what they liked most and what they
each of the specific products in the product line. liked least about the product. The results are
For each one, identify the factors that make the shown in the table below.
specific product unique from the others in the a. Calculate the percentage of responses by
product line. Then, describe the characteristics business customers, final consumers, and
of the target market to which you believe each total purchasers for each of the items listed.
product is designed to appeal. Prepare a bar graph that compares the
31. The Games & U Company is planning to update responses in all three categories (business,
the marketing strategy for its line of children’s final, and total).
swing sets. The products are sold to families b. Develop three specific recommendations for
through toy stores and discount stores and to new product development based on the data.
daycare centers and community centers through Make sure you apply the marketing concept
when developing your recommendations.
Business Final 32. A new company has started

Customers Customers to take advantage of people’s
interest in nature and the
Liked Most environment. It sells individual
A. Rapid delivery 15 0 flowers that are no more than
B. Durability 50 28 four inches tall and are planted
C. Salesperson’s product knowledge 30 12 in two-inch square plastic pots.
The flowers are blooming and
D. Optional equipment 0 50 with proper care should live
E. Safety features 20 110 for several months or longer.
F. Price 5 40 They will be sold through
supermarkets, gift shops,
Liked Least
and even vending machines.
G. Difficulty of assembly 10 95 Design a package that will
H. Lack of credit terms 45 0 protect the flower, provide
an appropriate display, and
I. Limited product information
provide information on the
when buying 0 40
care of the flower. Also develop
J. Cost of replacement parts 60 35 a brand name for the product.
S
K. Customer service 5 70
N
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Learn and Earn Project
The Learn and the written entry, but not important enough
Earn Project is a to include in the body. Items to include in the
chapter project appendix may include sample questionnaires
that develops used, letters sent and received, general back-
business and ground data, and minutes of meetings.
marketing skills. This project applies entrepre-
neurial skills to a single sales/service activity to Performance Indicators
be run as a real business venture. Evaluated
Your group has earned a large sum of
money baking cookies every Tuesday to sell in • Plan, organize, and conduct a sales/service
the school cafeteria. The school administration project. (Strategic Management)
has given you permission to expand your busi- • Develop a business plan. (Strategic
ness operation in school and throughout the Management)
community. You may consider opening a school • Implement a promotional plan. (Promotion)
store, taking custom orders from the commu-
nity, and/or diversifying your product line.You
• Evaluate the planning, implementation, and
outcome of the project. (Strategic
must present a business plan for your extended
Management)
operation. The main body of your plan consists
of the following parts: • Demonstrate team communication,
Executive Summary Write a one-page analytical and critical thinking, and
description of the project. production and time manage-
Introduction Explain the type of project ment skills. (Emotional Intelli-
proposed, a brief description of the major gence)
product/service involved, sources of informa- Go to the DECA web site for more
tion (resource materials, presentations, etc.), detailed information.
and a brief description of advisors and their
involvement. Think Critically
Analysis of the Business Situation De-
scribe the trading area, market segment, and 1. Why must a successful
customer buying behavior. business conduct re-
Planned Operation of the Proposed search before expanding
Project Define the proposed organization, its operation?
product/service, marketing strategies, and pro- 2. What is the advantage
jected budget for the project. of custom cookie orders?
Outcomes Describe the project implementa- 3. What is the best means
tion, unusual or unforeseen challenges or suc- for taking custom cookie
cesses, and methods of handling them. Define orders?
PHOTOS: ©DECA INC.
the learning and earning outcomes of the proj-

4. What special distribution con-
ect. Recommend improvements for the project.
siderations must be made for the product
Describe plans for improving the learning and
being sold?
earning outcomes of the project.
Bibliography List all resources used.
Appendix The appendix is optional. Include S
in the appendix any exhibits appropriate to w w w. d e c a . o r g N
305
10-1 • Starting WithDECA
a Product
Prep 305
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Chapter 11
Services Need
Marketing
11-1 What Are Services?
11-2 Classifying Types and
Evaluating Quality
11-3 Developing a Service
Marketing Mix
Newsline )))
Celebrity Endorsements
Service marketers have long used The DBI is based on surveys of many already subscribing to the
celebrities to sell their companies’ 1.5 million Americans, who scored service. “I think it will be incredibly
services. And they have often relied more than 1,500 celebrities on eight valuable when we look to marry
on their “gut instinct” to determine key attributes: appeal, notice, trend- various celebrities with various
who to choose as a spokesperson: setting (their status in pop culture), brands,” says BBDO president John
which actors have starred in the influence (do they have any?), trust, Osborn. Remember that the next
most popular movies, which singers endorsement (appropriateness as time you see your favorite singer or
are topping the charts, which ath- a spokesperson), aspiration (would ballplayer on TV, telling you to buy
letes are having good years, who we like to live like this person?), and something.
the gossip tabloids are (and are awareness.
not) talking about. But how can a The raw scores are tweaked for Think Critically
marketer be certain that a celebrity various factors, such as the race, age, 1. Think of some celebrities who
spokesperson is influencing the and sex of the survey participants, currently endorse services. Who
consumer in the desired manner? and then cross-referenced in a data- seems to be an especially good
Davie-Brown Entertainment thinks base that promises to help marketers match for the service and target
it has the answer: a celebrity-evalu- decide which celebrity spokesperson market? Explain your reasoning.
ation index for brand marketers and can best help them sell their ser-
their ad agencies. According to the vices. Marketers gain access to all the 2. Which of the eight key
company, the Davie-Brown Index, scores and rankings for a $20,000 attributes of the DBI do you
or DBI, is “an unbiased index that annual fee. think a service marketer would
determines a celebrity’s ability to Many advertisers and market- value most highly? In what
influence brand affinity, consumer ers have been sold themselves on ways might the marketer’s
buying behavior and purchase the DBI’s value. Major advertising view depend on the particular
intent.” agency BBDO New York is one of service being sold?
CH 11-B4491_DS_REV2.indd 306 12/5/07 1:15:20 AM


• Acquire a knowledge of promotion of services to • Explain the role of promotion in services as a mar-
understand its nature and scope keting function
• Position services to acquire desired image • Describe factors used by marketers to position
• Understand the concepts needed to communicate services
information about services to achieve a desired • Explain the nature of service branding
outcome • Build service brand
Visual Focus
Businesses that offer services are finding that
there is an increased demand from consumers
of all kinds. Marketing services is just as critical
as marketing products. But creating the right
marketing mix for services is not easy because
a service cannot be seen or touched. Market-
ers must understand the unique qualities of
services in order to create the right promo-
tional strategies. Price and distribution strate-
gies for services also offer unique challenges.
Service marketers must stay focused on the
marketing concept and the needs of the
customer.
Focus Questions:
After reviewing the advertisement, who do
you think British Airways is targeting? How is it
©BRITISH AIRWAYS
promoting its services? Do you think the visual

image used in the advertisement is effective?
Why or why not?
Locate another advertisement for a ser-
vice. Share your example with other students
and discuss the impact of the message and
the visual images used.
CH 11-B4491_DS_REV2.indd 307 12/5/07 1:15:49 AM

11-1 What Are Services?
GOALS KEY TERMS
• Explain the growing importance of services to the U.S. service, p. 308 inseparable, p. 311
economy. discretionary perishable, p. 311
• Describe four important qualities of services that are income, p. 309 heterogeneous, p. 312
not shared by products. intangible, p. 310
Services are the biggest and fastest-growing part of the U.S. economy. By the begin-
ning of the century, they accounted for four out of every five jobs, excluding agricul-
ture. New services are continually being created in industries that didn’t exist a few
years ago, even as jobs in manufacturing are shrinking due to automation and com-
petition from foreign competitors. Marketing services pose different challenges than
marketing products because services possess four key characteristics that products
do not share: They are intangible, inseparable, perishable, and heterogeneous.
Make a list of the jobs currently held by ten people you know. How many of
them are in businesses that produce goods? How many of them are in businesses
that provide services?
Growth and Importance of Service

Industries
arketing can be applied to both however, there is a second definition of the
M products and services. Products are

tangible objects such as cars, DVDs,
tables, and hamburgers. They are usually
term. A service is an activity that is intan-
gible, exchanged directly from producer
to consumer, and consumed at the time of
easy to see and understand. Services are production. Services cover a broad range of
more difficult to define, in part because the activities, such as banking, entertainment,
term is used in different ways. and computer repair.
In one sense, services are simply the The service sector is the largest and
support activities that are attached to the fastest-growing employment area of our
sale of a product, such as delivery, gift economy. In 2006, nearly 79 percent of
wrapping, and installation. In marketing, jobs in the United States were service jobs.
Service jobs are found in industries such as
Fa s t FAC T S communication, entertainment, informa-
tion technology, recreation, and of course,
In 1900, fewer than 30 percent of Ameri- marketing. According to the Bureau of
can workers had jobs in the service sec- Labor Statistics, the 18.9 million new jobs
tor. Nearly half of all Americans worked generated in the United States from 2004
to 2014 will be concentrated in service-
S in agriculture.
providing industries.
N
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308 CHAPTER 11 • Services Need Marketing
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An example of a new service employ- industry is that the goods-producing
ment area with numerous job opportuni- industry is becoming more automated and
ties is health care. The gradual aging of the less labor intensive. That means that com-
population will place the health care sector panies use fewer people to produce their
as a dominant source of overall projected goods because of the increasing use of
employment growth. Health care employ- technology. Former manufacturing work-
ment—ranging from home health care and ers turn to the service industry for contin-
nursing to physical therapy—is projected to ued employment.
account for almost 1 out of every 5 new jobs
by 2014. Figure 11-1 describes projected job Complexity
growth in several service industries. A third reason that the service industry is
There are more services available today growing is because many high-technology
than ever before. People pay for child care, products require complex installation,
carpet cleaning, and security services. repair, and training. Entire new service
Businesses hire the services of landscapers, areas have opened up around the computer
interior designers, electricians, and ac- industry. Firms specialize in training,
countants. Services marketing is big consulting groups specialize in applica-
business. There are many reasons for the tions, and other companies do nothing but
growth of the service sector in our country. service equipment. The rapid growth of
the Internet and its use for communication
Prosperity and e-commerce have led to many new
The increased prosperity of our economy service jobs.
is one reason for the growth in the U.S.
service sector. Today, people have more Foreign Competition
discretionary income to spend on services. Finally, another contributing factor to
Discretionary income is the amount of the growth in the U.S. service industry is
income left after paying basic living ex- the expansion of international trade. The
penses and taxes. Americans are spending gains from international trade arise when
a greater percentage of their income on businesses can produce goods and services
services and less on manufactured goods. more efficiently than other countries. In
an effort to be more cost-efficient, manu-
Automation facturers are shifting jobs that require
A second reason why the service industry less skilled labor to other countries where
is growing faster than the goods-producing labor costs are lower. Cutting costs helps
FIGURE 11-1
Service-producing industries are projected to be the fastest growing in terms of job growth in the
United States from 2004 through 2014.
10-Year Number of
Industry Growth Rate Jobs Added
Education and Health Services 30.6% 5.19 million
Professional and Business Services 27.8% 4.57 million
Leisure and Hospitality 17.7% 2.22 million
Information Services 11.6% 0.36 million
Financial Activities 10.5% 0.85 million
S
Trade, Transportation, Utilities 10.3% 2.62 million
N
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11-1 • What Are Services? 309
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businesses stay competitive in an interna-
tional market. U.S. workers who have lost Checkpoint
manufacturing jobs due to this shift in
What are four reasons for the growth of
labor often seek employment in the service
service employment in the United States?
sector.
Unique Qualities of Services

our important characteristics distin- The intangibility of services presents
F guish services from products. Services

are intangible, inseparable, perishable,
and heterogeneous.
special challenges for marketers. Because
people cannot see or handle a service,
marketers must focus on the benefits cus-
tomers will receive. Promotional activities
Intangible need to be carefully conceived so consum-
The most important difference between ers can visualize the benefits provided by
goods and services is that services are in- the services. Tourism, for example, relies
tangible. Intangible means that the service heavily on photos, posters, videos, and
cannot be touched, seen, tasted, heard, or travelogues to entice customers to select
felt. Examples of intangible services in- vacation destinations. The objective and
clude haircuts, vision examinations, and challenge of tourism marketing is to get
vacation planning. Unlike products, they customers to imagine what it is like to be
do not have a physical form. at a particular tourist location.
World View
The World’s Most Popular Sport Soccer is growing in popularity in the
Baseball is said to be America’s favorite United States, with a professional league and
pastime. Football is up there too. The most growing World Cup viewership, but it has a
widely watched American sporting event in long way to go before it reaches the frenzied
history was Super Bowl XXX, with 95 million fan base it has overseas.
viewers. But consider this: The 2006 soccer Think Critically
World Cup final game drew 284 million
1. Internationally, soccer is called “football,”
viewers worldwide.
and what NFL teams play in the United
In the United States, soccer is popular
States is called “American football.” How
among kids, but by age 10, approximately
might this simple language difference
88 percent of them have moved on to base-
concern marketers?
ball, football, basketball, and other sports.
Internationally, however, soccer remains 2. What types of brands might benefit from
the biggest sport on the strength of incred- associating themselves with soccer in
ibly passionate fans, nationalistic pride, and the United States? Which types might be
widespread media coverage. Marketers use better off associating themselves with
the celebrity of famous international soccer “American football”?
players because they translate across many
S cultures and languages.
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Figure This
Services Devise Unique Ways to miles,” “revenue passenger miles,” and “load
Measure Performance factors.” Available seat miles (ASMs) are equal
to the total number of seats on all scheduled
Service businesses that deal in highly perish-
flights multiplied by the number of miles
able assets often develop industry-specific
between the point of departure and the point
measures to track their performance from
of arrival for each flight. Revenue passenger
one time period to another. The lodging
miles (RPMs) are similar, except they include
industry, for example, tracks “revPAR,” which
only seats that are occupied by paying pas-
stands for “revenue per available room,” to
sengers. Load factor is RPM divided by ASM,
gauge how effectively hotel managers fill
expressed as a percentage.
their rooms. Without such a measure, man-
agers might be tempted to make their occu- Think Critically
pancy numbers look good by offering deep
1. If a hotel manager’s goal is to increase
discounts on room rates. Or they might make
revPAR by 20% next month (and assum-
their room rates look good (for hotel opera-
ing he doesn’t add more rooms), what
tors, higher rates are better) at the expense of
are the different ways he can accomplish
high occupancy. With revPAR, room rates and
this?
occupancy percentages are combined in one
easy-to-compare operating measure. 2. If an airline’s RPMs increase by 20% while
The airline industry uses similar per- its load factor declines, what is the likely
formance measures such as “available seat explanation?
Inseparable community. Because of its location, it

A second characteristic of services is that probably would not attract many custom-
their production and consumption are ers. On the other hand, a hotel limousine
inseparable. Inseparable means that the service located at the airport would be a
service is produced and consumed at the good distribution strategy.
same time. Services such as a college class,
a facial, or a car repair are produced and Perishable
consumed simultaneously. In many cases, Another characteristic of services is their
the customer is actually involved in the perishability. Perishable means that ser-
production of the service. When you drop vices unused in one time period cannot be
money in a video game or pay for a ticket stored for use in the future. An example
to a concert, you are demonstrating the of this is a lawn care service. You cannot
inseparability of production and consump- buy more than one grass cutting at a time.
tion in a service business. Though the person who cuts your grass
This simultaneous production and might want to cut it ten times in the spring
consumption of services requires market- when the weather is cool, the service can-
ers to pay special attention to the distri- not be purchased that way.
bution component of the marketing mix. Because of perishability, marketers
Distribution involves having the service are concerned about lost opportunity. An
available where and when it is needed or empty seat on an airplane cannot be sold
wanted by the consumer. An example of later. After the plane has departed, the
ineffective distribution would be to locate revenue that could have been earned from S
a child day-care center in a retirement a paying customer is lost. N
311
11-1 • What Are Services? 311
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Airlines recognize that money is lost baseball game. The entertainment value of
on each empty seat and can never be a baseball game in which your team wins
retrieved. That is why airlines offer dis- may be different from a game in which
counted fares and special promotions your team loses. People who use a tax
when they know there will be empty seats. preparation service or an appliance repair
This is the airlines’ attempt to overcome business expect high-quality service. If
the perishability of their service. customers cannot count on the type and
The pricing component of the market- quality of service, they are not likely to use
ing mix is crucial in the sale of perishable that business.
services. Prices must be set to assure the Marketers who sell services need to pay
business the greatest number of sales while particular attention to the marketing con-
covering expenses and allowing for a profit. cept and satisfying the wants and needs
of the consumer through the marketing
Heterogeneous mix. The heterogeneity of services allows
A final characteristic of services is het- marketers an opportunity to design ser-
erogeneity. Heterogeneous means there vices to meet the unique needs of a market
are differences between services. Services segment.
are usually performed by people. Since
people differ in their skill level or even Checkpoint
their enthusiasm for a job, the service is
often not consistent. One baseball game What are the four important characteristics
might be extremely different from another that distinguish services from products?

Determine the best answer. 5. Visual Art Draw or use technology to create a
1. Which of the following is not a reason for the picture, graphic, or other visual representation
growth of the service sector in the United of one of the unique qualities of services.
States economy? 6. Economics Use library or Internet resources
a. America’s prosperous economy to find the percentage of service jobs in the
b. increased on-the-job automation economies of ten countries of your choosing.
c. lower test scores among American Present your findings in a graph format. In-
students clude the United States as one of the countries
d. increased complexity of high-tech you select.
products
Connect to
2. A service that is _____ cannot be stored for
future use. 7. You work for an amusement park. The owner
wants your help in promoting the park.
3. What percentage of jobs in the United States
Because the park services are intangible,
are service jobs?
you must determine how to create favorable
a. about 10 percent
mental images of the services in the minds of
b. a little more than 30 percent
prospective customers. Present two promo-
c. 50 percent
tional ideas along with visuals to your teacher
d. nearly 80 percent
(judge).
4. True or False: An automobile manufacturer is
S a good example of a service business.
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Classifying Types and Evaluating 11-2
Quality
GOALS KEY TERMS
• Describe the various ways marketers categorize service labor intensiveness, p. 314
businesses in order to develop effective marketing service quality, p. 317
mixes.
• Identify the three types of service standards that are
used to evaluate service quality.
Marketers classify service organizations in a variety of ways as they develop market-

ing plans. Businesses and other service organizations may be alike in some ways and
quite different in others. A better marketing mix can be developed using a profile of
an organization based on whether it targets businesses or consumers, whether it is
profit-oriented or non-profit, whether it is labor intensive or relies more on equip-
ment, how much contact service providers have with customers, and how much skill
is required.
Maintaining a high level of customer satisfaction requires a high level of ser-
vice quality. Marketers can evaluate service quality by comparing it to the services
provided by competitors, by establishing objective standards, and by studying
customer feedback.
Describe three different ways in which academic performance is measured at
your school. What types of standards are used to measure effective performance?
Service Organization Classifications

variety of organizations and busi- of contact they have with customers, and
A nesses provide services to the pub-

lic. Such diverse organizations as
churches, dry cleaners, painters, day-care
the level of skill they require.
Type of Market
facilities, basketball teams, health clubs, Just as with products, there are two types
barbers, law offices, and insurance of markets for services—business consum-
companies are all service providers. The ers and individual consumers. A business
development and marketing of services consumer might employ a cleaning service,
can be quite different for various types of a grounds service, a maintenance service,
services. and an equipment repair service. Busi-
It is helpful for marketers to classify nesses that provide these services to other
services to develop viable and appropriate businesses must offer services tailored to
marketing plans. Service organizations can business needs that are available where and
be classified by the type of markets they when the business wants them.
target, their organizational goals, their An individual consumer, like you or S
degree of labor intensiveness, the amount your parents, might also employ a N
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cleaning service, a lawn service, an
auto maintenance service, and a Wo r k i n g i n Te a m s
computer repair service. For these
consumer-oriented services, the tar- As a team, make a list of ten businesses from
get market and marketing mix will which you or your family recently purchased
be quite different. services. Then rank the businesses in three dif-
A marketing mix designed to ferent ways: (1) most to least labor intensive; (2)
reach business customers might highest to least amount of customer contact;
stress personal selling and quan- and (3) highest to least skill level required. Write
tity price discounts. In contrast, a one or two paragraphs analyzing the different
marketing mix designed to reach rankings.
individual customers might stress
personalized attention, advertising Equipment-based services are pro-
through print and broadcast media, and vided with the use of machinery. These
more standardized pricing. As a marketer, services require few people to deliver the
you need to know your market and its spe- services. Examples include automated car
cific wants and needs in order to satisfy it. washes, dry cleaning, and vending ma-
chines. People-based services are pro-
Goals of the Organization vided through the work of people. Guitar
Some organizations have profit-making lessons, manicures, teeth cleaning, and
as a goal, while others operate as not-for- guided tours are examples of people-based
profit organizations. Most businesses that services. These services are more labor
compete with one another in providing the intensive.
variety of services for which people pay are As a marketer, you will emphasize
profit-making organizations. different parts of the marketing mix de-
There are many not-for-profit organi- pending on whether your service is labor
zations that also offer services. Examples or equipment intensive. When market-
of these types of organizations are uni- ing equipment-based services, you will
versities, libraries, museums, government pay special attention to the distribution
programs, churches, and social agencies. or location of your services. Locating an
These organizations have goals and mo- automatic car wash on a busy avenue is
tives that are different from profit-making more appropriate than on a quiet residen-
organizations. Their goals might be serv- tial street. Placing an automatic bank teller
ing the community, making the public machine in a safe, well-lighted place for
aware of a message or idea, increasing a drive-through location gives customers
knowledge, or changing attitudes. Money a greater sense of security. You will also
is not normally a significant motivating want to make sure the equipment is prop-
factor for not-for-profit service organiza- erly maintained.
tions. Still, they are equally interested in With people-based services you will
delivering high-quality services that con- want to pay careful attention to the train-
sumers need and want. ing of your personnel. You will train them
in how to provide the service to satisfy
Labor Intenseness your customers’ wants and needs. A cour-
Labor intensiveness refers to the amount teous, attentive, and efficient waiter is a
of human effort required to deliver a good example of well-trained personnel.
service. Services range from those that are
extremely labor intensive to those that are Customer Contact
totally reliant on equipment. Most com- The amount of customer contact a service
S bine labor and equipment and fall some- provider has is another way to classify
N where in between. services. Some services, such as barbers,
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Judgment Call
Wireless Devices Raise Client on her mind—such as the bridge abutments
Billing Issues whizzing past and the semi in front of her
that just hit its brakes?
With the proliferation of wireless commu-
Professional ethical standards aren’t
nications, providers of professional services
much help. Neither is the law. As long as a
such as lawyers and business consultants
professional is providing something of value
have the opportunity to drastically reduce
to a client, it’s permissible to bill that time.
down time. Now they can work—and bill
And as one lawyer noted, it’s possible to be
clients for the time they spend doing it—vir-
just as distracted while sitting behind a desk
tually wherever and whenever they want.
as it is behind the wheel of a car.
The troubling issue for clients is making sure
they are getting their money’s worth, be- Think Critically
cause their business or affairs might not get
1. If a lawyer is driving to a court appear-
a professional’s undivided attention.
ance for client A and, while en route,
Internet-enabled phones and personal
takes a phone call from client B about an
digital assistants (PDAs) allow a consultant
unrelated matter, do you think it would
to cruise down the highway while research-
be fair to bill both clients for that time?
ing a client matter on the Internet or talk-
ing with clients on the phone. Safety issues 2. Do you think it would be feasible to bill
not-withstanding, is it fair to bill a client for clients at a reduced rate for time dur-
that time when the consultant simultane- ing which the professional’s attention is
ously has to keep at least a few other things divided?
doctors, schools, hotels, and restaurants, into professional and nonprofessional

have high customer contact. Other ser- groups. Professionals include providers
vices, such as equipment repair, lawn whose services tend to be more complex
maintenance, and cable TV providers, and more highly regulated than nonprofes-
have low customer contact. sional services. The professional category
Recognizing and responding to the would include accountants, pharmacists,
level of customer contact is important if teachers, physicians, therapists, and others
you are a service marketer. In general, the who are required to have a combination
higher the contact, the more you must rely of high-level skill, education, and a license
on personal selling as a promotional activ- to practice. The nonprofessional service
ity. With low-customer-contact businesses, group would include providers such as pet
it is important to stress planning to pro- sitters, personal shoppers, hotel clerks, and
vide maximum customer satisfaction since bus drivers, whose jobs require less pre-
there is not much opportunity to interact scribed preparation.
with customers.
Level of Skill Checkpoint

Another way to categorize services is by Identify the various ways marketers catego-
the level of skill the provider possesses. rize service businesses and organizations in
The most common way to categorize based order to develop effective marketing mixes. S
on skill levels is to divide the providers N
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Dealing with Rude and Discourteous People

How do you feel when someone cuts in front of others. First, try to rely
you in line? What is your response to someone on yourself to handle
who drives aggressively? the situation. As
There are a multitude of reasons for rude kindly as possible,
behavior. Fatigue, stress, insecurity, or ignorance point out the rude
may cause someone to behave badly. behavior to the
Uncivil behavior has multiple ramifications. person and its
It angers people and diverts their energy from impact upon you.
positive goals. Relationships are damaged when Jointly define
people behave badly. the underly-
Common courtesies help societies function ing concern
peacefully and efficiently. Courteous behavior sig- that caused
nals that you understand and respect the needs the behav-
of the people around you. Courtesies soften daily ior. Establish
interaction. People are more inclined to respond ground rules that
kindly when they have been treated kindly. will be used to maintain a respectful tone while
Most workplaces have explicit policies discussing the issue. If the person violates these
regarding expected behavior. Your behavior rules, remind them of the ground rules and ask
should conform to corporate expectations. Ask- for their agreement to comply with the rules
ing others about their political views or financial before proceeding with the discussion. If the per-
status is often taboo. You should refrain from son continues to be rude or confrontational, you
revealing this type of information about yourself. have the right to stop the conversation. Tell the
Define your personal boundaries. If anyone person you will not participate in a conversation
asks personal information that intrudes upon with a destructive tone.
these boundaries, try to deflect the question. Model the behavior you would like those
Saying “I prefer not to discuss that topic at work” around you to emulate. Proactively thank people
is one method. as much as possible. It is harder for people to be
If you interact with customers who are nasty to someone who’s shown them kindness
behaving badly, you need to consider what has and appreciation.
made them angry. Whether it is a perceived prod-
uct failure or service error, keep in mind that they Develop Your Skill
have a financial stake in the outcome of your dis- Think of three examples where you have encoun-
cussion. Although it is fine to acknowledge their tered rude behavior. For example, someone
frustration or anger, try to focus the interaction may have interrupted you during a conversa-
on problem resolution. Keep your own emotions tion. Prepare a deflective, non-confrontational
in check as you work with the customer. response for each of these situations. “Please let
You should never feel threatened because me finish what I was saying,” could be used when
of someone’s rude behavior. If their behavior has interrupted.
deteriorated to a level where safety becomes a Role-play positive responses to rude behavior
concern, stop the conversation and leave the area. with a friend or an adult. Evaluate which non-
There are a number of non-confrontational confrontational responses seem the most
ways to deflect the disrespectful behavior of effective.
S
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What factors would you use to rate the service quality of a restaurant?
Evaluating Service Quality

he United States is becoming a
T service-oriented country. People

are continually finding new ser-
vices to offer, and consumers have
more discretionary income to purchase Three types of service standards can be used to
these services. evaluate service quality—competition, perfor-
With the large number of service mance standards, and customer satisfaction. Access
businesses in the market today, a decid- school.cengage.com/marketing/marketing and click
ing factor for whether or not a company on the link for Chapter 11. Popular travel booking
prospers is the quality of the service web site Hotels.com invites consumers to fill out a
provided. Service quality is defined as short online survey. Which type of service standard
the degree to which the service meets does Hotels.com hope to measure with this survey?
customers’ needs and expectations. Do you think the form is adequate for its purposes?
Quality can be measured in a Why or why not? Can you learn anything from the
number of ways. It is controlled by the survey about the other two service standards?
provider of the service. It might be
measured by the qualifications of the school.cengage.com/marketing/marketing
provider or by the speed of service. It
might also be based on cleanliness, ef-
ficiency, safety, comfort, or any number performance standards, and customer
of variables. satisfaction.
To improve quality, an organization
must first understand how customers de- Competition
cide which service they want and how they Marketers of services need to be aware of
will judge the quality of the service. Three the nature and level of services their com-
types of service standards can be used to petitors are offering. Organizations must
evaluate service quality—competition, provide services that are at least equal in S
quality to what their competitors offer for N
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the same price. Services must be positioned standard. If not, the company should take
in a way that makes them unique and sets corrective action.
the business apart from its competition.
Customer Satisfaction
Performance Standards The real test of service quality is cus-
A service organization should set its tomers’ assessment of it. Firms use market
own service standards and communicate research to find out exactly what custom-
them to customers. Promotions should ers think. One of the most important and
reinforce the commitment to quality useful indicators of customer satisfaction
service. is repeat business. Do customers continue
Just saying that the company is com- to come back to buy the service? If they
mitted to quality isn’t enough. An organi- do, it is a strong indication that they are
zation should have standards that support satisfied with the service offered and that
its advertising slogan. The standards should the organization is achieving its service
be measurable, such as: “Eighty-five percent standards.
of our arrivals will be on time” or “We will
have no more than three customer com- Checkpoint
plaints per month.” The service should be
evaluated regularly to see if it is meeting the What are the three types of service stan-
dards used to evaluate service quality?

Determine the best answer. 5. Language Arts Select a not-for-profit service
1. Service organizations can be classified by organization in your community and write a
a. the type of markets they target two-page report about it, focusing primarily on
b. their organizational goals the goals of the organization. Use library/Inter-
c. the amount of contact they have with net resources to help you prepare your report.
customers 6. Management Create a brief survey that an
d. all of the above owner of a child-care facility could use to mea-
2. The amount of human effort required to sure customer satisfaction. Your survey should
deliver a service is called have no more than ten questions and should
a. intangibility focus on topics important to customers of this
b. labor intensiveness particular service.
c. heterogeneity
Connect to
d. service quality
7. Your team members manage a landscaping
3. Which of the following is not a type of service
company that hopes to acquire jobs from both
standard used to evaluate service quality?
business and individual consumers. As a team,
a. competition
discuss the factors in your marketing mix that
b. customer satisfaction
will be different for these two potential mar-
c. professional or nonprofessional status
kets. Discuss how these factors will appeal to
d. performance standards
the different markets you seek. Make a three-
4. True or False: All service organizations are for- minute team presentation to your teacher
profit businesses. (judge) of your recommended marketing mix
for each type of consumer.
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Developing a Service Marketing Mix 11-3
GOALS KEY TERMS
• Explain how businesses plan and promote endorsement, p. 321
services. bundling, p. 322
• Describe the importance of pricing and
distribution of services.
The unique characteristics of services make developing a marketing mix very

challenging. A customer’s ability to make a buying decision about a product is
enhanced by the tangible nature of products. The purchase decision is easier
because customers can see the products, smell them, touch them, or taste them.
Because services are intangible, service marketers must help their customers visual-
ize them. They do so by applying the principles of product/service planning, pricing,
promotion, and distribution in ways that are suited to the nature of the services they
provide. As with products, the objective is to satisfy their customers.
Make a list of five services that you have used in the past 24 hours, and describe
how you arrived at your decision to use each of those services rather than competi-
tive services or other alternatives.
Service Planning and Promotion

hen dealing with services, busi-
W nesses need to plan them carefully,

keeping in mind the differences
between services and products. Businesses
also need to identify effective strategies for
promoting their services.
Service Planning
When developing the service to be provid-
ed, service marketers must recognize that

the services cannot be defined in terms
of physical attributes. Instead, companies
need to shape the attributes of the service
to meet the needs and wants of consumers
in the most satisfactory way possible.
UPS sells a service and communicates What mental image do you form about a bank’s services S
the attributes of its service: fast and reliable when looking at this photo? N
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delivery. Banks also sell their services such advertising as well. Dentists give patients
as checking accounts, savings accounts, toothbrushes, coffee shops give out mugs,
and loans. The attributes of bank services and travel agencies may give away duffel
are dependability, convenience, low inter- bags. Banks provide checkbook covers,
est rates on loans, and high yields on sav- bands give out T-shirts at concerts, and
ings. Both UPS and a bank must develop professional hockey teams distribute pucks
favorable mental images of their services stamped with the team logo. In each case,
by communicating their benefits. the service organization is attempting to
Services are intangible, but businesses provide a tangible symbol and reminder of
also recognize that customers pay atten- the service it provides.
tion to certain tangible elements associated
with the service. The delivery trucks for
UPS are a distinctive brown color, clean, Promotion
and in good repair. Banks are typically Services are sometimes considered dif-
quiet, low-key offices located in well-kept ficult to promote. Something that cannot
buildings to reinforce the idea that they are be touched is not as easily described in
safe and responsible. Imagine the image promotional strategies like print advertis-
you would have of your bank if the building or broadcast media. Services are also
ing needed major repairs, or if loud music difficult to promote through personal sell-
blared at you as you entered. ing since they are difficult to demonstrate.
Recognizing that tangible products are It is important to remember that, whether
important, many service organizations you are promoting a product or a service,
provide physical items for customers you need to appeal to the buying motives
to take along with them. Many times of the target market and stress the benefits
these items become a piece of specialty derived by use of the service.
Virtual Marketing
One-Stop Convenience With ASPs, clients and consultants no
Personal computers liberated individuals longer have to worry about working with
and businesses from mainframes and com- outdated or incomplete information. More-
puter operators by allowing them to process over, they can each view and analyze cur-
information from their desks. The Internet rent data simultaneously from their own
allowed people and businesses to buy and offices. So if someone wants to jump at a hot
sell products online. Now application service investment opportunity, the investor can run
providers, or ASPs, give service businesses it by an adviser to see what overall effect it
the ability to provide highly personalized could have without either of them leaving
services over the Internet. their desks.
Financial consultants can subscribe to Think Critically
Internet-based planning services that allow
1. How are Internet-based ASPs superior to
them to merge clients’ financial records in
software programs that are installed on
real time from multiple sources. Up-to-
stand-alone personal computers?
the-minute account data from banks, insur-
ance companies, stockbrokers, mortgage 2. What kinds of concerns might arise from
lenders, and retirement plans are down- having highly personal and confidential
loaded into a consolidated financial plan- data floating around cyberspace?
S ning program with a few keystrokes.
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One effective promotional
strategy for services is to stress the
tangible elements of the service.
The well-dressed waiter, clean and
undamaged late-model rental cars,
and high-quality furnishings in a
law office are all tangible elements
associated with intangible services.
The last part of the promotion
strategy is the nature and the tim-
ing of the message. The nature of
the message should be such that it
creates a mental image of the per-
formance of the service. It must also
foster the idea of satisfied needs in
the customer. The timing of the pro-
motional message must also be right. Would you be more likely to go see a movie if a friend recommends it?
It must be close enough to the poten- Why or why not?
tial need and use for the service to be
memorable and influence a decision. new customers. They also develop pub-
licity activities and even Internet “buzz”
Endorsements Many services use that encourage people to talk about their
endorsements as a promotional strategy. business.
An endorsement is an advertisement in
which a satisfied user publicly expresses Personal Selling Many marketers
approval of a product or service. Some- believe that personal selling is the most
times endorsers are well-known role powerful promotional tool available. A
models for a target market. Celebrities well-trained sales staff can interact with
and athletes often endorse products. Cus- customers to reduce their uncertainty,
tomers must identify with the endorser in give reassurance, reduce doubts, and
order for the endorsement to be effective. promote the reputation of the service pro-
vider. Careful training and management
Word of Mouth Service organizations of customer-contact personnel is crucial
rely heavily on publicity and word-of- to the success of a service organization.
mouth promotion. People often consider
information from friends to be very Checkpoint
credible. Service sellers encourage word-
of-mouth promotion. They ask satisfied What are the various strategies that
customers to “tell a friend about us.” They marketers have found to be effective in
offer incentives to consumers who refer promoting services?
Price and Distribution

rice and distribution of services
P each play a role in meeting customer

expectations. Each needs to be care-
fully considered when developing market-
Price
In the past, pricing was not viewed as par-
ticularly important among service provid-
ers. Services were perceived to be unique, S
ing plans for services. much like a monopoly. With increased N
321
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competition and govern-
ment deregulation of many
industries, businesses began
to see pricing strategies as a
way to improve their market
positions and to differenti-
ate themselves from their
competition.
Service businesses are in
a good position to alter their
©AMERICAN EXPRESS. ALL RIGHTS RESERVED. PRINTED WITH PERMISSION.

pricing strategies because
they can change prices fairly
easily. A hair salon in your
neighborhood can change
its pricing schedule to meet
competition or to create a
new image. The amount or
complexity of a service can
be increased or decreased
with the pricing strategy.
For example, the hair salon
can add styling specialists or
additional services to justify
price increases.
One interesting pricing
strategy that many service
American Express bundles its credit services with FedEx Express
providers use is called shipping services in an attempt to meet the pricing and distri-
bundling. Bundling is the bution needs of customers.
practice of combining several
related services for one price.
If you are planning a trip to Chicago, Distribution
Illinois, the airline may attempt to bundle The distribution of services is primarily
the price of a ticket, a rental car, a hotel, concerned with having the service in a
and two tickets to a Cubs game into one location and at a time that are convenient
package for which you would pay one for the consumer. Many services for which
price. Another example of bundling is a people once had to travel to obtain are now
college charging one price for a student’s provided in their homes. Pet grooming,
room, board, tuition, and fees. computer maintenance, and tax prepara-
Bundling is a type of quantity dis- tion are examples of services that you can
count. A customer can purchase more get at home if you prefer.
services for a lower price than if they were An important point to remember in
purchased individually. This has advan- marketing services is that the production
tages for both the customers and the sellers and consumption of services happen
of services. The customer pays a reduced simultaneously. That is, the service is
price and has the advantage of one-stop performed, and you receive it at the same
shopping. The service marketer forms mu- time. Therefore, the channels of distribu-
tually beneficial relationships with other tion for a service are very short. In many
service marketers to provide an appealing cases, the channel is the producer and
package for customers. The marketers are provider all rolled into one. A restaurant is
S usually able to increase sales of their ser- a good example of this. The food is cooked
N vices by using effective bundling. and served at one site.
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that will come to your home to make the
Fa s t FAC T S repairs.
In planning a distribution strategy
House calls were the norm for physi- for a service, the most important element
cians until the end of the 19th century, should be convenience for the consumers.
but by 1971, only 1 percent of U.S. doc- Travel agents and airlines now use the
tors were making home visits to pa- Internet, making it easier for you to buy
tients. However, demand from America’s airline tickets and make other travel plans.
aging population—many of whom have Automated teller machines offer con-
trouble getting to a physician’s office— venient locations and convenient hours.
appears to be reviving the practice. Video stores offer extended rental periods
so people don’t have to worry about re-
turning movies the next day.
Some types of services, however, make
use of intermediaries. For example, you
might purchase an appliance from a large Checkpoint
appliance store. However, if your appliance
needs to be repaired, the store may con- What is the key to effective distribution of
tract with a local appliance repair business services?

Determine the best answer. 5. Ethics Celebrities often endorse services.
1. In planning a distribution strategy for a ser- The Federal Trade Commission (FTC) has sev-
vice, the most important element should be eral guidelines that must be followed by the
a. providing the best possible price endorser and the business being endorsed.
b. convenience for the consumers Research the legal restrictions on endorse-
c. increasing the complexity of the service ments and describe them in a two-page
d. providing a tangible symbol of the service paper. Also, express your views on whether
or not celebrities should actually use and like
2. A type of promotional strategy in which cus-
the services they endorse.
tomers of a business recommend it to others
is called 6. Civics List and briefly describe five tangible
a. endorsement elements that are associated with services
b. word of mouth provided by your local government.
c. personal selling
Connect to
d. service planning
7. You have been hired by a local optometrist
3. When promoting a service, marketers should
to provide ideas for a physical item custom-
a. stress the benefits derived from the service
ers can take along with them after they have
b. stress the tangible elements of the service
had their eyes examined. The optometrist
c. time the promotion close to the potential
hopes this item can serve as a piece of
need for the service
specialty advertising as well. Prepare a two-
d. all of the above
minute presentation with visual aids for the
4. True or False: Service businesses are in a optometrist to describe at least three ideas
good position to alter their pricing strategies for such an item. Deliver the presentation to
because they can change prices fairly easily. your teacher (judge). S
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Now that you have completed the chapter, check describe four important qualities of services that
your understanding of the lessons with these ques- are not shared by products?
tions. Record the score that best represents your describe the various ways marketers classify
understanding of each marketing concept. service businesses in order to develop effective
1 = not at all; 3 = somewhat; 5 = very well marketing mixes?
If your score is 42–50, you are ready for the assess- identify the three types of service standards that
ment activities that follow. If you score 33–41, you are used to evaluate service quality?
should review the lessons for the items you scored explain how businesses plan and promote
1–3. If you score 32 or less, you will want to carefully services?
reread the lessons and work with a study partner on name three effective promotional strategies for
the areas you do not understand. services?
Can you— describe how businesses can use pricing strate-
describe what a service business is? gies to improve their market position?
explain the growing importance of services to explain the importance of distribution of
the U.S. economy? services?
identify four contributing factors to the growth
of the service sector in the United States?

1. Incapable of being touched, seen, tasted, heard,
or felt
2. The amount of human effort required a. bundling
3. Produced and consumed at the same time b. discretionary income
4. An activity that is intangible, exchanged directly c. endorsement
from producer to consumer, and consumed at d. heterogeneous
the time of production e. inseparable
5. The practice of combining several related ser- f. intangible
vices for one price g. labor intensiveness
6. The degree to which a service meets customers’ h. perishable
needs and expectations i. service
7. Incapable of being stored for use at a future time j. service quality
8. An advertisement in which a satisfied user pub-
licly expresses approval of the product or service

9. are tangible objects that can be 11. True or False: A portion of the long-term decline
purchased and resold. in employment in some manufacturing indus-
10. True or False: Services unused in one time period tries can be linked to the expansion of trade.
S can be stored for use in another. 12. True or False: Not all services require the same
N level of skill.
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13. By 2014, health care employment is projected to strategies as a way to
account for nearly of all new jobs improve their market
created in the United States. positions and to differenti-
a. 10 percent c. 50 percent ate themselves from their
b. 20 percent d. 80 percent competitors.
14. There are two types of markets for services: 18. True or False: Because ser-
and . vices are heterogeneous, it
15. Which of the following is not an equipment- is more difficult for mar-
based service? keters to design services to meet unique market
a. automated car washes needs.
b. teller machines 19. True or False: Services characteristically have
c. a haircut short distribution channels.
d. telephone calling cards 20. The service sector is growing faster because
16. Many marketers believe that personal manufacturers are becoming more
is the most powerful promotional tool available. and less labor intensive.
17. With increased competition and government 21. True or False: The real test of service quality is
deregulation, businesses now use customers’ assessment of it.

22. On a separate sheet of paper create a table ii. Rate the factors shown in the table for this
with three columns. Title the columns: Business business.
Consumer Market, Final Consumer Market, and Results: Shown in table below.
Combination of Both Markets. Use the telephone a. What percentage of the surveys were
directory to identify service businesses that ap- returned?
peal to each of these markets. Write the names of b. What percentage of the customers use dry
the businesses in the appropriate column. Find cleaning services at least once a week? Twice
at least three businesses for each column. Com- a month? Once a month? Less than once a
pare your results with your classmates’ tables. month?
23. A dry cleaning business handed out a question- c. Based on the rating of the store features and
naire to all customers who brought in or picked service quality, make three recommendations
up clothes during the month of October. Of that management can implement to improve
the 1,435 questionnaires distributed, 705 were customer service.
returned with the following results. 24. Developing an appropriate marketing mix for a
i. How often do you take items to a dry cleaning service is as important as developing the ap-
business? propriate mix for a product. Develop a marketing
Results: At least once a week: 178; Twice a mix for a service business that includes a de-
month: 199; Once a month: 200; Less than scription of the service, the pricing strategy, the
once a month: 128 promotional strategy, and a plan for distribution.
Choose from one of the following
service businesses:
Very Not • Tutoring and study skills
Satisfied Satisfied Satisfied • Video arcade
Location of the store 599 100 6 • Chimney cleaning service
• Hot air balloon rides
Hours of operation 200 300 205 • Golf lessons
Turnaround time 351 257 • Coin-operated laundry
97
Friendliness of staff 264 254 187
Quality of service 532 101
S
72
N
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25. Bundling is an effort by service industries to sell what services they produce, their major target
related services in one location and for one price. markets, and their major channels of distribu-
Identify at least five services that can be bundled tion. How do they use their web sites to market
for each of the following service businesses: their businesses?
• Evening entertainment 27. Search the newspaper and magazine ads or the
• Insurance Internet and find an advertisement for bundled
• Automobile upkeep services of some sort. How much is the advertised
• Home appliance repair price, and what services or products are included
• Lawn maintenance in the package deal? How much would each of
26. Search the Internet to find web sites of ten the component services and products cost if they
service businesses. Make a list of the businesses, were bought individually? How much of a sav-
ings, if any, does the bundled price represent?

28. As the owner of an automobile washing and de- Labor intensiveness (low, medium, high)
tailing business, you have noticed that although Customer contact (low, medium, high)
the population of your community is grow- Level of skill (low, medium, high)
ing, your business is not. You believe that you Organizational goals (profit or not-for-profit)
provide a quality service, but you are concerned Classify each of the following services by
about your business volume. You decide to these criteria and create a chart as shown below
evaluate your service quality. Using the service to illustrate their appropriate classification. As an
quality evaluation criteria, develop at least four example, item a is shown in the table.
specific things you can do to determine your a. An insurance policy protecting a professional
level of quality. volleyball team from loss of the team’s star
29. As a marketing specialist, you have been asked player
to speak to a group of service providers about b. A new paint job for an old car
the future of the service industry and how c. Three empty horses on a circus carousel
service providers can effectively market their d. A manicure while the customer’s hair is styled
services. In order to do this, you have developed e. A heart bypass operation performed at the
the following topics on which to speak: Mayo Clinic
1. Future of services f. An opera performed by a local community
2. Differences between products and services group
3. Different types of services g. Clean uniforms provided by the employer
4. Importance of the marketing mix h. A long-distance telephone call
Using these topics, prepare a speech describ- i. Renting a motel room
ing each of the items. Use as many examples as j. A golf course
possible. k. A high school education
l. Cable television installed in a new
30. Services can be classified based on the following
neighborhood
criteria:
Type of market (business or individual)
Type of Labor Customer Level of Organizational

Market Intensiveness Contact Skill Goal
a. Business low low high profit

S
N
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Hotel and Lodging
Management Individual
Series Event
The Hotel hotel rooms. Self-service refrigerators allow
and Lodging guests to help themselves to drinks or yogurt.
Management In addition, the hotel offers a free delicious
Individual Se- lunch (sandwiches and salads) to all guests.
ries Event consists of a 100-question multiple- To counter the additional costs of the new
choice comprehensive exam and role-plays. services, the Towers Hotel has increased room
The role-play portion of the event requires rates by 20 percent. You must create a promo-
participants to accomplish a task by translat- tional strategy that emphasizes all of the new
ing what they have learned into effective, amenities and downplays the increased room
efficient, and spontaneous action. The five rates.
performance indicators specify the distinct
tasks the participant must accomplish during Performance Indicators
the role-play. Students have ten minutes to Evaluated
prepare their strategy for the role-play and • Determine services to provide to custom-
another ten minutes to explain their strategy ers. (Product/Service Management)
to the judge. The judge can ask questions • Demonstrate a customer-service mindset.
during or after the presentation. (Emotional Intelligence)
Hotel guests have always craved pamper-
ing. Upscale hotels have catered to guests • Explain the role of customer service in
by offering club-members-only floors. Now, creating an image. (Product/Service
many hotels are turning club floors into Management)
retreats where members choose their pillow • Explain factors affecting pricing
and have access to a free iPod and cappuccino decisions. (Pricing)
day or night. Because most hotels are trying • Explain the types of promotion
to boost their revenue by raising room rates to be used. (Promotion)
5 to 25 percent, they are raising the customer
service bar to justify the higher room rates. Go to the DECA web site for more de-
Hotels must be aware of the current tailed information.
trends. More business travelers are bringing Think Critically
their families to business meetings. These
1. Why are some complimentary hotel
travelers demand club lounges where their
amenities not actually free?
families can eat free breakfast. Women busi-
ness travelers are requesting restricted-access 2. Why should the Towers Hotel consider
floors and more exclusive lounges in place of using different promotions for different
bustling lobby bars. target markets?
The Towers Hotel chain has decided to 3. Will all hotel guests want the extra
increase its customer service efforts. The hotel perks?
chain has added fireplaces to rooms. Free 4. What type of frequent guest program
wireless Internet service and new computers could the hotel consider implementing?
included in the hotel rooms allow guests to
download music. The hotels have also added S
Starbucks single-serve coffee machines in all w w w. d e c a . o r g N
327
11-1 • What AreDECA
Services?
Prep 327
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Chapter 12
Business-to-Business
Marketing
12-1 Business-to-Business Exchanges
12-2 Making Business Purchase Decisions
12-3 Business Purchasing Procedures
12-4 Retail Purchasing
Newsline )))
Coding System Unlocks Business Markets
The U.S. business market includes NAICS uses a six-digit code. purchasing needs. They can track
nearly 7.5 million firms and over It replaced the previous Standard increases and decreases in the
116 million employees. Each business Industrial Code (SIC) classification numbers of businesses, the volume
purchases goods and services, with system in the late 1990s. The SIC sys- of sales in the industry, and even
some spending millions of dollars tem used four-digit codes and had changes in levels of employment.
each day. The largest businesses will become outdated with the creation It is an important tool for market-
budget several billion dollars each of many new industries that didn’t ing planning. Reports on industry
year to buy products and services. even exist when the system was information using NAICS codes are
The business market consists of designed by the U.S. government in prepared by government agencies as
producers, manufacturers, retailers, the 1930s. The NAICS system is also well as business, trade, and profes-
wholesalers, and service providers. used in Canada and Mexico, facilitat- sional organizations.
Selling to businesses can be ing trade between those countries
very complex. Sorting through all of and U.S. businesses. The NAICS was Think Critically
the differences among businesses to updated in 2007 to clarify and pro- 1. Using the Internet or library,
find the best target markets requires vide additional classifications in the find a NAICS code for a business
careful study and a great deal of telecommunication and information
that makes engines for farm
information. But help is available industries. In addition, a new North
equipment. What do the com-
in the form of a tool known as the American Product Classification
North American Industry Classifica- System (NAPCS) was introduced that ponent numbers of the code
tion System (NAICS). It was created focuses on the products produced mean?
to identify organizations in similar by the service industry. 2. How do businesses use the
industries and to identify their To target business customers, NAICS to find markets for their
primary activities, size, location, most companies start with NAICS products or services?
and other important descriptive information. In that way, they can
information. identify businesses with similar
CH 12-B4491_RP1_REV3.indd 328 12/7/07 8:15:51 PM


• Understand the concepts and processes needed to • Determine product development objectives
obtain, develop, maintain, and improve a product • Employ sales techniques to enhance customer
or service mix in response to a market relationships
• Employ product mix strategies to meet business- • Determine customer needs
to-business customer expectations
• Evaluate market opportunities
• Describe the use of target marketing
• Facilitate customer buying decisions
Visual Focus
Most consumers are unaware of the many
products and services that businesses sell
to other businesses. There are many oppor-
tunities in the business-to-business market.
Marketing strategies must be as carefully
developed for business customers as for final
consumers. Business-to-business marketing
begins with identifying target markets and
their needs in order to develop an effective
marketing mix.
Focus Questions:
After reviewing the advertisement, what types
of products do you believe Norilsk Nickel sells?
Who might be some of its customers? Why
would a company that sells to other busi-
COURTESY, NORILSK NICKEL
nesses benefit from advertising? If you were a

business customer, would the advertisement
interest you in Norilsk Nickel? Why or why not?
Locate another advertisement for a
product or service that is being marketed to
business customers. Share your example with
other students and discuss how business-to-
business advertising is similar to or different
from consumer advertising.
CH 12-B4491_RP1_REV3.indd 329 12/7/07 8:16:45 PM

12-1 Business-to-Business Exchanges
GOALS KEY TERMS
• Explain the reasons businesses buy things from other business-to-business marketing, p. 330
businesses. purchasing, p. 331
• Define the five major classifications of business
consumers.
• Describe the common characteristics typical of busi-
ness markets.
Any exchange of products and services involves a buyer and a seller. People most
often think about businesses as sellers and individual consumers as buyers. Actu-
ally, the majority of exchanges do not involve the final consumer. Instead, most
exchanges take place between businesses. One business buys products and services
from another business. Business-to-business marketing is a very important part of
our economy.
Marketers should be aware that businesses buy products and services from
other businesses for several distinct reasons. While there are five major types of
business consumers, purchasing decisions of business customers tend to share a
number of characteristics.
Every time a consumer buys a car, that one purchase is the culmination of hun-
dreds of business-to-business exchanges that had to take place in order for that car
to be available at that time and place. List ten business-to-business exchanges that
had to be completed in order for a consumer to be able to purchase an automobile.
Reasons for Business Purchases

usinesses need a variety of prod- in production. Many of the component
B ucts and services to be able to

carry out their day-to-day opera-
tions. The various types of products and
parts that are used in manufacturing prod-
ucts are produced by other companies.
Purchasing products to be incorporated
services bought and sold by businesses into a production process and then resold
are identified in the business product is an important part of business-to-
classification system shown in Figure business marketing.
12-1. The exchange of products and ser- Some businesses purchase products for
vices between businesses is known as direct resale to other customers. It is not
business-to-business marketing. efficient to sell every product or service
There are many reasons why businesses directly from the producer to the final
purchase products and services from other consumer. Therefore, other businesses fa-
businesses. A producer or manufacturer cilitate the marketing and sale of products.
usually does not own everything it needs Typically, those businesses do not change
S to develop the products it sells. Some com- the physical form of the product, but they
N panies do not have the raw materials used may repackage it. They will also provide a
330
330 CHAPTER 12 • Business-to-Business Marketing
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FIGURE 12-1
Several types of products and services are bought and sold by businesses.
Categories of the Business Product Classification System

Capital Goods The building and major equipment of business
Operating Equipment Equipment used in the daily operation of the business
Supplies Consumable materials used in the operation of the business
Raw Materials Unprocessed materials that are incorporated into the products by the
business
Component Parts Partially or completely processed items that become a part of the products
produced by the business
Services Tasks performed in the operation of the business or to support the produc-
tion, sale, or maintenance of the business’s products and services
number of the marketing functions as they advertising agencies and printing compa-
complete the selling process. nies, and services that support the prod-
A third reason for business purchasing ucts they sell such as delivery and repair
is to obtain products and services needed services.
to operate the business. Buildings and
equipment are produced by one com-
pany for sale to others. Companies need Checkpoint
a variety of supplies for their day-to-day
operations. Many businesses purchase Name three reasons that businesses pur-
professional services from attorneys chase products and services from other
and accountants, business services from businesses.
Purchasing as a Marketing Activity

urchasing is an important activity
P of marketing. Purchasing includes

determining the products and
services needed, identifying the best
Types of Business Purchasers
Do you think marketing to businesses and
organizations should be done in a different
way than marketing to final consumers? If
sources to obtain them, and completing you just picture the two types of customers
the activities necessary to obtain and use in your mind, you might believe the answer
them. Businesses must do an effective job is yes. Consider selling radios to an
of purchasing the products and services automobile manufacturer compared to
they need if they are to be successful. If a selling a radio to a consumer to be installed
business purchases the wrong products or in that person’s car. You see a large busi-
products that are of poor quality, if it pays ness purchasing hundreds and thousands
too much for the products it purchases, or of radios versus one person buying a single
if a supplier is not able to deliver products radio. You can expect that the business has
as promised, the business will be unable very different reasons for purchasing the
to operate effectively and serve its cus- radios than does the individual. It is S
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reasonable to believe that different
procedures would be used to gather
information and make a decision
about the radio that will be pur-
chased.
Even though those differences are
great, the basic marketing process is
not different. It is necessary to iden-
tify the target markets, determine
their characteristics and needs, and
develop a marketing mix that meets
their needs better than other compa-
nies. Just as all final consumers are
not the same, businesses also have
important differences that require
different marketing strategies.
©DIGITAL VISION
Business Customer
Classifications What are the considerations for a reseller, such as a
One way of classifying business cus- supermarket, when making purchasing decisions?
tomers is by the type of organization.
The major categories of businesses Resellers Wholesale and retail busi-
are producers, resellers, service businesses, nesses are a part of the product distribu-
government, and nonprofit organizations. tion system connecting producers with
All businesses and other organizations consumers. They purchase products
purchase the products and services they for resale and typically complete other
need to operate, including capital equip- marketing activities as a part of the
ment, operating equipment, and supplies. distribution channel. They might offer
They make purchases that are appropriate distribution and storage services, promote
for the types of activities they perform. products through advertising and per-
sonal selling, extend credit to consumers,
Producers About 1.2 million busi- and complete a variety of other market-
nesses in the United States are involved in ing activities to meet customer needs.
production. Those businesses range from Over 1.1 million retailers and 430,000
farms and ranches, mining companies, wholesalers operate as resellers in the U.S.
and oil refiners to manufacturers of busi- economy.
ness and consumer products. The largest
production category is construction with Service Businesses More companies
over 700,000 companies. Producers can in the United States produce services than
be very small businesses that employ only produce products for resale. More than
a few people and spend less than $10,000 five million service businesses were oper-
a year on purchases or companies as ating in the United States in 2005. That
large as General Motors Corp. or Procter number is growing faster than any other
& Gamble that employ several hundred category of business.
thousand people worldwide and may eas- Most of the purchases made by a ser-
ily spend $10 million in one day on pur- vice provider are used in the operation of
chases. Producers are customers for raw the business and to develop the services
materials and component parts as well as it sells. Some service businesses, such as
the other products and services needed rental firms, actually purchase products
S for business operations. that are used by final consumers. Rather
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than selling the products
to those consumers, they
retain title and allow
the consumer to use the
product. Some types of
rental businesses are well
known, like video stores,
apartments, and stores
that rent formal wear for
proms and weddings.
Other types of rental
businesses are not as well
known. Businesses leased
automobiles to other busi-
nesses for many years,
but it has only recently
become a popular option
for individual consum-
ers. When you go to an
COURTESY, BUSINESS OBJECTS OF AMERICA, INC.
amusement park, you can

rent a video camera for
the day. Investors build
huge office buildings and
then lease the space to
companies.
Government Federal,
state, and local govern-
ment agencies provide
services to citizens and
develop and enforce laws Business Objects is marketing a product that could meet the busi-
and regulations. The total ness needs of all types of organizations because all businesses
purchases made by the have customer service concerns.
U.S. government make it
the largest single customer Nonprofit Organizations Many
in the world. From a supplier’s viewpoint, organizations in our communities
the government is made up of thousands do not operate in the same way as private
of separate customers with different needs businesses. They have specific goals or
and purchasing procedures. clients to serve, and that service is the
Government agencies and institutions primary reason for their operations.
purchase the full range of products, from While they need an adequate budget
raw materials to supplies and services. to operate, profit is not their primary
Some government organizations, such as motive. Most have a nonprofit designa-
city utilities, purchase raw materials and tion from the U.S. Department of Trea-
operate very much like privately owned sury so that they are tax-exempt. Com-
producers. Part of the military operates mon examples of these organizations
like wholesalers and retailers when it are schools, museums, churches, social
purchases products for distribution and service organizations such as shelters and
sale to military personnel and their fami- community centers, colleges and universi-
lies through commissaries and stores on ties, professional organizations, and some
social clubs. S
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As with government agencies, non- the full range of products and services in
profit organizations operate to provide ser- the business products classification system.
vices to specific client groups. Therefore,
they need to purchase those things neces- Checkpoint
sary to offer the services. Those purchases
could be only a limited number of operat- What are the five major classifications of
ing supplies and products, or they could be business consumers?
Characteristics of Business Markets

usinesses that sell to other businesses have common purchasing needs. Consider
B need to understand how those mar-

kets are different from final con-
sumer markets. There are some common
two furniture stores serving the same
market. They will likely purchase the same
types of furniture and home accessories for
demographic characteristics and purchas- resale and will buy similar capital and op-
ing behaviors that are typical of business erating equipment for their stores. In most
markets. communities, there will be several com-
panies that mix concrete for use in con-
Derived Demand struction projects. They need to purchase
Businesses do not buy products for the same raw materials, such as cement,
final consumption. Instead, they make sand, and stone, as well as similar equip-
purchases to be used directly or indirectly ment, such as mixing facilities, trucks, and
in meeting the needs of final consumers. concrete pumps to operate the business.
Therefore, the types and quantities of
products and services demanded by the Number of Businesses
business are based on the level of demand The number of business customers for
of their customers. In other words, the specific products is usually smaller than
business’s demand is derived from its cus- the number of final consumers who will
tomers’ demand. purchase a product. That is typically an ad-
vantage for those who sell to the business
Purchase Volume market. Having fewer customers means
Business customers usually purchase that it should be easier to maintain contact
in much greater quantities than final with the customers and understand their
consumers. While final consumers may needs. Because purchase volume for each
buy the same product again, their needs customer is high, having fewer customers
change much more frequently than busi- should not restrict the amount of total
ness purchasers. Because businesses are sales a company can make in the business
making purchases to be incorporated market.
into other products or for operations,
they usually purchase large quanti- Wo r k i n g i n Te a m s
ties of those products. They are less
likely to make major changes in the As a team, identify five manufacturers and one
items purchased unless their cus- product each of the manufacturers would pur-
tomers’ needs change dramatically. chase and use as a part of its operations. Now
identify an important customer group each
Similar Purchases business serves and discuss how the demand by
Businesses that produce or resell that group affects the derived demand for the
S similar products and services usually product purchased by the manufacturer.
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Buyer/Seller Relationship customer is more typical. The selling busi-
Businesses that produce products for sale ness is responsible for contacting prospec-
to final consumers often have little contact tive customers, selling the product, and
with the customer. Because customers providing follow-up support and service as
are located throughout the country and well as solving customer problems. Those
sometimes throughout the world, it would activities are possible because of the lower
be difficult to distribute products directly number of customers. Also, in some busi-
from the seller to the buyer. Retailers and ness markets, the businesses that purchase
wholesalers are usually a part of the dis- similar products are in the same industry
tribution system for consumer products. and may be located in the same geographic
The retailer is responsible for selling the area of a country.
product and often for responding to any
customer problems and even some service Checkpoint
needs.
In business-to-business selling, distrib- What are common characteristics typical of
uting the product directly to the business business markets?

Determine the best answer. 5. Economics Visit the web site of the U.S.
1. Consumable materials used in the operation Census Bureau (www.census.gov). Enter
of the business are “county business patterns” in the search box
a. operating equipment and locate census data on the number of
b. supplies businesses in your county. Prepare a pie chart
c. raw materials that compares the number of manufacturers,
d. services wholesalers, and retailers in your county.
2. The largest category of business customers in 6. Research Use a business or telephone directo-
the United States is ry for your community. Identify two businesses
a. producers or organizations that represent each of the
b. wholesalers types of business customers discussed in the
c. retailers lesson. For each, identify an important product
d. service businesses or service it provides and one that it purchases.
Prepare a table to present the information.
3. True or False: The total purchases made by
the U.S. government make it the largest Connect to
single customer in the world.
7. A local home-cleaning business is considering
4. Compared to final consumers, business expanding and focusing on business cus-
customers tomers. Develop a two-minute presentation
a. purchase in larger quantities to be presented to the owner of the business
b. base their purchases on derived demand on the similarities and differences between
c. more frequently buy directly from the its current market and the new business cus-
producer tomers. Give your presentation to your teacher
d. all of the above (judge). Be prepared to answer questions
about your ideas. S
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12-2 Making Business Purchase Decisions
GOALS KEY TERMS
• Describe how businesses make new purchase, modified purchase specifications, p. 337
purchase, and repeat purchase decisions. reorder point, p. 338
• Explain the roles played by purchasing specialists. reciprocal trading, p. 340
• Identify issues that often arise in international purchasing.
Effective marketing requires that the seller understand the buyer and how the buyer
makes purchase decisions. Individual consumers go through a careful process of
gathering information and evaluating choices before making a decision. Business
consumers also use a careful decision-making procedure, but that procedure has
some important differences from the one used by final consumers. Business buying
decisions tend to be more rational and directly related to business needs. Purchas-
ing activities frequently require the hiring of purchasing specialists and the involve-
ment of top managers. International purchasing procedures present an additional
set of issues.
Select a product or service that will be used by a business as a part of its opera-
tions or will be incorporated into another product. Describe the important factors
you believe the business will consider when planning to purchase the product or
service. Compare your list of factors with those of other students.
The Buying Decision

n business purchasing, the decision to services they need. They may first decide
I buy is based on an identified business

need. While the decisions of individual
consumers are also based on needs, they
if they are able to make the product or
provide the service with their own
resources. For example, most businesses
are frequently influenced by emotion. Busi- have a variety of printing needs. A
ness purchasing is usually a rational pro- company may want to send catalogs to
cess. The product or service purchased will customers or use direct mail advertising.
be the one that best meets the needs of the It may use a large number of forms and
business at a reasonable price. Purchases other printed materials in the business.
must improve the business or be resold to The company may be able to find several
customers. Purchases must be cost-effective printing companies to produce the
in order to contribute to profits. Therefore, materials needed. It may also be able to
business purchasing is done very carefully. establish its own internal printing depart-
ment. If the volume of printing is large
Make or Buy enough and printing is needed regularly,
S Businesses, especially manufacturers, do the company may save money by doing its
N not always purchase the products and own printing.
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Figure This
Incremental Cost Decisions of the second hundred units is only $15 each
Whenever there is an opportunity for a ($4,000 ⫺ $2,500 = $1,500 ÷ 100). A buyer
business-to-business exchange of products or might decide that at $15 it is better to buy a
services, both the buyer and the seller need larger quantity, even if it means tying up cash
to be aware of two measurements of cost in in inventory.
addition to the total cost of the exchange. Conversely, if a seller’s incremental pro-
Average cost is the cost per unit. It is derived duction costs decline for larger quantities, it
by dividing the total cost by the number of might propose a long-term supply contract
units being exchanged. If you buy 100 units that benefits both parties.
for $2,500, that is $25 per unit. Average cost Think Critically
can be calculated for components, raw mate-
rials, or services. 1. If 1,000 units cost $50,000 and 2,000 units
Incremental cost is a decision-making cost $80,000, what is the incremental cost
tool. It differs from average cost in that it per unit of the second 1,000 units?
is calculated by examining the costs of an 2. If the cost per unit up to 10,000 units is $1,
exchange in increments. If 100 units cost and unit cost is progressively reduced by
$2,500, but 200 units cost $4,000, the average 10% for each additional 10,000-unit incre-
cost would be $25 or $20, respectively. More
ment, what is the incremental cost of the
significantly, perhaps, the incremental cost
last unit if a buyer orders 40,000 units?
Types of Purchases decide on the types of products that can

When a business decides to buy rather than meet those needs, and identify the compa-
make the products it needs, it develops spe- nies that offer the products.
cific purchasing procedures. Three different Often the company takes a great deal
types of purchasing situations determine of time planning for the purchase. The
the procedure that will be followed. Those company may develop purchase specifi-
situations are a new purchase, a modified cations that the selling companies must
purchase, and a repeat purchase. meet. Purchase specifications are detailed
requirements for construction or perfor-
New Purchase The most difficult pur- mance of a product. The buyer will also
chasing situation is when a business buys have expectations in terms of the supply
a product or service for the first time. needed, delivery methods and schedules,
Examples of new purchases for many and technical support required for use of
companies are buildings, major pieces the product.
of equipment, and the raw materials and
component parts needed when manufac- Modified Purchase A company
turers develop a new product. may find that the products purchased
Because the product has never been in the past do not totally meet current
purchased before, the business has no needs and so require some changes. The
experience with it and may have no experi- company will identify the changes or
ence with the companies that sell the prod- improvements needed. The modifications
uct. The business must carefully determine will be communicated to the company
the needs it must meet with the purchase, that has been selling the original product, S
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and the company will have the opportu- The purchasing process may become so
nity to meet the new requirements. Other routine that it is handled by a computer. The
companies may be given the chance to computer maintains the inventory level of
supply the modified product if major the product. As the product is used or sold,
changes are planned or if the buyer is not the inventory level decreases until it reaches
satisfied with the current supplier. the reorder point. The reorder point is the
Retailers use modified purchasing level of inventory needed to meet the usage
when they have had success with a basic needs of the business until the product can
product and want to offer additional be resupplied. When the reorder point is
features and options to customers. Com- reached, the computer issues a purchase
panies that have purchased computer order to the supplier, and the product is
systems may want to purchase additional shipped.
computers but may want them upgraded When the product being purchased is
with current technology. A company may not unique, with many companies offering
have contracted with an accounting firm the same product for sale, repeat purchas-
for bookkeeping services and now may ing becomes very competitive. Since the
want to extend the contract to include tax buyer realizes that the same product can
preparation. be purchased from several sellers, price
may become an important factor. The
Repeat Purchase Most business pur- purchasing company may pressure the
chases are very routine. The same prod- suppliers to reduce the price. This situation
ucts and services are purchased over and happens regularly with companies that sell
over. The buyer is very aware of the needs to large retailers and companies that sell
that are being met with the purchase common operating equipment and sup-
and has identified the product that meets plies to businesses.
those needs. In many cases, the buyer
has developed a good relationship with a
seller and does not even consider buying Checkpoint
from another company. When a new sup-
ply of the product is needed, the company How do new purchases, modified
just reorders from the same seller. purchases, and repeat purchases differ?
Purchasing Requires Specialists

urchasing in businesses occurs con-
P tinuously and involves thousands and

even millions of dollars each day in
many businesses. Many of the products
purchased are unique and very complex
and technical. The purchasing process
involves negotiating on product specifica-
tions and costs and arranging delivery
and payment schedules. Often lengthy and
©DIGITAL VISION
complex contracts are prepared between

the buyer and seller.
Because the process is so important and
S complicated, many businesses have depart- Why is negotiating an important part of the pur-
N ments and personnel that specialize in chasing process for a business?
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purchasing. The person or persons re-
sponsible for managing the purchasing
procedure are members of the purchasing
department. Job titles of purchasing spe-
cialists include buyer, product manager,
merchandise manager, and purchasing
agent. They work with the purchasing de-
partment, identify possible suppliers, com-
municate needs and specifications, gather
needed information, and manage the
paperwork. They are usually responsible for
negotiating the price and terms of the sale.
Usually several people are involved in
the buying decision the first time a product
or service is purchased or for particularly
complex or expensive products. The de-
partment using the product plays an im- Why should members of various departments
portant role in the purchase decision. The be involved in the purchasing decision?
manager and often experienced employees
from that department will help prepare contracts and review all of the documents
specifications. For a very technical product involved in the purchase. Finally, for the
or a new product, engineers or others with most important or expensive purchases,
technical expertise may be involved to one or more members of top management
review the specifications and evaluate and will participate in the purchasing process.
test the products of suppliers.
Financial personnel participate in pur- Checkpoint
chases when the purchase is very expensive
or the prices of competing products are What is the role of purchasing specialists in
quite different. Lawyers may help develop the purchasing process?
International Purchasing
s more companies become involved in Locating products from international
A international marketing, the impor-

tance of understanding the unique
purchasing procedures of international
businesses is easier today than at any time
in the past. Many businesses have foreign
buying offices or purchasing representa-
trade increases. There can be advantages tives in other countries. Manufacturers
to purchasing products from international wanting to sell to other countries will be
suppliers. They may offer unique prod- represented at international trade shows or
ucts or manufacturing procedures, better in foreign trading offices and trade direc-
availability, lower prices, or higher qual- tories. Most states and many large cities
ity. Those advantages are lost if products now have international trade centers where
are not supplied as expected or if costs are buyers and sellers can meet to exchange
much higher than anticipated. Companies information and negotiate purchases.
purchasing internationally must be aware Selecting products and suppliers
of the unique customs and business prac- from other countries is based on factors
tices of each country and must develop other than just the product to be pur-
effective relationships with their suppliers. chased. The product and its characteristics S
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Reciprocal Trading
Fa s t FAC T S One procedure some businesses use in
A study by Cornell University of inter- international trade is reciprocal trading.
national call centers found that only Reciprocal trading is a form of bartering
one-third of jobs were outsourced while in which the products or services of one
two-thirds were owned and operated company are used as payment for the prod-
in-house. More than 80 percent of ucts or services of another company. Re-
international call centers were opened ciprocal trading is used when an unsatis-
to serve customers in the country where factory exchange rate exists or when one of
the center is located. the companies does not have an adequate
amount of cash to finance the purchase.
As an example of a reciprocal trade agree-
ment, a U.S. company that produces robots
are important, and the purchaser must be
for use in automobile manufacturing sold a
assured of the product’s quality. The pur-
large order of equipment to a new company
chaser should be able to inspect a sample
in Europe. Since the new company did not
of the product and talk to other businesses
have enough cash to pay for the equipment,
that have purchased or used the product.
the companies negotiated a contract in
which the U.S. business received a percent-
Supplier Qualifications age of the sales of automobiles produced by
The seller’s qualifications are an impor- the European company.
tant consideration. Problems result when
the company is not reliable or financially Financing
stable. Often the purchaser’s bank can
Banks that have experience in international
help obtain financial information about
business can provide a great deal of help in
the company. It is also important to con-
arranging financing of purchases. They can
sider the stability and economic condi-
give advice on exchange rates, terms of pay-
tions of the country in which the supplier
ment, and methods of paying for purchases.
is located. It can be risky to work with a
Many banks that have experience in inter-
business from a country that has a weak
national finance have established working
economy or is having political difficulties.
relationships with financial institutions
in other countries. Those contacts make it
Pricing
Considerations
One of the most important
factors in international buy-
ing is negotiating price. Most
countries have their own
monetary system, and it may
be difficult to accurately
calculate rates of exchange.
The exchange rate of money
can change a great deal in the

time it takes to negotiate a
purchase and make delivery of
a product. Also the countries
of the supplier or buyer may
impose tariffs or duties on the
S product, which can drastically When conducting business in another country, why is it best to
N change the price. work with banks that have international experience?
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easier to gather financial information and cases. However, the timing and reliability
complete financial transactions with busi- of international shipments is often a major
nesses in those countries. concern. Careful transportation planning
should be done before a decision is made
Transportation to purchase from an international supplier.
Some companies make a small purchase or
Transportation decisions include deter-
require a sample shipment before commit-
mining the method of shipment, selecting
ting to a large order.
the transportation company, preparing
the necessary transportation documents,
and meeting each company’s requirements
for shipping, handling, and inspecting Checkpoint
products. The time needed for transport-
ing products between countries may be no What are important factors to consider
longer than domestic shipments in some when making international purchases?

Determine the best answer. 6. Communication Locate magazine advertise-
1. True or False: The purchase decisions of busi- ments for three products or services directed at
nesses are usually more rational than the business customers. Using two colors of mark-
purchase decisions of final consumers. ers, highlight information in the ad that is an
emotional appeal with one color and informa-
2. Detailed requirements for construction or
tion that is a rational appeal with the other color.
performance of a product are known as
a. a purchase contract 7. Government Agencies of the U.S. and state
b. an invoice governments provide assistance to busi-
c. purchase specifications nesses wanting to participate in international
d. derived demand trade. Use the Internet to locate a government
agency that helps with (a) identifying inter-
3. The _____ is the level of inventory needed to
national suppliers or customers, (b) financing
meet the usage needs of the business until
international sales and purchases, and (c) ar-
the product can be resupplied.
ranging transportation services. Prepare a one-
4. Which of the following would not typically be paragraph summary of the agency and the
involved in a complex and expensive pur- type of assistance it provides.
chasing decision for a business?
a. an experienced employee from the de- Connect to
partment making the purchase 8. Your team members are responsible for devel-
b. a company lawyer oping a procedure for your school to follow
c. a top company executive in purchasing a new bus to be used to trans-
d. a customer of the business port students on field trips and club activities
5. Using the products or services of one com- and to athletic events. Outline the steps that
pany to pay for purchases from another should be followed, the people who should be
company is known as involved, and the main factors that should be
a. business purchasing considered when choosing the company from
b. currency exchange which the bus will be purchased. Make a three-
c. reciprocal trading minute team presentation of your recommen-
S
d. international trade dations to your teacher (judge).
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12-3 Business Purchasing Procedures
GOALS KEY TERMS
• Identify the steps in the business purchasing vendors, p. 343 inventory, p. 349
process. vendor analysis, p. 344 physical inventory system,
• Explain why purchasing decisions need to take request for proposal p. 349
into consideration more than just the direct (RFP), p. 344 perpetual inventory
cost of products and services. system, p. 349
bidding, p. 344
• Describe the importance of keeping accurate supply chain, p. 348 purchase order, p. 349
inventory and purchasing records.
just-in-time (JIT), p. 348 packing list, p. 350
total quality management invoice, p. 350
(TQM), p. 348 receiving record, p. 350
The procedures that businesses use to make purchase decisions are similar to the
procedures used by final consumers, except that business processes tend to be
more detailed and systematic. Also, they usually involve a number of people rather
than just a single individual. Like the process used by final consumers, the steps
begin with identifying needs and include a postpurchase evaluation to gauge how
well those needs have been met. When making purchasing decisions, businesses
need to consider all of the costs that might be affected and the impact they will
have on profits. Important records that are needed to determine what and when to
purchase include inventory and purchasing records.
List all of your personal expenses that would be affected by a decision to buy or
not buy a car. What costs would be affected by the model you choose? How would
you determine which car is the best value considering all of the expenses in addition
to the cost of the car? Who would you consult to help you make that decision?
Steps in the Purchasing Process

he general process that business
T customers use in making a purchas-

ing decision looks very much like
that used by final consumers. The steps
Identify Needs
Even the first step in the decision-making
process, need identification, is complex.
Remember that the demand for business
in the process are shown on the right side products is derived from the needs of the
of Figure 12-2. For new or very expensive business’s customers. In addition, the
purchases, the business purchasing process needs of many parts of the business must
will typically be more detailed and involve be considered. Those needs may not always
S more people.
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FIGURE 12-2
The decision-making process used by businesses is similar but more detailed than that used by
final consumers.
Purchasing by Final Consumers and Business Consumers

Final Consumers Business Consumers
1. Identify needs 1. Identify purchasing needs

2. Gather information 2. Determine alternatives
3. Evaluate alternatives 3. Search for vendors
4. Make purchase decision 4. Select appropriate vendors
5. Evaluate decision 5. Negotiate a purchase
6. Make purchase decision
7. Evaluate purchase
be the same and might even conflict with suppliers. In some businesses, the purchas-
each other. For example, a company with ing department is responsible for main-
declining sales may experience an internal taining vendor lists for various types of
conflict regarding the purchase of train- products and services. Vendors are selected
ing services. The sales department believes for consideration based on criteria estab-
that additional training will help sales- lished by the purchasing business. Those
people more effectively serve customers factors include availability of products,
and increase sales. The human resources quality, reliability, delivery, service, and
department needs to reduce expenses price. Organizations such as ISO (Interna-
because of lower revenues and wants to tional Organization for Standardization)
cut back on the amount spent for training. have been formed to certify businesses
This conflict must be resolved before a pur- that meet specific standards. Purchasers
chase decision can be made. can use the list of certified businesses to be
sure the supplier has met the high stan-
Determine Alternatives dards of the certifying organization.
In the second step, the business attempts to
determine the types of products or services
that will meet its needs. Here the business
decides whether an existing product meets
the needs best or whether a new product
will be better. Money can probably be
saved if suppliers do not have to develop
a unique product, but that product may
not be the ideal product. The business will
develop product specifications in order to
clearly describe the product needed.
Search for Vendors

Next the business begins the search for the
products and services it needs to purchase.
Companies that offer products for sale to How could ISO certification benefit a computer S
other businesses are known as vendors or component manufacturer? N
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Select a Vendor Negotiations are completed in several
After possible suppliers have been identi- ways. If the company is buying a standard
fied, they are carefully evaluated. Often, product or one that has been purchased
several vendors offer acceptable products, in the past, the negotiations are simple.
but the vendors may vary on other fac- The buyer and seller will discuss price,
tors important to the buyer. A decision quantity, and delivery and will agree on
will have to be made to determine what the terms of the sale. If the buyer has not
combination of vendor characteristics developed a complete set of criteria or
best meets the buyer’s needs. A procedure selected a specific product to purchase,
called vendor analysis may be used to help the company may develop a request for
with the decision. Vendor analysis is an proposal. A request for proposal (RFP)
objective rating system used by buyers to contains a specific description of the type
compare potential suppliers on important of product or service needed and the crite-
purchasing criteria. An example of a ven- ria that are important to the buyer. Sup-
dor analysis for the purchase of vehicles for pliers then develop proposals that contain
a business is shown in Figure 12-3. detailed descriptions of the product or
service they can supply and the way they
can meet the buyer’s criteria.
Negotiate a Purchase For the company that has completely
The purchasing team will determine which determined its needs, product specifica-
of the products and suppliers best meet tions are provided to the suppliers who
the business’s needs, and the purchasing then demonstrate how they can meet those
department will begin negotiations with specifications. Finally, the most restrictive
them. This is another difference from the type of negotiations is known as bidding.
process used by final consumers. Usually, In bidding, several suppliers develop spe-
retail businesses specify the conditions of cific prices at which they will meet detailed
the sale, and the consumer decides whether purchase specifications and other criteria
to accept those conditions. In business- prepared by the buyer. The supplier that is
to-business marketing, the buyer often able to respond to the buyer’s requirements
specifies the requirements the seller needs at the lowest price is usually selected. A
to meet. The buyer and seller may discuss bidding process is a common practice in
those criteria and make changes. selling to government agencies.
FIGURE 12-3
If a company is planning to buy several new vehicles, it will usually analyze potential suppliers on
important criteria in order to select the best vendor.
Vendor Analysis
Vendor Purchasing Criteria
Specifications Warranty Service Price Availability
Dodge 10 8 5 6 4
Ford 9 9 6 4 5
GMC 7 7 9 8 7
Toyota 8 4 7 5 6
S
Scoring: 10 = high; 1 = low
N
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Make a Decision
After analyzing the infor-
mation available, the buy-
ing team selects a supplier.
Because several people are
involved in the decision, it
may involve conflict and
politics. Each person has dif-
ferent needs to satisfy—both
business needs (what is best
for the department) and
personal needs (what is best
for the person’s career). Busi-
nesses try to specify criteria
and develop purchasing
procedures that should be
followed to avoid those types
of problems.
When a decision is made,
the purchasing department
prepares a detailed purchase
COURTESY OF GRUNER & JAHR USA PUBLISHING
order or contract to send to

the supplier to ensure that
products are supplied in the
form and quantity needed at
the correct time and price.
Evaluate the
Purchase
After a purchase is made,
the buyer determines if the
product meets the needs as Inc is reaching out to business customers by inviting them to participate in
well as possible. If businesses an online business panel. In doing so, businesses gain access to informa-
develop detailed specifica- tion that could assist them in future decision making.
tions, they use those speci-
fications in evaluating pur- needs change or unless the supplier is no
chases. They also consider their customers’ longer able to meet the buyer’s purchasing
needs. Sometimes, businesses complete requirements. If purchasing needs remain
the evaluation process before the products the same, the procedure becomes a repeat
are used. When the product is received, it purchase, and reordering is managed by
may be inspected to ensure that it meets the purchasing department or the user
requirements. For products purchased in department. The purchasing procedure
large quantities, such as raw materials or may even be automated so reorders can be
component parts, it may not be feasible to placed by a computer that monitors inven-
inspect every product. The purchaser may tory levels.
inspect small quantities and evaluate the
samples. Checkpoint
When purchases meet the buyer’s
needs, the buyer will usually continue to What are the steps in the business S
purchase from the same supplier unless purchasing process? N
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Planning a Career in... Supply Chain Management
“My dad’s wife is very excited about her new job.

She is working on supplier relationships at a
newly built automotive factory. The major-
ity of the suppliers have located distribution
sites close to the plant to facilitate just-in-
time (JIT) delivery of parts to the plant. She
• Professional certification or training in produc-
tion and inventory management or lean manu-
also has oversight of the manufacturing
facturing is an asset.
specifications of the parts. She helps the
suppliers understand what they
need to do to ensure their
What’s it like to work in…
products meet her company’s Supply Chain Management
specifications and also how Ingrid, a distribution analyst for a large plastics
they can apply the same manufacturer, is attending her group’s monthly
quality controls forecasting meeting. Demand for Ingrid’s product
to their vendors.” line, the plastics used to produce laundry deter-
How do gent containers, is being reviewed. Representa-
companies ensure tives from Sales, Marketing, and the Forecasting
that their vendors understand Analysis groups are in the meeting.
their needs? Whether it is raw Her company utilizes forecasting software
materials for manufacturing or that uses historical sales to project future demand.
finished goods for retailing, companies need to Information from sales representatives regarding
have a coordinated strategy for communicating the anticipated loss or growth of business can be
and managing their needs—both within their own manually entered into the forecasting system.
organizations and with their suppliers. After the forecasts are electronically updated,
Ingrid reviews their impact on the production
Employment Outlook schedule. When planning production, Ingrid needs
• An average rate of employment growth is to balance existing customer orders, forecasted
expected. customer orders, and current inventory levels
against future manufacturing schedules. Her job is
Job Titles to make sure that each type of product is available
• Demand Forecasting Specialist when customers need it without excess inventory.
Rumors about raw material shortages cause
• Logistics Supervisor Ingrid to call her counterpart at the manufacturing
• Materials Manager plant to see if there is need for concern. If short-
• Supply Chain Integration Manager ages are anticipated, she will contact the sales
manager so that he can have his sales force talk to
• Regional Logistics Director its customers about immediate needs. Order pri-
oritization can occur after all needs are assessed.
Needed Skills
• A bachelor’s degree is often required. A master’s

degree can be helpful for more advanced posi- W h a t A b o u t Yo u
tions.
• Strong analytical, interpersonal, and negotia- Would you like to use information from all areas
tion skills are needed. of the supply chain—from raw materials through
S finished product demand—to help a company
N optimize its production and operations?
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Judgment Call
What If Buyers Become Too involve sharing confidential internal infor-
Close to Suppliers? mation.
About two-thirds of businesses have
The trend toward more cooperative relation-
written ethics policies for purchasing
ships between purchasing professionals
personnel. Some purchasing professionals
and suppliers has increased the chance for
believe those policies are flawed because
ethical problems. Most people recognize
they are too lenient, not too strict.
that bribes and kickbacks are wrong. The line
between proper and improper behavior is Think Critically
clear. The real danger lies in gray areas where
1. How do clearly defined policies help
friendships mix with business.
purchasers and suppliers avoid ethical
Businesses that emphasize the develop-
problems?
ment of strategic relationships with suppliers
often have less objective procedures in place 2. What kinds of policies might a company
for awarding contracts. In such cases, it is adopt to prevent purchasing employees
easier for buyers to allow subjective personal from feeling like they owe suppliers a
feelings to interfere in the decision-making favor for gifts?
processes. Also, strategic relationships often
Improving Purchasing Procedures

ompanies know that effective purchas-
C ing does a great deal to improve the

success of the business while poor
purchasing causes serious problems. One
Improved Performance
An example of how purchasing improves
business performance comes from a large
retailer. The retailer found that some man-
company that manufactures instant break- ufacturers gave significant price discounts
fast drinks spent several million dollars on for the purchase of very large quantities
a new piece of equipment to seal the plastic of certain products. The retailer usually
liners that held the product inside an outer purchased the higher quantities believing
package. After using the machine for sev- that the low prices could be passed on to
eral months, the company found that the its customers, resulting in increased sales.
time needed to seal the packages slowed After several years of taking advantage of
the pace of production by 20 percent. The
manufacturer’s salespeople were unable to
make commitments to customers about Fa s t FAC T S
quantity and delivery schedules. Because
production was reduced, inventories of raw Businesses are getting much better at
materials increased. The hours of work for managing inventory. In 1992, invento-
many of the company’s employees had to ries averaged $1.56 for every $1 of sales.
be reduced. So, one purchase had a very By 2006, inventory levels had dropped
big negative effect on the business. to $1.26, about a 20% cost savings.
S
N
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the price discounts, an evalua-
tion of the purchases was com-
pleted. The retailer learned that
the large-quantity purchases
resulted in two problems. First,
both transportation and inven-
tory costs increased. Second, the
retailer had difficulty selling all of
the products in a timely fashion.
Some of the inventory had to be
sold at very low prices just to get
rid of it. And some of the prod-
ucts were never sold before their
“sell-by” dates expired. Therefore,
the total cost of the unsold prod-
ucts was wasted.
After that analysis, the re-
tailer put together a new purchas-
ing plan. Purchase quantities
were more closely matched with
customer demand. Even though
the cost of merchandise pur-
chased was higher, the savings
in inventory, transportation, and
fewer unsold products allowed
the retailer to keep customer Why should a business closely monitor its inventory needs?
prices nearly as low as before while and resupplied by supply chain members
profits increased by almost 15 percent. just as it is needed. Another tool used in
The examples show that there is more supply chains is total quality manage-
to effective purchasing than just the cost ment. Total quality management (TQM)
of the product. Identifying and monitor- establishes specific quality standards for all
ing the total costs of the business that are procedures. TQM teams made up of em-
affected by a purchase are important busi- ployees in each organization in the supply
ness activities. chain study procedures and make recom-
mendations for quality improvements.
Supply Chain Management Members of a supply chain benefit
Distribution is a part of a larger process from close cooperation and sharing of
known as supply chain management. A information. Effective supply chains have
supply chain is the flow of products, developed secure procedures to coordi-
resources, and information through all of nate the electronic exchange of informa-
the organizations involved in producing tion through their marketing information
and marketing a company’s products. systems. They cooperate in marketing
A supply chain is complex and usually research and cost controls to collectively
involves several businesses. Those busi- achieve customer satisfaction.
nesses must cooperate rather than compete
to ensure that customer needs are satisfied Checkpoint
and all businesses make a profit.
One way to improve a supply chain is Why do purchasing decisions need to take
with just-in-time supply. Just-in-time (JIT) into consideration more than just the direct
S means that the inventory level is kept low cost of products and services?
N
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Processing Purchases
rom the time decisions are made to by maintaining records on purchases and
F order products until the products are

ready for use or resale in a business, a
number of procedures must be completed.
sales. Daily inventory levels determined
through the perpetual system are main-
tained on computers. When a sale is made,
A variety of records, including inventory information from the product label is
and purchasing records, must be main- entered into a computer system (usually
tained to make sure the purchasing proce- via sales terminals), and the inventory level
dures are completed correctly. is automatically adjusted. Most businesses
combine the use of physical and perpetual
Inventory Records inventory systems. There will be differ-
Inventory is the assortment of products ences between the inventory levels of each
maintained by a business. Inventory in- system. The discrepancies can result from
cludes the products and materials needed products that have been stolen or lost or
to produce other products and services to from poorly maintained records. An im-
operate the business or to be sold to cus- portant task in inventory management is to
tomers. Inventory management is needed reduce losses and inventory records errors.
so that managers are aware of the supply of
products on hand at any time. That infor- Purchasing Records
mation helps to control costs and to ensure A purchase order, a form listing the
that operations can continue without variety, quantity, and prices of products or-
interruption. dered, is completed by the buyer and sent
Inventory records are
maintained to provide infor-
mation about the products
on hand in the business.
That information can include
the type of products, their
source, age, condition, and
value. It should also indicate
how rapidly the inventory
is used, when it should be
reordered, and the sources of
supply.
Two types of inventory
systems are typically used by
businesses: physical inven-
tory and perpetual inventory.
A physical inventory system
determines the amount of
product on hand by visu-
ally inspecting and counting
the items. A physical inven-
tory count is conducted on a
©DIGITAL VISION
regular basis, often every few

months or each half-year.
A perpetual inventory
system determines the What are the advantages and disadvantages of a physical S
amount of a product on hand inventory system? N
349
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to the seller to begin the purchasing pro- the packing list, and any discrepancies are
cess. The seller fills the order and sends it noted. Both are forwarded to the account-
to the buyer with a packing list, an item- ing department to be compared to the pur-
ized listing of all of the products included chase order and invoice before payment is
in the shipment. At the same time, the made. Finally, the products that have been
seller sends an invoice to the buyer. The received are entered into the inventory
invoice is an itemized billing statement records of the company and are distributed
with terms of payment for the order. to the departments where they will be used
When the merchandise is received by or sold.
the purchaser, it will be unpacked and
inspected for damage. A receiving record Checkpoint
is completed listing all of the merchandise
received in the shipment and its condi- Why are accurate inventory and purchasing
tion. The receiving record is compared to records so important to a business?

Determine the best answer. 6. Math Using the Fast FACTS information
1. True or False: Business purchasing proce- from this lesson, if a company had aver-
dures are totally different from the way final age monthly sales of $565,500 in 1992 and
consumers make purchase decisions. $823,750 in 2006, what would be the value of
its inventory in each of those years? Prepare
2. Which of the following is true about business
a bar graph to show your results.
purchasing?
a. Demand for business products is derived 7. Technology Use the Internet to research
from the needs of customers. how technology is being used to increase
b. Only the needs of the department that the coordination of activities and informa-
will use the product or service should be tion within supply chains to improve their
considered. effectiveness. Prepare a one-page report on
c. After a vendor has been identified, the your findings. Prepare a bibliography of the
business should develop product specifi- resources used for your report.
cations.
d. All are true. Connect to
3. True or False: The businesses that make up a 8. Your marketing team has been asked to
supply chain should view each other as com- prepare complete purchasing procedures
petitors. to be followed by all departments in a large
4. A _____ inventory system determines the manufacturing business when ordering
amount of a product on hand by maintaining new equipment. Prepare a flow chart that
records on purchases and sales. illustrates the procedure you recommend
including a description of each step, who is
5. An itemized listing of all of the products involved, and how the effectiveness of each
included in a shipment is a(n) step will be determined. Present your flow-
a. invoice chart to your teacher (judge) for evaluation.
b. packing list
c. purchase order
S d. inventory record
N
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Retail Purchasing 12-4
GOALS KEY TERMS

• Describe how retailers identify customer needs and merchandise plan, p. 352
how to satisfy them. basic stock list, p. 353
• Identify the ways retailers locate the products they model stock list, p. 353
need to satisfy their customers.
Retailers buy products from selected manufacturers and wholesalers for resale to
final consumers in their target markets. Because retailers make a relatively small
profit on each item sold, they spend a lot of time and effort studying their customers
to make sure they stock what customers want to buy. Retailers develop detailed
merchandise plans to organize the hundreds and thousands of items they carry.
Retail buyers locate the products they want to offer for sale through manufac-
turers’ and wholesalers’ sales representatives, trade shows, catalogs, and increas-
ingly through web sites maintained by the sellers. Once they decide what to buy,
they follow carefully developed procedures to get the products on their shelves as
quickly and efficiently as possible. For many retailers, customer needs change rap-
idly, new products are added frequently, and old products are removed from their
merchandise plans.
Make a list of eight things that you have purchased recently. For each item, list
three retailers you think carry that item or a similar alternative.
Planning to Satisfy Customer Needs

etail businesses purchase products for Company A has a real advantage. If a
R resale. Market conditions for products

change rapidly. A buyer for a large
supermarket chain may review more than
company is able to sell a similar product at
a lower price than its competitors, it will
usually sell a larger quantity. Retailers con-
200 new products each week for possible stantly evaluate their direct competitors to
purchase. Also, many products sold in determine what products are being sold at
retail stores are seasonal, meaning the what prices.
products sell well during a particular time
of the year but not at other times. Retailers Determining Customer Needs
make very little profit on the sale of any Retailers use a great deal of marketing
one item. Therefore, if a product remains information and research to anticipate
unsold, the business quickly loses money. customer needs. Most retailers collect
Retailing is very competitive, so retail- customer and product information each
ers study customer needs carefully when time a sale is made. Many have consumer
making purchase decisions. If Company A panels and focus groups that meet regu-
offers a product that customers want, and larly to evaluate new products. Most busi-
its competitors do not have that product, S
nesses encourage customers to identify N
351
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Get the Message
Using Social Media communities and relying on them to create
One of the advantages of the Internet over content. Marketers try to tap into these com-
other forms of media is that it allows anyone munities to spread their messages. Using
with a computer to create and share infor- pre-existing social networks to spread mar-
mation, opinions, and other content. This keting messages is sometimes called “viral
aspect makes the Internet a “social medium.” marketing,” and it can be incredibly effective
Studies show that social media usage and efficient if done properly.
is still small, but growing rapidly. Between Think Critically
April 2006 and April 2007, social media
1. How do the web sites mentioned above
usage increased almost sevenfold, especially
foster social networking? What content
among young people. Nearly 70% of people
do they depend on their communities to
between the ages of 12 and 21 now use
create?
some sort of social networking web site.
Web sites such as MySpace, YouTube, 2. What advantage does viral marketing
Wikipedia, Flickr, and Amazon all use have over traditional media approaches?
this concept in different ways, fostering What disadvantages?
products they want that are not available information is immediately analyzed by the
in the store. computer. Managers can determine if spe-
Retail buyers and merchandise cial displays, sales, or advertising programs
managers study market information affect the sales volume of specific products.
including the economy, competition, and Most retail store computer systems are
new product developments. They attend connected to other computers in regional
meetings and trade shows and talk with or national offices. This allows purchasing
the salespeople of their suppliers. They decisions as well as marketing plans to be
carefully track the offerings, prices, and adjusted quickly to ensure that products
services of competitors in order to be are sold rapidly, products that do not sell
aware of any changes or apparent are not reordered, and new purchases re-
advantages of those businesses. spond to customers’ needs.
Tracking Product Sales Developing a Purchasing Plan

Retailers carefully track the sales of each Retail stores must offer an adequate as-
product in inventory to immediately deter- sortment of products to meet customers’
mine sales trends. Computer technology needs. Larger department stores and dis-
aids in that process. Scanners at check- count retailers offer hundreds of different
out counters are connected to computers products in many merchandise categories.
that store inventory information. When a Specialty stores offer less variety but a
purchase is made, the scanner reads the bar complete assortment of products in spe-
code on each product. The bar code pro- cialized categories.
vides information such as product name, Businesses prepare merchandise
S product type, price, manufacturer, and plans to guide decision making. A
N the date of purchase by the business. That merchandise plan identifies the types,
352
CH 12-B4491_RP1_REV3.indd 352 12/7/07 8:22:58 PM

assortments, prices, and quantities of reordered time and time again until there
products that will be stocked by the busi- are major changes in the market or econ-
ness for a specific period of time. The omy. The basic stock list will not change a
merchandise plan is like a budget in that it great deal over time. It includes the prod-
provides the basis for ordering merchan- ucts customers expect to find anytime they
dise and maintaining the store’s inventory. visit the store.
The merchandise plan is used to determine A model stock list identifies the com-
the products to order, delivery schedules, plete assortment of products a store would
the space allocations required, initial pric- like to offer to customers. The model stock
ing strategies, and promotional plans. list is more extensive than the basic stock
The merchandise plan may be de- list. It is also subject to change more fre-
veloped for a short time period, such as quently based on economic conditions, the
one month for a specific season in which financial resources of the business, and the
unique merchandise will be sold, or for a changing needs of customers. A large na-
longer time period. Few stores have plans tional retailer may have a model stock list
that last longer than six months. Customer that identifies all possible product choices
needs and interests and competitive condi- for local stores to offer. Each store manager
tions can change dramatically in that time, then tailors the individual location’s inven-
so the inventory would be out of date. tory to the specific needs and conditions in
The merchandise plan is developed that area from the model stock list.
from a basic stock list or a model stock list.
A basic stock list identifies the products
a store must have available to meet the Checkpoint
most important needs of its customers.
The products on the basic stock list will be Why do retailers need a merchandise plan?
Obtaining the Needed Products

etail buyers make purchases from
R both manufacturers and wholesalers.

They have several ways of learning
about vendors and their products.
Trade shows offer manufacturers a chance to show
Selling to Retail Businesses their merchandise to large numbers of wholesalers
and retailers at one time. The American International
Most vendors use salespeople to sell to Toy Fair, sponsored by the Toy Industry Association,
retail buyers. They will meet with the store is the largest toy trade show in the Western Hemi-
owner or manager for smaller businesses. sphere. Access school.cengage.com/marketing/
For large regional or national retail chains, marketing and click on the link for Chapter 12.
the salespeople visit buying offices where According to the show’s web site, how many manu-
buyers make decisions for many stores. facturers and other businesses display their mer-
Often in buying offices, buyers specialize chandise at the toy fair? From how many countries?
in one type of product, so a salesperson How many buyers typically attend the fair? Identify
may have to visit with several buyers dur- at least three companies that might send buyers to
ing one trip to the office. Some cities have the American International Toy Fair.
trading centers for specific industries. For
example, many furniture manufacturers
open showrooms in High Point, North
S
Carolina, where furniture retailers from N
353
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all over the world travel to see the
latest product lines. Wo r k i n g i n Te a m s
Trade shows also offer an op-
portunity for many manufacturers to As a team, identify problems with inventory
display their merchandise. There is a that you have frequently encountered in retail
large electronics trade show each year stores, such as out-of-stock items, product dam-
in Las Vegas. Companies spend thou- age, and incorrect or missing prices. Discuss
sands of dollars on exhibits, demon- how stores might improve purchasing, receiv-
strations, and advertising because ing, and inventory procedures to reduce each of
they know retailers will be looking the problems.
for new products.
A final method of purchasing is
rapid and reliable delivery. Other items
through vendor catalogs and web sites.
may be very competitive products that can
This buying method is particularly use-
be purchased in many stores. The retailer’s
ful for small retailers who cannot afford
customers will shop for the lowest price, so
to travel to trade centers or trade shows
a supplier must be located that will sell at
and who do not purchase large enough
competitive prices.
quantities to warrant frequent visits from
For new products, fashions, or seasonal
salespeople. Catalogs and web sites are also
items, the retailer may not be certain of the
used to sell standardized and frequently
total amount of inventory that can be sold.
purchased items that are sold primarily
The buyer may want to work with a vendor
on the basis of price and availability. Most
who will initially ship a small amount of
manufacturers and wholesalers are moving
inventory but who will be able to rapidly
many of their sales and customer support
provide additional quantities if sales are
functions onto web sites. Many automate
higher than expected.
the online ordering process for regular
Most businesses have a standard proce-
customers so that routine purchases can
dure for ordering merchandise. The order
be made and orders can be filled automati-
must be placed far enough in advance to
cally via the Web.
be sure it is delivered before the current
stock is completely sold or in time for the
Completing the Purchase selling season for the product. The timing
Process of orders is often a difficult problem for re-
Retail buyers continually identify and tailers. If the order is placed too soon, the
study vendors for the many purchases merchandise arrives before it is needed,
they will make. Vendors must meet
specific criteria in order to be consid-
ered. Each retailer will have its own
criteria and will communicate them
to vendors. Those criteria may vary
for different products in the store’s
merchandise assortment. Some prod-
ucts may be unique and can only be
obtained from one source. Others
may be rather common and can be

obtained from a variety of vendors.
A product may be fast-selling or
perishable, requiring the retailer to
quickly replace items in inventory.
The retailer will want to purchase
S Why is product delivery an important factor when
from a supplier who can guarantee selecting a vendor?
N
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taking up space and adding to storage and is maintained until needed on the sell-
handling costs. If the order is late, the mer- ing floor. Others move most of the stock
chandise is not in stock when customers immediately onto shelves or into displays
want it, and sales are lost. for sale. Preparing merchandise for sale
For retailers with many stores, the and moving it into inventory must be done
seller ships the merchandise to the buyer’s carefully and efficiently with as little dis-
distribution center or store. The distribu- ruption to customers as possible.
tion center is used to assemble product Merchandise can be lost, stolen, or
orders for local stores and then to quickly damaged during the receiving process.
reship them. For small stores, sellers will Because most retail businesses have very
ship orders directly to the business. low margins of profit, any significant loss
When orders are received at the store, at this time can affect the business’s ability
they are unpacked and prepared for sale. to make a profit.
Again, each business has specific and care-
ful procedures to be followed in receiving,
unpacking, inspecting, and preparing
products for sale. Those procedures may Checkpoint
require assembly, cleaning, pricing, or
other types of processing, depending on What methods do vendors use to make
the type of products. Some stores have products available to prospective retail
large storage areas where merchandise buyers?

Determine the best answer. 6. Career Success Go to the employment sec-
1. True or False: Retailers typically carry the tion of a national retailer’s web site and gather
same items for a long period of time since information on retail buying jobs. If no infor-
customer needs seldom change. mation is provided, send a professional e-mail
to the company requesting information. Based
2. Retailers track sales and inventory using scan-
on your research, write a one-page report on
ners that read the on each product
the company, the career, and your interest in it.
that is sold.
7. Economics Review local newspapers and
3. A stock list identifies the important
other information sources to identify economic
products a store must have available to meet
information that could affect retail sales in your
the most important needs of its target market.
community in the next six months. Prepare a
a. basic
two-minute oral report discussing the informa-
b. model
tion and how retailers should respond to it.
c. complete
d. perpetual Connect to
4. For large regional or national retail chains, 8. You are the fresh organic foods buyer for a
vendors’ salespeople visit where regional supermarket chain. Prepare a vendor
buyers make decisions for many stores. analysis form that identifies five important
5. True or False: Most retailers purchase prod- criteria you expect vendors to meet in order to
ucts from only one vendor in order to be sell fresh organic foods to your stores. Present
assured of responsive service. the form to your teacher (judge) and describe
the reasons for your choices.
S
N
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Now that you have completed the chapter, check describe how procedures will be different for
your understanding of the lessons with these ques- new, modified, and repeat purchases?
tions. Record the score that best represents your offer reasons why several people representing
understanding of each marketing concept. different parts of a business should be involved
1 = not at all; 3 = somewhat; 5 = very well in major purchase decisions?
If your score is 42–50, you are ready for the assess- suggest several factors that should be considered
ment activities that follow. If you score 33–41, you when purchasing from international suppliers?
should review the lessons for the items you scored identify the general process business customers
1–3. If you score 32 or less, you will want to carefully follow when making purchase decisions?
reread the lessons and work with a study partner on define the meaning and importance of supply
the areas you do not understand. chain management?
Can you— describe the purpose of each of the records that
list five categories of business customers? are a part of the purchasing process?
identify ways in which the business market is dif- describe several ways that retailers can identify
ferent from the final consumer market? customer needs?
give examples of methods vendors use to pro-
vide product information to retail buyers?

1. Contains a specific description of the type of
product or service needed and the criteria that a. basic stock list
are important to the buyer
b. bidding
2. Determines the amount of product on c. business-to-business
hand by visually inspecting and counting marketing
the items
d. inventory
3. An itemized billing statement with terms of pay- e. invoice
ment for the order f. just-in-time (JIT)
4. Inventory level is kept low and resupplied just as g. merchandise plan
it is needed h. model stock list
5. Companies that offer products for sale to other i. packing list
businesses j. perpetual inventory system
6. The assortment of products maintained by a k. physical inventory system
business l. purchase order
7. Identifies the types, assortments, prices, and m. purchase specifications
quantities of products that will be stocked n. purchasing
by the business for a specific period of time o. receiving record
8. The exchange of products and services between p. reciprocal trading
businesses q. reorder point
9. Detailed requirements for construction or perfor- r. request for proposal (RFP)
mance of a product s. supply chain
S 10. A form listing the variety, quantity, and prices of t. vendors
N products ordered
356
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11. True or False: The majority of exchanges involv- 16. True or False: Because
ing products or services are between businesses there are fewer business
and final consumers. customers than final con-
12. True or False: Businesses that purchase products sumers, the total amount
for resale to final consumers typically do not of possible sales revenue
change the form of those products. will be smaller for those
selling business products.
13. True or False: An example of a poor purchasing
decision is selecting a supplier that is not able to 17. True or False: The majority of products purchased
deliver the product when promised. by businesses are for final consumption.
14. True or False: The most difficult purchasing situ- 18. True or False: Direct distribution from the pro-
ation for a business is when it buys a product for ducer to the customer is common in business-to-
the first time. business marketing.
15. True or False: The only types of companies classi-
fied as business consumers are producers.

19. Use the Internet to find the web site of a com- numerical values for each factor that reflect its
pany engaged in each of the types of businesses relative importance to you. Create the form so
listed below. Develop a table to provide the that it can be completed as you evaluate several
following information: company name, its URL companies that provide the product or service.
address, major products or services it sells, and 21. Form a team with two or three other students. As
how it markets those products or services to a team, select one of the following topics related
other businesses. to business-to-business marketing. Research the
a. automobile manufacturer topic by reading marketing books, current busi-
b. insurance company ness magazines, and other business resources.
c. office supplies You might be able to identify a business person
d. industrial chemicals or other resource person in your community who
e. financial services is an expert on the topic to interview. Prepare a
f. work uniforms three- to five-minute oral report on the topic and
g. freight transportation include three visuals.
h. temporary personnel a. Census data on business customers
20. Identify a major purchase decision you might b. Working with international vendors
make within the next five years (college, new c. Using benchmarking to develop product
automobile, apartment, etc.). Then, specifically specifications
outline the steps you could follow to make the d. Developing an effective supply chain
purchase in the objective way followed by busi- e. What occurs at manufacturers’ markets and
nesses. After you have outlined the steps, prepare trade shows
a vendor analysis form. List the factors that you f. New technology for retail inventory
will consider when making the purchase. Develop management

22. A vendor wanted to determine what factors were when purchasing products. The values ranged
most important to its customers when making from 0 (not considered when making a purchase
purchase decisions. It conducted a survey of decision) to 5 (most important factor in the pur-
purchasing agents and asked them to assign a chase decision). The first table on the next page S
value from 0 to 5 for six factors they consider shows results from 140 respondents. N
357
CH 12-B4491_RP1_REV3.indd 357 12/7/07 8:23:38 PM

score would be the one that best met
Factors Value the purchaser’s needs. Calculate the
5 4 3 2 1 0 total product score for each company
Price 0 40 55 32 13 0 using the procedure described. Then
be prepared to discuss the meaning
Delivery Schedule 45 38 36 20 1 0
of the results in terms of customer
Vendor Reputation 0 24 38 52 18 8 perceptions of the three companies’
Past Experience with Vendor 7 10 68 55 0 0 products.
Vendor Service after Sale 0 5 12 22 36 65 23. May Randall is the purchasing man-
Product Quality 110 24 6 0 0 0
ager for Protective Insurance Com-
pany. The company is install-
ing a wireless network and
Factors Product is providing a new desktop
computer or laptop for office
Vendor Competitor B Competitor C personnel. The company main-
Price 6 8 10 tains all company records in a
large mainframe computer. It
Delivery Schedule 8 5 7
is important that the comput-
Vendor Reputation 7 7 5 ers purchased are compatible
Past Experience with Vendor 3 9 6 with the wireless network and
Vendor Service after Sale 8 4 6
current mainframe hardware
and software. Working with
Product Quality 10 7 8 managers from each of the
major divisions of the com-
a. The vendor wanted to use the data to develop pany, May has developed
an average value for each of the factors. purchase specifications for new computers and
Calculate the mean value for each factor has identified four potential vendors. One of the
by multiplying the value by the number of vendors is the supplier of the current mainframe,
respondents selecting that value, totaling the but each of the other vendors has assured May
result for all six value scores for the factor, that their machines meet the specifications.
and then dividing the result by 140 (the total May is now faced with important decisions.
number of respondents). First, should Protective Insurance buy all of the
b. The vendor asked a focus group to compare computers from one vendor or allow divisions to
one of the vendor’s products to similar order from more than one? Each division has
products sold by two other competitors using different computing needs and preferences
the six factors from the research study. The among the vendors. By choosing only one
focus group assigned each product a score vendor, everything is standardized, there may
ranging from 1 to 10 for each of the six factors, be a lower price, and service is handled by one
with 1 being the lowest rating and 10 being company. But if the vendor is not reliable, it
the highest rating. The results of the focus will affect the entire company. Using more than
group ratings are shown in the second table. one supplier allows each division to choose its
The vendor then used the information preferred computer, but it can create service and
from the original marketing research study to support problems as well as less room for price
develop a product score for each company. negotiations with each vendor. May wonders
The mean score for each factor (calculated if preference should be given to the vendor of
from the research study results in Part a) was Protective’s current equipment. The company
multiplied by the rating assigned to that and its equipment have been very reliable, and
factor by the focus group (from the second service has been efficient and effective. However,
table). Then the results for each of the six fac- the company has less experience with wireless
tors were totaled, giving each company a final systems. How would you recommend that May
S score. That procedure would predict that the resolve these issues?
N company whose product received the highest
358
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Retail Merchandising
Individual Series Event
The owner of Lux- customer base. During or after the presenta-
ury Furniture wants tion, the judge can ask questions.
to increase sales.
He has asked you Performance Indicators
to develop both Evaluated
customer and sales
associate incentive plans to increase sales. • Identify information monitored for market-
The customer incentive plan must ining decision making. (Marketing-
clude special discounts and sales promotions Information Management)
when customers’ annual furniture purchases • Explain the types of promotion.
reach different levels throughout the year. (Promotion)
The incentive plan for sales associates must • Explain the selling process. (Selling)
reward employees for reaching different sales
goals throughout the year.
• Explain the role of customer service as a
component of selling relationships.
You have also been asked to describe a
(Selling)
database for customer information that will
be used to communicate with customers. The • Plan follow-up strategies for use in selling.
owner wants to know what information will (Selling)
be included in the database. He is interested
in how the database can be used for bulk
mailings that will be sent to loyal customers
of Luxury Furniture.
Your plan for increasing sales must in- Think Critically
clude training and development for sales as- 1. Why is follow-up commu-
sociates to improve customer satisfaction. You nication so important for
must describe follow-up communication that customer satisfaction?
sales associates will send to customers after 2. What type of promo-
their purchase of furniture. You must also tion would require the
describe a special sales event that will create customer to come to the
excitement and increase customer traffic in furniture store?
the store.
3. What types of credit
You will meet with the owner of Luxury
PHOTOS: ©DECA INC.
incentives might be
Furniture in his office to explain your plan for
offered to increase furni-
increasing the company’s furniture sales. You
ture sales?
are allowed ten minutes to describe your plan
for increasing sales and maintaining a loyal 4. Why is a customer database
a good marketing tool?
S
359
12-1 • Business-to-Business Exchanges
DECA Prep 359
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Chapter 13
Getting Products to
Customers
13-1 Marketing through Distribution
13-2 Assembling Distribution Channels
13-3 Wholesaling Manages the Middle
©RUBBERBALL/JUPITER IMAGES
13-4 Retailing Reaches Consumers
13-5 Physical Distribution
Newsline )))
Image or Value—Can’t We Have Both?
For a long time, the idea of shopping assortments, well-known brand JCPenney, Bloomingdale’s, and
in discount stores was not appealing names, and discount prices. Outlet Dillard’s, have responded with a
to many consumers. Those who did malls have transitioned from offer- more targeted product assortment,
shop at Wal-Mart and Kmart were ing dated, imperfect, and clearance higher levels of customer service,
attracted by the significant cost merchandise to featuring the latest and stronger branding and promo-
savings they could realize. However, offerings from nationally known tion. The future of retailing suggests
for other shoppers, image meant manufacturers and even designer that the concept of “image is every-
everything. They were willing to labels. Even Wal-Mart and Kmart thing” will still appeal to a select few,
sacrifice price in the belief that dis- are paying more attention to brand but “high quality and high value”
count stores did not offer the brand name and style while still trying to will have the greatest appeal.
names or the quality they demand- maintain their low-price leadership.
ed. But over time, discount stores Today’s customers are very Think Critically
began to change. New, upscale aware of the many store and product 1. Should retail stores attempt to
discounters such as Target and choices. They now realize that if attract both image-conscious
Kohl’s demonstrated that quality, they shop and compare before
and value-conscious customers?
image, and value pricing attracted making a purchase, they can save
Why or why not?
customers who had not shopped money on their purchases and still
at traditional discount stores or get the brands, quality, and image 2. How has the high-quality and
were not satisfied with the choices they want. As a result, many tra- high-value approach affected
of those stores. They have been ditional department stores have other types of retail businesses
followed by wholesale membership struggled. Some have failed, others such as grocery, electronics, and
stores including BJs Wholesale Club have been acquired by stronger home improvement stores?
and Costco, which feature broad businesses, and a few, such as
CH 13-B4491_RP_REV2.indd 360 12/5/07 4:29:16 PM


• Acquire foundational knowledge of channel • Explain the nature of channels of distribution
management to understand its role in marketing • Describe ethical considerations in channel
• Manage channel activities to minimize costs and management
to determine distribution strategies • Evaluate channel members
• Develop channel-management strategies to • Select channels of distribution
minimize costs
• Develop channel-management strategies
• Assess channel-management strategies to
improve their effectiveness
Visual Focus
For hundreds of years the major marketing
challenge facing businesses was distribution.
Getting products from the producer to the
locations where customers could purchase
and use them was difficult, expensive, and
time-consuming. Today, while businesses
focus on many more marketing activities,
effective distribution still is an important
factor in customer satisfaction and profitable
sales. Companies such as UPS specialize in the
variety of activities that are part of a complex
channel of distribution.
Focus Questions:
What is the unique product or service that UPS
is offering to prospective customers in the ad?
Do you believe the simplicity of the advertise-
ment is effective? Why or why not?
Use the same basic visual concept to
create your own advertisement that illustrates
a different way that UPS can improve
©UPS
product distribution for a manufacturer or

retail business. If necessary, visit the UPS web
site for ideas. Show your advertisement to
other students and compare it to their ads.
CH 13-B4491_RP_REV2.indd 361 12/5/07 4:30:02 PM

13-1 Marketing through Distribution
GOALS KEY TERMS
• Explain why the distribution function is so important to distribution function, p. 363
effective marketing.
• Illustrate how a well-planned distribution system sup-
ports the marketing plan.
Distribution is the most complex and challenging of marketing functions. Often the
largest percentage of the marketing costs for products and services is spent on
distribution-related activities. Distribution is crucial to the matching of production
with consumption, which is one of the essential requirements for an effectively func-
tioning free enterprise economy. Distribution also plays a key role in improving the
four economic utilities—form, time, place, and possession.
Distribution usually involves several businesses in what is known as a distribution
or supply channel. The distribution system can only work as planned if all the mem-
bers of the channel agree on and follow a plan. Because each member of a distribu-
tion channel has its own marketing strategy, it is especially important for a business to
choose its distribution partners wisely and manage its distribution system carefully.
Choose a product that you or your family bought recently for which the distribu-
tion channel involved several businesses from the point of production to the place
where it was purchased. Make a list of all of the distribution steps you believe had to
be completed for the product to reach you.
The Importance of Distribution Activities

elcome to the world marketplace! marketplace. Consumers worldwide are
W U.S. consumers have access to

hundreds of thousands of products.
Products come from companies around
attracted to fashions, movies, music, and
many other products that represent the
U.S. culture. At the same time, American
the world. Any time of the day and every companies recognize that they must com-
day of the week, most people can locate a pete with other international businesses
store to purchase the products they need or offering competitive products and must be
a business that performs a desired service. able to get their products to international
If a store is not convenient, other choices customers quickly and inexpensively.
are available. Customers can purchase by The most complex and challenging part
telephone, by mail, or over the Internet of marketing is distribution. Many com-
and be assured of delivery within days or, panies, activities, and people are involved
for local purchases, even hours or minutes. in the distribution of products and services
In the same way, U.S. businesses now from the producer to the consumer. Large
S can send their products throughout the percentages of marketing budgets are spent
N world reaching almost any international on the activities involved in distribution.
362
362 CHAPTER 13 • Getting Products to Customers
CH 13-B4491_RP_REV2.indd 362 12/5/07 4:30:23 PM

For most products and services, distribu-
tion activities account for over 50 percent
of the total marketing costs.
The Distribution Function

Distribution is the oldest and most basic
part of marketing. In fact, before the term
marketing was even a part of business
language, distribution was used to describe
the activities that directed the flow of
goods and services between producers and
consumers. Today, because marketing ac-
tivities have expanded, distribution is just
one of the important marketing functions.
The distribution function involves deter-
mining the best methods and procedures
©DIGITAL VISION
to use so that prospective customers can
locate, obtain, and use a business’s prod-
ucts and services.
When distribution works well, con- Why does distribution play an important role in
sumers are not really aware of its impor- customer satisfaction?
tance. Products and services are available
where and when people want them and in Distribution has a major impact on
a usable condition. However, when distri- economic utility. Economic utility is the
bution does not work, it is very evident. amount of satisfaction a consumer receives
Products are out of stock, backordered, from the consumption of a particular
available only in the wrong styles or sizes, product or service. Businesses can in-
out of date, or damaged. Prices are incor- crease customer satisfaction by improving
rectly marked or missing. Salespeople do the form of a product or service, making
not have adequate product information, it available at a more convenient time or
or products advertised in the newspaper place, or making it more affordable. As
are not available in the store. Much of the you consider the four types of economic
dissatisfaction consumers have with busi- utility, you can see that distribution has
nesses results from poor distribution. the most direct effect on time and place
utility. However, it can also affect the form
Distribution as an of a product by making sure that products
Economic Concept are fresh and undamaged when they are
distributed. Efficient distribution also af-
Distribution is an important activity for fects the final product cost, so it is a factor
the effective operation of any economic in possession utility.
system, and it is essential in a free enter-
prise economy. Free enterprise is based on
the matching of production and consump-
Distribution as a Marketing
tion decisions. When business people de- Mix Element
cide to produce a product, the product will Another way of seeing the importance of
not be successful unless consumers can distribution is to examine the marketing
obtain it. When consumers have a demand mix. Distribution as a part of the market-
for a particular type of product or service, ing mix involves the locations and meth-
that demand will not be satisfied until they ods used to make the product available
can locate the desired product. Distribu- to customers. When a marketer devel- S
tion aids in matching supply and demand. ops a marketing strategy and prepares a N
363
13-1 • Marketing through Distribution 363
CH 13-B4491_RP_REV2.indd 363 12/5/07 4:30:36 PM

marketing plan, the distribution decisions
made can determine whether the customer Checkpoint
is able to easily locate and purchase the
Why is distribution so important to effec-
products and services needed.
tive marketing?
Development of a Distribution System

du-Games was a new company that high-quality, high-priced product image.
E produced high-quality board games

for children. The company carefully
researched the market and identified a
Besides, the target market did not purchase
most of its educational products in those
types of stores. Edu-Games produced an
target market of parents aged 25 to 45 with easy-to-assemble display that provided
from one to three children under the age space for 300 games. It contained infor-
of 10. At least one parent had a college mation describing the games, and their
education, and total family income was educational value.
over $55,000. The families in the target
market spent an average of $3,000 a year Disappointing Results
on education-related purchases, including Six months after beginning distribution,
toys and games. sales were much lower than expected. An
evaluation of marketing activities revealed
The Marketing Plan that most of the games had been distrib-
Based on the target market information, uted to large toy stores because they were
Edu-Games prepared a marketing plan for the traditional customers of the distribu-
its board games. The games were con- tors, and the distributors believed higher
structed of finished wooden pieces and sales would result from those stores. The
packaged in sturdy boxes. Package designs toy stores used a mass marketing strategy
illustrated the games in use, and descrip- and cut the suggested price by 10 percent
tions of the educational value were clearly or more. Even with the discounts, the price
printed on the outside of each box. Prices was much higher than the average board
were set high ($56 per game) to match the game sold by the stores. Because of space
quality image, and prices were printed on limitations, many of the stores did not
the package so that customers could be use the displays. Instead, the games were
certain they would pay the same price no stacked on shelves, which did not allow
matter where they purchased the game. customers to see the unique packaging.
Because Edu-Games was not large
enough to have its own sales force,
it used distributors of games and
toys to sell the product to retailers. Wo r k i n g i n Te a m s
To help the distributors, the com-
pany identified the types of retail Identify personal experiences team members
stores where the product should sell have had with businesses that illustrate
best. Those stores were primarily effective and ineffective distribution. Discuss
bookstores with special children’s how the experiences shaped your views about
collections and stores that specialize the companies. As a team, develop several
in children’s apparel. The company recommendations about how companies can
did not want the games sold through improve customer satisfaction through effective
S large toy stores or discount stores distribution.
N because those stores did not fit the
364
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The experience of Edu-Games shows • What services or activities must be
that the success of a product or a busi- provided in order for the product to be
ness is usually influenced by many other successfully sold?
businesses. Even businesses that apply the • Is special physical handling needed?
marketing concept and try to respond to
the needs of a target market can have prob- • Who will be responsible for each of the
lems if the businesses they use to distribute needed distribution activities?
products do not follow the marketing plan. • When will each activity occur?
• Who is responsible for planning and
Decision Time managing the distribution process?
Any time a product or service is marketed
to a customer, several distribution deci-
sions must be made for a satisfactory ex-
change to occur. Those decisions include: Checkpoint
• Where and when will the product be Why is merely designing an effective distri-
produced, sold, and used? bution system not enough to ensure that
• What characteristics of the product or products will be where customers want
service will affect distribution? them when they want them?

Determine the best answer. 5. Statistics Ask 20 people to identify a re-
1. True or False: For most products and services, cent problem they had when shopping for a
distribution activities account for over product or service at a local business. Classify
50 percent of the total marketing costs. each response according to the marketing
mix element that seemed to be the reason for
2. Distribution has the greatest effect on which
the problem—product, price, distribution, or
of the following economic utilities?
promotion. Total the numbers for each mix ele-
a. time
ment and develop a graph that illustrates the
b. place
results of your research.
c. possession
d. both a and b 6. Economics Review newspapers, business
magazines, and the Internet to locate informa-
3. When a marketer develops a marketing
tion on a situation where there is an imbal-
strategy, the distribution decisions made can
ance of supply and demand resulting from a
determine whether the customer is able to
distribution problem. Write a short report on
a. obtain a product at the lowest cost
the situation, identifying who is affected, the
b. choose from an assortment of products
problems that have resulted, why the situation
c. easily locate and purchase the products
occurred, and what is being done to resolve
and services needed
the economic imbalance.
d. obtain the highest-quality product
4. True or False: Once a business decides on a Connect to
distribution strategy, all other businesses in 7. Develop a two-minute presentation on the
the channel of distribution are required to importance of distribution in implementing
follow that plan. the marketing concept. Provide examples of
effective distribution to illustrate your points.
Give your presentation to your teacher (judge). S
N
365
13-1 • Marketing through Distribution 365
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13-2 Assembling Distribution Channels
GOALS KEY TERMS
• Identify the differences between producers and consumers direct channel, p. 369
that are addressed by distribution channels. indirect channel, p. 369
• Describe the differences between direct and indirect channel captain, p. 371
channels of distribution.
Channels of distribution are developed by businesses to perform the many marketing

functions that have to be accomplished any time an exchange takes place with a final
consumer. Products are sometimes distributed directly from the producer or manufac-
turer to the final customer. More often, there are other specialized businesses that com-
plete the activities needed to move products from producers to final consumers. When
there are businesses involved other than the producer, it is referred to as indirect distribu-
tion. The involvement of other businesses makes the distribution channel indirect rather
than direct. Businesses often use both direct and indirect distribution, depending on the
target market selected. The number and type of businesses in the channel are selected to
help adjust differences in quantity, assortment, location, and timing that would other-
wise prevent a satisfying exchange between the producer and the consumer.
Name a product that you have bought recently directly from its producer or manu-
facturer. Describe how you and the producer were brought together in order for the
exchange to take place and what activities each of you performed to complete the
exchange.
The Need for Distribution Channels

hen products and services are of the country, and then distributed and
W exchanged, they move through a

channel of distribution. A channel
of distribution is made up of the organiza-
sold by other companies. There are several
reasons that channels of distribution are
needed in marketing.
tions and individuals who participate in
the movement and exchange of products Adjusting Differences
and services from the producer to the final between Producers and
consumer. The channel can be very simple,
involving only the producer and the final Consumers
consumer, or it can be very complex, There are many differences in what pro-
involving many businesses. ducers develop and what consumers need.
If you buy a local newspaper, it is often Channels of distribution allow for adjust-
edited, printed, and distributed by one ments to be made in those differences so
company. If you buy a copy of USA Today, that the available products match the cus-
it is written and edited by one company tomers’ needs. Consumers want to be able
S in Mclean, VA, printed by one of several to buy a variety of products from many
N other companies located in various parts different companies (see Figure 13-1).
366
CH 13-B4491_RP_REV2.indd 366 12/5/07 4:30:44 PM

Adjustments are usually needed
in the quantity and assortment
of products, the location of the
products, and the timing of pro-
duction and consumption.
Differences in Quantity
Businesses sell their products Cereal Manufacturer Apparel Manufacturer Book Publisher
to large numbers of customers.
They produce thousands and
even millions of those products
in order to meet the total mar-
ket demand. Individual con-
sumers usually buy only a very
small quantity of a product at Cr
Ce unc
re hy
any time. So, a channel of dis-
al
Milk
tribution must be able to adjust

the large quantity produced by
the business to match the small
quantity needed by a consumer.
Adjusting Differences between Producers and Consumers
Differences in
FIGURE 13-1
Assortment A producer or Channels of distribution help to match what businesses produce with what
a manufacturer often special- consumers want to buy.
izes in production. A company
typically produces only a limited supply of products. Consumers do not use
variety of products in one or a few product many of those products year-round. Snow
classifications. Yet consumers have needs blowers, swimwear, gardening equip-
for a great variety of products. Another ment, and children’s toys are all examples
adjustment made through a channel of of products that are purchased in much
distribution is in the assortment of prod- higher quantities during certain times of
ucts. The channel will accumulate prod- the year.
ucts from a number of manufacturers and Producers of agricultural products may
make them available in one location to only be able to produce some products in
give consumers adequate choice and vari- specific growing seasons. Consumers want
ety to meet their needs. products such as fresh fruits and vegeta-
Differences in Location Customers bles throughout the year. This presents a
are usually not conveniently located next challenge to distributors to match seasonal
to the places where products are produced. agricultural production with year-round
They live throughout the country and the consumer demand. Making adjustments
world. It would be nearly impossible for between the time of production and con-
each manufacturer and consumer to meet sumption is another responsibility of the
to complete an exchange. A channel of channel of distribution.
distribution moves the product from the Walk through a supermarket and study
place where it is produced to the variety of the adjustments made for the products
places where it will be consumed. sold there. Food has been accumulated
from throughout the world. Some is fresh
Differences in Timing of and some is processed. The wheat used
Production and Consumption For in the bread and cereal may have been
efficiency, most manufacturers operate produced many months ago, processed S
year-round to produce an adequate into the products you see on the shelf, N
367
13-2 • Assembling Distribution Channels 367
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and distributed to many stores. The fruits newspapers, Internet web sites, and search
and vegetables may have been rushed by engines provide promotional assistance.
airplane and refrigerated truck from fields
in the United States or South America and Increasing Marketing
delivered to the store only a few days after Efficiency
being harvested. Eggs and meat are evalu-
ated and sorted so that you can purchase If all exchanges of products and services
them in different quantities and grades. occurred directly between producers and
Soft drinks have been accumulated from consumers, a great deal of time would be
several local and regional bottlers so that required for marketing activities. Consider
you can have a variety of choices. If the the number of products that you and your
channels of distribution have worked well, family purchase during one week. What if
the supermarket will be well stocked with you had to locate and contact each pro-
all of the products you want to buy. ducer and manufacturer, agree on a price,
and find a way to get the product from the
business to your home? You would spend
Providing Marketing most of your time on those marketing
Functions activities, and it would be an expensive
In any exchange between producer and process.
consumer, all of the marketing functions Figure 13-2 illustrates the efficiency
must be performed. If no other organiza- of exchange that can result from a care-
tions or individuals are involved in the fully planned channel of distribution.
exchange, the functions will need to be When other businesses enter the channel
performed by either the producer or con- of distribution, they take over many of
sumer. Often neither of those participants the marketing responsibilities, saving you
is willing or able to perform
some of the functions. Other or- The Number of Exchanges with Planned Distribution
ganizations or individuals then Producers
have the opportunity to become

part of the channel of distribu-
tion and perform the needed
functions. Retailer
Consider marketing ac-
tivities such as transportation,
financing, or promotion. Some
businesses do not have the spe- Consumers
cial equipment or the personnel
to complete those functions, but The Number of Exchanges with Unplanned Distribution
they must be completed if the Producers
product is going to be sold to

the consumer. Trucking com-
panies, railroads, and airlines
can provide transportation.
Banks and finance companies
provide credit to businesses and
consumers. Wholesalers and
retailers purchase products Consumers
from manufacturers, hoping
to resell them at a profit. FIGURE 13-2
Advertising agencies, television A planned channel of distribution makes the exchange
S process much easier and more efficient than an unplanned
and radio stations, magazines,
N channel.
368
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both time and money. The retailer deter- finding the most efficient ways to ship
mines your needs and the needs of many them to their locations. Therefore, the cost
customers like you. It then contacts the of the marketing functions should be re-
manufacturers of the needed products and duced compared to what it would be if you
has all of the products shipped to its loca- had to complete those functions yourself.
tion. You can then make one shopping trip
to the business and purchase the needed Checkpoint
products. In addition to saving time for
you and the manufacturers, the other busi- What are the four differences between pro-
nesses are very effective at locating and ducers and consumers that are adjusted by
purchasing the needed products and distribution channels?
Planning and Managing Channels of

Distribution
n order to have an effective distribution
I system, the channels of distribution

must be carefully planned. Participants
should be identified, and methods for
developing and managing the channel
should be considered. The channel of dis-
tribution will be most effective if all par-
ticipants believe in the marketing concept,
cooperate with each other, and direct their
efforts at satisfying customer needs.
Channel Participants
Channel members include all of the busi-
nesses in the distribution channel. There
are both direct and indirect channels of dis-
tribution. In a direct channel, the producer
sells the product to final consumers. In a Do you think a snowboard producer should use
direct channel, either the producer or con- a direct or indirect channel of distribution?
sumer is responsible for completing each
marketing function. An indirect channel
includes other businesses between the
Fa s t FAC T S producer and the consumer. They buy the
product from the producer or other chan-
In many international cities, McDonald’s nel members and sell to consumers or other
is now delivering fast-food orders to businesses. Each channel member provides
customers using drivers on motor bikes. one or more of the marketing functions in
Deliveries account for up to 80% of an indirect channel.
revenues in some Egyptian stores and A business chooses between a direct
are more profitable than walk-up sales. channel and an indirect channel based on
Delivery fees run 50 cents to $1 per several factors. Indirect channels are used
order, but customers say it is much more most often in the sale of consumer prod-
convenient than standing in line. ucts while direct channels are more typical S
in business-to-business marketing. But N
369
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there are many exceptions to that pattern. a variety of target markets, the carpet
Some manufacturers use direct marketing might be sold through department stores,
methods such as catalogs, telephone sales, home improvement centers, and specialty
and factory outlets to directly reach final carpet and flooring businesses. Some of
consumers. Increasingly, the Internet al- those businesses will be contacted by the
lows more direct marketing for consumer carpet manufacturer’s salespeople while
products, although many businesses still some very small retail businesses might
use indirect channels and include sales, dis- buy from a wholesaler or another business
tribution, and customer service specialists that sells carpets for several manufactur-
as a part of their Internet marketing efforts. ers. The possible channels of distribution
Also, manufacturers that sell to businesses for a carpet manufacturer are illustrated in
across large geographic areas and in other Figure 13-3.
countries often rely on other businesses to
help them with selling, distribution, financ- Developing and Managing a
ing, and other marketing functions. Channel System
Direct channels of distribution are
most often selected when The Edu-Games example in the previous
lesson showed that developing an effec-
• there are a small number of customers tive channel of distribution is important
• customers are located in a limited geo- if a marketing strategy is going to be
graphic area
• the product is complex, is
developed to meet spe-
cific customer needs, or
requires a great deal of
service
• the business wants to Carpet Manufacturer
maintain close control over
the marketing mix
If the opposite market char- Wholesaler
acteristics exist, an indirect
channel of distribution will
usually be developed. National Carpet
Retail Chain
Independent
Carpet Installer
Small Home
Decorating Store
Many manufacturers use
multiple channels of distribu-
tion for the same product. This Builder
decision is consistent with the
marketing orientation because
several target markets can ex-
ist for the same product. The
needs and purchasing behavior
of each target market can be
quite different.
Think of all of the different
customers and needs that must
be met by a carpet manufac- Consumers
turer. The same basic product Multiple Channels of Distribution for Carpets
may be sold directly to a con- FIGURE 13-3
S tractor who is building several The same product may move through several channels of
N large office buildings. To reach distribution before reaching the final consumer.
370
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successful. Few products can be
distributed using a direct chan-
nel. Therefore, channels must be
developed carefully so that the
product reaches the customers in
the form they want, at the appro-
priate time and location, and at
a price they can afford. Channel
development and management is
an important task for marketers.
Any business or individual
can take responsibility for devel-
oping a channel of distribution. A
manufacturer that develops a new
product wants to find the best way
to get the product to the target
market. A retailer who discovers
an important customer need will
try to find a source of products
that will satisfy that need. Even
consumers can create channels of
distribution by locating a supplier
for a product they want that is not
currently available in the market.
©COURTESY OF ROCKWELL AUTOMATION
Cooperation or
Conflict? Channels of dis-
tribution are usually made up
of independent businesses that
treat each other as suppliers and
customers as products move
between them. They each have
their own goals and customers
and cooperate only when it Automation and technology speed distribution and help channel
is to their benefit. This often members share information.
leads to problems and conflict. If
a manufacturer has a very large is a member of a channel of distribution
inventory of one product and a limited but does not work directly with the final
supply of another, it is more likely to try consumer to be concerned about satisfy-
to sell the first to retailers without being ing the final consumer’s needs.
too concerned about what the retailer
will do with the product. If a retailer is Channel Management
competing with another business that is Responsibilities A channel of dis-
cutting prices, it will try to force manu- tribution must be well managed to effec-
facturers and wholesalers to cut the prices tively coordinate all of the activities
the retailer has to pay. The retailer will needed to achieve a satisfying exchange.
usually not worry whether those com- Managing a channel of distribution is the
panies are able to make a profit. Because responsibility of the channel captain. The
businesses are used to competing with channel captain takes responsibility to
each other and working independently, it identify channel members, assign dis- S
is sometimes difficult for a business that tribution activities, help members agree N
371
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Figure This
Downstream Activity Offers it means inventories are building. That might
Clue to Future Sales be a bad sign, indicating that sales will have
to slow to keep inventories from becoming
In order to gauge how well their products are
overstocked. On the other hand, it could be
doing in the marketplace, businesses that use
a favorable signal if distributors and retailers
intermediaries such as independent whole-
are building inventories because they
salers and distributors need to distinguish
anticipate a pickup in sales.
between two measures of product movement.
One is the businesses’ own sales and orders Think Critically
from their distributors. The other is the sales or
1. If company sales for the just-completed
deliveries that their distributors make to retail-
quarter fell by 2,000 cases, and distribu-
ers. The latter measure of product movement
is often referred to as “depletion” because it is tor depletions increased by 10,000 cases,
a measure of the rate at which distributors are what is the implied change in inventory
depleting their product inventories. levels at the company’s distributors?
The relationship between sales and 2. If a car manufacturer finds that its ship-
depletions can be a valuable indicator of ments to dealers for the past month
future sales trends. If sales are lower than increased by 25,000 cars while dealers’
depletions, then inventories are decreasing.
depletions increased by 15,000 cars, what
In that case, distributors will have to buy more
is the implied change in dealers’ inven-
products to maintain inventory levels. On the
tory levels?
other hand, if sales are exceeding depletions,
on performance standards, and facilitate and manage the information needed

communication among channel members. by each channel member. The needed
The channel captain is often the biggest information includes raw materials and
company in the channel of distribution finished product inventories, produc-
but will not be effective if it uses its size to tion and sales records, storage and ship-
“bully” the other companies. Instead, the ping data, and costs of each distribution
captain must work to satisfy the needs of activity. Customer information is tracked
each business and allow each to make a using customer-relationship management
reasonable profit. (CRM) software. The soft ware analyzes
When a company works independently target market and individual customer
to achieve its goals, effective channel sales records, product requests, returns,
management is difficult. However, when and new market opportunities.
several organizations work cooperatively, The efficient exchange of information
they often find new opportunities and between departments in a company and
methods to successfully meet customer among the businesses in a supply chain
needs better than the competitors that has been improved with the introduc-
do not cooperate. tion of electronic data interchange (EDI).
EDI allows direct computer-to-computer
Channel Management Tools Tech- exchanges of information such as invoices,
nology is available to help manage a chan- sales and inventory records, and prod-
S nel of distribution. Supply-chain manage- uct location and transportation records.
N ment (SCM) software is used to collect
372
CH 13-B4491_RP_REV2.indd 372 12/5/07 4:31:22 PM

Because information is converted to a
standard EDI format, the information can
be easily shared and analyzed in order to
speed decisions and distribution activities.
Also, because the information is exchanged
from computer to computer, there is no
need to enter information more than once,
which will help cut costs and reduce the

chance of human error.
Checkpoint
What is the difference between a direct and
How does EDI improve the distribution function? an indirect channel of distribution?

Determine the best answer. 6. Math A tomato farmer has used direct distri-
1. When products and services are exchanged, bution to sell her products to local consumers
they move through a channel of . through an area farmers’ market. Last year, she
sold 400 bushels of tomatoes at $2.49 a pound.
2. Which of the following is not one of the major
(There are 53 pounds in a bushel of tomatoes.)
differences that need to be adjusted between
This year she is considering using an indirect
producers and consumers?
channel by selling to two area supermarkets.
a. quantity and assortment
She estimates that she can sell 650 bushels at
b. location
$1.63 a pound. What will be the difference in
c. timing
revenue if she makes the change? What other
d. each is an adjustment that needs to be
factors should the farmer consider before
made
changing to indirect distribution?
3. Only the producer and consumer are involved
7. English Prepare a one-page written analysis of
in a channel.
the following statement: “If there are conflicts
a. direct
among channel members, the channel captain
b. indirect
should make decisions that are in the best
c. retail
interest of his or her business.”
d. business-to-business
4. Under which of the following conditions Connect to
would a manufacturer most likely involve 8. Your team works for a small manufacturer of
other businesses in a channel of distribution? sunglasses with a unique film coating that offers
a. there are a small number of customers greater UV eye protection than existing prod-
b. customers are located close to each other ucts. Identify one method of direct distribution
c. the product is simple and will require little and two possible indirect channels. Analyze
service the advantages and disadvantages of each and
d. all are correct choose the one your team believes is best for
5. True or False: Effective channel management consumers and the business. Make a three-
is easier when each business works indepen- minute team presentation of your analysis and
dently to achieve its goals. recommendation to your teacher (judge). Pre-
pare two visuals to support your presentation. S
N
373
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13-3 Wholesaling Manages the Middle
GOALS KEY TERMS
• Describe the benefits that wholesalers provide to other wholesalers, p. 375
members of a channel of distribution and to final consumers. wholesale member clubs, p. 376
• Explain how the role of wholesalers is changing in an economy
where many of their traditional retail customers prefer to deal
directly with manufacturers.
While wholesale businesses are not evident to many consumers, they play an impor-
tant part of many distribution channels. They perform several specialized distribu-
tion activities as products and services move from producers to their final points of
use. Wholesalers are used when they can provide marketing services more effec-
tively and at a lower cost. They can be more effective at a lower cost because they
are able to specialize and achieve economies of scale.
As industries are consolidating and large producers and national retailers
are dealing directly with one another, wholesalers have been concentrating on
small- to medium-sized customers who need their services to remain competitive.
Wholesalers can provide less-risky access to new markets and to new research and
communications technologies. They also play important roles in the expansion of
international product distribution.
Identify two local retailers who obtain at least some of their products directly
from producers. Why is it possible and appropriate for each company to deal directly
with a producer? Discuss with other students why it is difficult for many retailers,
especially small businesses, to deal directly with producers and manufacturers.
Who Needs Wholesaling?

any marketing functions must A traditional indirect channel of
M occur in the exchange between a

producer and consumer. They can
be shifted and shared, but they cannot be
distribution for consumer products would
involve a producer, a retailer, and the
final consumers. However, the producer
eliminated. In many cases, producers or may find that there are so many retailers
consumers are unwilling or unable to per- needed to reach all of the consumers in its
form some of the functions. In other cases, target markets that it cannot serve all of
they can and will perform the functions, the retailers effectively. To obtain all of the
but other organizations can complete those products it wants to sell, a retailer may see
activities more effectively, in less time, or the need to work with such a large number
at a lower cost. In those cases, an organiza- of producers that it is almost impossible
tion is likely to become part of the channel to work well with each one. In those cases,
S of distribution. the traditional channel expands to add a
N wholesaler.
374
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Benefits of Wholesaling extend credit to retailers to enable them to
Wholesalers are companies that assist
make purchases.
with distribution activities between busi- Wholesalers also assist manufacturers
nesses. They do not work with final con- in determining needs of retailers and final
sumers in any significant way. Their role is consumers and provide market and prod-
to provide needed marketing functions as uct information to retailers. They help col-
products and services move through the lect and analyze information on sales, costs,
channel of distribution between producers changes in demand, and inventory levels.
and other businesses. Some wholesalers support the promotional
Wholesalers provide important market- efforts of manufacturers and retailers.
ing services for the channels in which they Most wholesalers purchase products
participate. Some businesses are unable to from producers and manufacturers and
complete the marketing tasks required be- then resell them to their customers. In that
cause of the cost or specialized resources or way, they are assuming risk by investing
skills needed. Others choose not to do some their money. If the products are damaged
tasks because they want to focus on their or cannot be sold at the desired price, the
production or selling activities. wholesaler loses money.
Wholesalers may provide one or more
of the needed marketing activities better Types of Wholesalers
or at a lower cost. For example, a small Wholesalers fall into three major cate-
retailer is not able to purchase most prod- gories—full-service wholesalers, limited-
ucts in large quantities. Some manufactur- service wholesalers, and agents and brokers.
ers do not want to sell their products in Full-service (or merchant) wholesalers
small quantities. A wholesaler combines take title to the products they sell and pro-
the orders of several small retailers and vide a full range of distribution activities. In
purchases in efficient quantities. Shipments addition to providing or arranging trans-
for businesses in the same location can be portation services, they usually offer credit,
combined, allowing less costly transporta-
tion methods to be utilized.
In the same way, a manufacturer usu-
ally tries to produce products throughout
the year, but consumer demand for the
products may be seasonal. The manufac-
turer may not have adequate facilities to
store the products until they can be sold
to retailers. The manufacturer may use
wholesalers who specialize in storage and
inventory management, allowing it to fo-
cus on production rather than storage.
Wholesaling Activities
The typical wholesaling activities include
buying, selling, transporting, storing,
and financing. Specifically, wholesalers
accumulate the products of many manu-
facturers, develop appropriate assortments
©DIGTAL VISION
for their customers, and distribute the

products to them. Wholesale businesses
may finance the inventories of manu- S
facturers until they can be sold and may What marketing activities do wholesalers perform? N
375
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Get the Message
Truck-Side Ads estimates of how many people are exposed
Selling advertising space on the side of to a roving truck ad.
semi-trailers might become a lucrative With the high cost of billboards and with
source of revenue for trucking companies. restrictions on billboards in many localities,
Until now, their fleets mostly have promoted mobile truck-side ads could find a ready
only themselves. The problem with selling market. There are numerous companies that
truck sides as roving billboards has been the already specialize in this medium.
inability to gauge how many people are see- Think Critically
ing the ads. Now there is a way to do that.
1. How do you think traffic data are used to
Fleet Advertising, which operates a fleet
estimate the number of people who see a
of truck-side billboards, and 3M Graphics
mobile ad?
funded the development of a system that
uses a global positioning satellite to track 2. What are the advantages of truck-side
the whereabouts of trucks. It combines that ads compared to stationary billboard
information with traffic data to produce ads?
promotional assistance, product research cooperation in completing marketing

and information, and even product instal- and distribution activities. In a wholesale
lation and repair. Full-service wholesalers franchise, small retailers follow the guid-
may offer a broad assortment of products, ance of a large wholesaler in operating
such as general merchandise for supermar- their businesses. In return, they receive
kets, or they may specialize in a narrow purchasing advantages and support from
product category, such as hardware. the wholesaler. They normally operate un-
Limited-service (or specialized) whole- der the same business name, such as IGA
salers may not provide services such as (Independent Grocers Alliance) and NAPA
research, credit, or promotional support. (National Automotive Parts Association).
They concentrate on one or two important Wholesale cooperatives are wholesale
functions such as warehousing and stor- organizations owned jointly by member
age, product delivery, or accumulating businesses. The wholesale businesses are
products for sale in a convenient location owned by producers or retailers to provide
such as a produce or fresh fish market for distribution services to members. Farm-
supermarkets. ers form wholesale cooperatives to jointly
Agents and brokers are independent brand and market their products, such as
businesses that provide specialized ex- Sunkist and Land-O-Lakes. Examples of
change functions such as locating suppli- wholesale cooperatives organized by small
ers, selling, financing, or arranging ship- retailers include Ace Hardware and FTD
ments. They do not take title to products. (Florists’ Transworld Delivery, Inc.).
They essentially work as an extension There has been a recent increase in
of the workforce of the manufacturer or the popularity of a unique wholesaling
retailer. business. Wholesale member clubs are
businesses that offer a variety of consumer
Other Wholesaling Businesses products to members through a warehouse
Wholesale franchises and cooperatives are outlet. Many of the clubs are open to both
S groups of small businesses that affiliate final consumers and businesses, although
N because of the benefits gained from the membership requirements and prices
376
CH 13-B4491_RP_REV2.indd 376 12/5/07 4:31:56 PM

may vary for each group. Well-known Because individuals as well as businesses
wholesale clubs include Sam’s Club and buy products from wholesale clubs, these
Costco. Products are displayed in large companies cross the line between retailing
warehouses. Product assortments may be and wholesaling.
limited but are available in large quantities.
Customers are responsible for transporting
their purchased products. Checkpoint
The wholesale clubs initially targeted
small businesses. Most now offer mem- What types of benefits does a wholesaler
berships to employees of large businesses provide to other members of a distribution
and organizations and also to individuals. channel?
The Changing Role of Wholesalers

s many manufacturers and retailers They can develop new business opportuni-
A get bigger and as distribution and

communication methods improve, it
would seem that the need for wholesalers
ties more effectively than if the manufac-
turer attempts it alone.
Export and import organizations are
would decrease. In fact, some large retail- very important in building international
ers refuse to deal with most wholesalers. business. They are informed of the condi-
They believe that they can get better ser- tions and customer needs as well as busi-
vice and prices if they work directly with ness procedures and legal requirements
manufacturers. As marketing has changed, for operating in the international market.
wholesalers have adjusted their business Without the help of wholesalers, many
practices to continue to participate in companies would not be successful in
channels of distribution. international markets.
There are still many more small- and Of the recent changes in wholesaling,
medium-sized retailers and manufactur- among the most important are better com-
ers than there are large businesses. Those munications and information, improved
smaller businesses need effective purchas- technology, and broader customer service.
ing and distribution methods to compete Effective wholesalers believe in the mar-
with the large businesses. Wholesalers per- keting concept. They work to identify their
form those functions because they evalu- customers and understand their needs.
ate the products of many manufacturers, They learn of the problems the customers
buy and ship in large quantities, and assist are having with products and marketing
with financing and many other marketing activities and help them to solve those
activities. problems.
Access to Markets Fa s t FAC T S

Wholesalers provide access to new markets
with less risk than if the retailer developed According to the 2002 U.S. Economic
that market alone. Wholesalers help retail- Census report, 435,521 U.S. wholesalers
ers become aware of new products and new generated sales of more than $4.6 tril-
manufacturers. They make products avail- lion dollars. At the same time, 1.1 million
able from businesses located long distances retail businesses reported total U.S. sales
away. For manufacturers who want to of just under $3.1 trillion. Wholesalers
expand into new markets or sell to differ- generated one-fifth of their total sales in
ent types of businesses, wholesalers may foreign markets. S
already have experience in those markets. N
377
13-3 • Wholesaling Manages the Middle 377
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Specialized Services products from the manufacturer to the
Many wholesalers are adding marketing re- customer. Wholesalers are providing ad-
search and marketing information services. ditional services to their customers such as
They help their customers gather informa- marketing and promotional planning, 24-
tion and provide them with data that will hour ordering and emergency deliveries,
help the businesses improve their opera- specialized storage facilities, and indivi-
tions and decisions. Computer technology dualized branding and packaging services.
can process orders more rapidly and keep
track of the quantity and location of prod- Checkpoint
ucts. New methods of storing and handling
products reduce product damage, the cost How are wholesalers adapting to
of distribution, and the time needed to get consolidation in the marketplace?

Determine the best answer. 6. Research The Fast FACTS feature in this
1. True or False: The costs of distribution activi- lesson identifies the number of wholesale
ties are usually higher when a wholesaler is businesses in the United States and their
used to complete them. total revenues in 2002. Use the Internet to
locate the U.S. Economic Census for 1992.
2. True or False: When a producer or manufac-
Determine the number of wholesale busi-
turer uses a wholesaler to sell consumer prod-
nesses and their total revenues reported in
ucts, the need for retailing is eliminated.
that census. Construct a table and a graph
3. Independent wholesale businesses that pro- that compares the changes in the wholesale
vide specialized exchange functions but do industry during the ten-year period.
not take title to goods are known as
7. History Identify and conduct research on
a. limited service wholesalers
one wholesale franchise or cooperative.
b. merchant wholesalers
Prepare a report that identifies when and how
c. agents and brokers
it was started, the reasons it was formed, how
d. wholesale franchises and cooperatives
it has expanded and changed over the years,
4. Wholesale member are businesses and future plans for the organization. Include
that offer a variety of common consumer a picture of the company’s logo in your report.
products for sale to selected members
through a warehouse outlet. Connect to
5. Which of the following is not one of the ways 8. As a sales representative for a full-service
wholesalers are responding to changing mar- merchant wholesaler, you are contacting a
ket conditions? new restaurant owner who does not cur-
a. developing and providing access to new rently use a wholesaler. The owner purchases
markets fresh foods from local growers and buys most
b. offering export and import services for other products and supplies from a local
foreign markets wholesale member club or through online
c. gathering and providing information and purchases from other businesses. Prepare
data to customers to improve operations and deliver a three-minute sales presentation
d. reducing the number of marketing ser- to your teacher (judge) on the benefits to the
vices offered to cut costs owner of using your wholesale business for
S all purchases rather than the current practice.
N
378
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Retailing Reaches Consumers 13-4
GOALS KEY TERMS

• Define retailing and describe ways to retailer, p. 379 non-store retailing, p. 382
distinguish various types of retailers. inventory shrinkage, p. 380 franchising, p. 383
• Describe ways that retailing is changing specialty or limited-line retailers, p. 380 atmospherics, p. 384
in response to changes in consumer
mixed merchandise retailers, p. 380
preferences and the business
environment. service retailers, p. 381
Consumers purchase most of their products and services from retailers. While retail-
ers do not develop the product, they are responsible for the marketing mix that con-
sumers see. Retailers choose the product assortment and select the locations where
consumers can make purchases, set prices, and control much of the promotion.
They often provide information and customer service during and after the sale. They
are usually responsible if customers have questions or problems with a purchase.
Because retailers are the consumer contact for all members in a channel of distribu-
tion, their role is critical. As consumer preferences and the business environment
change, retailing quickly changes in response. The growth of Internet sales and the
adoption of new store designs and sales technology are among the important chal-
lenges facing retailers.
Make a list of the ten retailers that you have visited most recently. Classify each
as a local independent business, franchise, or regional or national chain. What prod-
ucts or product categories does each retailer carry? What factors led you to buy or
not buy from each retailer during your visit.
The Role of Retailing

he final business organization in an evaluate them. Most retail businesses help
T indirect channel of distribution for

consumer products is a retailer. While
some large discount retailers sell products
customers purchase products by accepting
credit cards or providing other credit or
financing choices. Additional services such
to other businesses, their primary custom- as product assembly, installation, altera-
ers are individual consumers purchasing to tions, repairs, layaway, gift-wrapping, and
meet their own needs. Retailers accumu- delivery are provided by many retail stores.
late the products their customers need by In addition to offering products and
buying from manufacturers or wholesalers. services for consumers, retailers support
They display the products and provide the marketing activities of wholesalers S
product information so that customers can and manufacturers. They often finance N
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the inventory by paying the manu-
facturer or wholesaler before the
products are sold to consumers. In
addition to purchasing products for
resale, retailers store large amounts
of inventory so that customers have a
variety of product choices and ready
availability if they decide to make a
purchase. Because of that, the retailers
are reducing the storage costs of the
other businesses and assuming much
©DIGITAL VISION
of the risk involved in maintaining
an inventory of products. Products
can be lost, damaged, stolen, or go out
of style before they are sold. A major Why is it important for retailers to understand the
cost to retailers results from inventory purchasing behavior of customers?
shrinkage. Inventory shrinkage is a purchasing through catalogs or over the
loss of products due to theft, fraud, negli- Internet rather than travel to the stores.
gence, or error. Retail businesses are available that match
Promotion is an important marketing each of these types of shopping behaviors.
activity of retailers. Increasingly, retail- There are several ways to examine the
ers are involved in marketing research various types of retailing.
and marketing-information management.
Some retailers even take responsibility for Product Mix of Retailers One way
transporting products from the manufac- of categorizing stores is by the types of
turer to their distribution centers and on products offered in the businesses. Some
to individual stores. retailers specialize in one or a few product
categories while others offer customers a
Types of Retailers wide range of products.
It is difficult to describe retailing with pre- Specialty or limited-line retailers
cision because of the variety of businesses offer products from one category of
that sell to final consumers. Because there merchandise or closely related items.
are so many consumers and their needs Examples include food, automotive, ap-
and purchasing behaviors are so differ- parel, lawn and garden, music, or travel.
ent, retail businesses develop to respond to Some stores in this category offer a wide
those differences. variety of types of products while others
Some consumers carefully plan their may be very specialized. For example,
purchases, gather information in advance within the category of food, it is possible to
of shopping for products, and want to find businesses that sell only coffee, cook-
complete their shopping as quickly as pos- ies, or fresh fruits and cheeses while other
sible. Other consumers use very little plan- businesses offer many varieties of food in
ning, gather information about products hundreds of product categories.
while they are in a store or mall, and enjoy Mixed merchandise retailers offer
spending a great deal of time shopping. products from several different categories.
You probably know people who make Common examples of mixed merchandise
frequent trips to stores and make a large retailers are supermarkets in which you
number of both small and large purchases. can buy many products other than food,
There are other consumers who shop department stores that may offer 20 or
infrequently but spend large amounts more distinct departments of products, and
S of money when they make a purchase large drug stores that sell pet food, auto-
N decision. Some people prefer to do their motive products, electronic equipment,
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and health-related products in addition to many choices of products, brands, and fea-
medications. tures within that category. Two of the most
A recent successful example of mixed popular types of limited-line superstores
merchandise retailing is the “dollar” today are computer stores and consumer
store. Dollar stores typically are smaller, electronics stores.
convenience-type stores that offer a limited A final category is service retailers,
assortment of household and packaged which have services as their primary offer-
food items at deep discounts. The stores ing with a limited number of products for
are often targeted at families and singles sale that complement the services. Exam-
seeking bargain prices for routine house- ples include barber shops, movie theaters,
hold purchases. and auto service centers.
A newer concept in retailing is the
superstore. Superstores are very large Location of Retailers An important
stores that offer consumers wide choices of characteristic of retailing is the location
products at lower prices. Many of today’s of the store. The location can be studied
superstores began as discount stores such in relation to the customer or to other
as Wal-Mart and Kmart. They have now businesses. Convenience stores are located
developed much larger stores that com- very close to their customers, offering a
bine groceries, home products, electronics, limited line of products that consumers
garden centers, and even food courts. Most use regularly. Most convenience stores sell
superstores combine a variety of product gasoline, food, and household products.
categories so that consumers can use the Other convenience stores are becoming
store for one-stop shopping. Limited-line popular, including businesses that pro-
superstores sell products in a narrower vide packing and mailing, photocopy and
product category but offer consumers printing services, and movie and com-
puter game rentals.
Judgment Call
When Is Cooperative Pricing of milk. Both of these industries sell com-
Ethical? modities that do not vary from company to
company.
In some industries, controlling prices is dif-
It is difficult for the government to regu-
ficult. That is especially true in an oligopoly
late pricing when a few large firms compete.
where a few large businesses offer very simi-
For example, it is not unusual for an airline
lar or identical products. If a customer wants
to announce a price change to take place in
to purchase a car and several dealers sell the
several weeks. Then competing airlines can
same models, the customer will shop to find
determine if they are going to match the
the lowest price. Dealers know they must be
price change. While this pricing practice is
competitive.
not illegal, it has much the same effect as
When business people see that they are
illegal price fixing.
competing in an oligopoly, they might be
tempted to agree with other businesses to Think Critically
keep prices high. To protect consumers, the
1. Do you think the legal pricing practice
federal government makes it illegal for busi-
described for the airline industry is
nesses to “fix” prices. Recently, there have
ethical?
been high-profile investigations of alleged
price fixing in both the oil industry for gas 2. How is pricing affected when large com-
peting companies merge? S
prices and the dairy industry for the price
N
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Shopping centers are a set
of stores located together and
planned as a unit to meet a range
of customer needs. There are
several types of shopping centers, As your textbook explains, the world’s largest
based on size and types of busi- mall is the South China Mall in Dongguan, China.
nesses. Shopping strips contain However, business at the mall has not met owners’
about 5 to 15 stores grouped to- expectations. Access school.cengage.com/
gether along a street. They offer a marketing/marketing and click on the link for
limited number of emergency and Chapter 13. Read the article from the International
convenience products such as fast Herald Tribune. Then give some reasons why you
food, gasoline, laundry services, think the mall has not yet been successful.
and drug stores. Neighborhood
centers have between 20 and 30 school.cengage.com/marketing/marketing
stores that offer a broader range of
products meeting the regular and
frequent shopping needs of con- retailing. Non-store retailing involves
sumers located within a few miles of the selling directly to the consumer at home
stores. Regional shopping centers contain rather than requiring the consumer to
100 or more businesses. These large shop- travel to a store. Two of the oldest and
ping centers attempt to meet most or all of most common forms of non-store retail-
consumers’ shopping needs. The centers ing are door-to-door selling and catalog
are developed around several large depart- sales. Many years ago, traveling sales-
ment or discount stores. They often attract people sold many consumer products.
customers from ten or more miles away. The salespeople traveled to the customers’
The world’s largest mall is the South homes because consumers took infre-
China Mall in Dongguan, China. It in- quent shopping trips. This method is used
cludes 1,500 stores and covers 9.6 million less frequently today because of cost and
square feet. In comparison, the 4.2-million- changing shopping behavior, but orga-
square-foot Mall of America in Minne- nizations such as Avon Products and the
apolis, Minnesota, offers customers the Girl Scouts still use door-to-door selling.
opportunity to visit over 520 businesses, 50 Some home sales are done through orga-
restaurants, an indoor amusement theme nized home parties where friends gather
park, aquarium, and entertainment dis- for food and activities as well as to see the
trict. It is an international travel destination latest products in categories from jewelry
as well as a retail shopping extravaganza. to art and even specialty food products.
Stand-alone stores are large businesses The sale of general merchandise
located in an area where there are no other through mail order catalogs once was
competing businesses nearby. They of- popular, but it declined as shopping cen-
fer either a large variety of products or ters became more convenient and travel
unique products. Stand-alone businesses became easier for more and more people.
must have products that customers cannot However, in the past decade, catalog sales
easily find in more convenient locations or have regained much of their past popularity
products so important or unique that con- as a result of express delivery services and
sumers will make a special trip to the busi- strong guarantees and warranty programs
ness. Examples of stand-alone businesses by businesses. Rather than offering general
are some auto dealerships, superstores, and merchandise, the most popular catalogs
lawn-and-garden centers. today offer specialty merchandise products.
Other types of non-store retailing
S Non-Store Retailing A unique include vending machines, telephone sales,
N category of retail businesses is non-store televised shopping clubs, and direct mail
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selling. The newest and potentially the
most lucrative form is Internet retailing Checkpoint
such as Amazon.com. In addition, numer-
What are three common ways to
ous supermarkets, restaurants, and other
distinguish or classify various types of
retail businesses now allow local customers
retailers?
to place orders from a home computer, pay
by credit card, and have the order deliv-
ered in a matter of minutes, if needed.
How Is Retailing Changing?

etailing has always been known for even individuals have found that they can
R variety as well as rapid change. There

is nothing to suggest that change will
not continue. Retailing is likely to be very
compete effectively when selling merchan-
dise online. Easy to use web design and
shopping-basket software and the availabil-
different in the next ten years than it is ity of businesses that will manage online
now. Also, because of the large number stores, financial transactions, shipping,
of retailers and the choices available to and even customer service make Internet
consumers, it will be increasingly difficult retailing possible for almost anyone who
to compete in many types of retail busi- has a product for sale. While the first Inter-
nesses. Consumers expect variety, quality, net retailers were usually click-only busi-
service, and low price. Retailers will have nesses, meaning they sold products online
to be very effective at purchasing, selling, only, most of the major retailers today offer
and business operations. To be profitable, products for sale online as well as through
they will have to find the most efficient their brick-and-mortar stores. Customers
ways to operate in order to keep costs low. are able to search for merchandise online
before going to a store, make the purchase
Changing Types of Retailers through the Internet and pick it up at the
It is likely that there will continue to be a store, make merchandise returns to the
need for both specialty and mixed mer- store, or arrange customer service for in-
chandise stores. Some people predicted that store purchases online. The lines between
specialty stores would disappear as people Internet and in-store retailing are becom-
did more one-stop shopping. Yet there are a ing increasingly blurred.
large number of consumers who are will-
ing to invest more time in shopping and are The Growth of Franchising
looking for a wider choice as well as unique Franchising is a very popular type of
or unusual items that are not widely avail- retail ownership. Franchising is a business
able. The number of small specialty
retail businesses has begun to increase
again after going through a period of
decline. The very large specialty busi-
Select a retail business that has made a change
nesses also continue to grow.
in the way it does business. For example, per-
haps the business has incorporated technology,
The Expanding Internet made changes to its shopping environment, or
The growth of the Internet and an moved into international markets. As a team,
increased level of consumer com- discuss why you believe the change was made
fort in making online purchases is and whether it has been effective. Explain your
expanding Internet retailing oppor- answer. S
tunities. Very small businesses and N
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relationship in which the developer of a
business idea sells others the rights to the
business idea and the use of the business
name. In a franchise business, the owner
(the franchiser) develops a basic business
plan and operating procedures. Other
people (franchisees) purchase the rights to
open and operate the businesses according
to the standard plans and operating proce-
dures. Franchise fees are paid to the fran-
chiser for the business idea and assistance.
Franchises allow people with limited
experience to enter a business. They are
guided by the franchise plan and training,
which can reduce the risk of failure. Popu-
lar franchises increase customer awareness
of a business because many businesses op-
erate in different locations using the same
franchise name and promotions. Examples
of successful retail franchises include
How has the use of bar codes changed the way
restaurants, financial services, hotels, oil
retailers do business?
change services, and copying businesses.
damage, returns, and even detailed cus-
Increased Use of Technology tomer data matched to sales. That informa-
Technology is having a big impact on re- tion can be shared with channel members
tailers. Not only are most business opera- to replenish inventory of fast-moving
tions managed with computers, but also merchandise, cancel orders of products
new types of equipment are being used in customers do not want, and improve pric-
businesses to store, distribute, and display ing and promotional strategies.
products. For example, customers can shop
for products by using a computer screen The Shopping Experience
on a kiosk rather than by walking around While some shoppers want to spend very
a store. When a product is selected from little time in a store and expect an efficient
the description and picture on the screen, shopping experience, others are attracted
the consumer inserts a credit card into the to shopping as an exciting social experi-
computer. The product is packaged and ence. Retailers are increasingly concerned
available for pickup at the front of the store about atmospherics. Atmospherics are the
when the customer is finished shopping. elements of the shopping environment that
Technology has particularly enhanced are appealing to customers, attract them
the merchandising function of retailing. to a store, and encourage them to buy. The
Starting with electronic inventory systems major elements of atmospherics are the
using bar codes or electronic tags on all store location, exterior and interior ap-
merchandise, products can be tracked pearance, store layout and display, and the
from the point of manufacture until they shopping environment.
are sold. Retailers use optical scanning Many stores have reduced product
sales terminals to instantly record sales display space and widened aisles, changed
and merchandise returns. A detailed interior colors and lighting, and used more
record of each product is maintained and visual features and appealing product
instantly updated so that the store can presentations. Some stores have organized
S track sales, prices, merchandise shortages, merchandise so that shoppers can see
N
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products displayed in the types of settings develop their economies, retail opportuni-
where they would be used and can partici- ties will expand there as well. Many of the
pate in product demonstrations. They have U.S. fast-food businesses have been quite
product experts available to answer ques- successful in international marketing as
tions and help with purchase decisions. have businesses in the travel industry, in-
cluding hotels and automobile rental agen-
The Global Marketplace cies. U.S. fashions have wide acceptance,
Global retailing holds a great deal of prom- so specialty apparel stores are looking at
ise for the future. While many manufac- other countries as likely places to expand
turers and wholesalers have been involved their businesses.
in international marketing for a number
of years, retailers are often reluctant to ex-
pand into other countries. Several types of Checkpoint
retail businesses have successfully moved
into Eastern and Western Europe, Central In what ways is retailing changing in
and South America, and Asia. As countries response to shifting consumer preferences
of the former Soviet Union and Africa and changes in the business environment?

Determine the best answer. 5. Research Use the Internet or business publi-
1. In an indirect channel of distribution for con- cations to identify the five largest U.S. retailers
sumer products, the final business organiza- in the following categories:
tion is a a. specialty or limited-line stores
a. manufacturer b. department stores
b. wholesaler c. discount stores
c. retailer d. retail franchises
d. customer e. Internet retailers
Prepare a table to present your findings.
2. offer products from one category
of merchandise or closely related items. 6. History A concept that describes how retail
a. Specialty or limited-line retailers businesses change over time is known as the
b. Mixed merchandise retailers “wheel of retailing.” Use the Internet or business
c. Superstores textbooks to gather information on this con-
d. Non-store retailers cept. Prepare a visual that illustrates the con-
cept and a two-minute speech that describes
3. True or False: The person who purchases
the concept and its effect on retail businesses.
the rights to open and operate a franchise is
known as the franchisee. Connect to
4. The elements of the shopping environment 7. Your marketing team has been asked to plan a
that are appealing to customers, attract them neighborhood shopping center for the com-
to a store, and encourage them to buy are munity near your school. Select a location,
a. pricing strategies create a drawing of the layout of the center
b. store location and select 20 stores that you believe would be
c. employee training effective tenants based on characteristics of
d. atmospherics local shoppers. Present and describe your plan
to your teacher (judge). S
N
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13-5 Physical Distribution
GOALS KEY TERMS
• Describe the various means by which products are trans- physical distribution (logistics), p. 386
ported within a channel of distribution. warehouse, p. 389
• Explain the common options for storing and handling distribution centers, p. 390
products while they are moving through the distribution
channel.
• Examine the importance of order processing and inven-
tory control to the overall effectiveness of a physical
distribution plan.
It is important to have the right combination of businesses in a channel of distribu-

tion. Merely selecting businesses does not ensure that products will move effectively
from the producer to the consumer. An important part of channel planning is physi-
cal distribution, the handling and movement of products through the channel. Busi-
nesses that specialize in specific physical distribution activities are often included in a
channel of distribution. All parts of the physical distribution process must be careful-
ly planned, coordinated, and controlled in order for products to reach customers on
time and in good condition. The primary physical distribution activities are transpor-
tation, storage and product handling, and information processing.
Identify a small, fragile product and a large, heavy product. Identify several ways
each of the products could be transported from the manufacturer to the customer.
Choosing Transportation Methods

hen most people think of physi-
W cal distribution, they probably

think of shipping or transporta-
tion. It is much more complicated than
The Physical Distribution
Process
Products are usually handled many times
as they move from manufacturing through
that. Physical distribution (also known as
logistics) is the process of efficiently and several forms of transportation and many
effectively moving products and materi- locations to the place where they will
als through the distribution channel. The be consumed or sold. Products may be
main physical distribution activities are grouped into large units for transportation
transportation, storage, and product han- and then divided into smaller units for
dling. Physical distribution also requires display, sale, storage, or use, all requiring
information processing to make sure accu- further handling and packaging.
S rate records are maintained throughout Usually products do not move continu-
N the process. ously through the channel of distribution.
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They are stored as each business pro-
cesses paperwork, sells to the next
channel member, and determines the
location of distribution. Storage fa-
cilities must be arranged to hold and
protect the product. Inventory control
procedures must be developed so that
the product does not become lost.
Moving the Product

The first step in physical distribution
planning is deciding how products will
be moved from the producer to the cus-
tomers. There are several transportation
methods used to move most common
products—railroad, truck, airplane, ship
or boat, and pipeline. As you consider
those alternatives, some are automati-
cally eliminated because they are not
available in certain locations or are not
COURTESY OF CENDIAN CORPORATION
equipped to handle the type of product

to be shipped. You clearly would not
send small packages by rail or by ship,
and you would not ship iron ore and
coal by airplane. Other factors such as
the speed of delivery needed, any special
handling required, and cost enter into
the choice of transportation methods.
Railroads Railroads are useful for Safety is a major factor in choosing the transportation method to
move many industrial products such as chemicals.
carrying large quantities of heavy and
bulky items. Raw materials, industrial Railroads are responding to the
equipment, and large shipments of con- need for improved service to customers.
sumer products from the factory to retail- Railroad tracks and equipment are being
ers often are moved by rail. The cost of this upgraded, and routes are being resched-
method is relatively low if a large quantity uled to improve customer service. Newer
of a product is moved, but the total cost methods of product handling have been
to ship one or more carloads of a prod- developed, including packing products
uct is high. Products move quite slowly into large containers or truck trailers
on trains compared to other methods of which are then hauled on flatbed rail cars.
transportation. To speed rail shipments to customers, it is
Problems exist in using railroads now possible for a business to send several
for shipping products. Equipment is not carloads of products from the production
always available where it is needed, and it point and redirect them to customers en
takes time to move empty cars to new route as sales are made.
locations. Many areas of the country are
not served by rail, so other forms of Trucks Trucks are the most flexible of
transportation will be needed to and the major transportation methods. They
from the closest rail site. The time needed can handle small or large shipments, goods
to load and unload freight from rail cars that are very durable or require special S
is long. handling, and products that are going N
387
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across town or across the country. Trucks shipments. The major problem with this
can reach almost any location and can form of transportation is speed. Ships are
provide relatively rapid service. Trucking relatively slow, and it may take several
costs are relatively low for short distances weeks after a product is loaded on the
and easy-to-handle products but increase ship before it is delivered to the customer.
for longer-distance or more difficult Also, there is a risk of large losses if a ship
shipments. is damaged by weather or other condi-
Many companies own their own tions. Ships usually must be used in com-
trucks. Small companies can often afford bination with trucks or railroads, as they
to own and maintain a delivery vehicle. are limited to travel between major ocean
Large manufacturers, wholesalers, and reports with terminals that have the appro-
tailers often own fleets of trucks to be able priate product-handling capabilities.
to move products where and when needed. Boats on inland waterways such as
Trucking firms are important channel lakes and large rivers are another type of
members. They provide the specialized water transportation used for shipping.
service of transporting products to other Barges and other cargo-handling boats are
channel members. They often have spe- used to ship products such as coal, grain,
cial product handling equipment, storage cement, and other bulky and nonperish-
facilities, and well-trained drivers to insure able items. Like ships, they are rather slow,
that products are moved rapidly and safely. but they can handle large quantities at
relatively low prices.
Ships and Boats A large number of
products sold internationally are trans- Airplanes If you want products deliv-
ported by water. While airlines move ered rapidly and can afford a higher
small shipments rapidly, ships can handle cost, air transportation will often be the
large quantities and large products very choice. Small parcels can be carried on
well at a much lower cost than air commercial flights while large products
Virtual Marketing
Tracking Shipments Online An early hurdle that prevented
Transportation companies use the Internet many companies from fully embracing
to let their customers and clients know pre- consolidated online shipping and inventory
cisely where shipments are, when they are information was data security. However, as
due to arrive at their destinations, and even encryption technology has improved and
what is inside various packages. Providing the security threat has become minimal,
detailed shipping information is part of a companies have been more willing to adopt
larger trend toward integrating information these online services.
among senders, transportation companies, Think Critically
and recipients. Properly executed, it can
1. How can better information reduce the
let retailers automatically manage inven-
amount of time a valuable part sits in a
tory, anticipate and fulfill supply needs, and
shipper’s warehouse before it is put to a
reduce the valuable time lost when ship-
productive use?
ments unnecessarily sit in warehouses. It can
also give retailers more information to relay 2. Search the Internet for a web site of an
to customers who might be waiting for an package delivery company. What kinds
item to arrive. of information about a shipment can
S customers obtain from the web site?
N
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or large quantities of a product can be
moved using cargo planes.
Because of the high transportation
costs, many companies do not consider
air as a transportation choice. When other
factors are considered, air transportation
may not be as expensive as it seems. For
example, the speed of air delivery reduces
the need for product storage. Products may
need to be handled less, and the speed of
distribution reduces spoilage, damage, and
theft. Companies that do not regularly use
©DIGITAL VISION
air transportation may choose that method
for special or emergency deliveries.
Pipelines While not used for many Why are trucks a popular mode of transporting products?
products, pipelines are an important
shipment of appliances may be moved
transportation method. Gas, oil, and
from a factory to a rail site by truck,
water are moved in large volumes over
moved across the country by rail, and
long distances through pipelines. Even
then loaded onto other trucks to be deliv-
some products you would not think of
ered to retailers.
move by pipe. Small coal and wood parti-
Companies like FedEx, UPS, and
cles can be mixed with water into a slurry
the U.S. Postal Service employ their own
and sent through a pipeline between loca-
fleets of cargo planes and delivery trucks
tions. Pipelines are expensive to construct
to move small shipments between cities
and can be difficult to maintain. Once
throughout the world overnight. Gasoline
built, though, they can be a very inex-
and other petroleum products are moved
pensive method to use because a large
from a refinery to locations across the
amount of product can move through the
country by pipeline. Then trucks are used
pipeline. It may also be the only choice
to transport the products to wholesalers,
to deliver products from some locations,
retailers, and business customers.
such as crude oil from remote oil fields.
Combining Methods Products often
move through long distribution channels Checkpoint
among several businesses. It is likely that
many will be transported using combi- What are the common transportation
nations of transportation methods. A methods used in channels of distribution?
Storage and Product Handling

ince production and consumption sel- adds the risk that products may be dam-
S dom occur at the same time, products

must be held until they can be used.
This means that methods and facilities
aged or stolen or become outdated while
being stored.
Warehouses
for storage must be developed as a part of
marketing. Effective storage allows channel Storage of most products is usually done
members to balance supply and demand, in warehouses. A warehouse is a build- S
but it adds to the costs of products and ing designed to store large amounts of raw N
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materials or finished products until they to the distribution centers. The products
can be used or sold. Warehouses can be are needed in various assortments and
privately owned by any of the companies quantities in the hundreds of stores owned
in the channel of distribution. Private by the retailer. The costs of storage and
ownership allows the company to develop transportation are high, so the distribu-
the specific type of facility needed for the tion centers must be good at receiving the
products being handled at the locations products, combining the different products
where they are most needed. For compa- into shipments for each store, and routing
nies that need limited storage space or need those shipments quickly. The goal of the
it less frequently, public warehouses are distribution center is to reduce the costs of
available. Public warehouses are often used physical distribution while increasing the
for overflow storage or for products that are availability of products to customers. That
seasonal. can be done by using efficient product-
If you live in a medium- to large-sized handling methods and reducing the time
city, you may have an area of town that was products remain in the distribution center.
a warehouse district. Large, old, multistory
buildings were used in the past by many Packaging
wholesalers and manufacturers. They were Another important part of product han-
often located near the center of town to dling is packaging. Packaging is a part of
be close to the retail businesses. Today, product development in that it aids in the
you will find storage facilities located at effective transportation, storage, and use
the edge of town near interstate highways of the product. For many products,
or airports. The buildings are still large, packaging also serves as a promotional
but they are usually only one story tall. If tool. But the primary purpose of packag-
you enter the building, you will likely see ing is to protect the product from the
long conveyor belts or chains that move time it is produced until it can be
products through the building. There may consumed. If the product is damaged or
even be computer-controlled trucks and destroyed as it moves between companies,
carts (robots) that move products from a great deal of money that has been
area to area. Special storage shelves and invested in the product by manufacturers
equipment can move products in and out and other channel members will be lost.
without the need for handling by people. Packaging materials need to be
Bar codes on the shelves, containers, and selected and packaging methods
packages allow computers to keep track of developed that protect the product and
the location of products and the length of allow it to be shipped in appropriate
time they are in storage. quantities. A product being handled
with a forklift and shipped in large con-
Distribution Centers tainers by trucks and rail cars needs to be
The newest kind of storage facility packaged differently from a product being
is known as a distribution center. A shipped in small quantities to the con-
distribution center is a facility used to sumer using a parcel service. Products sent
accumulate products from several sources across town require different packaging
and then regroup, repackage, and send and packing than those shipped around
them as quickly as possible to the locations the world.
where they will be used. A large retailer
may have a number of distribution centers
located throughout the country and the Checkpoint
world. Thousands of products are ordered
What are the common options for storing
from many manufacturers and shipped in
S huge quantities from the manufacturers and handling products while they are
N moving through the distribution channel?
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Understand Personal Financial Statements

Just as corporations use financial statements to Cash income could
track and analyze their financial status, individu- be money from your
als should use personal financial statements job, any sporadic
to measure their personal financial health. An income (from
important measure of your long-term financial baby-sitting or
strength is an increasing net worth. Your net snow shoveling
worth is determined from a personal balance jobs or birthday gifts),
sheet using the basic formula: Net Worth = Total or your allowance. Interest on savings is consid-
Assets ⫺ Total Liabilities. ered income when it is paid. Later, if you have
Total assets are made up of current and income from investments, rental property, or
long-term assets. Current assets include checking loans, it would appear in your cash flow state-
and savings accounts, money owed to you that ment in the month it is received.
will be paid in the near future, and cash on hand Cash expenses are the payments you make
or in the bank. Long-term assets might include for clothing, entertainment, and other living
long-term savings and investments, such as expenses. If you borrowed money, the pay-
certificates of deposit, stocks, bonds, and things ments you make are expenses. In the future,
you own such as a car. Later on, long-term assets cash expenses may include mortgage payments,
might include the cash value of life insurance, utilities, insurance, and taxes.
real estate, retirement plans, and other long-term You should calculate cash flow to make
investments. sure you have enough cash on hand to meet all
Current liabilities include current bills owed, required payments. If not, you will have to use
money you may have borrowed, and payments savings or borrow money, which hurts your over-
on purchases. If you have a job, income taxes all financial position. Your goal should be to have
you will owe at the end of the year are current a positive cash flow most months and a growing
liabilities. Later, your rent will be a current liability. net worth over time. If your net worth is negative,
Long-term liabilities are amounts you owe that but your current cash flow is positive, you can
will be paid over a period longer than a year, such construct a plan to improve your net worth.
as a car loan. In future years, long-term liabilities
may include a home mortgage or payments on Develop Your Skill
loans to finance your education. To analyze your current financial health, use the
Determining your net worth by preparing a Internet to locate forms for a personal balance
balance sheet can help you assess whether you sheet and cash flow statement and complete
have sufficient assets to pay for your immediate them as accurately as possible.
and long-term debts. Share your financial statements with your
A personal cash flow statement is another parents or another trusted adult and ask for feed-
tool for evaluating your financia health. The cash back on your financial health. Discuss your future
flow statement shows where immediate income plans and financial goals and how they can be
(cash) is coming from and how it will be used dur- accomplished with financial planning.
ing a defined short time period, such as a month. Construct financial statements you believe
Your monthly personal cash flow can be defined might reflect the financial condition you would
as: Monthly Cash Flow = Monthly Income like to have in ten years. What will you have to do
Received ⫺ Monthly Expenses Paid. to achieve that goal?
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Information Processing
hysical distribution systems must consumer. Order processing is not com-
P match the supply of products with

the demand for those products. First,
products must be available in adequate
plete until payment has been received and
recorded, the product has been delivered
and accepted by the customer, all shipping
assortments and quantities. Then, the and delivery records have been completed,
inventory of products can be matched with and product inventory records have been
the needs of consumers and channel mem- updated.
bers. An effective information system must
be able to predict consumer demand to be Inventory Control
sure that an adequate supply is available. The level of inventory affects the cost
The system must assure that the supply of marketing and the level of customer
matches demand so there is not too much satisfaction. If too much inventory is
or too little of a product. Products must be maintained, storage costs will be too high.
routed to where they are needed as quickly There is also a risk that customer needs
as possible. The two important parts of the will change or the product will spoil or be-
physical distribution information system come outdated and will not be sold. If not
are order processing and inventory control. enough inventory is available, customers
will not be able to buy what they need, and
Order Processing sales and goodwill will be lost.
Order processing begins when a customer An inventory control system must
places an order. Typically the order is maintain several types of information. It
placed with a salesperson, but the order is important to know what products are in
may be placed by telephone or fax, by com- inventory, what quantity of each product
puter using a direct connection, or on the is available, and how long each has been
Internet. in inventory. Effective inventory control
When the supplier receives the order, methods maintain information in a com-
a system must be in place so that the order puter, so it is not necessary to look at the
can be sent to the department in the busi- inventory each time there is a question.
ness where it can be filled. At the same A second important feature of an
time, the order is also being processed by inventory system is a method to determine
the accounting department to determine what products to order and what quanti-
the terms of the sale, method of payment, ties to order. An inventory control system
and cost of the products. Other business should identify how much of each product
people are determining the method, cost, is being sold and how rapidly. The people
and timing of transportation. responsible for maintaining adequate
When the order is filled, it must be inventory levels should know how long
packaged and prepared for shipment. it takes to replenish the supply for each
The order is checked to make sure
it is complete, and information is
forwarded to the accounting de- Wo r k i n g i n Te a m s
partment so that an invoice can be
prepared. The shipper is notified so As a team, identify a large industrial product
that transportation is available. The and a small consumer product. Create two flow-
customer is informed that the order charts that show the activities and businesses
has been processed and shipped. This that the team believes will be required to com-
procedure is repeated at each stage plete the physical distribution process. Discuss
S of the channel of distribution until the differences between the two flowcharts.
N the product is delivered to the final
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product so that an adequate inventory can retail stores and industrial salespeople, a
be maintained to meet anticipated cus- possible order can be instantly checked
tomer demand. They should also be aware to determine if an adequate supply is on
of products that are selling more rapidly hand and, if not, when it will be available.
or more slowly than planned. When sales Salespeople and customers can identify the
are higher than expected, the company number of days it will take for the product
may want to order more to be able to meet to be delivered as well as the shipping costs
customer needs. When sales are slow, rea- for alternative transportation methods.
sons for the reduced level of sales should
be determined and a decision made as to
whether or not to reorder. Checkpoint
Today’s computerized inventory sys-
tems allow information to be exchanged What types of information should be avail-
instantly between channel members. For able in a physical distribution information
many Internet sites, and increasingly for system?

Determine the best answer. 5. Communication You are the transportation
1. Another name for physical distribution is specialist for an auto manufacturer in South
a. storage Carolina. You have been asked by the logistics
b. transportation manager to compare shipping new cars to
c. logistics dealers in the northeastern states using auto
d. inventory control transport trucks or rail cars. Prepare a one-page
memo analyzing the alternatives and making a
2. The most flexible of the major transportation
recommendation.
methods is
a. railroads 6. Technology Use the Internet to gather infor-
b. airlines mation on a technology that is being used by
c. trucks shipping companies to improve the physical dis-
d. pipelines tribution of products in terms of speed, security,
information, or other factors. Prepare a report
3. A(n) is a facility used to accumu-
on the technology and include examples of how
late products from several sources and then
companies are benefiting from its use.
regroup, repackage, and send them as quickly
as possible to locations where they will be Connect to
used.
7. A company is producing a recordable CD
4. The two important parts of the physical distri- shaped like a business card, which business
bution information system are people can present to clients. They can print
a. ordering and shipping standard business card information on the CD
b. invoicing and transportation label and record information and visuals about
c. order processing and inventory control their business on the CD that would provide
d. data processing and data management details about the company and its products.
Design a package that can be used to sell sets
of the blank business card CDs in office supply
stores that both protects and promotes the
product. Present your design and discuss it
with your teacher (judge).
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Now that you have completed the chapter, check identify several adjustments that must be made
your understanding of the lessons with these ques- between producers and consumers through the
tions. Record the score that best represents your channel of distribution?
understanding of each marketing concept. describe the difference between a direct and
1 = not at all; 3 = somewhat; 5 = very well indirect channel of distribution and when each
should be used?
If your score is 42–50, you are ready for the assess-
ment activities that follow. If you score 33–41, you discuss how wholesalers can add value in many
should review the lessons for the items you scored distribution channels?
1–3. If you score 32 or less, you will want to carefully describe changing roles of wholesalers?
reread the lessons and work with a study partner on identify common types of retailers based on
the areas you do not understand. their product mix and their location?
Can you— discuss how today’s retailing is changing?
offer several reasons why distribution is so compare the major transportation methods used
important to successful marketing? in physical distribution?
list the distribution decisions that must be made provide examples of how effective order
in order for a satisfactory exchange to occur? processing and inventory control improve
marketing?

1. Selling directly to the consumer at home rather 10. Companies that assist with distribution activities
than requiring the consumer to travel to a store between businesses
2. A loss of products due to theft, fraud, negli-
gence, or error
3. A business that offers products from one cate- a. atmospherics
gory of merchandise or closely related items
b. channel captain
4. A building designed to store large amounts of c. direct channel
raw materials or products until they can be used d. distribution centers
or sold
e. distribution function
5. The producer sells the product to final f. franchising
consumers g. indirect channel
6. Businesses that offer a variety of common con- h. inventory shrinkage
sumer products for sale to selected members i. mixed merchandise retailers
through a warehouse outlet j. non-store retailing
7. A business that offers products from several dif- k. physical distribution (logistics)
ferent categories of merchandise l. retailer
8. The process of efficiently and effectively moving m. service retailers
products and materials through the distribution n. specialty or limited-line retailers
channel o. warehouse
9. Businesses that have services as their primary of- p. wholesale member clubs
S fering with a limited number of products for sale q. wholesalers
N that complement the services
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11. Most producers make only a small number of a. non-store retailer
goods, yet consumers need a wide variety of b. indirect distribution
products and want to buy many of them at the channel
same time and place. This disparity represents c. mixed merchandise store
which kind of difference? d. wholesale member club
a. quantity 16. True or False: Retailers are
b. assortment responsible for the marketing mix that consumers
c. location see because they are the last business in an indi-
d. timing rect channel of distribution.
12. True or False: The business that produces a 17. Which type of shopping center typically has
product always has the primary responsibility for between 20 and 30 stores and offers a range of
developing the channel of distribution that will products meeting the regular and frequent shop-
get it to final consumers. ping needs of consumers?
13. True or False: For a channel of distribution to a. shopping strip
work effectively, all of the channel members must b. neighborhood center
adopt the same marketing strategy. c. regional shopping center
14. Which of the following factors supports the d. none of the above
choice of a direct channel of distribution? 18. True or False: Pipelines are only used to transport
a. a large number of customers oil, gas, and water.
b. customers who are spread out over a wide 19. True or False: Transportation on inland waterways
geographical area such as rivers and lakes is seldom used in the
c. a complex product developed to meet specific United States because bulk materials can be
customer needs moved faster and less expensively by truck.
d. the producer is not concerned with having 20. The most costly of the major transportation
control of the marketing mix methods is
15. An Internet service that sells custom-made CDs to a. railroad
individual consumers is an example of which of b. truck
the following? c. ship
d. airplane

21. When products are exchanged between produc- a. A consumer travels to a strawberry farm to
ers and consumers, all of the marketing func- pick and buy fresh fruit.
tions must be performed. In a direct channel b. A homebuilder orders a truckload of plywood
of distribution, either the producer or the final from a building supply wholesaler to be
consumer is responsible for marketing functions. delivered to the job site by the supplier. The
In an indirect channel, other channel members supplier fills the order from a shipment of
will perform some of the functions. Two plywood delivered last month by rail car from
examples of common exchanges are listed in the plywood manufacturer.
the next column. For each of the examples, 22. The number of franchises is growing rapidly,
identify the channel of distribution as either with opportunities available in manufacturing,
direct or indirect. Then identify which of the service, wholesaling, and retailing. Identify a
channel members will be responsible for each franchise that interests you. Gather information
of the nine marketing functions. Prepare a brief about the franchise through Internet or library
written justification for each of your decisions. research, by writing to the franchiser, or by
(It is likely that more than one channel member interviewing the owner of a local franchise. S
can perform some of the functions.) Gather the following information: N
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a. Is the franchise a manufacturing, wholesale, shopping strip, a neighborhood shopping cen-
retail, or service business? ter, a regional shopping center, or a stand-alone
b. What are the primary products and services store. Develop a written justification for each
offered? decision.
c. Who are the customers? a. homeowners’ and renters’ insurance
d. What other businesses does the franchise b. personal computers for home and business
work with? use
e. Where is the franchise located in the channel c. new automobiles
of distribution? d. movie rentals
f. What marketing functions does the franchise e. building materials and home improvement
perform? products
g. What types of physical distribution activities 24. Many e-commerce businesses have struggled
are completed by the business? to find effective ways to distribute products to
Gather additional information you believe customers and to accept product returns. Parcel
will help you understand the franchise business. delivery service companies such as FedEx and
Prepare a written or oral report on your findings. UPS have grown as a result of agreements with
23. The location of a retail business is very important e-commerce businesses to manage their distri-
to its success. Unless the product is extremely bution activities. Visit the web sites of two parcel
important to customers and they do not have delivery services and gather information on the
a choice of where to buy, they will not spend a physical distribution services each offers to
long time looking for a place to purchase it. For e-commerce businesses. Prepare a table that lists
each of the products listed, consider who the at least ten distribution activities. Develop two
typical consumer would be, and then determine columns that compare the services offered by
whether the business should be located in a each company for the activities identified.

25. Edu-Games, the company discussed in the first disadvantages of each. Then select the alterna-
lesson of this chapter, was trying to develop an tive you believe is best and develop a rationale
effective channel of distribution for its unique for your choice based on principles of effective
product. The company was having difficulty marketing and distribution.
because the distributors and retailers were not 26. Using a computer spreadsheet program, com-
implementing the marketing mix as planned. If pile a list of 15 to 20 household products that
a manufacturer is unable to get the necessary you and your family purchase regularly. Find
cooperation from other channel members, it is the per-unit prices that these or comparable
difficult to successfully market the products. To products sell for at a superstore or wholesale
solve the problem, Edu-Games is considering member club, a mixed merchandise store such
three alternatives: as a supermarket or department store, a limited-
a. selling the games directly to customers by line specialty store, and an Internet store. Use a
mail or the Internet spreadsheet program to record the prices. Select
b. developing its own sales force to replace the the products that are carried by each of the busi-
distributors nesses and compute the total cost of purchasing
c. finding ways to work more closely with all of those products from each type of retailer.
its current distributors to implement the Calculate the percentage difference in the cost of
marketing plan that was already developed all products between each type of retailer.
Prepare a written analysis of each of the
three alternatives, identifying advantages and
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Quick Serve Restaurant
Management Individual
Series Event
The Quick to promote physical fitness. You must deter-
Serve Restau- mine an event for Burger Barn to sponsor
rant Man- that confirms its commitment to a healthier
agement Individual Series Event consists of a population.
100-question, multiple-choice comprehensive
exam and role-plays. The role-play portion of Performance Indicators
the event requires participants to accomplish Evaluated
a task by translating what they have learned
into effective, efficient, and spontaneous ac- • Lead the way for change. (Emotional
tion. The five performance indicators specify Intelligence)
the distinct tasks the participant must ac- • Identify product opportunities. (Product/
complish during the role-play. Students have Service Management)
ten minutes to prepare their strategy and • Generate product ideas. (Product/Service
ten minutes to explain it to the judge. The Management)
judge can ask questions during or after the
presentation.
• Explain nutritional standards. (Product/
Service Management)
Obesity is a serious issue in the United
States. Many children and adults have un- • Explain the components of advertisements.
healthy weight issues. Society has blamed (Promotion)
much of the obesity problem in the United
States on fast-food restaurants that serve
information.
food with high levels of calories and fat. Many
of the fast-food restaurants are also blamed
for their super-sized portions. Much of the Think Critically
food offered at quick serve restaurants is fried 1. Who is the target market for a
and not very healthy. healthy diet campaign?
Burger Barn has been in operation since 2. Why must quick serve restaurants
1960. Large juicy burgers, french fries, onion be accountable for a personal
rings, malts, and sweet desserts have made problem like obesity?
Burger Barn a popular restaurant. Your mar-
3. What kinds of commercials
keting team has been asked to create healthy
are used by Subway to em-
food alternatives for Burger Barn’s customers.
phasize a healthy lifestyle?
The healthy items you offer should not
increase the price of the meals. 4. What kinds of commercials
You must also develop an advertising should Burger Barn use to
campaign that shows how Burger Barn is help distance itself from the
obesity epidemic?
PHOTOS: ©DECA INC.
helping to fight obesity by giving customers

more healthy choices. The advertising cam-
paign must give young people incentives
for making healthy diet choices. Also, Burger S
Barn must become active in the community w w w. d e c a . o r g N
397
13-1 • Marketing through Distribution
DECA Prep 397
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Chapter 14
Determining the
Best Price
14-1 The Economics of Price
Decisions
14-2 Developing Pricing
Procedures
©PHOTOGRAPHERS’ CHOICE/GETTY IMAGES

14-3 Pricing Based on Market
Conditions
Newsline )))
Establishing Value at HMOs
The rising cost of health care is one A problem is that some sub- enough to discourage unneeded
of the most serious problems facing scribers go to HMOs without good visits. Subscribers typically will not
the United States, where costs now cause, raising costs unnecessarily. visit unless their problem is worth at
top $1 trillion a year. Stressing pre- Costs that had been brought under least the amount of the service fee.
ventive health care can help control control by HMOs are now increas- Attitudes and perceptions are
costs. If people see doctors regularly, ing again. Studies of subscribers’ an important part of marketing. Mar-
problems can be identified and attitudes identify two reasons for keting personnel for HMOs need to
treated before they become more the increasing costs. First, they view be concerned about their customers’
expensive. the services as “free.” Second, they views of price and value if they are
Preventive health care is a key strongly believe in preventive care, going to continue to control the ris-
characteristic of health maintenance and they visit HMOs regularly to ing cost of health care.
organizations (HMOs). HMOs offer ensure that they remain healthy.
medical services to subscribers for a HMO managers needed a way to Think Critically
flat fee rather than requiring patients increase the perceived value of their 1. What do you think is a good
to pay based on the services they services without diminishing the amount to charge for an HMO
receive. In the past, people visited importance of prevention. So they service fee to accomplish the
physicians infrequently, seeking introduced small service fees for each two goals stated above? Why?
attention only when they were sick visit. Ideally, the fee is low enough
or injured. Now people go to HMOs that it does not discourage people 2. How do HMO subscribers
to prevent illness. who need to see a doctor, yet high benefit from service fees?
CH 14-B4491_DS_REV3.indd 398 12/7/07 7:05:58 PM


• Understand concepts and strategies utilized in • Explain the nature and scope of the pricing
determining and adjusting prices to maximize function
return and meet customers’ perceptions of value • Describe the role of business ethics in pricing
• Employ pricing strategies to set prices for market- • Explain factors affecting pricing decisions
ing services
• Evaluate pricing decisions
• Assess pricing strategies to identify needed
• Assess changes in price structure
changes and to improve profitability
• Select approach for setting a base price
• Evaluate the effectiveness of the marketing-
communications mix to make product-mix
decisions
Visual Focus
Of the four marketing mix elements, price
ultimately can have the biggest impact on
consumers. Price is an important factor in the
consumer’s perceived value of a product or
service. Price alone can determine whether or
not a customer can afford to make a purchase.
Price is just as important to businesses. It
determines how much profit can be made.
Because pricing plays an important role in the
economy, the government will step in when
necessary to help regulate prices. Businesses
must carefully determine their selling prices
by using demand analysis, studying the mar-
ket conditions, and setting pricing strategies.
Focus Questions:
What is the focus of the advertisement for The
Week? What pricing strategy do you think is
©LEXUS
being used by offering an online publication

free of charge? How does this add value for
the customer? Locate another advertisement
that focuses on price. Share your example in
class and determine the price objective of the
advertiser.
CH 14-B4491_DS_REV3.indd 399 12/7/07 7:11:51 PM

14-1 The Economics of Price Decisions
GOALS KEY TERMS
• Explain the reasons why price is an important market- elasticity of demand, p. 403
ing tool. inelastic demand, p. 403
• Demonstrate how the economic concept of elasticity of elastic demand, p. 403
demand relates to pricing decisions.
• Describe the three primary ways in which government
influences prices.
Price is an important part of marketing because the prices people pay largely deter-
mine how they value an exchange and how satisfied they are with purchase deci-
sions. Expectations of value are closely tied to the price of a product or service. Sell-
ers and buyers devote a lot of attention to prices because prices are easy to change,
unlike other elements of the marketing mix.
Price is also central to the economic concepts of supply and demand. Marketers
who understand whether the demand for a product is elastic or inelastic are better
able to set the optimum price for it.
Government in a free enterprise economy plays a limited role in the pricing of
products and services. The main ways it influences prices are by regulating competi-
tion, controlling unfair pricing practices, and taxing.
Make a list of all the things you’ve bought in the last week. For which ones did
the price significantly affect your purchase decision?
Price as a Marketing Tool

“ hat was a great value!” “You didn’t get who shop at stores with a higher-quality
T your money’s worth.” “It can’t be very

good at that price.”
People make many decisions about
image. You can probably think of many
products you buy that could be purchased
at a lower price. Why do you decide to pay
what to buy based on the prices they pay. a higher price?
Their satisfaction with purchases is often The prices charged for products and
based on their view of the prices. The low- services are important to the businesses
est price is not always viewed as the best selling them as well as to consumers. The
price. Many years ago, the Yugo automo- price determines how much money a busi-
bile was imported into the United States as ness will make to cover the costs of design-
the lowest cost automobile on the market. ing, producing, and marketing its products
However, it didn’t have the style, size, pow- or services. If the price is not high enough
er, or quality to attract customers. Kmart to pay those costs and generate a profit,
established an image as a low-cost retailer the business will not offer that product or
S but had difficulty competing with Wal- service for long.
N Mart’s low pricing or attracting customers
400
400 CHAPTER 14 • Determining the Best Price
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The Importance of Price communicating the value of products and
We know that effective marketing results services to prospective customers. When
in satisfaction for both the consumer and planning any marketing activity, business
the business. A satisfactory price means people must consider the impact of the
that the consumer views the purchase as cost to the business, the price customers
a value. It also means that the business must pay, and the value that is added to
makes a profit on the sale. the product or service as a result of the
Price is the money a customer must activity.
pay for a product or service. But price is
much more complicated than that. Think Price Adjustability
of the various words used to identify the Price is an important tool because it can
price of something. They include admis- be changed much more quickly than other
sion, membership fee, service charge, marketing decisions. Once a product is
donation, retainer, tuition, and monthly designed and produced, it is very difficult
payment. In some cases, money is not used to change its form or features. A channel
at all. In bartering, people must agree on of distribution takes a great deal of time to
the value of the items being exchanged develop. After the wholesalers and retailers
rather than setting a monetary price. are selected and the product is distributed,
Price is such an important part of it is not easy to change the locations where
marketing that it is one of the four ele- customers can purchase the product. Even
ments of the marketing mix. Price is the promotion is not easy to adjust. Advertise-
actual cost and the methods of increasing ments must be written and produced, time
the value of the product to the customers. or space in media must be purchased well
As one of the nine functions of marketing, in advance, and salespeople have to be
pricing is defined as establishing and hired and trained.
Digital Digest
Outsourcing the Drive-Thru it—employees focus on either taking the
When you place your order at the drive-thru order or fulfilling it. Early studies show that
at a fast-food restaurant, you expect that this increases efficiency of the drive-thru and
you’re talking to someone inside the restau- helps get more customers through, increas-
rant. But thanks to technology, this may no ing profitability. And because employees
longer be the case. Many major fast-food have less to focus on, they make fewer mis-
chains, including McDonald’s, Wendy’s, and takes, which makes the customer happier.
Hardee’s, have experimented with or imple-
Think Critically
mented remote call centers to take your
order from the drive-thru. The person you’re 1. What problems might arise when the
talking to may be in a different state, or even person who takes the order is not in the
some day in a different country. They take same building as those who fulfill the
your order, enter it into a computer, and the order?
order is sent back to the restaurant to be 2. What would the pros and cons be of
fulfilled. chain restaurants outsourcing their
For the restaurant, this allows employees drive-thru order-taking to call centers
to be more specialized. The same person overseas?
doesn’t have to take the order and fulfill S
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14-1 • The Economics of Price Decisions 401
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By contrast, changing a price is often than other marketing tools, marketers must
as simple as adding a new price sticker or be careful not to make pricing mistakes.
marking out an old price. Even manufac-
turers can change the price charged by a Checkpoint
retailer by offering a coupon or a rebate.
Because prices can be changed more easily Name three reasons why price is an impor-
tant marketing tool.
Price as an Economic Concept

rice is also an impor-
P tant economic con-

cept. People have
unlimited wants and needs
Price
$8
SUPPLY AND DEMAND AFFECT PRICE
that they try to satisfy with 7

Supply
the limited resources that 6
Equilibrium
are available to society. Point
Price allocates available 5

resources among people.
4
If there is a small quantity
of a product or service but 3
a very large demand, the
price will usually be quite 2 Demand
high. On the other hand, if 1

there is a very large supply
of a product or if demand 10 20 30 40 50 60 70 80 90 100
is low, the price will be low. Quantity
Figure 14-1 illustrates how FIGURE 14-1
supply and demand affect At a price of $3, demand (90) is greater than supply (30). At a price
price. of $7, supply (90) is greater than demand (30). At a price of $5,
supply equals demand (60), and the market is in equilibrium.
Economic Utility
the price. It seems logical that if the price
The value customers receive from a pur- decreases, more products will be sold.
chase results from more than just the Many people believe that if sales increase,
product or service itself. The concept of profits will increase as well. That is not
economic utility demonstrates that value always the result.
is added through changes in form, time, The table in Figure 14-2 shows sev-
place, or possession. Therefore, customers eral prices charged by a supermarket for
believe a product is a greater value and will one dozen eggs. The table also shows the
often pay a higher price if the product is quantity sold and the total revenue the
available with preferred features at a better store received from the sales. As you can
time or place than other choices, if it is see, the decrease in price does not result
more accessible, or if it can be purchased in enough additional sales to increase the
on credit. total amount of money received.
A different result is shown in Figure
Elasticity of Demand 14-3. When the supermarket decreases the
S It may seem that an easy way to get con- price of ice cream, the additional quantity
N sumers to buy your product is to decrease sold increases total revenue.
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The difference between these exam- the result occurs because there are few
ples illustrates a key economic concept. substitutes for consumers who purchase
Elasticity of demand describes the rela- eggs. When consumers need to purchase
tionship between changes in a product’s eggs, they will do so even if the price is
price and the demand for that product. increased. If the price decreases, they
Elasticity is based on the number of good will not buy many more eggs than they
substitutes for a product and the willing- would have at the higher price. This is
ness of consumers to go without a product an example of inelastic demand. With
if the price gets too high. In Figure 14-2, inelastic demand, a price decrease will
decrease total revenue.
Figure 14-3 illustrates elastic demand.
Inelastic Demand With elastic demand, a price decrease will
increase total revenue. Demand is elastic
Price of a Quantity Total when customers have several good substi-
Dozen Eggs Sold Revenue tutes for a product. Consumers view ice
cream as one choice among many desserts.
$0.65 305 $198.25 If the price of ice cream increases, some
customers will not buy ice cream or will
$0.68 300 $204.00 buy other desserts that are now a better
$0.71 292 $207.32 value. If the price of ice cream decreases,
$0.74 285 $210.90
people who were buying other products
may switch now that ice cream seems more
$0.77 277 $213.29 affordable.
$0.80 264 $211.20 If price changes are too great, the type
of demand elasticity may change. If eggs
FIGURE 14-2 become extremely expensive, people will
When the price is decreased for one dozen eggs, stop buying them. There is a limit to the
a larger quantity will be sold. The increase in amount of ice cream people will buy, no
quantity sold is not enough to increase the total
matter how inexpensive it is. Therefore,
revenue from the sales.
marketers can use price elasticity only for
price changes that consumers believe are
reasonable.
Elastic Demand
Price of a Wo r k i n g i n Te a m s
Gallon of Quantity Total
Ice Cream Sold Revenue As a team, make a list of items that you fre-
quently purchase. Next to each item, record the
$3.65 180 $657.00
average price paid for it. Then discuss whether
$3.70 165 $610.50 you would continue to purchase the item if the
$3.75 158 $592.50 price increased. Would you purchase more of
the item if the price dropped? Determine the
$3.80 147 $558.60 elasticity of demand for each item on your list.
$3.85 136 $523.60
$3.90 122 $475.80
FIGURE 14-3
When the price of one gallon of ice cream de- Checkpoint
creases, the quantity sold increases a great
deal. The increase in quantity sold results in How are prices related to elasticity of S
higher total revenue. demand for a product or service? N
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Planning a Career in... Global Sourcing
“My uncle just got back from India. His company

just established a customer service de-
partment in India to accept orders for
printer ink cartridges. My uncle trained
employees how to handle U.S. orders.
Given the lower labor costs in India, • A strong knowledge of international finance,
his company expects to achieve an operations, and logistics is important.
improved profit margin.” • Understanding foreign cultures and proficiency
Did you ever wonder why so many in a foreign language is helpful.
companies are locating their cus-
tomer service departments offshore? What’s it like to work in...
Have you ever considered why so
Global Sourcing
many popular consumer items are
manufactured in foreign countries? Perry, a global sourcing specialist for a large toy
Global Sourcing is a field that manufacturer, is compiling manufacturing speci-
considers the most cost-effective way fications for a new toy. The toy’s packaging will be
to manage product development while used for storage of the toy pieces. Via e-mail, Perry
maintaining high-quality marketing will distribute the specifications to his preferred
and customer service procedures. With vendors. Each vendor is required to place its bid
evolving technologies that streamline communi- for the toy and the packaging according to the
cations, the barriers to sending work offshore have manufacturing specifications.
diminished. Perry then set up a meeting for next week
with a member of his finance department. Be-
Employment Outlook cause many of the bidding vendors are from for-
• Slower than average growth is anticipated. Im- eign countries, Perry and the financial analyst will
proved software has contributed to increased formulate a 12-month estimate of the anticipated
efficiency among currently employed sourcing value of the dollar relative to each of the respec-
specialists. tive foreign currencies. Fluctuations of the dollar
relative to the foreign currencies will affect the
• The Internet facilitates relationships among
cost-effectiveness of the bids.
companies and worldwide locations.
Later that day, Perry participated in an Inter-
• Improved supply chain management has national Product Safety Standards meeting. As
streamlined the global sourcing process. product safety is one of the key attributes par-
ents consider prior to buying a toy, the meeting
Job Titles focused on how to insure safety standards are
• Global Customer Service Specialist translated accurately for offshore vendors.
• Global Logistics Specialist
• Supply Manager
• Global Sourcing Associate W h a t A b o u t Yo u
• Strategic Sourcing Manager
Would you like to participate in worldwide efforts
Needed Skills to develop the most economical and effective sup-
S
• A bachelor’s degree is usually required. A mas- ply chain to produce and market quality products
ter’s degree will improve chances of promotion. and services for your company?
N
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Government’s Effect on Prices
n private enterprise economies, busi-
I nesses and consumers interact to

determine prices and what is bought
and sold. Governments play a role only
Regulating Prices
The federal government has specific legis-
lation to regulate the pricing practices of
businesses. Some of the most important
when laws or regulations are needed to areas regulated by laws include:
prevent unfair competition or to encour-
age activities that benefit society. When • Price-fixing: Competing companies at
governments are involved in the econ- the same level in a channel of distri-
omy, they often affect prices. The most bution (manufacturers, wholesalers,
important methods governments use to retailers) cannot cooperate in estab-
influence prices involve regulation of com- lishing prices.
petition, controlling unfair pricing, and • Price discrimination: Businesses can-
taxation. not discriminate in the prices they
charge to other businesses in their
Regulating Competition channel of distribution. A manufac-
A foundation of private enterprise is that turer must offer equivalent prices,
competition benefits both businesses and discounts, and quantities to all whole-
consumers. Whenever one business is large salers or retailers.
enough to control a market or when a few • Price advertising: Businesses cannot
businesses cooperate to take advantage mislead consumers through the adver-
of smaller businesses or consumers, the tising of prices. Examples of mislead-
government may regulate those businesses. ing advertising include using phony
Years ago, the federal government believed list prices (prices at which the products
that AT&T had too much control of the are never sold), incorrect comparisons
telephone service industry. A court ruling with competitors’ prices, or continuous
required AT&T to divide itself into several promotion of a sale price. Companies
smaller independent companies. This al- must also clearly communicate the
lowed other businesses, such as MCI and terms of credit offered to customers.
Sprint, a better chance to compete. • Bait-and-switch: Companies cannot
The government also wants to encour- lure customers with offers of low prices
age the development of new products and and then tell them the low-priced
services so consumers have additional product is unavailable or inferior.
choices. One way to help businesses is to
protect new products from competition • Unit pricing: Many products sold in
until they can become profitable. Patents varying quantities or package sizes
are granted to inventors of unique prod- must list the price for a basic unit of
ucts for a period of 20 years. During that measurement, such as a liter, ounce, or
time, no other business can market ex- pound, so consumers can make price
actly the same thing unless the inventor comparisons.
grants permission or the patent is sold. In
the same way, people who develop artistic Taxation
works such as books, films, recordings, or Taxes are another way that governments
artwork can be protected by copyrights. If affect the products and services marketed,
a company has a patent or copyright, it has the prices paid, and the level of competi-
greater control over the price it charges, tion. An increase in the tax on a product
since there will be no other product just makes it less attractive to consumers and
like it for a period of time. often reduces the level of sales. Taxes on S
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products such as tobacco and liquor not services. Legislators use a tax reduction for
only collect revenues for the government that purpose. When businesses disappear
but also reduce the consumption of prod- from the central part of cities, city and
ucts that are believed to be harmful. In state governments may reduce or eliminate
the same way, import taxes increase the some taxes for several years to encourage
cost of foreign products, making domes- businesses to relocate in those areas. To
tic products a better value for consumers. promote the use of alternative fuels, some
For products that are considered luxuries states reduced the tax on ethanol-based
such as expensive automobiles and jewelry, gasoline.
a tax may not reduce the quantity of the
products purchased, but it increases the
amount of taxes collected from people who Checkpoint
are viewed as most able to pay.
Occasionally, the government wants What are the three main ways that govern-
to encourage a particular type of business ment influences prices in a private enter-
or the development of certain products or prise economy?

Determine the best answer. 5. Government Competition among businesses
1. True or False: Product manufacturers prefer helps keep prices lower. Research a recent
elastic demand over inelastic demand. merger or sale between two large corporations
in which the government became involved to
2. Marketers need to be concerned about pric-
ensure there would be no adverse effect on
ing mistakes for all of the following reasons
competition. Prepare a one-page report.
except
a. prices are difficult to change 6. Economics Select two products or services
b. prices that are set too high allow competi- that consumers can purchase. Record three
tors easy entry into the market prices for each product or service—a low, aver-
c. prices that are set too low result in lost age, and high price. Survey 20 people and ask
revenue them (1) if they would buy the items at the vari-
d. if prices are raised, consumers may resist ous price levels and (2) how many of the items
they would buy at one time at the various price
3. How does government encourage new prod-
levels. Create a table as shown in Figures 14-2
uct development?
or 14-3 to determine the elasticity of demand
a. by regulating competition
for each item based on your survey results.
b. by granting tax breaks for research and
development
c. by granting patents Connect to
d. all of the above 7. Today, many restaurants use price as a market-
4. The _____ determines how much money a ing tool to promote their value menus, which
business will make to cover the costs of de- include menu items for $1 or less. You work for
signing, producing, and marketing its prod- a movie theater. Determine how the theater
ucts or services. could use a similar pricing strategy to help
increase its business. Present your pricing strat-
egy to your teacher (judge).
S
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Developing Pricing Procedures 14-2
GOALS KEY TERMS

• Describe three common pricing objectives for breakeven point, p. 409 operating expenses, p. 411
businesses. selling price, p. 410 net profit, p. 411
• Explain how businesses establish a price range product cost, p. 410 markup, p. 411
for a product.
gross margin, p. 410 markdown, p. 412
• Identify the three components that must be
considered when determining the selling price.
In order to achieve optimal results, businesses need to carefully plan the prices they
charge for their products and services. Price planning begins with establishing price
objectives. Three common objectives are maximizing profits, increasing sales, and
supporting an image.
To narrow down their choices, businesses analyze demand to determine the
maximum price that customers will pay. Breakeven analysis helps to determine the
minimum price at which a business can cover its fixed and variable costs. In the end,
the selling price must cover product costs and operating expenses and leave room
for a profit. Some businesses, especially retailers, set prices by applying markups,
such as a fixed percentage of product cost, to the merchandise.
Make a list of three things you or family members owned that were subse-
quently sold. Describe how the selling prices were determined and the actual prices
buyers paid.
Setting Price Objectives

t is not easy to determine the best prices pay the original prices. Such practices are
I to charge for products. Companies

want prices that cover their costs and
contribute a reasonable profit. Consumers
risky and may result in unsold products or
loss of profits. Prices should be planned as
carefully as the other mix elements.
are not particularly concerned about the To begin price planning, marketers
company’s costs or whether the company need to determine what objectives they
makes a profit on the sale. Consumers want to accomplish with the price. Ex-
want to get the best value and expect amples of possible pricing objectives are to
comparably priced products. Because it is maximize profits, increase sales, or main-
not easy to determine the actual costs for tain a particular company image.
marketing a product or what customers
are willing to pay, many companies do Maximize Profits
not take enough care in setting prices. Companies that seek to maximize prof-
They may set their prices based on what its carefully study consumer demand
competitors are charging. Or they may set and determine what the target market
their prices high, believing that they can is willing to pay for their products. The S
reduce them if customers are unwilling to prices are set as high as possible while still N
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meet customer demand. They will usually
sell their products in markets with a large
number of available customers.
Your textbook gives three examples of objectives Maintain an Image
companies sometimes use to set prices. The Dol-
lar Tree chain of retail stores is no exception. Access Companies can use the prices of prod-
school.cengage.com/marketing/marketing and click ucts to help create a specific image for the
on the link for Chapter 14. Browse the chain’s web site product or the company. Many consumers
(Hint: Follow the About Us link). Then answer: Which believe that price and quality are related,
pricing objective do you think is most important to that higher prices mean better quality
the management of Dollar Tree stores? Explain. What while lower prices suggest poorer quality.
image do you think Dollar Tree stores are trying to Therefore, companies that are building a
create, and who are their likely customers? quality image use higher prices than com-
petitors do.
Have you shopped at a business where
no prices were posted for the products?
Have you eaten at a restaurant where the
menu did not contain prices? These busi-
satisfying customers. In this way, there is nesses are creating an image that price
more money to cover the costs of produc- is unimportant in the purchase decision.
tion and marketing and return a profit. They are using non-price competition to
Companies that want to maximize profits sell their products and services.
usually select smaller target markets where Some companies, such as Wal-Mart,
unique products can be developed. Their are trying to build a low-price image.
products are quite different from competi- These companies try to appeal to cost-
tors’ and meet important customer needs conscious customers by offering better
in those markets. value for less money. They need to keep
their prices as low as or lower than com-
Increase Sales petitors’ prices. Some companies advertise
Sales-based pricing objectives result in that they will “meet or beat” their competi-
prices that achieve the highest possible tors’ prices. The intention of that strategy
sales volume. Companies that want a great- is to convince customers that the company
er share of the market or have high levels of will always have the lowest prices.
inventory may choose this objective. Prices
will usually be quite low to encourage
customers to buy. Companies using a sales- Checkpoint
based objective need to set the price high
enough to cover costs. Also, they must What three objectives do businesses com-
have an adequate supply of the products to monly choose from when setting prices?
Determining a Price Range

fter a company determines the basic and minimum prices for the product must
A objective that will guide pricing, the

next step is to determine the possible
prices for products and services. Study
be determined. Those prices determine the
price range.
almost any product and you will see that

it is sold at various prices depending on
Maximum Price
S the brand, store, time of year, and other The highest possible price that can be
N factors. To set an effective price, maximum charged is determined by the target
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market. It is based on demand analysis. costs at a specific price. The breakeven
Marketing research is used to identify point is calculated using the following
the customers in the target market and information.
determine their needs. Then alterna-
tive products and services that the target
• Fixed costs: The costs to the business
that do not change no matter what
market will consider in satisfying its
quantity of the product is produced or
needs are identified. Finally, the customers
sold
in the target market are asked to identify
what they would be willing to pay for each • Variable costs: Those costs that are
of the alternatives. The highest price that directly related to the quantity of the
results from this analysis of demand is product produced or sold
the maximum price. Customers will not • Total costs: Fixed costs plus variable
be willing to pay more than that amount costs for a specific quantity of the
as long as needs and alternatives do not product
change. • Product price: Price at which the busi-
ness plans to sell the product
Minimum Price • Total revenue: The anticipated quan-
The lowest price in the price range is tity that will be sold multiplied by the
determined by the costs of the seller. A product price
company can sell a product at a loss only The formula for finding the breakeven
for a short time and then only for a very point is:
few products. Most prices must be set so
that when all products are sold, the com- Total fi xed costs
Breakeven point = Price Variable costs per unit
pany has covered its costs. The minimum
price should also contribute profit to the
company. Figure 14-4 illustrates a breakeven
To determine the minimum price, analysis table for an Ascroe Garden
calculate all production, marketing, and Weeder. Using the information in Figure
administrative costs for the product. That 14-4, you can calculate the breakeven point
is difficult because some costs cannot be if the weeder sells for $14. The total fixed
directly related to specific products. Also, costs for the product are $85,000. The vari-
costs are often highest for new products able costs for each tool are $2.80. Ascroe
but then decrease as more products are wants to determine how many weeders
sold.
Breakeven Breakeven Analysis for Ascroe Garden Weeder

Analysis
Variable Total
One way that Units Costs Per Variable Fixed Total Total
companies Sold Unit Costs + Costs = Costs Price Revenue
determine the
minimum price 5,522 $2.80 $15,462 + $85,000 = $100,462 $14 $77,308
is through 6,054 $2.80 $16,951 + $85,000 = $101,951 $14 $84,756
breakeven 6,998 $2.80 $19,594 + $85,000 = $104,594 $14 $97,972
analysis. The 7,589 $2.80 $21,249 + $85,000 = $106,249 $14 $106,246
breakeven point
8,225 $2.80 $23,030 + $85,000 = $108,030 $14 $115,150
is the quantity
of a product that 9,110 $2.80 $25,508 + $85,000 = $110,508 $14 $127,540
must be sold for FIGURE 14-4
total revenues The breakeven point is the quantity where total costs equal total revenue. Based on the figures S
to match total in this table, that quantity would be about 7,589 units for a price of $14. N
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Price Range for a Pair of Shoes Price Range
Figure 14-5 shows a price
$87.00 Highest Price Customers Will Pay range that was calculated for
a pair of shoes. Using demand
analysis, it was determined that
Price Range customers in the target market
would pay as much as $87 for
the shoes when they are com-
$53.00 Lowest Price Company pared to all of the other choic-
Can Charge es. The company must charge
Variable at least $53 to cover fixed and
Costs variable costs. The shoes can be
Per Pair sold at any price between the
$38.00
maximum and minimum. The
Total Cost company will select a price that
Fixed
Costs meets its pricing objective and
Per Pair gives it the flexibility to in-
crease or decrease the price as
market conditions change.
FIGURE 14-5 If the goal is to sell the
A company can price its product anywhere between its total cost per unit (min- greatest quantity of shoes pos-
imum price) and the amount customers are willing to pay (maximum price). All sible, the company will set the
of the possible prices are known as the price range. price near $53. If the goal is to
establish a high-quality image
must be sold to break even if the price is and provide a higher level of customer ser-
set at $14. Use the following formula: vice, the price will be closer to $87. A goal
of being competitive with the price may
Breakeven = 85,000 = 85,000 = 7,589 units result in a price that is close to the prices of
point 14.00 2.80 11.20 competing brands.
Ascroe must determine if it will be able
to sell at least this number of units. If so, it Checkpoint
will not lose money at a price of $14. Ad-
ditional calculations can be made at other What are the endpoints that define a price
possible prices to determine the relation- range for a product, and how are they
ships between prices, costs, and demand. determined?
Calculating a Selling Price

The price charged for a product or ser- products), labor, transportation, insurance,
vice is known as the selling price. For a and an amount for damaged, lost, or stolen
successful product, the selling price has products. The difference between the
three components. The largest part of cost of the product and the selling price
the selling price for most products is the is known as the gross margin. The gross
product cost, the cost of producing (or margin is the amount that is available to
buying) the product. The product cost in- cover the business’s expenses and provide a
S cludes the cost of parts and raw materials profit on the sale of the product.
N (or the price paid to a supplier for finished
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The next component of the selling
price is operating expenses. All costs as- Fa s t FAC T S
sociated with actual business operations
are operating expenses. The costs of Some retailers use a keystone markup.
buildings, equipment, utilities, salaries, This is a markup that is equal to the cost
taxes, and other business expenses need of the merchandise. In other words, the
to be calculated and added to the product cost of an item is doubled to determine
cost. Marketing costs are incorporated into the selling price.
the operating expenses or included as a
separate amount.
amount added to the cost of a product to
The final component of the selling
determine the selling price. Markups are
price is profit. Net profit is the difference
usually stated as a percentage rather than
between the selling price and all costs and
a dollar amount. Businesses determine
operating expenses associated with the
the percentage needed to cover operating
product sold. Profit is not guaranteed to
expenses and provide a profit and use that
businesses when they sell products. Often
percentage to calculate the selling price.
costs and expenses are higher than antici-
Markup can be calculated as a percent-
pated, or the selling price had to be re-
age of the product cost, or alternatively
duced to make the sale. In those cases, the
as a percentage of the selling price. A box
business may not be able to make a profit
of 500 envelopes is sold at an office sup-
or might even lose money on the sale.
ply store for $3.50. The cost to the store is
Businesses try to set selling prices high
$2.80. The markup as a percentage of cost
enough that reasonable profits are pos-
is 25 percent ($0.70 ÷ $2.80). The markup
sible even when some costs are higher than
as a percentage of the selling price is 20
expected or selling prices are reduced.
percent ($0.70 ÷ $3.50).
A few businesses use a standard mark-
Markups and Markdowns up for most products. For example, all
Some businesses, especially retailers, use products could be marked up the same per-
markups to set prices. A markup is an centage, such as 45 percent, to determine
Virtual Marketing
Internet Advertising Services steal customers away from their competi-
The advent of Internet shopping has rattled tors with better offers right at the time those
many businesses, because it is now so much very customers are most likely to be making
easier for buyers to comparison shop. With buying decisions.
so much pricing information in consumers’ Think Critically
hands, many businesses are forced to focus
1. How do you think businesses like the
on other elements of the marketing mix to
idea that a competitor can reach their
attract customers. Fortunately, the Internet
prospective customers while they are
has also made that easier.
viewing the businesses’ web sites?
Advertising services are available that
can send ads directly to potential buyers 2. Most Internet businesses that offer these
while they are shopping on a competitor’s services have very strict privacy poli-
web site. The ads are sent via the shopper’s cies. Why do you think those policies are
web browser when they sign up for the necessary?
S
service. They enable businesses to, in effect,
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the selling price. Other businesses de- markups do not always mean that the
termine the differences in operating and business will make a larger profit on the
marketing costs or differences in the type product. Usually a high markup reduces
of competition for various product catego- the quantity sold or results in slower sales
ries. Then they develop a separate markup and higher costs to the business. On
percentage for each product category. the other hand, business people must
When products are not selling well, a be careful in using very low markups.
markdown will be used. A markdown is a While the lower price may result in higher
reduction from the original selling price. sales, the markup may not cover all ex-
Markdowns can be expressed as specific penses. On the other hand, markdowns
dollar amounts or as a percentage of the will usually result in lower profits, but they
original selling price. Markdowns are can help reduce inventory expenses. Mar-
usually viewed as business mistakes since keters must carefully study the effects
the product did not sell at the planned of different markup and markdown
price. The mistakes may be a result of poor percentages before determining the one
product quality or overestimating cus- to be used.
tomer demand. Markdowns can also result
from changes made by competitors or poor
marketing mix decisions involving loca-
tion and promotion.
Checkpoint
Effect on Profit What are the three components that should
Businesses must consider the effect of be considered when determining the
markups and markdowns on profits. High selling price?

Determine the best answer. 5. Math A company manufactures and sells
1. True or False: Businesses determine the photo key chains for $3.50 each. Its fixed
maximum price that customers will pay for a costs for the product are $40,000. The variable
product through demand analysis. costs are $0.95 per unit. How many key chains
will the company need to sell to break even?
2. What three variables do businesses com-
monly analyze using breakeven analyses? 6. Ethics Do you think it is ethical for a busi-
a. variable costs, price, and fixed costs ness to use a high markup on its products?
b. variable costs, fixed costs, and breakeven Explain why or why not. How can consumers
point influence the markup used by a business?
c. variable costs, price, and demand
Connect to
(units sold)
d. none of the above 7. You and a partner are opening a clothing
boutique that sells designer clothing and ac-
3. True or False: A company should always select
cessories. You are locating your shop in an up-
the price that is at the lowest point of the
scale neighborhood. Write a price objective
price range for a product.
for your products. Select one product you will
4. The difference between the cost of the sell and determine the price range for it. Then,
product and the selling price is the _____. calculate the selling price. Describe your price
S objective and explain how you determined
the selling price to your teacher (judge).
N
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Pricing Based on Market 14-3
Conditions
GOALS KEY TERMS
• Identify two marketing tools that illuminate skimming price, p. 414 FOB pricing, p. 416
competitive conditions and help marketers set penetration price, p. 414 zone pricing, p. 416
prices.
non-price competition, discounts and
• Describe the various criteria businesses use in p. 415 allowances, p. 416
establishing the final price a customer pays.
one-price policy, p. 415 consumer (retail) credit,
• Explain why extending and managing credit is flexible pricing policy, p. 415 p. 418
an important part of marketing. trade credit, p. 418
price lines, p. 416
Determining the best price is as much a function of the target market as it is a mat-
ter of marketing objectives. Much also depends on conditions in the market. In addi-
tion, product life cycles and consumer purchase classifications help marketers tailor
prices to the competitive environment. Depending on the type of market being
targeted and the expectations of customers, various criteria can be used to adjust
the final price for each transaction.
Credit is a component of the price element that businesses use to facilitate
transactions and to enable customers to make purchases that they otherwise might
not be in a position to complete. Businesses need to manage credit effectively, or it
can be costly.
Make a list of ten items purchased by you, a friend, or a family member. For how
many of those ten items was the final price the same as other people paid who pur-
chased the same item at about the same time? What caused prices paid by various
customers to differ?
Competitive Environment
hen planning the prices of products between pure competition and monopoly.
W and services, marketers need to

be aware of the competition in the
market. If customers see many good alter-
In pure competition, customers see all
product choices as identical. Therefore,
it is almost impossible for a business to
natives, the prices of those products will charge more for its products than other
remain very similar. If customers view a companies charge. On the other hand, a
product as having few substitutes, the price business operating in a monopoly has the
of that product can be set at a higher level advantage that customers have no good
than competing products. substitutes. Therefore, the company has
There are certain types of market more control over the price. That is why
conditions where customers view products government often regulates monopoly S
as very similar. Consider the difference markets. N
413
14-3 • Pricing Based on Market Conditions 413
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Get the Message
In-Theater Advertising subjected to watching commercials. Some
If you go to see a movie in a theater, you’ll complain that the movie is delayed because
probably see several ads before the movie of the ads, and others feel the theater is tak-
starts. In the past, those ads were limited ing advantage of them.
to previews of other movies, but in the last When it comes to in-theater advertis-
decade or so, ads for other products have ing, marketers must weigh these potentially
become part of the movie-going experi- negative feelings against the advantages of
ence. You might see as many as five com- better brand recall.
mercials before the previews begin. Think Critically
Statistics show that in-theater commer-
1. If a company is going to run in-theater
cials are more likely to be remembered than
commercials, how might it alter them so
those on television. This may be because
that the audience will be more accepting
moviegoers are a “captive audience,” mean-
of their message?
ing that they aren’t likely to get up and leave
and can’t change the channel. In this regard, 2. Do you think younger audience members
they are very attractive to marketers. But are more accepting of in-theater com-
many movie fans are resentful of in-theater mercials than older moviegoers? Can you
commercials. They’ve already paid $10 for think of a compromise that satisfies both
a movie ticket and feel they shouldn’t be marketers and moviegoers?
Product life cycle analysis and consum- Other companies use a penetration
er purchase classifications are two market- price in the introductory stage of the
ing tools that are helpful in making pricing product life cycle. A penetration price is
decisions. Some businesses also use non- a very low price designed to increase the
price competition as a marketing strategy. quantity sold of a product by emphasizing
the value. A penetration price may result
Product Life Cycle in higher total revenues, but the initial
Throughout the stages of a product life cy- level of profit is much lower. Companies
cle, the type of competition changes. Those use a penetration price to attract a large
changes affect the prices that companies share of the market early and discourage
can charge. In the introductory stage, only competition.
one brand of a new product is available, In later stages of the life cycle, competi-
allowing the business to control the price tion increases, and there is an emphasis on
charged. Some companies enter the market price competition. In the maturity stage,
with a skimming price. A skimming price customers see many choices that look very
is a very high price designed to emphasize similar. Therefore, a small price change
the quality or uniqueness of the product. might encourage them to switch from one
The target market must be closely stud- brand to another.
ied to ensure customers would be will-
ing to pay a high price for a new product. Consumer Purchase
A skimming strategy usually results in Classifications
higher profits for the company, but those Consumer purchase classifications also
S higher profits encourage other companies provide an example of different levels of
N to enter the market. price competition. Staple convenience
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goods and price-based shopping goods less money to spend on marketing activi-
illustrate intensive price competition. ties or new product development.
In each case, customers see few product To avoid those problems, some
differences and, thus, are drawn to lower companies use non-price competition.
prices. For products such as emergency or Non-price competition de-emphasizes
specialty goods, price is not as important price by developing a unique offering that
to customers as other factors, so they are meets an important customer need. Few
willing to pay higher prices. people ask the price to be charged when
Companies selling products with many they go to a physician. Price is not an im-
similar competitors (common household portant factor when purchasing a one-of-
products, basic clothing items, business a-kind painting, applying for admission to
supplies) have to be very careful of the an exclusive college, or planning a wed-
prices they charge. They must pay close at- ding or other special celebration.
tention to the prices of competitors. On the Companies using non-price competi-
other hand, companies with unique prod- tion need to carefully study the needs of a
ucts (special jewelry or fashion designs, target market. The products and services
expensive automobiles, personal services) that people in the target market view as
can be less concerned about the prices of possible alternatives must be examined.
competing products or services. Market research can identify the things
customers find dissatisfying about the
Non-Price Competition competition. The company uses that in-
When businesses emphasize price as a formation to develop a better marketing
reason for customers to buy a product or mix that is much more satisfying to those
service, two problems can result. First, the customers. If the company is successful in
emphasis on price may encourage custom- developing a unique marketing mix that
ers to view price as the most important meets important customer needs, price
reason for buying. That view causes them will not be an important factor in the pur-
to see the other parts of the marketing mix chase decision.
(product, distribution, and promotion) as
less important. Second, the emphasis on Checkpoint
price means that businesses must keep
prices as low as possible. With low prices, What are two tools that help marketers
less profit will be made on each product identify the competitive environment and
sold. With lower profits, the company has make better pricing decisions?
Pricing Strategies
ew people expect to pay the price that either pay the price set by the business, or
F is listed on the window sticker of a new

automobile. Yet, when you go bowling
or play miniature golf, you pay the price set
they do not buy. A one-price policy means
that all customers pay the same price. In
other cases, such as the purchase of a new
by the business. Companies develop pric- car, the price paid by customers is based
ing strategies based on various criteria to on how effectively they negotiate with
help them establish the final prices. the salesperson. A flexible pricing policy
allows customers to negotiate the price
Price Flexibility within a price range.
Customers may not have a choice about It may seem unfair to offer different
S
the price they pay for a product. They prices for the same product. In some cases
N
415
CH 14-B4491_DS_REV3.indd 415 12/7/07 7:18:18 PM

it is actually illegal to use flexible pricing.
But consider a farmer selling fresh vegeta- Fa s t FAC T S
bles at a market. On days when there are
a number of other farmers with the same The U.S. Department of Transportation
products at the market, the farmer may established a pricing policy for the air-
need to lower the price in order to sell all line industry that requires all extra fees,
of the products. On the other hand, when such as fuel surcharges, to be reflected
there are fewer products available, the in airfare prices provided to consumers.
demand will be higher, resulting in higher
prices.
selling are quite different at various loca-
Automobile dealers traditionally have
tions. Customer expectations of price and
used flexible pricing to obtain the highest
the level of competition are often different.
price possible from each customer. They
Companies must determine how prices
often reduce the price if a customer is
will be set in each geographic area.
unwilling to pay the sticker price. Recently
Some companies keep the product
many auto dealers have begun using a
price the same but charge a different
one-price policy, in part because so many
amount to cover transportation costs. A
customers have been obtaining dealer cost
method for setting transportation costs
information on the Internet. With this
based on geographic location is known as
policy, a lower initial price is set, and all
FOB (free on board) pricing. FOB pricing
customers are expected to pay that price
identifies the location from which the
for the automobile. The dealers believe
buyer pays the transportation costs and
that they can reduce selling costs and
takes title to the products purchased. For
customers will feel they are being treated
example, “FOB factory” means the cus-
more fairly under the one-price policy.
tomer pays all transportation costs from
the point where the product is manu-
Price Lines factured. A seller can negotiate with the
Many companies offer several choices customer and agree to pay some or all of
of the same product to appeal to differ- the transportation costs by identifying
ent customer groups. Appliance stores a selected city between the buyer’s and
sell refrigerators, stoves, and dishwashers seller’s locations for the FOB designation.
with several choices of options ranging Another type of geographic pricing is
from basic to full-featured. To make it zone pricing. With zone pricing, differ-
easier to analyze the choices, the products ent product or transportation costs are set
are grouped into two or three price lines. for specific areas (or zones) of the seller’s
Price lines are distinct categories of prices market.
based on differences in product qual-
ity and features. Companies must decide
whether or not to offer price lines, the Discounts and Allowances
number of lines to offer, and the difference Sellers may choose to offer discounts and
in prices among those lines. For example, allowances to buyers of their products.
an appliance store may sell stoves with Discounts and allowances are reductions
price lines of $300, $500, and $800. Price in a price given to the customer in ex-
lines make customers aware of the differ- change for performing certain marketing
ences among products or services. activities or accepting something other
than what would normally be expected in
Geographic Pricing the exchange. Some common discounts
Increasingly, companies sell products in and allowances include the following:
S different parts of the country and through- • Quantity discount: Offered to cus-
N out the world. Costs of distribution and tomers who buy large quantities
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• Seasonal discount: Offered to cus-
tomers who buy during times of the
year when sales are normally low
• Cash discount: Offered to customers
who pay cash rather than using credit
or who pay their credit accounts
quickly
• Trade discount: Reduction in price of-
fered to businesses at various levels in
a channel of distribution (wholesalers
and retailers)
• Trade-in allowance: Reduction in price
in exchange for the customer’s old
product when a new one is purchased
• Advertising allowance: Price reduction
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The customer’s perception of value can

be changed by making additions to the E*Trade Financial is using two pricing strategies—a rebate
purchase. This is typically done through and added value by offering a free portfolio review.
services provided during and after the sale.
Another way of adding value is to pro- airlines. Customers are given free tickets
vide complementary products or a larger after they have traveled a certain number
quantity for a reduced unit price, such as of miles on one airline.
“buy two and get a third item free.” Some
businesses offer prizes and premiums for Checkpoint
purchases or use incentives for regular
purchasing. Examples of such incentives Name three strategies businesses use to
are the frequent flyer programs used by determine the final price a customer pays.
Offering Credit
ompanies that market very expen- to pay the full amount for a new car. Credit
C sive products or services may have

a difficult time selling them even if
customers believe the price is fair. Few
makes it possible for expensive purchases
to be made. A company must determine
if credit is necessary as a part of the price
companies have the cash to pay for a $30 mix element. S
million building. Few individuals are able N
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Types of Credit plan procedures carefully to be sure that
Consumer credit (retail credit) is credit ex-
credit is a successful part of a marketing
tended by a retail business to the final con- strategy. The procedures include develop-
sumer. The credit may be provided by the ing credit policies, approving credit cus-
seller or may be offered by another busi- tomers, and developing effective collection
ness that is participating in the marketing procedures.
process, such as a bank, finance company,
Credit Policies The first decisions for
or a credit card company like Visa.
a business regarding credit are whether to
Most sales between businesses are
offer it and whether to offer it on all prod-
made on credit. Trade credit is offered by
ucts and to every customer. Next, the cred-
one business to another business. It is often
it plan is developed. The business decides
used when there is a time lag between
whether it will offer its own credit plan or
when a sale is negotiated and when the
rely on other companies to offer credit.
products are actually delivered. Credit
Finally, the credit terms are developed.
sales are a traditional business practice in
The terms include the amount of credit
many channels of distribution. Businesses
that will be extended, the rate of interest to
rely on waiting 30 days or longer before
be charged, and the length of time given to
making payment.
customers before payment is required.
Developing Credit Procedures Credit Approval Not all customers
Credit provides a method for obtaining are good credit customers. If a customer is
additional customers and sales. If credit unable to pay for purchases, the seller loses
is poorly managed, though, costs may be all of the money invested in producing and
very high, and the money may never be marketing the product as well as incurs
collected from some customers. Business the cost of extending credit. Even if the
people responsible for credit sales must product is recovered from the customer,
World View
The American-Japanese its slogan “An American Revolution,” has posi-
Car Company tioned itself as the American pickup truck.
To combat this, Toyota launched a cam-
Sometimes a barrier for a company entering
paign focusing on the number of manufac-
a foreign marketplace is simply the fact that
turing plants it has in the United States, how
the company is foreign. It may offer a supe-
many Americans it employs, and how much it
rior product at a lower price, and it may be a
helps the American economy. Toyota’s goal is
well-known brand, but in some markets, and
to simply inform people that even though it
in some industries, customers have a sense
is a Japanese-owned car company, many of
of patriotism involved with buying locally
its cars are made in the USA.
manufactured products.
The U.S. auto industry is one such market. Think Critically
In the post-9/11 environment, there has been
1. Why do you think people are more likely
a resurgence of American patriotism, and
to buy cars built in their own country?
many U.S. automakers have capitalized on
that sentiment and encouraged consumers 2. How might an American car company
S to “buy American.” Chevy, in particular, with position itself to combat Toyota’s market-
N ing strategy?
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it is not likely that it can be resold for an Collections Effective collection pro-
amount that will cover the costs. cedures are an important part of a credit
A business that plans to offer credit plan. The procedures are needed so that
must determine the characteristics and customers are billed and payments are
qualifications of the customers that will made at the appropriate time. Procedures
be extended credit. Those factors typi- for collecting overdue accounts are an
cally include customers’ credit history, the important part of a credit system. Most
resources they have that demonstrate their businesses that offer credit have a small
financial health, and the availability of the percentage of their accounts that are
money with which they can make pay- never collected. Even a small percentage
ments. Most businesses have a procedure of uncollected funds can make a credit
through which customers apply for credit plan unsuccessful. This results in losses
and provide financial references. These ref- and the need to increase prices for other
erences include banks and other businesses customers.
from which they have obtained credit in
the past. Commercial credit services such Checkpoint
as Experion for final consumers and Dun
& Bradstreet for business customers are Why should businesses extend credit, since
used to provide information on credit it exposes them to a risk of not being paid
histories. for their products or services?

Determine the best answer. 5. Geography Research the price of a ticket
1. When high-tech companies bring out new for a Major League Baseball game in several
products and initially charge very high prices, states. Why do you think the price of a base-
what kind of price are they setting? ball game ticket varies depending on the
a. penetration price geographic location where the game is held?
b. skimming price 6. Consumer Economics Select a product
c. zone price or service that has two to three price lines.
d. value-added price Create a table with one column for the name
2. True or False: Non-price competition is more of the product or service and one column
prevalent among luxury products and ser- for each price line. In each price line column,
vices targeted to very affluent consumers. list the features that correspond to the price.
Based on the information you gather,
3. A flexible pricing policy is more likely to be
which price line is most appealing to you?
used in all of the following businesses except
Explain why.
a. antique shop
b. automobile dealer Connect to
c. real estate
7. You work in the marketing department
d. grocery store
for a computer manufacturer that sells to
4. Effective _____ procedures are an important businesses and consumers. To increase sales,
part of a credit plan because they ensure that you have been asked to develop a discounts
customers are billed and payments are made and allowances program for both markets.
on time. Describe the discounts and allowances pro-
grams you would recommend for each target
market to your teacher (judge). Explain why S
the programs will be effective and profitable. N
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Now that you have completed the chapter, check identify the government’s role in influencing
your understanding of the lessons with these ques- prices?
tions. Record the score that best represents your describe price objectives commonly set by
understanding of each marketing concept. businesses?
1 = not at all; 3 = somewhat; 5 = very well explain how to determine the price range of a
If your score is 42–50, you are ready for the assess- product or service?
ment activities that follow. If you score 33–41, you perform a breakeven analysis to determine the
should review the lessons for the items you scored minimum price to charge?
1–3. If you score 32 or less, you will want to carefully identify the three components that must be
reread the lessons and work with a study partner on considered when calculating the selling price?
the areas you do not understand. discuss how the competitive environment affects
Can you— prices?
explain why price is such an important part of describe pricing strategies that are used to
marketing? determine the final price?
describe the relationship between price and explain how credit plays a role in the price mix
consumer demand for a product? element?

1. A reduction from the original selling price 13. Distinct categories of prices based on differences
2. The relationship between changes in a product’s in product quality and features
price and the demand for that product
3. The difference between the selling price and all a. breakeven point
costs and operating expenses associated with b. consumer credit
the product sold
c. discounts and allowances
4. Increases total revenue when prices decrease d. elastic demand
5. All customers pay the same price e. elasticity of demand
6. A very high price designed to emphasize the f. flexible pricing policy
quality or uniqueness of the product g. FOB pricing
7. A very low price designed to increase the quan- h. gross margin
tity sold of a product by emphasizing the value i. inelastic demand
8. De-emphasizes price by developing a unique j. markdown
offering that meets an important customer k. markup
need l. net profit
9. The quantity of a product that must be sold for m. non-price competition
total revenues to match total costs at a specific n. one-price policy
price o. operating expenses
10. Costs associated with business operations p. penetration price
11. Allows customers to negotiate price within a q. price lines
price range r. product cost
s. skimming price
S 12. An amount added to the cost of a product to
N determine the selling price
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14. A(n) __________ is offered to customers who buy 18. A(n) __________ is offered
large numbers or a large amount of to customers who pay
a product. without using credit or
15. A(n) __________ is a specific price reduction of- who pay their credit
fered by a channel member through a printed accounts quickly.
promotional certificate. 19. A(n) __________ is offered
16. A(n) __________ is a specific percentage reduc- to customers who buy during times of the year
tion in price offered to businesses at various when sales are normally low.
levels in a channel of distribution. 20. A(n) __________ is a price reduction or cash pay-
17. A(n) __________ is a specific amount of money re- ment given to channel members who participate
turned to the customer after a purchase is made. in advertising a product.
21. A(n) __________ is a reduction in price in ex-
change for the customer’s old product when a
new one is purchased.

22. There are many terms used to present the price product that illustrates total fixed costs, total
of products and services. Also, the price or value variable costs, total revenue, and total costs.
of a product or service can be represented in Identify the breakeven point on each graph.
a variety of ways with numbers, graphics, and
pictures. Look through newspapers, magazines, Total Variable
direct mail advertisements, and other print Fixed Costs Per
materials from businesses and organizations and
Product Price Costs Unit
find examples of the many ways prices are com-
municated to consumers. Cut out examples and A $ 42.00 $ 20,000.00 $ 18.00
create a collage of price and value. B 550.00 980,500.00 86.00
23. Identify at least ten consumers who will partici- C 1.20 1,500.00 0.90
pate in a price study. Ask each person to respond D 150.50 75,250.00 102.00
to the following three items and record his or her
answers.
a. Identify five products or services that you 25. Identify one form of consumer credit to study.
purchase regularly for which price is one of It can be a credit card from a retailer or a manu-
the most important factors in the decision. facturer, a bank credit card such as MasterCard
b. Identify five products or services that you or Visa, installment credit, a loan from a bank or
purchase regularly for which price is not finance company, or other types of credit plans.
one of the most important factors in your Collect information by interviewing a credit
decision. manager or other person from the company who
c. Compare the products from the two lists and understands the credit system. Collect a copy of
identify up to three reasons why price is more the credit application and other print informa-
important for the first list than for the second. tion that explains the terms of credit. If possible,
interview one or more people who use that
After you have collected the information, ana- particular form of credit. When you have finished
lyze the responses and develop several conclu- your study, prepare a written report on the credit
sions about the importance of price in consumer policies and procedures. Include the following in-
purchase decisions. formation: who is offered credit, the application
24. Using the following price and cost informa- and approval procedure, the type of credit plan,
tion for four products, determine the break- the major credit terms, how billing is done, and S
even quantity. Then construct a graph for each the collection procedures for past due accounts. N
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26. Jerry Englebrecht has operated a successful dog distribution, and promotion to increase
grooming service for ten years. Each year his customer satisfaction?
number of customers has grown. His expenses 27. A small company has just created a new type of
have always been quite low since he is the only greeting card. It looks the same as the typical
employee and operates the business from his greeting card you can buy in most retail stores.
home. For many years, the number of dog The unique feature is a microchip in the card on
owners has increased in his town, but that which the sender can record a 30-second per-
growth has now almost stopped. sonalized message. Initially, the cards are being
In the past two years, three other competing produced in two categories—Valentine cards
grooming services have opened. One is being and New Year’s cards—for times when people
offered by a veterinarian to serve her customers may want to send more unique and personal-
primarily. Another is part of a large chain of pet ized messages. If these cards are successful, the
grooming stores located in a larger city 15 miles company may choose to expand its line of cards
away. The newest competitor is a small partner- for other holidays, seasons, and special events.
ship consisting of two people who offer groom- Because of the computer technology and spe-
ing on a part-time basis. They are open only two cial envelopes needed to protect the card, the
nights a week and on Saturdays. company’s cost before distribution is higher
Until recently, Jerry had not been too con- than other cards—$3.40 each. The business has
cerned about the competition. He believed decided that the cards will be sold to a select set
he had loyal customers and had been getting of specialty retailers throughout the world. A few
inquiries from new pet owners. Recently he has wholesalers may be used for distribution if they
noticed that fewer new people are asking about follow a carefully developed marketing plan. The
grooming services, and some of his regular cards will also be sold directly to consumers who
customers have not returned. In talking to some purchase in quantities of at least 50 cards. Those
of his customers, he learns that the chain store cards will be distributed by a parcel delivery
and the partnership are both offering grooming service.
services at a much lower price than he is. Your task is to develop a proposed set of pricing
Jerry does not want to lower his price because strategies for the company. Develop a specific
that will decrease his profits. His goal has always strategy for each of the following items: price
been to use the profits to buy a building and objective, price range, price flexibility, price lines,
expand his business. geographic pricing, discounts and allowances,
a. How can Jerry decide whether he should and added value. The pricing strategies must be
lower his price? consistent with the product, its image, the type
b. If Jerry wants to emphasize non-price compe- of competition that will exist, and the marketing
tition, what are some recommendations you strategies described.
would make to him in the areas of product,
28. Using the information in the following table,
calculate the missing amounts.
Product Gross Operating Selling Net Markup Markup

Cost Margin Expenses Price Profit (Selling Price) (Cost)
$120.00 $ $40.00 $ $15.00 % %
36.00 16.00 58.00
0.75 0.30 0.12
865.00 995.00 27.50
12.75 38.50 5.25
10.00 2.00 50
25.00 25.00 80.00
S
N 27.00 64.00 70
422
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Hospitality and
Recreation Marketing
Research Event
The Hospitality Proposed Institutional Promotion Cam-
and Recreation paign Include goals, objectives, and ratio-
Marketing nale of the institutional promotion campaign;
Research Event include activities, timelines, and budget for
provides an opportunity for participants to the campaign.
demonstrate skills needed by management Bibliography and Appendix Include addi-
personnel. Hospitality and recreation market- tional sections as needed.
ing includes marketing and management
functions in a business primariliy engaged in Performance Indicators
satisfying customers’ desire to make produc- Evaluated
tive or enjoyable use of leisure time. • Design an advertising media
A customer service gap is the difference analysis. (Promotion)
between customers’ expectations of a service
• Conduct an advertising media
and the actual service they receive. The Hos-
analysis. (Information
pitality and Recreation Marketing Research
Management)
Event requires participants to select a hotel or
restaurant and analyze the customers’ percep- • Prepare an institutional promotion
tions of service they receive from the busi- campaign to improve public perception
ness. Participants will survey current custom- of a business. (Promotion)
ers and prospective customers to determine • Analyze results from the research
their expectations of the hospitality business. and identify the most cost-effective
Participants will then develop a customer advertising media available. (Finan-
service/promotion campaign to expand the cial Analysis)
customer base using the most cost-effective • Present the research findings and insti-
media available. tutional promotion campaign to the
This project can be completed by one to company. (Communication Skills)
three members. You will have ten minutes
to present your project and five minutes to Go to the DECA web site for more detailed
answer the judge’s questions. The written information.
project consists of the following parts:
Executive Summary Write a one-page de- Think Critically
scription of the project. 1. Why are more hotels and restaurants
Introduction Include a description of the emphasizing customer service in their
business and the community where it is advertisements?
located. 2. Why should businesses be aware of the
Research Methods Used in the Advertising customer service gap?
Media Analysis Describe the design of and
3. What is the best way to survey customers
methods used to conduct the advertising
PHOTOS: ©DECA INC.
about their hotel or restaurant experience?

media analysis.
Findings and Conclusions Analyze the 4. What is the meaning of hospitality?
available advertising media, define their cost, S
describe their potential effectiveness, and w w w. d e c a . o r g N
identify the most cost-effective media. 423
14-1 • The Economics of PriceDECA
Decisions
Prep 423
CH 14-B4491_DS_REV3.indd 423 12/7/07 7:18:42 PM

Chapter 15
Effective Promotion
Means Effective
Communication
15-1 Promotion as a Form of
Communication
©PHOTOS.COM/JUPITER IMAGES
15-2 Types of Promotion
15-3 Mixing the Promotional Plan
Newsline )))
Why Do You Buy What You Buy?
Walk into the grocery store and look think it will clean better? What color for some reason, they wanted or
at all the products on the shelves is the soap? Is the brand a name you thought they needed that product,
around you. There’s an entire sec- recognize? Did you see a television so they picked it off the shelf and put
tion of bar soaps. There are a dozen commercial for the soap that made it in their cart.
brands of toilet paper and an entire you laugh? Companies spend millions of
aisle of cereals. Some of these questions may dollars trying to influence the split-
You may not have tried all of seem silly. Why would you buy a bar second decisions you make in the
these products, but you probably of soap just because you thought a aisles of the grocery store. Much of
recognize many of them. You know television commercial was funny? this money goes into what is known
how some products smell and how Does it matter if the soap is featured as promotion.
others will make you smell. You in a colorful display? If the soap is
know the names of the characters on on sale, you are more likely to buy Think Critically
the cereal boxes. Maybe you know a it, right? But what if there’s another 1. When you are buying some-
jingle for some of the cereals. In the soap that is not on sale but is still thing at the grocery store, on
soup aisle, you may be able to name cheaper?
what factors do you base your
sports stars who are associated with What we buy is not always
decision?
certain brands. based on a completely rational deci-
The grocery store is full of sion. And it is not always planned. 2. Inside the grocery store, does
choices. With all the different brands Some estimates suggest that the placement of a product
of bar soap available, why do you 80 percent of the things people buy on the shelf affect your deci-
choose one over the other? Do you at the supermarket are unplanned. sion? On which shelves do you
like the fragrance better? Is it on That is, they didn’t decide to buy believe grocery stores stock the
sale? Does the package make you the product until they saw it. Then, most popular brands?
CH 15-B4491_RP_REV3.indd 424 12/7/07 7:21:22 PM


• Explain the nature of effective communications • Explain the role of promotion as a marketing
• Acquire a foundational knowledge of promotion function
to understand its nature and scope • Explain the types of promotion
• Understand the relationship between marketing • Identify the elements of the promotional mix
and marketing communications • Describe the use of technology in the promotion
function
Visual Focus
Sometimes a brand may have barriers that
it must overcome in order to become suc-
cessful. Companies use promotion to inform,
persuade, and remind people about their
product or service. This chapter will introduce
you to the various forms of promotion, their
WA N T E D :
strengths and weaknesses, and how com-
©CREATED BY JWT ATLANTA FOR THE UNITED STATES MARINE CORPS
panies decide what forms of promotion to use.
LEADERSHIP THAT INSPIRES Focus Questions:

MARINES UNDER YOUR COMMAND, What kind of person comes to mind when you
think of the Marine Corps? Picture that person
AND AMERICANS EVERYWHERE. in your mind. Now look at the advertisement
to the left. How does this ad compare with
your preconceptions? Sometimes a company
THERE ARE NO FEMALE MARINES. ONLY MARINES.
True strength lies not in self but in unity. As a

must overcome well-established perceptions
recruit, you’ll be pushed to your physical and
mental limits. Only together, can you find what to persuade people to try its product. What
it takes to complete the journey and earn your
place among an elite few.
barriers do you think the Marines are challeng-
ing with this ad?
Locate another ad that you believe is at-
tempting to overcome preconceived notions
about a product or service. Share the ad with
the class and discuss whether it has changed
your opinion about the product or service.
CH 15-B4491_RP_REV3.indd 425 12/7/07 7:25:39 PM

15-1 Promotion as a Form of Communication
GOALS KEY TERMS
• Identify the function of promotion as part of promotion, p. 426 receiver, p. 428
the marketing mix. communication decoding, p. 428
• Describe the communication process and process, p. 427 noise, p. 428
identify its eight elements. sender, p. 427 feedback, p. 429
• Explain the three roles of promotion in message, p. 428 interpersonal
marketing. encoding, p. 428 communication, p. 431
• Define the two types of communication that message channel, p. 428 mass communication, p. 432
are important to marketers.
This year, the average person will see or hear approximately one million marketing
messages—almost 3,000 messages a day. Most of those will be promotional mes-
sages about various products and services. They will be on television and radio,
on the Internet, on billboards, in stores, from telemarketers and salespeople, and
through text messages on cell phones. Most of those messages will be lost in the
clutter. For marketers to effectively reach the people they are trying to reach, they
need to choose the right target, develop a persuasive message, and devise the right
mix of advertising, public relations, sales promotion, and personal selling. With the
right balance of promotions, they can deliver a consistent message that will help
lead to a purchase decision by the consumer.
Identify a marketing message you have seen or heard recently. Describe how
you received the marketing message. What action or result occurred or will occur
because of that message?
Promotion as Part of the

Marketing Mix
hen you want to buy a car, you have ultimately want you to choose their prod-
W many choices. You choose from

hundreds of makes, models, and
dealerships. The same is true of cheese-
uct or service.
One of the most important tools for
a company trying to attract customers is
burgers, guitars, and toothpaste. Because promotion, one of the four elements of the
you are free to choose where to spend marketing mix. Promotion is any form of
your dollars, companies must compete for communication that a company uses to
your business. They want you to believe inform, persuade, or remind consumers
S that they offer a product or service that about its products or services.
N is superior to their competitors, and they
426
426 CHAPTER 15 • Effective Promotion Means Effective Communication
CH 15-B4491_RP_REV3.indd 426 12/7/07 7:28:28 PM

As part of the marketing mix, promo-
tion should complement the other three PROMOTION
elements as illustrated in Figure 15-1. A
product may be exactly what consumers
DISTRIBUTION
want, may sell for the right price, and
may be available to them because of good
PRICE
The
distribution. However, if they don’t know
about the product, don’t know where to Marketing
get it, or don’t think that it will fill a need Mix
or desire in their life, the product will not
sell. That is why good promotion is critical.
Promotion is how a company communi-
cates with consumers. PRODUCT
FIGURE 15-1
Checkpoint Promotion is a key element of the marketing
mix. It relies on and complements the other
What is promotion? elements.
Promotion Is a Form of
Communication
romotion is a communication the U.S. Marine Corps was the sender of
P process, or the transfer of a mes-

sage from a sender to a receiver.
In marketing, the process usually
the ad that opened this chapter.
involves a company or organization

sending a sales message to a potential
customer. To understand how this
process works, a marketer must first
understand the basics of the com-
munication process, as illustrated in
Figure 15-2 on the next page.
The Sender
The communication process origi-
nates with a sender. The sender
is the source of the message being
sent, the who in the communica-
tion process. This can be a person,
a company, or an organization. In
©DIGITAL VISION
marketing, the sender is typically a

company trying to send a message to
consumers. When you see an adver-
tisement, the sender is the company What components of the communication process are S
that planned the ad. For example, represented by this simple “sale” sign? N
427
15-1 • Promotion as a Form of Communication 427
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NO
ISE
K.C. FASHIONS
SALE
CLOTHING SALE 20% OFF
ENCODING DECODING
SENDER MESSAGE MESSAGE CHANNEL RECEIVER
FEEDBACK
FIGURE 15-2
Promotion is a form of the communication process by which a company sends its message via a
message channel to potential customers.
The Message the Internet, or anything else that carries a

The message is what is being communi- promotional message.
cated. In the promotion process, there can
be several messages conveyed at once, on The Receiver
several different levels. A simple message The message travels to the receiver. The
might be that a store is having a sale. But receiver is the person or persons to whom
there may be other less explicit messages the message is directed or any person who
conveyed in the process. For instance, if understands the message that is sent. In
the materials used to promote the sale look marketing, receivers are the target audi-
very elegant, they may send the message ence or potential customers.
that the store is elegant and classy.
Decoding by the Receiver
Encoding by the Sender Before the message can be said to be fully
When the sender converts an idea into a received, it must be decoded by the receiver.
message that the receiver can understand, Decoding is the process by which the re-
this is called encoding. Encoding relies on ceiver interprets the transmitted language
basic units of meaning such as language, and symbols to comprehend the message.
words, and symbols, but it can also include People may see a sign, but if the sign uses
more subtle cues: colors, design, music, words or images they do not understand,
and imagery. When the store having the they will not receive the intended message.
sale creates its promotions, decides what
words and pictures to include, and how Noise
each type of promotion will work, this is
all a part of the encoding process. Any distracting information in the trans-
mission, the message channel, or the
receiver’s environment that may inhibit or
The Message Channel distract from the message is called noise.
The vehicle by which the message travels Noise includes TV or radio static or inter-
is the medium, or message channel. ference, competing messages, unfamiliar
The message channel is how the message words, or even a crying baby—anything
will be distributed. In marketing, the that makes it harder to receive the mes-
S message channel can be television, radio, sage. Marketers also refer to some types of
N magazines, a salesperson, text message, noise as “clutter.”
428
CH 15-B4491_RP_REV3.indd 428 12/7/07 7:29:26 PM

World View
Chuck E. Cheese’s Goes Bilingual language animated series Maya & Miguel
to Target Hispanics and has partnered with Hispanic children’s
networks such as Sorpresa! Chuck E. Cheese’s
Chuck E. Cheese’s is a children’s pizza chain
has also worked more Spanish-language
that operates more than 500 restaurants
elements into its promotions, web site, and
across the country. In recent years, Chuck
operations over the years.
E. Cheese’s began to expand its market and
As the Hispanic-American population
focus on the Hispanic youth market. The His-
continues to grow, more companies like
panic market is growing rapidly in the United
Chuck E. Cheese’s will target it with Spanish-
States, and experts predict that by 2010 the
language marketing campaigns.
purchasing power of the Hispanic-American
market could reach $1 trillion. This presents Think Critically
a great opportunity for many marketers, and
1. Do you think non-Spanish-speaking kids
Chuck E. Cheese’s, a Texas-based company, is
would be confused or turned off by bilin-
trying to capitalize.
gual ads?
For several years, the chain has been
creating bilingual commercials in English 2. Why is it important for Chuck E. Cheese’s
and Spanish in the hope of reaching Hispanic to promote its restaurants to Hispanic
children. It sponsors the popular Spanish- children and families?
Feedback Feedback is very important because it

Sometimes there is a feedback step in the helps marketers determine if their promo-
communication process. Feedback is the tions are working effectively and how to
receiver’s response to the message. It can improve them.
be direct feedback, such as a letter sent
from the receiver to the sender or a survey
taken by the sender. It can also be indi- Checkpoint
rect feedback, such as the redemption of a
promotional coupon or the purchase of a What are the eight elements of the com-
company’s product. munication process?
The Role of Communication in Marketing

efore marketers begin a promotion
B program, they should outline the

goals of the program. What results
do they want to achieve with it? Promo-
Inform
A company will often use promotion to
inform people about a product. This is par-
ticularly true when a company introduces
tion fulfills three main roles for market- a new product or a new product feature. If
ers: it can inform, persuade, or remind an a store is opening or moving to a different
audience, or it can involve some combina- location, they will want to let customers S
tion of the three. know. N
429
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Sometimes a company wants
to inform people of a feature
that has always existed but that
people just did not know about.
At other times, a certain aspect
of a product will become more
appealing, and the company will
want to publicize that aspect. For
instance, when gas prices rise, car
companies will often advertise the
gas mileage of their more fuel-
efficient cars because that feature,
though it has not changed, has
become more relevant to
consumers.
More complex products and
services are more likely to use
promotions that inform cus-
tomers about their products.
When a buying decision is com-
plicated—when people are look-
©MARRIOTT CORPORATION
ing to buy a boat, life insurance,
or a computer, for example—
consumers will want to collect as
much information as possible and
compare their options. The price
of a product can also impact the
amount of information a con-
This Marriott ad targets the Hispanic market. If you can-
sumer seeks. People want more not read Spanish, the decoding step in the communication
information before they purchase process would be ineffective.
a car than they do before they
purchase a pack of gum.
By providing people with information cool.” “Fly our airline because it costs less.”
they need to make informed decisions, “This car is better for the environment.”
marketers hope that consumers will decide These are all persuasive arguments.
to buy the product. In this way, the role of Sometimes, a promotion will both
informing can sometimes overlap with or inform and persuade. For instance, if Pepsi
be combined with the role of persuading says that people preferred Pepsi to Coke in
customers. a taste test, that information is intended
to persuade you that Pepsi is better and
that you should buy it instead of Coke. The
Persuade persuasive message is supported by the in-
Sometimes a company will need to make formation that people tried both products
a case for why a customer should buy its and preferred Pepsi.
product. The company will create a promo- Persuasive promotions can be used
tional program with the goal of persuad- throughout the life cycle of a product, but
ing customers. The company may say why they are typically used more after con-
its product is better than the competitor’s sumers are familiar with the product. It is
product, or it may explain how the product also common for a company to change its
S will fulfill a need or desire of the con- persuasive tactics over time. Chevy may
N sumer. “These shoes will make you look advertise the pulling power of its pickup
430
CH 15-B4491_RP_REV3.indd 430 12/7/07 7:29:28 PM

trucks in one campaign, their longevity consumers. Marketers want to remind
in another, and the fact that they are people that a successful product exists and
American-made in another. These can all why people like it. When you see a sign
be important features, and all are reasons in a football stadium with just a Snickers
a person might buy a Chevy truck. Chevy logo, it is a reminder promotion. Market-
changes its promotional approach because ers are depending on the fact that you
different people find different aspects of know what Snickers is and how it tastes.
Chevy trucks more persuasive as they con- They hope that by just seeing the sign, it
sider what to buy. will remind you to purchase one from the
concession stand.
Remind
The final role of promotional activities Checkpoint
is to remind customers about existing
products. These products are typically What are the three roles that promotion
mature in their life cycle and familiar to plays in marketing?
Types of Communication
arketers study the communication
M process to determine the types of

communication necessary for their
products or services. The type of com-
Fa s t FAC T S
It has been reported that managers
munication used depends on the product spend over half of their time involved in
or service and the intended target market interpersonal communications—30% is
characteristics. There are two main types spent on speaking and 25% is spent on
of communication used by marketers: listening.
interpersonal and mass communication.
Interpersonal Communication the customer make a knowledgeable pur-

Interpersonal communication is any chase decision. An experienced salesperson
person-to-person exchange. In marketing, can also earn a customer’s trust in ways
this may be a telemarketing call, an in- that other types of communication cannot.
person sales call, a customer service desk, Interpersonal communication is
an online chat with a company representa- frequently used in business-to-business
tive, or a salesperson in a store. The greatest marketing. Because business-to-business
benefit of interpersonal communication marketing can involve large sums of
is that it is a two-way conversation. Cus- money, many companies have a profes-
tomers can ask questions, and the sales- sional sales staff. This sales staff can form
people can give an immediate response relationships with its clients and be more
and tailor the message accordingly. They responsive to their needs.
can tell if a customer is interested, bored, One of the main weaknesses of in-
irritated, or needs more information. terpersonal communication is that it is
Interpersonal communication is very often costly in terms of its efficiency. One
specifically targeted, so for certain types salesperson can only deal with one or two
of products, such as complex and high-end people at a time. Also, while a knowledge-
products, it can be very advantageous. A able sales force can be a great asset, it can
salesperson can explain the differences be expensive to train them and pay sales- S
between one product and another and help related expenses. N
431
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Mass Communication reach some people for whom it was not
Mass communication is the opposite of intended.
interpersonal communication, which The strength of mass communication
gives customers the one-on-one attention is that it can be much more cost-efficient
of a salesperson. Mass communication than personal selling. One advertisement,
attempts to reach a wide audience, some- for instance, can be used over and over
times millions of people, through mass to reach many more people in a shorter
media such as radio, television, magazines, amount of time than a salesperson ever
and newspapers. could. And although direct feedback is
Mass communication is a one-way limited with mass communication, mar-
flow of information. It does not provide keters have developed methods of gauging
the opportunity for instantaneous feed- the effectiveness of a promotion. For ex-
back since the receiver cannot directly ample, they might issue coupons and track
respond to the sender. This limits how their use or use market research to gather
much the message can be tailored for the consumers’ reactions to an advertisement.
recipient. While marketers do their best
to target their messages, with mass Checkpoint
communication they cannot be sure who
will see the promotion. It may not reach What are the two types of communication
all of the intended audience, and it may that are commonly used by marketers?

Determine the best answer. 5. Visual Art Select an ad or other promotion
1. Promotion is how a company communicates you have seen or heard recently. Draw or use
with a potential ______. technology to create a picture, graphic, or
other visual representation of the communica-
2. Which of the following is not an element of
tion process as it pertains to that promotion.
the communication process?
a. sender 6. Research Use the Internet or library to
b. message channel research how a major brand has changed its
c. interceptor promotions over time. Describe the changes
d. feedback and explain why you think they were made
and whether or not the changes have been
3. One advantage of mass communication is
effective.
a. instant feedback from the receiver
b. it can reach a large audience Connect to
c. it has a personal touch
7. You and your team members work for an
d. all of the above
advertising firm that has been hired by a home
4. Interference in the message transmission that electronics store. The owner of the store wants
may inhibit or distract from the message is your team to create a television commercial
called for a new stereo. Determine the target market
a. information for the stereo and the communication goal.
b. barrier Write a script for the commercial. Your team
c. noise should act out the commercial for your teacher
d. static (judge). Be sure to provide props to help make
S
the commercial realistic.
N
432
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Types of Promotion 15-2
GOALS KEY TERMS

• Explain the advantages and disadvantages of advertis- advertising, p. 433
ing as a type of promotion. broadcast media, p. 433
• Describe the ways that public relations can be used to publicity, p. 435
generate publicity. public relations, p. 435
• Identify the benefits and drawbacks of using personal personal selling, p. 437
selling to promote a product or service.
sales promotion, p. 438
• Explain the advantages and disadvantages of using
short-term incentives as sales promotions.
There are many different types of promotion marketers can use to communicate
with customers. Some types of promotion are more appropriate than others, and
marketers must know what factors to consider when deciding which types of pro-
motion to use. The four common types of promotion are advertising, public rela-
tions, personal selling, and sales promotion.
Marketers strive to find the right mix of these four ingredients. In a good pro-
motional mix, all the elements work together, complementing each other so that
consumers get a consistent message about the product or service. In order to create
the best promotional mix, marketers must understand the characteristics, strengths,
and weaknesses of each form of promotion.
Think of a product that you like. Describe the types of promotions used for that
product. Do the promotions all communicate the same thing about the product?
Which form of promotional activity do you find most effective? Why?
Advertising
he most popular and familiar form of Print advertising is any paid message
T promotion is advertising. Advertising

is any form of paid, nonpersonal com-
munication that uses mass media to deliver
run in a magazine or newspaper. Print
advertisements can be several pages long,
but they are more commonly one page or a
a marketer’s message to an audience. As part of a page.
shown in Figure 15-3 on the next page, the Direct mail is any marketing message
major types of media used for advertising sent to an audience through the mail. It is
are television, radio, print, direct mail, out- sometimes referred to as “junk mail,” but
door, ambient, and the Internet. it can be a very effective way to efficiently
Television and radio are known as target messages.
broadcast media, meaning that a signal is Outdoor advertising, also called “out-
sent from a central transmitter to receivers of-home” advertising, includes billboards,
in a geographic area. Ads on TV and radio signs on buses or taxis, messages on the S
take the form of commercials, or “spots.” sides of buildings, posters, ads on bus N
433
15-2 • Types of Promotion 433
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shelters or benches, signage at
sporting events, or any other
space designed specifically for ads
outside the home.
ambie
Because marketers are always
et
looking for ways to make their
rn
nt
te
message stand out and get no-
In
ou
tdo
ticed, there has been a rise in re- or
cent years of ambient advertising. RTISI
VE
NG
This type of advertising includes
AD
any nontraditional medium in television
the environment of the audience. ail
e ct m
Stickers on bananas, messages d i r
chalked onto sidewalks, hot-air
ra
balloons, stunts or “guerilla” ad-
print
d
io
vertising, and messages on bath-
room stall doors all fall into the
category of ambient advertising.
Internet advertising is the
fastest-growing and most dynamic
type of advertising. Marketers are FIGURE 15-3
developing new ways to use the Marketers use various forms of advertising to send mes-
Internet beyond the simple banner sages to consumers.
ad. The greatest benefit of Internet
advertising is that it can be tar- has great potential to move people emo-
geted by interest and location, and unlike tionally because of the film style, music,
most other forms of advertising, it provides and other production factors. When it
marketers with instant feedback. Many comes to building strong brands, creating
experts believe the Internet is the future of an emotional tie between a consumer and
advertising. a product can be invaluable.
Advantages of Advertising Disadvantages of Advertising

Because advertising has the ability to reach For all the advantages of advertising, there
a wide audience, it is an efficient medium are also some disadvantages. First, even
in terms of cost-per-viewer. Advertising is though advertising is very efficient in
also a very controllable, repeatable form cost-per-viewer, the overall cost can be
of promotion, delivering the exact same prohibitively expensive, especially for
message again and again if necessary. smaller companies. The average profes-
Marketers know that an ad run at one time sionally produced television spot costs
in Seattle and at another time in Atlanta nearly $400,000 not including the cost of
will be exactly the same. The ad can be run running it on television. To run a 30-
multiple times in those places to reinforce second commercial just once on a show
the message. like American Idol can cost more than
This example also points out another $700,000. A company with a national ad-
advantage: many forms of advertising are vertising plan will need to budget millions
not limited by geography. Ads can reach of dollars for it to be effective.
people anywhere in the country and most The second disadvantage is the imper-
places in the world. sonal nature of advertising. In most cases,
S The final advantage of advertising, there is no instant feedback, no ability to
N particularly television advertising, is that it modify the message for the viewer, and no
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Virtual Marketing
Big Advertisers Find Better Role Companies also realized they could tap
for Internet into the social potential of the Internet
and create a community around a product
When the Internet was developed, it was
or issue.
obvious that it would present great oppor-
For example, Unilever launched a
tunities for marketers. But early on, many
campaign for Dove that encouraged people
companies simply used the Internet as they
to re-examine their concepts of beauty as
would use a billboard or magazine. They
defined by the media. The company used
placed banner ads and put information
television and outdoor billboards, but much
on their web sites. But forward-thinking
of the dialogue took place online where
companies realized that the Internet differs
people could share their views with each
greatly from other media. While television or
other about an important topic.
print media allow only one-way communica-
tion (the company can send its message to Think Critically
the audience), the Internet allows a two-way
1. What are the implications of this trend for
flow of information.
Internet sites that rely on revenues from
Companies developed web pages
selling banner advertising? Will banner
that gave their customers helpful informa-
ads still have a place?
tion but also invited them to engage in a
dialogue with the company and with each 2. Think of a popular social networking
other. Customers could ask questions about web site like MySpace.com. How could
products, give the company feedback, and this kind of site be used as a model by a
share tips and product uses with each other. company to promote a product?
way to make the personal connection that for marketers—one they are constantly
face-to-face communication allows. trying to solve.
Finally, with so much advertising clut-
ter and other noise and with new technolo- Checkpoint
gies such as digital video recorders, it has
never been easier for audiences to tune out Name some advantages and disadvantages
or skip past ads. This is a major problem of advertising as a type of promotion.
Public Relations
arketers often try to get their
M message to consumers by
generating publicity through
existing mass media, often news
As a team, select a school event or program
outlets. Publicity is any nonpaid that needs funding or supplies. For example,
communication about a product, perhaps the school band needs to raise money
service, company, or cause. The for new uniforms. Discuss how publicity might
effort to reach consumers by gener- benefit the cause. Develop a public relations
ating positive publicity is known as campaign to create community awareness. S
public relations, or PR. N
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Judgment Call
Cause-Related Marketing more favorable view of that company. Com-
Requires PR Savvy panies must ensure that the cause they are
supporting matches their overall mission. For
Cause-related marketing refers to a company
instance, the Clorox Company, which manu-
promoting itself by supporting a social cause
factures products that clean and disinfect,
or charity. It used to be that these partner-
partners with the Red Cross. This partner-
ships were short-term. A company might
ship makes sense because both Clorox and
fund a charity event in exchange for being
the Red Cross share the mission of keeping
mentioned during the event. The company
people healthy.
and charity would then part ways. Recently,
however, the trend has been for more long- Think Critically
term partnerships between companies and
1. If a company has engaged in unpopular
charities. Because a corporate sponsor can
practices in the past and now wants to
typically provide much more financial as-
improve its image to help repair the dam-
sistance to a charity than private donors can,
age, would a cause-related marketing
it has become commonplace for charities to
initiative be a good idea? Why or why not?
court corporate sponsors.
For their part, companies spend a lot of 2. Is cause-related marketing good for
time analyzing which causes to attach them- society or just a way for a company to take
selves to. The hope is that people will have a advantage of a situation while appearing
to exhibit corporate citizenship?
Although the actual media coverage source such as a news program is perceived
of the product or service is nonpaid, com- as being more objective than a com-
panies often have a PR department or hire mercial. When a product gets a favorable
a PR firm to identify media opportunities. mention on a news program or a favorable
They will often write press releases to send review by a talk show host or celebrity,
to the news media about their product or people are more likely to listen and try the
service or contact talk shows, magazines, product than if they had just seen a televi-
and other media outlets to try to get their sion commercial. When Oprah Winfrey,
product mentioned. for example, mentions a product on her
Sometimes PR is a response to negative show or selects a book for her book club,
publicity. If a product is faulty or unsafe those products fly off the shelves because
or if there is a recall, a company may use so many people trust and respect Oprah.
public relations to control the amount of For that reason, many companies work
damage done to its image. The company to get their products on her show.
will contact media outlets in the hope that The second advantage of public rela-
any coverage of the issue will include the tions is that it can be relatively inexpen-
company’s point of view and what it is do- sive. If the release of a new product from a
ing to resolve the problem. company becomes a big news story, it can
be worth millions of dollars in free publici-
ty. Apple, maker of the popular iPod music
Advantages of player, masterfully uses the news media to
Public Relations create buzz anytime a new iPod is released,
S Publicity generated through public rela- and it has helped Apple lead the industry.
N tions is very valuable because a third-party
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Disadvantages of Public
Relations
The biggest disadvantage of public rela-
tions is that it is hard to control. Because it Businesses often sponsor individuals or teams
relies on third-party media outlets, exactly in a number of sports, such as cycling, ten-
what is said about a product is up to the nis, and automobile racing. Access school.
media, not the marketer. While coverage cengage.com/marketing/marketing and click
of a product by one media outlet may lead on the link for Chapter 15. The auto racing
to more coverage and create a big story, it organization NASCAR maintains a list of cor-
is nearly impossible to predict or control porate sponsors on its web site. View the list of
what kind of coverage, if any, a product sponsors and identify three that seem sur-
gets. If the news media covers a product prising or unlikely in some way. Explain your
but reviews it negatively, it can be disas- reaction. Why might a company that does not
trous for a company. have a direct relationship to auto racing spon-
sor a NASCAR driver? Can you think of any risks
involved in corporate sports sponsorship?
Checkpoint
What are some of the advantages and dis-
advantages of public relations?
Personal Selling
s the name suggests, personal selling The types of products for which
A is person-to-person communica-
tion with a potential customer in an
effort to inform, persuade, or remind the
personal selling is appropriate are usu-
ally complicated and relatively expensive
products with many features. Cars, auto
customer to purchase an organization’s insurance, homes, stereos, and business
products or services. It usually involves equipment are all good examples.
interaction with a salesperson.
Personal selling is most commonly Advantages of Personal
used in business-to-business promotion, Selling
where salespeople from one company meet
with the people in charge of making the An advantage of personal selling is the per-
purchasing decisions for another company. sonal contact. It can be much more informa-
Business-to-business deals can sometimes tive and persuasive than advertising be-
involve large sums of money. These meet- cause of the person-to-person interaction.
ings can involve elaborate presentations Also, with person-to-person contact,
and follow-up meetings before a sale is feedback from the customer is immedi-
completed. ate, and the sales presentation is flexible.
Other forms of personal selling include A salesperson in a computer store can
salespeople at a retail store, telemarketers, ask and answer questions, demonstrate
car dealers, real estate or insurance agents, features, and make a good product recom-
or even customer service representatives mendation based on a customer’s needs.
available online or over the phone. Effective
salespeople are trained and knowledgeable Disadvantages of Personal
so that they can help inform customers Selling
about products, answer questions, and The major disadvantage of personal sell- S
eventually lead them to a purchase decision. ing is the per-person cost. Though the cost N
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of advertising is high, advertising reaches process can go on for months and ulti-
millions of people. Personal selling reaches mately may not result in a sale.
one customer at a time and makes one sale
at a time, so the cost per customer can Checkpoint
be quite high. Sometimes, especially in
business-to-business marketing, the selling Name an advantage and a disadvantage of
personal selling as a type of promotion.
Sales Promotion
ometimes marketers will
S want to boost sales through

the use of short-term incen-
tives with the hope that con-
sumers will repeat the purchase
later without the incentive. Any
activity or material that gives
consumers a direct incentive to
buy is called sales promotion.
The use of sales promotions is a
common tactic when a company
introduces a new product and
wants to entice consumers to
try it or when a company needs
to increase the short-term sales
of a product. An ice cream
brand may want consumers to
try a new flavor or a car
dealership may want to sell
last year’s model before the
newer model arrives.
Common types of sales pro-
©HIGH LINER FOODS, INC.

motions include price promo-
tions through sales, coupons, or
rebates; product incentives such
as limited-time models or free
product features and options;
or giveaways like sweepstakes,
contests, free product samples, Companies will often use price promotions and contests to
or free toys with purchase. boost short-term sales of a product.
Special in-store or point-of-
purchase displays provided by a
company can use a sales promotion for a
manufacturer to encourage sales
boost that can also create loyal customers.
are also types of sales promotion.
Another advantage is that sales promo-
tion results are usually measurable. Stores
Advantages of know how effective a coupon program is
Sales Promotion because they can count how many cou-
S The greatest advantage of sales promotion pons were redeemed, or the traffic during a
N is that it can generate short-term sales. A contest can be compared with normal store
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traffic. This information can be used to that the customers will return, but often
improve future sales promotions. they do not.
Other disadvantages of sales promo-
Disadvantages of tion can be the cost of providing the incen-
Sales Promotion tives, the loss in profit by cutting the price
of products, and the cost of advertising
The biggest advantage of sales promotion the promotion. A promotional program
can also be one of its drawbacks. Most that nobody knows about does not work,
successful businesses strive to create and so companies must run ads promoting the
maintain loyal customers. Sales promo- promotion.
tion, on the other hand, focuses on the
short-term. It builds customer relation-
ships motivated by incentives rather than Checkpoint
a true preference for the brand. Once the
promotion has ended, the business hopes List common types of sales promotion.

Determine the best answer. 5. Language Arts Create a fictional person
1. Which form of advertising has the best and write a one-page account of his or
chance of emotionally moving a viewer? her day. Describe how the person comes
a. print into contact with each of the four types of
b. direct mail promotion during the normal activities of a
c. television day and how he or she reacts to them. The
d. radio promotions can be for the same product or
for different products.
2. Which is the biggest disadvantage of public
relations? 6. Math A grocery store usually makes a
a. cost 10 percent profit on a box of detergent that
b. speed sells for $5.00. In an average week, it sells
c. limited impact 30 boxes of detergent. The store runs a
d. difficult to predict and control coupon promotion for 25 cents off each box
of detergent. How many boxes does it need
3. What product would be the best candidate
to sell per week to break even on the re-
for personal selling?
duced product price during the promotion?
a. bar soap
b. a piano Connect to
c. chocolates
7. You own a high-end clothing store in the
d. movie tickets
mall. Determine how each type of promo-
4. The short-term nature of a sales promotion tion might be used to attract customers to
can be your store and produce sales once they are
a. an advantage there. Create a chart outlining your promo-
b. a disadvantage tional choices and how each would be used.
c. both an advantage and a disadvantage Present the chart to your teacher (judge) and
d. neither an advantage nor a disadvantage discuss your decisions. S
N
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15-3 Mixing the Promotional Plan
GOALS KEY TERMS
• Explain the five major factors that affect the promotional promotional mix, p. 440
mix. promotional plan, p. 443
• Describe the seven steps in the promotional planning
process.
Each of the four types of promotion has its strengths and weaknesses. Marketers
typically use several or all of the types of promotion. They fill different roles and
reach consumers in different ways, but they deliver essentially the same message.
The specific way in which the promotional elements are used depends on several
factors: the product itself, the target market, the product price and distribution, the
availability of resources, and the company’s overall philosophy.
Select a product you own. What types of promotion would you use for the prod-
uct if you were planning the promotional mix? How would you decide what types of
promotion would be most effective?
The Promotional Mix

s Figure 15-4 illustrates, the
A promotional mix is the combina-

tion of advertising, public relations,
personal selling, and sales promotion REL A
that marketers use to reach a target mar-
UBLIC
ERTIS
T IO N
ket. It is critical that the elements of the
A DV
ING
promotional mix complement each oth- P S

er. If they deliver conflicting messages,
the consumer might become confused. A
carefully planned promotional mix can
capitalize on the strength of each type PRO M
NAL S
A L ES
OTIO
of promotion and reach customers from

ER S O
several different angles to deliver on the

ELLIN
promotional objective. How marketers S N

determine which promotional tools to P G
use depends on several factors as shown
in Figure 15-5 on the next page.
Promotional Objective FIGURE 15-4

You will recall that promotional com- Each element of the promotional mix impacts the
S munication can serve three purposes other elements, so they must work together to be
N for a marketer: to inform, persuade, and effective.
440
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remind. Different types of promotions are
DISTRIBUTION
better suited for certain objectives. For in-
stance, personal selling is an excellent tool TARGET
for persuading customers with detailed, MARKET OBJECTIVE
personalized information. However, it
wouldn’t make sense to hire salespeople to COMPANY
stand at the dairy case and remind people PRODUCT PHILOSOPHY
to buy milk at the supermarket. PRICE RESOURCES
Target Market
It is critical to consider the target market
in formulating a promotional mix. Who PROMOTION
are the people the company is trying to FIGURE 15-5
reach, and what do they find compelling? Many factors impact promotional plans, which
If your target market is upper-income, makes developing the right promotional mix a
health-conscious women, offering coupons balancing act.
for 25 cents off a nutritional supplement
may not be as effective as advertising the Resources
product’s health benefits. You also need to The final factor to consider is the com-
consider where the target market lives. A pany’s financial situation. Promotion can
target market that is dispersed across the be expensive, and the marketer must deter-
country might make telemarketing a better mine which elements will have the greatest
approach than a billboard. chance at achieving the company’s objec-
tives for the least amount of money. Small
Marketing Mix companies may not have the budget to use
The type of product, the price, and its all the promotional tools available.
distribution affect the promotional mix as
well. Certain products are better served Checkpoint
by certain types of promotions. Bar soap,
for instance, is not a good candidate for What five major factors affect marketers’
personal selling. However, a low-priced choices when developing the promotional
product such as soap would probably mix?
benefit from a coupon. On the other hand,
consumers want more information before
buying expensive items like a new house,
which is why personal selling is a good
fit. Distribution also plays a role. Internet
advertising works particularly well for
products sold online because of its ability
to easily link to web sites selling the item.
Company Philosophy
Some companies believe in certain values
that impact the promotional mix. For
example, a hiking boot company may feel
©DIGITAL VISION
that outdoor billboards clutter the land-

scape and, therefore, will not use billboards.
In 2006, Volkswagen ran a promotion in
which it gave away an electric guitar with its What promotional mix would you recommend
cars because the promotion fit the company for a new cell phone that has many unique S
philosophy of freedom in self-expression. features? N
441
15-3 • Mixing the Promotional Plan 441
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Design a Promotional Display

Have you ever been to a large, organized event, example, display-
like a fundraising run for a charity, and noticed all ing tennis racquets
of the booths set up near the finish line? Which with tennis apparel
booths catch your eye and draw you in? Why do makes sense, while
you go to one booth instead of another? locating them next to
Promotional displays are utilized by busi- camping equipment
nesses and organizations in a variety of settings. could distract or confuse
Common settings for promotional displays consumers.
include malls and stores, community events, and The reason merchandise is featured
trade shows. will impact the design of the display. Value
Displays have a variety of objectives. The might be the focus of a display that features sale
display should inform prospective customers merchandise.
about the product. It should be enticing enough Each item in the display should support the
to pique their curiosity and pull them in to look overall theme of the display. For example, includ-
at it. The display should be attractive to view and ing a large blanket, a cooler, disposable dishes,
stimulate an appropriate response or action. The hand sanitizer, a portable volleyball net, and a
display reflects not only the product being pro- Frisbee together in a picnic display makes sense
moted but also the image of the sponsor. because each of these items could be of interest
Here are some guidelines for a retail display. to customers planning a picnic.
• Make sure displays are well-balanced and
proportional. They should fit within their Develop Your Skill
allocated space and blend with the overall Plan a display geared toward increasing attend-
environment of the store. ance for an upcoming event at your school or in
• Decide what feeling the display is trying to your community.
evoke and choose colors accordingly. Warm Using posterboard, draft two different
colors, like red, are stimulating. Cool colors, designs for a display promoting the event. Ask
like blue, are relaxing. several students, teachers, and target audience
members for feedback to determine which dis-
• Be sure the design will attract the target audi- play is the most appealing.
ence of the display. For example, a golf prod- Refine the display that received the strongest
uct display might incorporate a background feedback. On posterboard, develop a layout of
image of a golf course. all the elements you would include in the dis-
• Consider whether the display will be located play. On a chart, outline why each element was
at the end of an aisle, in the middle of a included and how it supports the overall goals of
walkway, in a window, or on a tabletop. There the display.

is an optimal design for each of these areas Attend a school or community event that
related to how customers view and use the might have been an appropriate venue for your
space. display. Try to determine why some displays draw
• Think about the location of the display rela- more visitors than others. What are the character-
tive to the products being sold. Items should istics of the displays that appear to be the most
be displayed with related merchandise. For effective?
S
N
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Promotional Planning
t is important to remember that each
I type of promotion serves a different

purpose in the promotion mix and
should be used to complement the other
Evalu
ate R
esult
s
methods of promotion. Advertisements, for

Impl
example, reach larger audiences and create emen
t Pla
ns
awareness. Without them, the personal
sales effort would be much more difficult, Deve
time-consuming, and expensive. Publicity lop Prom
o tiona
resulting from public relations adds cred- l M ix
ibility to the message, but it is more dif-

ficult to control. Personal selling, on the Set B
udge
other hand, offers personalized contact, t
can provide specific information a cus-

tomer needs, and can close a sale. Without Iden
tif y Ob
personal selling, the initial interest gener- jectiv
es
ated by advertising might be wasted. Sales
promotion supplements the other methods Selec
t Targ
and fills in the gaps by stimulating short- et Ma
rket
term sales efforts.
The promotional mix must be carefully Rese
arch &
planned around a common theme so that Anal
yze M
arke
all the elements work together and, when t
viewed as a whole, deliver the message to

the consumer. The blueprint for how the
elements of the promotional mix will work Promotional Planning Steps
together is called the promotional plan. FIGURE 15-6
Creating an effective promotional plan Marketers follow a step-by-step process to develop a
is something that takes time. Most large promotional plan that is focused, efficient, and based on
companies plan well in advance to ensure achievable goals.
that their promotions budget is used as ef-
ficiently as possible. Companies of all sizes
follow a basic process for developing their understanding of the market. They then
promotional mix. They carefully analyze analyze the research and identify the
the current situation and identify opportu- strengths and weaknesses of their product,
nities. Then they formulate a promotional opportunities in the market, and competi-
plan to take advantage of those opportuni- tive threats.
ties. After the plan is implemented, mar-
keters study the results and use what they Select the Target Market
learn to guide future efforts. The seven
Based on the opportunities identified in
steps in the promotional planning process
the research, the marketer can select a
are shown in Figure 15-6 and are discussed
specific target market for the promotional
below.
plan. In this stage, the marketer should
identify key characteristics of the target
Research and Analyze the market and fully understand what might
Market motivate the target market to buy the
Marketers can conduct market research as product. This allows the marketer to create S
needed or use existing research to gain an a focused promotional strategy. N
443
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Figure This
Gauging Effectiveness where the amount of time each spends at the
The success of most promotions ultimately site is also tracked. Conversion rates are the
depends on the effect they have on business portion of viewers who follow through by
profits. The tricky part is figuring out which buying something or registering for whatever
parts of a complex promotional mix are is being promoted.
responsible for what portion of subsequent Think Critically
changes in revenue and profits. In most cases,
1. If the weekly Rabbit Hash Business
there is no way to tie changes in revenue
Journal has a paid circulation of 5,000,
directly to a specific promotion, so market-
gives out 800 free copies, and estimates
ers have to use indirect means to estimate
that 5.5 people read each copy, how
a promotion’s effectiveness. Magazines and
many people read the paper each week?
newspapers track paid circulation, total cir-
culation, and readership estimates, the latter 2. If a popular web site averages 10 million
factoring in how many people typically read hits a day, and an advertising agency
each copy. estimates that a banner ad for a con-
Electronic media have developed new test promotion on the site will yield
ways of measuring success. Web site hits are a clickthrough rate of 3% and a con-
the number of people who log on to a site. version rate of 22%, how many people
Clickthrough rates are the portion of viewers per day can it expect to register for the
who click on an ad to see the sponsor’s site, promotion?
Identify Promotional Develop the Promotional Mix

Objectives With the available budget set, the marketer
With an understanding of the market, the can then decide the appropriate mix of
marketer can then define the objective of advertising, public relations, personal sell-
the promotion. What does the company ing, and sales promotion, balancing all the
want to achieve with its promotional plan? factors that affect the mix.
The objective should be realistic and
measurable.
Set the Promotional

Budget
At this point, the marketer deter-
mines what it will cost to accom-
plish the objectives. While in reality
budgets are sometimes dictated
by the funds available, the ideal
promotional budget is set to fit the
©DIGITAL VISION
plan, not the other way around.

Previous annual budgets or pre-
dicted sales are often used to help
S determine a reasonable promotional Why is it important to follow each step in the
N budget. promotional planning process?
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Implement the Promotional
Plan
Once the promotional mix is developed, Working with a team, identify a product or service
money from the total promotional bud- that is commonly promoted. Discuss the various
get is allocated to each effort. An activ- forms of promotion used and the message con-
ity schedule is developed, and decisions veyed in each promotion. Based on this informa-
are made determining when the various tion, determine the target market that the
promotional efforts take place. Sometimes company is trying to reach. Then identify the pro-
promotions run simultaneously and some- motional objectives you think the company is
times they are staggered, depending on the trying to achieve.
stated objectives. Then the promotional
materials are created, and the plan goes
into effect. certain elements of it based on what they
learn. The results can also be used to help
plan future promotional efforts.
Evaluate the Results
Marketers evaluate their promotional Checkpoint
plan during and after the promotions,
comparing the results with the objectives. What are the seven steps in the promo-
They may change the promotional mix or tional planning process?

Determine the best answer. 5. Technology Some people say that the Inter-
1. True or False: A promotional plan will not net should be counted as a fifth element in
be effective if all four elements of the the promotional mix. Why do you think this is?
promotional mix are not used. How many elements of the promotional mix
can be fulfilled via the Internet?
2. Which is not a factor in developing a
promotional mix? 6. Management You are the marketing man-
a. budget ager for a designer shoe manufacturer. You
b. company philosophy have spent weeks developing a promotional
c. length of television commercial mix that involves all four elements. Today you
d. available financial resources found out that your budget has been cut in
half and you must cut two of the elements.
3. A company that skips a step in developing a
Which two elements would you cut? Why?
promotional plan runs the risk of
a. misunderstanding the target market Connect to
b. setting unrealistic objectives
7. Your team has been hired by Ben & Jerry’s
c. wasting money
Homemade Ice Cream to create a promotional
d. all of the above
mix for its company. Research Ben & Jerry’s and
4. What is the main purpose of research in the consider what elements of the promotional
promotional planning process? mix would be the best fit for the company.
a. understand the target market Present a promotional objective and a
b. determine available funds proposed promotional mix, with specific
c. select a marketing mix media recommendations to your teacher
d. create an implementation schedule S
(judge).
N
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Now that you have completed the chapter, check identify the eight major elements of the commu-
your understanding of the lessons with these ques- nication process?
tions. Record the score that best represents your name the three roles that promotion plays in
understanding of each marketing concept. marketing?
1 = not at all; 3 = somewhat; 5 = very well describe two types of communication used by
If your score is 42–50, you are ready for the assess- marketers?
ment activities that follow. If you score 33–41, you compare and contrast the two types of
should review the lessons for the items you scored communication?
1–3. If you score 32 or less, you will want to carefully list the four major types of promotion?
reread the lessons and work with a study partner on describe the advantages and disadvantages for
the areas you do not understand. each type of promotion?
Can you— name the five factors affecting the promotional
identify the function of promotion as part of the mix?
marketing mix? describe the seven steps in developing a promo-
define and describe the communication process? tional plan?

1. The transfer of a message from a sender to a 11. The effort to reach consumers by generating
receiver positive publicity
2. The combination of advertising, personal selling,
public relations, and sales promotion that mar- a. advertising
keters use to reach a target market
b. broadcast media
3. The medium by which the message travels c. communication process
4. Paid form of nonpersonal communication sent d. decoding
through mass media to deliver a marketing mes- e. encoding
sage to an audience f. feedback
5. Interpreting language or symbols to compre- g. interpersonal communication
hend the message h. mass communication
6. The person or persons to whom the message is i. message
directed j. message channel
7. The blueprint for how the elements of the k. noise
promotional mix will work together to deliver a l. personal selling
consistent message m. promotion
8. Any form of communication used to inform, n. promotional mix
persuade, or remind consumers about a o. promotional plan
company’s products or services p. public relations
9. An activity or material that offers consumers a q. publicity
direct incentive to buy a product or service r. receiver
10. An attempt to reach a wide audience through s. sales promotion
S mass media such as radio, television, magazines, t. sender
N and newspapers
446
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There are four types of promotional activities within 18. An end-of-aisle display
marketing: advertising, personal selling, public rela- offering a free cooler with
tions, and sales promotion. Read the following activi- the purchase of a case of
ties and identify which type of promotional activity is bottled water.
involved.
12. A press conference announcing a new automo-
bile safety feature. 19. A sports drink sponsoring a marathon to raise
money for cancer research.
13. A coupon for 50 cents off the purchase price of
toothpaste. 20. A telemarketer encouraging you to buy a maga-
zine subscription.
14. A shoe salesperson suggesting the purchase of
shoelaces to a customer. 21. A realtor holding an open house.
15. An athlete wears a certain brand of basketball 22. A school sending its drama troupe to entertain in
shoes. a retirement home.
16. A full-page ad in a newspaper devoted to the 23. The logo of a candy bar on a sign in the outfield
sale of seafood products. of a baseball stadium.
17. A chance to instantly win a car with the purchase

of a soda.

24. Choose a national brand and research how it c. Does it make you want to buy this product or
uses advertising, public relations, personal sell- use this service?
ing, and sales promotion to effectively grow its d. What other promotions are you aware of from
business. Prepare a report on the specific pro- this company?
motional efforts of the brand and why they have When you have completed the interview, write
worked for that company. a summary of your findings using a word pro-
25. Find and record each of the following: cessing program. Do the people agree in their
a. five different types of advertisements interpretation of the ad’s meaning? If there are
b. five examples of personal selling that you any differences in opinion, speculate as to what
have witnessed might cause those differences.
c. five promotions in a local store 27. Companies benefit greatly from promotional ele-
d. five public relation activities related to ments that work together and complement each
companies, products, or services other. Give specific examples that illustrate how
26. Select an advertisement from a magazine or the following promotional elements can work
newspaper. Show the ad to eight people and ask together.
them the following questions: a. advertising and public relations
a. What is the central message of this ad? b. sales promotion and personal selling
b. What does it tell you about the company that c. advertising and personal selling S
is running it? N
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28. Search the Internet for web sites that have
THE IMPACT OF ADVERTISING
promotions related to the products listed
below. Write a half-page summary for each Year 1 Year 2 Year 3
product site, indicating the address (URL) Magazine Ad Pages Ad Pages Ad Pages
of the web site, the sponsor of the site, and
the kinds of promotions offered. Select the Vogue 885.12 906.26 832.43
promotion that you think is the most effec- Harper’s Bazaar 376.90 301.14 499.19
tive and explain why.
a. boat Elle 553.58 490.06 367.96
b. organic food
c. pet care products Redbook 323.12 264.83 268.27
d. lawn and garden supplies
e. computer shows the number of ad pages sold between
f. home decor products January and June for each of these publications
29. Select a product or service with which you are over a three-year period.
familiar. Walk through the promotional planning a. Calculate the total number of pages sold
process using the product or service you have every year.
selected, and answer the questions that you b. Calculate the percentage share each
think the company had to answer to create its magazine has for each time period.
promotional plan. Use the Internet to research c. Create a bar graph comparing Year 1, Year 2,
anything you do not know, such as budget and and Year 3 for the four publications, based on
results. Outline your findings in a written report. total pages sold.
30. Four magazines that direct their messages at 31. Search the Internet for recent industry data on
a similar target audience are Vogue, Harper’s business spending for promotional activities.
Bazaar, Elle, and Redbook. The following chart Write a one-page report summarizing the infor-
mation you find.

32. Marketing managers are responsible for meet- promotional mix that includes a description
ing the promotional objectives they set for their of how at least one element from each type of
products or services. They also understand that promotion might be used to help achieve the
thoughtful, well-written objectives can help objectives.
focus and direct a promotional effort. 34. It is very important for marketing managers to
The following list contains several products and evaluate the results of their promotional plans
services. It is your task to develop two promo- and analyze what worked and what could be
tional objectives that are appropriate for each improved. This analysis helps them prepare fu-
of these products or services. Make certain the ture objectives and create promotional plans in
objectives are achievable through promotion. upcoming years.
You may want to focus on a specific role of Select one of the promotional mixes you devel-
promotion: to inform, persuade, or remind. oped in the previous activity. Assume that your
a. Six Flags theme park promotional plan was a success and that your
b. a local used car dealer company wants to be even more aggressive
c. fat-free frozen yogurt next year. If your plan calls for it, the company is
d. a national rental car company willing to double the money allocated for your
33. A marketing manager oversees the development promotional efforts. Write a new promotional
of the promotional mix based on the objectives objective and develop a new promotional mix
S set forth. For each of the objectives you that will aggressively grow your business. Be
developed in the previous activity, create a prepared to defend and support your decisions.
N
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Community Service Project
The Community community service or charitable project, and
Service Project recommendations for future projects.
provides an Bibliography and Appendix Include addi-
opportunity for tional sections as needed.
DECA members
to develop a Performance Indicators
better under- Evaluated
standing of the
role civic activi- • Demonstrate an understanding of the
ties have in society, to make a contribution to role of community service within the
a community service or charity, and to learn community. (Emotional Intelligence)
and apply the principles of marketing man- • Plan and conduct a project to benefit a
agement. community service or charity. (Operations)
One to three members can participate in • Evaluate the community service project’s
the Community Service Project. Participants effectiveness in meeting the stated goals.
are required to develop a manual on the pro- (Strategic Management)
cedures for planning, organizing, implement-
ing, coordinating, and evaluating the project.
• Determine priorities and manage time
commitments and deadlines. (Operations)
The project consists of the written docu-
ment and oral presentation. The written entry Go to the DECA web site for more detailed
will consist of the following parts: information.
Executive Summary Write a one-page de-
scription of the project. Think Critically
Introduction Provide a historic background
1. What are some of the personal
of the selected community service or charity;
benefits from participating in
include a description of the local DECA chap-
community service?
ter, school, and community.
Contributions to a Needed Community Ser- 2. What kind of publicity does an orga-
vice or Charity Include the description and nization receive from participating in
purpose of the project, rationale for selecting community service?
the project, and description of the benefits of 3. What strategy can be used to
the project to the chapter members’ under- rally members of an organiza-
standing of leadership development, social tion to participate in a com-
intelligence, and community service. munity service project?
Organization and Implementation Include
4. Why are committees impor-
an organizational chart, member involve-
tant for completing commu-
ment, and job descriptions; include the
PHOTOS: ©DECA INC.
nity service projects?

description of the project, documentation,
and impact goal for the beneficiary.
Evaluation and Recommendations Include
an evaluation of the project, the impact of the
S
449
15-1 • Promotion as a Form of Communication
DECA Prep 449
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Chapter 16
Be Creative with
Advertising
16-1 What Is Advertising?
16-2 Advertising Planning
16-3 Advertising Execution and
Evaluation
©DIGITAL VISION/GETTY IMAGES

Newsline )))
Selling an Image
Conventional wisdom, and some first, the campaign launched Apple brand as much as they are purchas-
might say common sense, tells us into a new era of rapid growth. ing a product. Companies dedicate
that a person buys a computer Customers responded, and Apple’s much time and money to under-
because of what is inside it—the sales soared, bringing the com- standing these human motivations
technology, circuit board, hard pany back from nearly going out of and then capitalizing on them by
drive, and processor. A computer is business. creating advertising that appeals to
a tool, and it doesn’t matter what it And then Apple began to rede- both the logical and emotional sides
looks like. It is not a pair of jeans. It sign its computers to look sleeker of consumers. They want people not
certainly does not make someone and more modern, almost like pieces just to think but also to feel that their
“cool” to own one kind of computer of artwork. Experts again questioned brand is the right one to buy.
instead of another. At least, that the move. Why would people buy a
was conventional wisdom until computer because of how it looked? Think Critically
the late 1990s when Apple Com- And again, customers proved the 1. People have immediate asso-
puter launched its “Think Different” experts wrong. People did want a ciations with certain brands.
campaign. computer that looked cool. People
Where do these associations
By saluting revolutionary think- wanted a computer that made them
come from?
ers like Albert Einstein, Miles Davis, feel cool and rebellious.
Jim Henson, and John Lennon, Apple That is the power of a brand. The 2. Do you think every product can
positioned itself as the computer for purchase decisions people make are be sold with the type of emo-
people who think outside the box, seldom completely rational. Often, tional appeal that Apple made?
the non-traditionalists. Ridiculed at they are buying into the idea of a Why or why not?
CH 16-B4491_RP_REV3.indd 450 12/7/07 7:44:44 PM


• Explain the use of advertising agencies • Select advertising agencies
• Evaluate advertising copy strategies that can be • Evaluate advertising agencies
used to create interest in advertising messages • Describe effective advertising layouts
• Understand design principles to be able to com- • Determine advertising strategies for campaigns
municate needs to designers
• Identify effective advertising headlines
• Assess advertisements to ensure achievement of
marketing communications goals
Visual Focus
Advertising is one of the main ways that
brands communicate with their customers.
Through paid media, companies carefully
control the messaging in their advertising to
inform, persuade, or remind people about
their brand. Many businesses hire advertising
agencies to help them create an advertising
campaign. Because advertising has influential
powers, it is important that it be regulated to
protect consumers.
Focus Questions:
Advertising is capable of communicating
messages in many different ways, sometimes
several messages at once. In this Winterfresh
ad, the main message is communicated visu-
ally. What is the main message? How does it
make you feel? Does it make you want to try
©WINTERFRESH POLAR ICE
Winterfresh gum?
Locate another ad that makes you want to
buy the product or service. Share the ad with
the class and explain why it moves you to take
action.
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16-1 What Is Advertising?
GOALS KEY TERMS
• Define product advertising and brand advertising product advertising, p. 453 media plan, p. 454
and distinguish between the two types. brand advertising, p. 453 media planner, p. 455
• Describe the major roles at an advertising corporate advertising, p. 453 art director, p. 455
agency.
advertising agency, p. 454 copywriter, p. 455
account executive, p. 454 creative director, p. 455
account planner, p. 454 producer, p. 455
You will recall that advertising is any paid, one-way communication delivered
through a mass medium. Companies advertise in order to inform, persuade, or
remind their customers. In addition, companies use a mix of product advertising and
brand advertising to deliver specific product messages to their audience and to help
build their brands so that their audience has positive associations with them.
A company will often hire an advertising agency to help develop the communica-
tion strategy and marketing message and then to create and execute advertisements
that communicate that message. Sometimes the advertising agency will create just
one advertisement for a product, but it is also common for an agency to develop a
campaign of ads with a similar theme that work together across several media.
Working in a small group, list several product advertisements that you have
recently seen or heard. What medium was used for each product’s ad? Have you seen
or heard the same product advertised in other media? Discuss the results of your list.
Two Approaches to Advertising

dvertising is a very complex business. advertising message will be for their
A In the United States, total advertising

expenditures are over $250 billion a
year. Companies rely heavily on advertis-
business and ensuring that the message
is delivered to their target audience in a
clear and convincing manner. Advertis-
ing to drive demand for their products and ing targets everyday people. It speaks their
services. Developing targeted, effective ads language and touches their emotions.
is a lengthy and expensive process. Suc- We think of advertisers as large for-
cessful advertising requires knowledge not profit corporations selling products or
only of marketing but also of psychology, services, but advertising is also used by
an understanding not only of markets but non-profit groups, politicians, and other
also of cultural trends, and an ability not organizations. In addition to delivering a
only to communicate clearly but also to do message, advertising typically aims to sell
it artfully and persuasively. a specific product, build a brand or, most
Marketers spend a lot of time deter- often, a combination of the two.
S
mining what the most persuasive
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Product Advertising of Toyota Prius owners, 57 percent said
Product advertising gives the benefits of
they bought their Prius hybrid car because
a specific product or service and relies on “it makes a statement about me.” It wasn’t
rational arguments why a customer should because the Prius got good gas mileage or
buy it. It may include product information, looked nice. They bought it for what the
prices, or comparisons with competitors. brand represented.
Product advertising gives at least one Brand advertising is advertising that
product attribute as a reason for purchas- aims to build an image. It uses common
ing a product. For example, “Phillips elements to define what a product or com-
energy-saving light bulbs save money on pany stands for and to give it a personality
your power bill.” in the minds of consumers. Brand adver-
tising may be done for a company brand,
such as Nike. Advertising for a company
Brand Advertising is called corporate advertising. Brand
A brand is the accumulation of all the advertising may also be done for a branded
tangible and intangible qualities of a line of products, such as Swanson frozen
company, product, or product line. It dinners.
includes elements such as the name, logo,
slogan, and designs associ-
ated with the brand. It also
includes associations such
as attitude and personality.
These rational and emotional
elements comprise the brand
character.
Think of a well-known
brand such as Coca-Cola.
If you were to describe
Coca-Cola, you might offer
a product attribute such as
the taste, or you might give
a brand attribute such as the
colors red and white. You
might also mention a less
tangible attribute, such as
“young” or “fun.” These are
all part of the brand.
Part of what makes
COURTESY, CAYMAN ISLANDS TOURISM AUTHORITY
brands important is that in

Western culture, our pur-
chase decisions help define
who we are. When we pur-
chase a car or even a soda,
those choices say something
about us. Certain brands are
“cool” or “rebellious.” Others
are “classic” or “dependable.”
Part of the character of that
brand is transferred to us. If
this seems surprising, con- Brand advertising can even be used for vacation destinations, S
sider that in a 2007 survey such as the Cayman Islands, to help build an image. N
453
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Even product advertising will include energetic people. Those associations are
some elements of branding. An advertise- brand associations. Almost all advertising
ment for Snickers, for instance, will some- is a mix of product and brand advertising.
times deliver a message about the candy
bar—that it satisfies hunger—but it will Checkpoint
also make you feel something about the
brand. Perhaps the ad makes you laugh or Explain the difference between product
makes you think that Snickers is for young, advertising and brand advertising.
The Advertising Agency

business will often hire another To learn about the target market, the
A company to handle the advertis-

ing for some or all of its brands. An
advertising agency is a company that
agency looks to its account planner. Ac-
count planners spend a lot of time talking
to the target markets. Sometimes they
specializes in creating advertising. Many conduct research in focus groups, where
people within an advertising agency work a moderator leads a discussion about the
together to create an ad from start to fin- advertising with a small group of people.
ish. These people all bring different exper- At other times, they travel to the homes
tise to the process. of the target markets to see how they live,
An account executive is the key work, and think.
liaison between the client and the agency. Some ad agencies will also develop a
Account executives help clients plan the media plan for the business. A media plan
advertising and relay information from the is a detailed listing of where and when ads
clients to other people in the agency. will run. It is designed to give the business
Digital Digest
DVRs Make Ad Avoidance Even quick message that pops up on the screen
Easier if someone skips through the commercial.
Networks have also experimented with in-
Digital video recorders (DVRs) that can re-
serting contests or bonus show content into
cord and skip through TV programming give
the commercial breaks. Some advertisers
viewers a power that advertisers have long
argue that the simplest way to get viewers
feared—the power to skip commercials.
to watch commercials is to make them more
Advertising time is only valuable if the audi-
entertaining so viewers will want to watch.
ence watches the commercials.
With the introduction of the remote Think Critically
control and then again with the VCR, adver-
1. Based on the fact that the remote control
tisers feared that viewers could easily avoid
and VCR did not spell disaster for ad-
commercials. Now, with 50 million DVRs pre-
vertisers, do you think DVRs will cause
dicted to be in the market by 2009, advertis-
problems?
ers are scrambling for answers.
One possible solution is to embed 2. What is the likely outcome if advertisers
special billboards containing a logo and a conclude that TV ads are no longer reach-
S ing the desired audiences?
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Sometimes, a creative director oversees
Fa s t FAC T S the creative team. The creative director
helps guide the creative process and ensures
In 2006, total advertising expenditure that the creative team’s work conveys the
in the United States was $260 billion. right message and is in line with the client’s
Of that, 14 percent went to advertising needs.
agencies. An advertising agency may also have
a production department. The job of the
producer is to facilitate everything that
the best coverage of its target market for the
happens after the client agrees to develop
least amount of money. The person who de-
an ad or campaign. This includes hiring
velops the media plan is the media planner.
a director and editor to make a television
The team that actually creates the
commercial or a photographer for a print
advertising is typically made up of an art
ad. The producer is also responsible for
director and a copywriter. Generally speak-
ensuring that an ad does not exceed the
ing, the art director has a background in
client’s budget.
design or fine art and is responsible for
how the ad will look. The copywriter has a
writing background and writes the words in Checkpoint
the ad. However, good creative teams work
together, and their roles are not so rigid. Name the major roles at an advertising
agency.

Determine the best answer. 5. Visual Art Pick a brand that you like. Create a
1. Which of the following is an element of a collage or “mood board” with pictures, words,
brand? colors, symbols, or other elements that you as-
a. color sociate with the brand you selected.
b. personality 6. Writing Carry a notebook with you through-
c. design out your day. Write down the brands that you
d. all of the above come in contact with. Make a note of how they
2. What is the primary aim of brand advertising? make you feel and any associations you might
a. to illustrate a product feature have with them. Write a one-page summary of
b. to provide a rational reason to make a your findings.
purchase
Connect to
c. to help create a brand image
d. to make comparisons with competitors 7. Your advertising agency has been given a
new assignment: to create brand advertising
3. Who is the key liaison between the client and
for a new soda called Silver Cola. Develop a
the ad agency?
two-minute presentation for your client on the
a. creative director
elements you would use to create a brand for
b. copywriter
Silver Cola. What colors, designs, and music
c. account executive
would you use? What kinds of people would
d. producer
you use in your commercials? How would you
4. True or False: Product advertising gives at want your target audience to think of your
least one product attribute as a reason for cola? What would be its “personality”? Give
purchasing a product. your presentation to your teacher (judge). S
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16-2 Advertising Planning
GOALS KEY TERMS
• Describe the process of setting objectives, determining advertising plan, p. 456 reach, p. 460
the budget, and developing the creative strategy. advertising campaign, p. 456 frequency, p. 461
• Describe the different types of media and the factors creative strategy, p. 458 lead time, p. 461
that must be considered when selecting which media
strategic brief, p. 458
to use.
When a company decides to include advertising as part of its promotional mix, the
first step is to develop an advertising plan. An advertising plan describes the activi-
ties and resources needed to create and execute an advertising campaign that will
reach the target market with a focused, compelling message.
The first steps in developing an advertising plan are to set the advertising objec-
tives and work out a budget. A creative strategy that will guide the creative message
of the advertising is then written. As the project moves into the hands of the writ-
ers, art directors, and others who will execute it, the media planner begins to select
the media types, such as television or magazines, and vehicles, such as Survivor or
Newsweek.
Select an ad you have seen recently that seemed to be out of place, either
appearing in the wrong medium or at the wrong time. What medium and time
would have been more appropriate? Explain why.
The Planning Process

n advertising plan is a document that 1. Set objectives
A outlines the activities to be completed

and resources needed to create adver-
tising. It specifies objectives and a budget
2.
3.
4.
Determine the budget
Develop the creative strategy
Select and schedule the media
and includes the basis for creating and
evaluating the advertising strategy and 5. Develop the creative concept
creative strategy. An advertising plan may 6. Produce the advertising
be for a single advertisement, but it is most 7. Evaluate the plan’s effectiveness
often written for an advertising campaign.
An advertising campaign is a series of
related advertisements with a similar look, Set Objectives
feel, and theme that centers on a specific The first step in the development of an
product, service, or brand. Since advertis- advertising plan is to determine the ad-
ing involves huge sums of money, adver- vertising objectives. Objectives are the
tisers follow a specific process to create desired results to be accomplished within
the advertising plan and develop the most a certain time period. Objectives may be
S to increase sales, to increase awareness, or
N effective, cost-efficient campaign.
456
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to communicate an idea to an audience. Percentage of Sales The percentage-
It is important for objectives to be specific of-sales approach budgets a percentage of
and measurable. As part of the objectives, past, current, or projected future sales for
advertisers specify the main communica- advertising. For example, a firm that sold
tion of the advertising, the target audience, $50 million in tractors last year might
and the time frame. allocate five percent of sales to advertis-
Objectives for a specific advertising ing, for an ad budget of $2.5 million.
plan will vary from organization to or- One drawback of this method is that
ganization and from product to service. advertising varies directly with sales. If
For example, an advertising plan for a sales drop, more advertising, not less, may
municipal library might have as its objec- be what the company needs to bring sales
tive to attract 1,000 new library cardhold- back up. In addition, past sales are not al-
ers between the ages of 5 and 10 during ways the best predictor of future sales. Mar-
the next month. An advertising plan for kets are volatile, and changes like increased
the Nissan Xterra might have as its objec- competition, evolving customer tastes, or
tive visits to Nissan dealerships by 9,000 new technology can impact sales drasti-
Hispanic residents of West Texas, Arizona, cally. Companies are better off considering
and New Mexico during the months of the current situation and future trends, and
June, July, and August. Figure 16-1 pre- then using a percentage of predicted future
sents an objective for the advertising plan sales when calculating the budget.
of Seaside Resorts.
Competition Matching The
Determine the Budget competition-matching approach sug-
gests that an organization should have
Once the advertising objectives are de- an ad budget similar to its competitors.
fined, the budget can be developed. Man- Although it is smart to be aware of what
agers identify a total advertising budget the competition is doing in terms of
early in the planning process. A more advertising, competitors may have differ-
detailed budget is prepared as planning is ent advertising objectives and different
completed. There are four common meth- resources. Also, it is difficult to deter-
ods of determining budgets for advertising. mine competitors’ budgets until after
What You Can Afford In the what- the fact. Therefore, this approach can be
you-can-afford method of determining problematic.
the ad budget, organizations account for Objective and Task The best method
all of their other expenses, and whatever of determining an advertising budget is
is left over is budgeted for advertising. to base it on the objectives to be achieved.
This is not the ideal method, but some- The advertising team determines the
times, especially with smaller companies, desired goals of the advertising effort,
it is the reality.
FIGURE 16-1
Objectives are the results to be attained by the advertising plan.
Advertising Objective for Seaside Resorts

Sales Objective Increase reserved summer rentals by 10% by February 15
Communication Make reservations by February 15 and save $100 off the

weekly rental rate
Target Market Families living in California who spend one week or more at S
the beach every year
N
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16-2 • Advertising Planning 457
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©PHOTODISC/GETTY IMAGES
Why is an advertising budget determined early in the planning process?
outlines the activities needed to accom- should the advertising communicate to

plish those goals, and then calculates the that target market?
cost of completing each necessary task in Members of the account team then
order to determine the advertising budget. write a strategic brief, also known as a
creative brief, which is a short document
Develop the Creative Strategy that defines the target market and articu-
Effective advertising campaigns are targeted lates the main message of the advertis-
to deliver a clear message to a defined tar- ing. The strategic brief is very important
get audience. The process of deciding what because it guides the rest of the advertising
to say and how to say it starts with the cre- process.
ative strategy. The creative strategy is how
a company positions its brand or product
in its advertising. At this phase of the Checkpoint
process, an advertising agency’s account
executive works with the client to define What are the four common methods of
certain parameters for the advertising. To determining an advertising budget, and
whom is the advertising targeted, and what which one is usually the most effective?
Select the Media

s an agency’s creative department
A begins work on developing the

advertising, media planners
simultaneously work on where and when
Fa s t FAC T S
Between 2005 and 2006, advertising
to place it. The media plan answers spending in all traditional media types
questions regarding what types of media, increased, with the exception of news-
which vehicles, in what units, and at paper advertising, which declined 2.4%.
what time.
S The media type refers to the format,
N such as TV, radio, or print. The vehicle is
458
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the programming or publication in which more often during specific times, such as
the advertising appears, such as Lost, holidays.
Sports Illustrated, or USA TODAY. The unit Each type of media has its strengths
refers to the length or size of the advertise- and weaknesses (see Figure 16-2). The job
ment, such as a 30-second commercial or of the media planner is to create a plan
quarter-page print ad. The timing of an that takes advantage of the strengths of the
ad campaign might be continuous, which media vehicles and reaches the target mar-
means that it runs continually over a ket with just the right frequency. The goal
period of time. Or it might be pulsing, is to reach the most people in the target
which means that the campaign runs market for the least amount of money.
FIGURE 16-2
The media planner must determine the right balance of media to use for the advertising.
Advantages and Disadvantages of Major Advertising Media

Media Advantages Disadvantages
Television Reaches large audiences High total cost
Low cost per viewer Long lead time
Has emotional impact Strong potential for interference from other
Highly segmented markets sources
Radio Highly mobile Message limited to audio
Relatively low cost Strong potential for interference from other
Short lead time sources
Highly segmented markets
Outdoor Low cost Increasingly regulated
High visibility Message length is limited
Short lead time Strong potential for interference from other
sources
Direct Mail Highly segmented Often considered junk mail
Easy to measure effectiveness Expensive
Stimulates action
Hidden from competition
Magazines Long life span High cost
Can carry response vehicles (coupons, Long lead time
response cards)
High pass-along rate
Highly segmented
Newspapers Short lead time Lower print quality
Large circulation Short life
Can carry response vehicles (coupons) Limited segmentation
Inexpensive High clutter (competing ads)
Internet Highly targeted Limited audience
Instantly measurable High clutter (competing ads)
Built-in response vehicles Security and privacy concerns
S
N
Interactive
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Media planning is a balancing act media planner tries to balance these
of many factors, and advertisers are con- factors to reach the most people at the least
stantly looking for new ways to break expense. The planner must figure
through the clutter of traditional media. out whether the total cost of a specific
However, traditional media remains an medium is affordable for the budget and
enormous industry, with television as king. whether it is cost efficient. Efficiency is
Advertisers in the United States spent measured by the per-reader or per-viewer
$65 billion on TV in 2006. Following this, cost. The total cost of an ad in a national
in order of spending, were magazines, magazine might be $50,000. The per-
newspapers, and radio. Internet advertis- reader cost of magazines is expressed as
ing, the newest form, has grown rapidly the cost per thousand readers, or CPM.
since its inception, to nearly $10 billion The CPM for an ad that costs $50,000 and
a year, jumping 17 percent from 2005 to reaches 500,000 people is $100 ($50,000 ÷
2006. 500 thousand = $100).
Each type of media has characteristics
that should be analyzed before a choice Reach
is made (see Figure 16-3). The cost, reach, The reach is the total number of people
frequency, lead time, and fit of each format who see an ad. In TV advertising, it is
must be considered to determine the best based on the number of people watching
choice. the programming. In outdoor advertising,
traffic statistics help estimate the number
Cost of viewers.
Media costs depend on the type of media, For a magazine or newspaper, the
the specific vehicle, and the unit. The number of copies distributed is called
FIGURE 16-3
There are several factors to consider when determining which medium to use.
Questions to Consider When Selecting Media

Cost What is the total cost of the medium?
What is the cost per viewer?
Does the cost fit into the advertising budget?
Is it the most effective use of advertising dollars?
Reach What is the overall circulation or viewership?
Will it reach the target audience?
Is there a strong pass-along rate?
Frequency How often will the target audience see the advertising message?
How many viewings does it take for the message to “stick”?
After how many viewings does “wear-out” occur?
Lead Time How long before running the advertising does the medium outlet require
the ad materials?
How flexible is this medium?
Can the ad materials be ready by the medium’s deadline?
Creative, Brand, and Does the medium fit the message?
Corporate Fit Is the medium a good fit for the brand?
S
Does the medium fit the company philosophy?
N
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the circulation. But with those media,
there is also the pass-along rate, which
is how many people read a single
printed copy. One copy of Newsweek,
for example, is read on average Advertising executive Donald Gunn believes
by about six people. Therefore, that all television ads fall into one of twelve
its reach is higher than its actual basic categories or “master formats.” Access
circulation. school.cengage.com/marketing/marketing and
click on the link for Chapter 16. Read the brief
Slate article, play the slide show, and watch the
Frequency video examples of the twelve categories. Then
The number of times a member of the brainstorm a list of current television commer-
target audience is exposed to the adver- cials or take note of them as you watch televi-
tising message is the frequency. sion one evening, and place each commercial
Radio, television, and newspapers can into one of Gunn’s twelve categories. Explain
be used quite frequently. In fact, adver- your selections. Can you think of any other
tisers can run the same message daily categories beyond Gunn’s original twelve?
or, in the case of radio and television,
even hourly. But a message also loses school.cengage.com/marketing/marketing
effectiveness after a certain number of
exposures. This is called “wear-out.”
For example, if you see a commercial
once or twice, you will get much more out Lead Time
of it than when you see the commercial the The amount of time required to place an
tenth time. By then, its effect on you has ad is the lead time, which varies tremen-
worn off. dously among media types. The lead time
World View
Ethnic-Focused Media advertisers do not understand minorities’
Since the encoding and decoding of buying habits, and targeting narrow market
messages are essential parts of the com- segments is more expensive than a one-size-
munications process, using ethnic-focused fits-all approach.
media would seem to be a natural way to An example of a company targeting eth-
reach minority consumers such as African- nic groups is American Airlines. It developed
Americans, Hispanics, and Asian-Americans. a special Spanish-language portal on its web
They make up approximately one-third of the site to allow Spanish-speaking users to more
U.S. population and are growing at a much easily book travel and receive e-mail newslet-
faster rate than the general population. Yet ters with fares to their preferred countries.
ethnic-focused media garner only a tiny frac- Think Critically
tion of U.S. ad expenditures.
1. Why are ads in ethnic-focused media ef-
Ethnic-media executives say their media
fective with the targeted groups?
deserve a bigger share of ad expenditures
but don’t get it because there are few minori- 2. Why is targeting ads to narrow segments
ties among media buyers, advertisers think more expensive than a one-size-fits-all
S
of ethnic media only as an afterthought, approach?
N
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for a newspaper ad might only be a day Likewise, a brand or company may not
compared to several months for a maga- wish to associate itself with certain media
zine ad. The timeline for the production vehicles or types of programming. Family
of the ads should factor in the lead time companies such as Disney are very sensi-
to ensure the ads will be finished by the tive to the types of media vehicles in which
media deadline. they advertise. Even if its target audience
is watching a show, Disney may not want
Creative, Brand, and to appear during the show if it contains
material considered objectionable by the
Corporate Fit company or is in opposition to the brand’s
There are also issues of whether or not the values.
medium is appropriate for the advertising,
the brand, or even the company run-
ning the ads. For example, if the creative Checkpoint
message is long and complex, an outdoor
board on a highway would not be a good What are the five primary considerations in
fit. It is hard to read a long message when selecting the types of media in which to run
you are driving past at 65 miles per hour. an advertisement?

Determine the best answer. 5. Communication Create a chart that shows
1. Which of the following is not included in an example of each type of media. You can
advertising objectives? use photos, cut out advertisements, or draw
a. the overall goal of the campaign examples that you find, but each type of
b. the main message to be communicated media should be represented in some way.
c. the media vehicles to be used 6. Research Pick an advertising campaign
d. the timeframe for achieving goals that you particularly like. On the Internet,
2. The best way to determine a budget is by conduct research to learn what company and
a. matching what the competition is ad agency are responsible for the campaign.
spending Find as much information as you can and
b. determining how much is required to write a one-page report about the campaign.
meet the advertising objectives Identify the brand or company being ad-
c. setting it at 15% of predicted annual sales vertised and the type of media and vehicles
d. allocating the amount remaining after used in the campaign. Also, include an expla-
research and development nation of why you like the advertising.
3. Which medium would be best suited for a Connect to
complex message that requires a viewer 7. Select a product that you would find in a gro-
response? cery store. Put together a media plan for that
a. outdoor product that uses at least one media vehicle
b. radio in each media type. Present your media plan
c. Internet to your teacher (judge) with any necessary
d. television visual aids. Be prepared to explain why you
4. True or False: The media type refers to the chose those vehicles based on the advertis-
programming or publication in which the ing objectives and the overall effectiveness
S advertising will run. of the media plan.
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Advertising Execution and Evaluation 16-3
GOALS KEY TERMS

• Name common creative advertising formats. quantitative research, p. 468
• Explain what happens during the production phase of the qualitative research, p. 468
advertising process. cease-and-desist order, p. 469
• Differentiate between quantitative and qualitative research. corrective ads, p. 469
• Name the four types of advertising regulation. fine, p. 469
After the advertising plan is created, the budget set, and the creative strategy
developed, the strategic brief is given to the creative team to develop the creative
concept. There are several common formats of creative advertising, all with the
goal of standing out among the clutter and delivering the message in a memo-
rable way. After the creative concept is approved by the client, the advertising is
produced. Once the advertising has run, its effectiveness is gauged using several
research techniques.
Various review boards and other individuals work together to oversee adver-
tising and to help ensure that it is fair, honest, and not deceptive or harmful to the
public.
Find and make copies of four print ads. List all the things you like and dislike
about each ad.
Creative Development
fter the media decisions are made, the Musical Some commercials revolve
A creative work begins. This is the step
during which the advertising is actu-
ally created. The advertising must reach
around a song: a jingle, characters or
famous musicians singing, or simply
background music. Over the years, Pepsi
the target audience, be consistent with the has used many different musicians from
objectives set, and fit within the budget. Ray Charles to Beyonce. And jingles like
“I wish I were an Oscar Mayer wiener”
Creative Formats can stay in your mind for life, creating
Because advertising aims to stand out, the strong brand awareness.
creative team tries to develop a concept Dramatization Sometimes commer-
that is completely original. However, there cials present a realistic scene played by
are some common creative formats they actors, often with the product solving a
might use, alone or in combination with problem of some sort. Dramatizations are
other formats. supposed to give us the feeling that we are S
watching or hearing a real event. N
463
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Figure This
Advertising as a Game of 25% of them drift out of the room during the
Chance break? The audience has now shrunk to
13.5 million. Now suppose that because
To see how difficult it can be to accurately
of overexposure to prior promotions, the
predict the effectiveness of an advertising
response rate is weak, and only 1 in 500 (0.2%)
plan, look at the number of variables and cal-
apply. And suppose those still watching have
culations involved. Most plans rely on getting
below-average credit, so only 67% qualify. All
a message out to many people hoping that
of these factors leave the company with only
a few will buy the product. But a few small
18,000 new credit cards. How could it have
changes can seriously affect the plan.
been so far off ? It is the result of cumulative
Consider a company that buys a TV spot
changes in a long series of variables.
during the World Series, expecting to reach
30 million baseball fans with an ad for a credit
Think Critically
card. Based on prior experience, the plan esti-
mates that one in every 200 people (0.5%) will 1. A banner ad is seen by 20 million Internet
apply for a card. That number of people yields users, and 0.4% of them click through to
150,000 applications, of which 120,000 (80%) the sponsor’s site, at which point 2% buy
can be expected to qualify, which satisfies the the product being promoted. How many
objective of 100,000 new cards. product sales result?
But what happens if the game is a blow- 2. By what percentage do product sales
out by the end of the second inning, and the decrease if the click-through rate is
ad runs in the fifth inning when only 60% of reduced to 0.2%?
the viewers are still watching? And what if
Testimonial Celebrities, knowledge- Image Advertising Image ads evoke

able professionals, or everyday people some sort of mood or attitude for a brand
sometimes endorse a product by giving or product. The iPod and nearly all fash-
a testimonial. Whether it is Sean “Diddy” ion advertising is pure image.
Combs selling skin care products, a doc-
tor recommending a medicine, or an Product Demonstration This cre-
everyday person talking about the ative format shows the product in action. It
Saturn Ion, the idea is that an audience is may be a simple demonstration of a clean-
more likely to trust a message from a ing product removing dirt or something
third party than one directly from a
company. Wo r k i n g i n Te a m s
Comedy One way of giving a
As a team, make a list of commercials you have
brand personality is to make the
seen recently and decide which type of creative
audience feel an emotion, and humor
format each exemplifies. They may be a com-
is a popular emotion in advertis-
bination of two or more formats. Discuss which
ing. Even if they don’t want to buy
of these commercials you like and which ones
your product, viewers who laugh at a
you don’t like. Is there a format common to the
commercial will have positive asso-
S ciations with that brand.
commercials you like?
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exaggerated like a Chevy truck pulling a
spaceship.
Competitive Competitive advertis-
ing makes a claim of superiority over
the competition. It may show competing
products side by side, or it may just refer
to some aspect of the competition.
The Creative Concept

Once the creative team has developed the
creative concepts and the creative director
has approved them, they are drawn up in
rough form and presented to the client. At
the client presentation, the agency may act
out ideas for TV commercials, read scripts,
or show rough versions of print ads to help What is the purpose of the client presentation meeting?
bring the creative ideas to life.
Because advertising is very expensive, audience will like an ad and understand its
clients will sometimes conduct research main message. If the advertising concept
on a concept to make sure it will be effec- passes these tests, the client will be more
tive. They may present the concept to focus likely to approve it for production.
groups for quick feedback, or they may
use more extensive testing techniques that
require them to produce a rough version Checkpoint
of the ad and then ask an audience ques- Why is it important for creative concepts to
tions about it. Research helps gauge if an be unique and original?
Get the Message

Ad Clutter mind that commercials make up the greatest
Clutter is the industry term for anything bulk of clutter). The more clutter there is in
other than programming that is broadcast an hour, the greater the chance that a viewer
on television. For decades, the amount of will tune out and miss a company’s message.
clutter per hour of programming on televi- Advertisers must do everything they can
sion slowly crept upward, reaching about to make sure their advertising is attention-
15 minutes of clutter per hour in 2005. Since grabbing, so it stands out from the clutter.
then, the amount of clutter has remained Think Critically
relatively stable. Daytime television has the
1. Why is there a natural tendency for clut-
most clutter, with some networks carrying
ter to grow even though viewers and
as much as 20 minutes of clutter per hour.
advertisers hate it?
Cable television tends to have slightly more
clutter than the broadcast networks. 2. What effect do you think the abundance
Advertisers hate clutter even more than of cable channels and new networks
viewers do, because it tends to obscure the has on the amount of clutter carried per
messages they are trying to get across (never hour? S
N
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Planning a Career in... Virtual Creative Services
“My brother has landed an internship as an as-
sistant Web marketing writer for a
car manufacturer. The company
is developing a hybrid vehicle
targeted toward environmentally
Needed Skills
conscious adults in their early
20s. My brother will review print • A bachelor’s degree including liberal arts, writ-
and online marketing mate- ing, and business courses with an emphasis on
rials and suggest ways the marketing is recommended.
content can be more engag- • Excellent writing, communication, and com-
ing. He will also evaluate the puter skills are needed.
company’s web site from • Experience with Web content management and
the perspective of a typical Web publishing tools is important.
end user and make sugges-
tions on how to improve site What’s it like to work in...
navigability.” Virtual Creative Services
How do companies de-
Bashira, a Web content editor for an online mort-
cide on the best advertising
gage company, just finished a presentation to the
content to inform and excite
product management team about an addition
consumers about their products? How are mes-
to the company’s web site. During the develop-
sages customized for various audiences?
ment process, Bashira held group meetings with
Creative services is a field that focuses on the
representatives from product management and
thematic content, graphics, and presentation of
marketing to ensure that the content was aligned
advertising. Selecting the mass media distribution
with brand objectives. She also received input
channel, from billboards, radio, TV, or the Internet,
from a focus group of prospective customers who
is also within the realm of creative services.
matched the target market.
Employment Outlook Now that the copy has been approved, Bashira
is meeting with her company’s web site designer.
• A growing but increasingly competitive field. Bashira wants to be sure that the web site design
• Faster-than-average growth is anticipated provides an easy way for customers to navigate
based on the growth of Internet marketing the web site and review the new mortgage materi-
and advertising. als in order to make the best product choice.
• Opportunities may be industry-dependent. De- At the end of the day, Bashira prepares for to-
mand is expected to be strong in technology, morrow’s meeting with the media communications
professional, and service industries but may manager. The meeting objective is to review the
decrease in more traditional industries. editorial style guides for both print and electronic
media to ensure a consistent look, feel, and voice for
Job Titles all published materials.
PHOTO: ©PHOTODISC/GETTY IMAGES
• Web Content Manager

• Content Strategy Director
• Lead Web Content Editor
W h a t A b o u t Yo u
• Director of Content Would you like to be a part of the creative process,
S • E-Communications Editor helping a company develop customer-focused
N product information for new electronic media?
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Production
nce the client feels comfortable with
O the creative concepts, the agency

will start the production phase. For
a print ad, this may involve hiring a pho-
Creative Development
and Production Process
Strategic Brief
tographer, selecting models for the ad, and
finalizing the design and layout.
A television commercial is a more in- Creative Development
volved process. The producer and creative revisions?
team hire a director, cast the actors, select
locations, and work with a crew of as many Client Presentation
as 100 people to shoot the commercial.
This can be a time-consuming process.
Creative Research
After the commercial is filmed, the cre-
ative team works with a variety of people— (optional)
an editor, a sound engineer, and possibly
special effects artists—to finish the project,
Production
sometimes adding music, sound effects,
and an announcer. The goal is to create a revisions?
commercial that grabs the audience’s at- Client Presentation
tention while communicating the message
effectively.
The agency then presents the advertis- Advertising Runs
ing to the client and continues to work on FIGURE 16-4
the commercial until the client is confi- Creating and producing the advertising begins
dent that it will be effective. The final step with the strategic brief.
is to transmit the ads to the TV stations,
magazines, or newspapers that will run Checkpoint
them. Figure 16-4 shows the steps in the
creative development and production At what stage of the process of creating an
processes. ad does a producer get involved?
Gauging Advertising Effectiveness

dvertisers must evaluate ad cam- of coupons or rebates redeemed for these
A paigns to measure how well they

meet the objectives of the advertising
plan. Sometimes the impact of advertising
promotional items. However, many
advertisements do not have built-in mea-
sures and need to be evaluated using other
is difficult to measure because there are techniques.
many other variables that can affect sales, Advertising is sometimes evaluated
but it is an important step that helps the before it is run. This is common especially
advertiser collect data to improve future with television concepts because television
efforts. is expensive and the advertiser wants to
If the advertising has a built-in evalu- make sure it is using its money wisely. Af-
ator, like a redeemable coupon or a rebate ter the advertising has run, it is also evalu-
offer, then the advertisement’s effective- ated to see how effective it was. There are S
ness can be determined from the number various methods to evaluate advertising. N
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Advertisers choose which type of research Qualitative Research
and specifically what method they will use On the other hand, research that interprets
based on their budget and what they hope the why and how of people’s opinions is
to learn. called qualitative research. Qualitative re-
search presents customers with open-ended
Quantitative Research questions rather than specific choices. This
Sometimes advertisers want to ask a large method includes such techniques as focus
number of people simple questions. Sur- groups, one-on-one interviews, or other
veys about the advertising, recall tests types of face-to-face discussions. Although
that see if people remember the ads, and qualitative research typically has a much
other types of testing that ask questions smaller number of respondents than quan-
and allow respondents to pick from a set titative research, the great advantage is that
of answers are all types of quantitative it allows the researcher to deeply probe the
evaluation. Quantitative research involves issues and ask follow-up questions. “Tell
collecting data that can be classified into me why you like the commercial.” “How
meaningful numerical values. It can give could we make it better?”
advertisers valuable information such as
the increase in brand awareness during Checkpoint
an ad campaign or a comparison of how
respondents who have seen a commercial Describe the difference between quantita-
and those who have not rate a product. tive and qualitative research.
Regulating Advertising
lthough it ultimately is best for mar- guidelines regard-
A keters to be forthright in their adver-

tising, there are a number of systems
in place to protect consumers and ensure
ing advertising
claims and con-
tent. Advertisers
that advertisers are honest and ethical. must follow these
regulations, or the
Government Regulation networks can reject
The Federal Trade Commission (FTC) and their advertising.
the Federal Communications Commission

(FCC) oversee all commerce and commer- Regulatory
cial communications in the United States. Boards
They uphold laws, decide cases, and en- There are a number
force standards to ensure that misleading of advertising regu-
and deceptive advertising does not occur. latory boards that
In cases where advertising is judged to be regulate truthful- Why do you think it’s
deceptive, these government bodies have ness in advertising. important to regulate
the power to require corrective measures. These boards are advertising in the media?
usually organized
Network Regulation by consumer groups, business associa-
Because networks (and publications) are tions, or the advertising industry itself.
S ultimately responsible for everything The National Advertising Review Council,
N they air, all networks have standards and National Advertising Review Board, and
468
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Children’s Advertising Review Unit all a number of corrective measures that can
oversee various aspects of advertising to be imposed by the FTC. Advertisers may
protect consumers. receive a cease-and-desist order, which is
a legal order to discontinue the deceptive
Competitive Regulation advertising. The company may be forced
A large part of regulation actually comes to run corrective ads that correct any
from competing companies. Companies false impressions left by the deceptive ads.
watch each other closely to ensure that There may also be a monetary penalty, or
competitors are not gaining an unfair fine, imposed on the offending company.
advantage by making untruthful claims. Depending on the violation, those fines can
They may file complaints or lawsuits if a be large amounts.
competitor makes a claim that it cannot All of these reviews, regulations, and
adequately substantiate. corrective measures are intended to keep
advertising honest, keep competition fair,
and protect the public. Upholding these
Corrective Actions standards is in everyone’s best interest.
Regulatory forces work together to make
sure that advertisers can support any prod-
uct claim and that they disclose all infor- Checkpoint
mation necessary for a customer to make
an informed decision. When advertisers What are the four systems working to regu-
fail to meet these requirements, there are late advertising?

Determine the best answer. 5. Writing Write a radio commercial for a hair
1. Which creative format uses a person to talk salon that also offers spa services. Determine
about the benefits of a certain product? the main message you want to communicate
a. image advertising about the salon. Be creative. Your radio com-
b. product demonstration mercial should be 60 seconds long.
c. testimonial 6. Research Use the Internet to learn more
d. competitive about focus groups. Locate a company that is
2. Who is not a part of the production process? using a focus group to conduct research re-
a. creative team lated to advertising. Prepare a one-page report
b. producer on the company and the purpose of the focus
c. strategic planner group.
d. director
Connect to
3. Which of the following does not help to regu-
7. Select a product or service and create an ad-
late advertising?
vertising campaign for it. Write a strategic brief
a. competition
that outlines your target market and main mes-
b. government
sage. Then, create ads for at least three differ-
c. pricing strategies
ent media. Video and audio tape television and
d. review boards
radio ads, and draw or create on a computer all
4. True or False: Surveys and recall tests are two print and outdoor ads. Present your campaign
types of qualitative research methods. to your teacher (judge). S
N
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Now that you have completed the chapter, check list the seven steps in the advertising planning
your understanding of the lessons with these ques- process?
tions. Record the score that best represents your describe the four methods of determining an ad
understanding of each marketing concept. budget and indicate the best one?
1 = not at all; 3 = somewhat; 5 = very well describe the different types of media?
If your score is 42–50, you are ready for the assess- list the five considerations when selecting
ment activities that follow. If you score 33–41, you media?
should review the lessons for the items you scored name some common advertising creative
1–3. If you score 32 or less, you will want to carefully formats?
reread the lessons and work with a study partner on describe the production phase of the advertising
the areas you do not understand. process?
Can you— explain the difference between quantitative and
describe the difference between product and qualitative research?
brand advertising and how they work together? name four ways of regulating advertising?
identify the major roles at an ad agency?

1. Builds an image for a brand or company
a. account executive
2. Series of related advertisements with a similar
look, feel, and theme b. account planner
c. advertising agency
3. Document that defines the target market and
d. advertising campaign
articulates the main message of the advertising
e. advertising plan
4. How a company positions its brand and product
f. art director
in its advertising
g. brand advertising
5. Outlines the activities and resources needed to h. cease-and-desist order
create advertising
i. copywriter
6. A company that specializes in creative advertising j. corporate advertising
7. Collecting data that can be classified into mean- k. corrective ads
ingful numerical values l. creative director
8. The person responsible for how the ad will look m. creative strategy
9. Legal order to discontinue deceptive advertising n. fine
10. The person that facilitates everything that hap- o. frequency
pens after the client agrees to develop an ad or p. lead time
campaign q. media plan
11. Gives the benefits of a specific product or service r. media planner
and relies on rational arguments why a customer s. producer
should buy it t. product advertising
12. A detailed listing of where and when ads will run u. qualitative research
v. quantitative research
13. The person who writes the words in the ad
S w. reach
N x. strategic brief
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14. gives the benefits of the product or 22. An ad showing a glass
service and relies on rational arguments for why cleaner removing
a customer should buy it. handprints and smudges
15. With the what-you-can-afford approach to from a patio door is an
budgeting, organizations account for all of example of the
their other expenses, and then whatever is creative format.
is budgeted for advertising. 23. advertising is a format that evokes a
16. The approach budgets a percent- mood or attitude for a brand or product.
age of past, current, or projected future sales for 24. A(n) uses either celebrities or
advertising. everyday people to endorse a product.
17. The competition-matching approach to budget- 25. The is the person on the agency
ing suggests that an organization should spend staff responsible for facilitating the production
a similar amount of money on advertising as its process.
. 26. A focus group is an example of
18. The objective-and-task approach to budget- research.
ing involves determining the objectives to be 27. occurs when an advertisement
achieved, identifying the activities required to loses effectiveness after a certain number of
accomplish the objectives, and then calculating exposures.
the total of each task.
28. The FCC and FTC are government organizations
19. Reach refers to the number of people who see that help advertising.
a(n) .
29. A(n) ad corrects any false impres-
20. refers to the number of times a sions left by deceptive ones.
member of the target audience is exposed to the
30. A(n) is a monetary penalty imposed
advertising message.
on a company that uses false or deceptive
21. is the amount of time required to advertising.
place an advertisement prior to the time it runs.

31. Annual advertising costs in the United States companies asked what type of evaluation they
exceed $250 billion. Clearly, marketers spend a use. The responses are summarized in the follow-
great deal of money on advertising. Your task in ing table. (Respondents could select more than
this activity is to become acquainted with adver- one evaluation method.)
tising costs in a local market. Select an advertis-
ing medium used by marketers in your com-
munity, such as a radio station, a newspaper, a Evaluation Number of
shopper’s guide, an outdoor advertising agency, Method Respondents
or a television station.
Contact the organization or use reference Coupon redemption 179
materials to obtain information regarding its Toll-free customer line 114
advertising rates. Be prepared to report to your
class regarding the cost of advertising per minute, Focus groups 114
per inch, per week, per day, or whatever measure-
Customer survey 44
ment is used.
32. One of the major concerns of organizations Rebate redemption 41
that advertise is the effective use of their adver-
Recognition tests 26 S
tising dollars. A recent survey of 259 successful N
471
CH 16-B4491_RP_REV3.indd 471 12/7/07 7:56:22 PM

a. Calculate the percentage of each of the 34. New companies, or companies with new prod-
response types and create a bar graph to ucts, often use very different advertising strate-
illustrate the results. gies than do experienced and trusted companies
b. Based on these results, how have the with established products. For each example
companies decided to allocate evaluation below, explain how the advertising for a new
dollars? Do you think this is the best approach product or company might differ from an estab-
for all companies? Explain your answer. lished one.
33. You are the owner of the only hardware store in a. Family restaurant
a city of 100,000 people. You have been able to b. SUV
reduce your promotional efforts because of the c. Energy drink
lack of competition. 35. Many businesses experience seasonal fluctua-
Recently, however, a large hardware store tions in sales. Listed below are three products
chain has purchased land on which to build a or services that often experience high and low
new store. Describe your marketing response in sales periods. Suggest two advertising strategies
terms of price, product, distribution, and promo- for each product/service that could help reduce
tion. Provide details about the type of advertis- these sales fluctuations.
ing you would do. a. Lawn maintenance
b. Ski resort
c. Toy manufacturer

36. You are the chief executive officer of a company 39. Log on to the web site of one of the organiza-
that manufactures golf equipment. Your mar- tions listed below and prepare a one-page report
keting research determines that there is a large of the services it offers to its members and the
market for an oversized driver golf club. Your kinds of information available on its site. Be
company invests heavily in designing and manu- prepared to give a presentation to the class.
facturing this new driver. a. Advertising Research Foundation
The advertising agency you have hired is devel- b. American Advertising Federation
oping an advertising plan for the new golf club. c. Association of National Advertisers
As CEO, list five factors you will be looking for in d. Audit Bureau of Circulations
the advertising. List five questions you will want e. Direct Marketing Association
to ask the agency to ensure its ideas will help f. Internet Advertising Bureau
your sales. g. Outdoor Advertising Association of America
37. Not all advertising is done by companies selling h. Radio Advertising Bureau
products and services. Find an example of adver- i. Television Bureau of Advertising
tising for a charity, cause, or political campaign 40. Search the Internet for a web site that carries a
and prepare a 200-word report describing the lot of online advertising. Browse the site for
advertising, the strategy, and how it differs from 15 minutes and count the number of different
product advertising. Be prepared to present your ads that you see. Write a one-page report on
findings to the class. the ad content of the site, including the types
38. Research one of the laws or agencies that deal of advertisers you see, the formats of the ads
with illegal advertising and prepare a 200-word they display on the site, and any notable ads
report. Be prepared to present your findings to that stood out in the clutter. Explain why the ads
the class. captured your attention.
S
N
472
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Advertising Campaign
Event
The pur- Bibliography List all sources used.
pose of the You will assume the role of advertising
Advertising personnel with the goal of selling your idea to
Campaign the judge (client/advertiser).
Event is
to prepare an advertising campaign of any Performance Indicators
length for a real product, service, company, or
business for a prospective client/advertiser. Evaluated
Students must also present an appropriate • Exchange information and ideas with
budget for their proposed advertising cam- others through writing and speaking.
paign. This event can be completed by one to (Communication Skills)
three students. • Explain the components of advertisements.
You will prepare up to ten fact sheets in (Promotion)
outline form for your presentation. All mem-
• Analyze product information to identify
bers of the team must participate during the
product features and benefits. (Selling)
15-minute presentation to the client/adver-
tiser. Five minutes are allotted for the judge • Set priorities and demonstrate
to ask questions about the presentation. effective time management.
Each participant must respond to at least one (Emotional Intelligence)
question posed by the judge. • Demonstrate critical thinking/problem-
The ten outline fact sheets must include: solving skills. (Emotional Intelligence)
scription of the campaign.
Descriptions Identify the product, service,
and company or business selected as well as
the client/advertiser. Think Critically
Objectives of the Campaign Provide major 1. Why is the budget a very impor-
reasons for the advertising campaign. tant part of the advertising
Identification of the Target Market campaign?
Describe the primary and secondary markets. 2. Why must the advertising
List of Advertising Media Selection Neces- campaign consider buying
sary for the Campaign Describe the types of behavior of primary and
media and their reach. secondary markets?
Budget Provide detailed projections of
3. How can the scheduled
actual costs.
events for an advertising
Schedules of All Advertising Planned
campaign stimulate sales?
Include outlines of the frequency and timing
of ads. 4. What is the bottom line
for a client considering an
PHOTOS: ©DECA INC.
Schedules of All Sales Promotion

Activity(ies) Planned Describe sales promo- advertising campaign?
tions that will complement advertising.
Statement of Benefits to the Client/ S
Advertiser Describe anticipated outcomes of w w w. d e c a . o r g N
the ad campaign. 473
16-1 • What Is Advertising?
DECA Prep 473
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Chapter 17
Selling Satisfies
Customers
17-1 The Value of Selling
17-2 Preparing for Effective
Selling
17-3 The Selling Process and

Sales Support
Newsline )))
Technology Is Integral to the Sale
Several hundred thousand dol- relay in order to contact the factory the two companies she plans to visit.
lars are at stake as the salesperson to check production schedules. The She also confirms her flight schedule
for a truck manufacturer sits in an customer makes an offer that is 5 with her online travel agent. After
office with clients from a mining percent below the listed price for the a final check of her online calendar,
company. The customer will place trucks. The salesperson uses instant e-mail, and text messages, she heads
an order for three trucks, but only messaging software to involve her for a relaxing meal.
if the manufacturer meets some manager with the price negotia- Salespeople rely on informa-
very specific requirements. Using tions. The manager agrees on the tion and communications. Small and
Bluetooth technology the salesper- price if three trucks are ordered on powerful laptop computers, sophis-
son links her laptop computer to a the production schedule the factory ticated but easy-to-use software,
miniature projector that displays has available and the customer can and a variety of wireless and other
images on a wall screen for everyone make full payment within 90 days electronic technologies reduce the
to see. She selects a design menu, of delivery. The finance representa- time needed for each of those activi-
and an outline of a truck appears. As tive on the purchasing team quickly ties and make information instantly
she asks questions of the purchasing sends a text message to his manager available to salespeople.
team, she adds features to the truck using his wireless PDA and receives
design that meet the company’s approval on the payment plan. With Think Critically
requirements. The price of the truck all details in order, the salesperson 1. Describe how the sales transac-
is displayed, and each time a feature prepares a personalized contract, tion would occur without the
is added, the price is adjusted. The which is electronically signed by the
electronic technologies.
customer sees the cost of each customer and the manufacturer.
change. In her hotel that evening, the 2. How does technology change
When the design is completed, salesperson prepares for the next the selling process? Is it easier
the salesperson uses a secure wire- day by using the Internet to access or more difficult as a result?
less connection using a satellite records from her office computer for
CH 17-B4491_RP_REV3.indd 474 12/5/07 9:22:46 PM


• Understand sales activities to show command of • Explain the impact of sales cycles
their nature and scope • Describe the use of target marketing in selling
• Acquire information about the sales industry to • Explain the nature of professional selling
aid in making career choices
• Discuss the economic and social effects of profes-
• Acquire product knowledge to communicate sional selling
product benefits and to ensure appropriateness of
product for the customer
Visual Focus
© 2007 A vaya Inc. All Rights Reser ved.
To many customers, the salesperson is the face

of the company. The way salespeople present
themselves, interact with clients, listen to cus-
tomer concerns and questions, and provide ap-
propriate solutions with their company’s prod-
ucts and services often determines the success
of a marketing mix. As a wise businessperson
once said, “Nothing happens in business until
somebody sells something.” This chapter offers
a detailed description of the selling function,
including the careful preparation salespeople
make and the follow-up and support activities
they perform after the sale has been made.
Focus Questions
©AVAYA COMMUNICATIONS
What message does this ad convey? How

do instant electronic communication tech-
nologies improve the customer/salesperson
relationship? What negative effects can those
technologies have if they are not used carefully
and professionally?
Communication skills are especially im-
portant in business-to-business selling. Discuss
with other students examples from your own
experience of effective and ineffective commu-
nications demonstrated by retail salespeople.
CH 17-B4491_RP_REV3.indd 475 12/5/07 9:27:22 PM

17-1 The Value of Selling
GOALS KEY TERM
• Define what is meant by the promotional method known as selling, p. 477
selling.
• Explain the advantages and disadvantages of personal selling.
• Describe the need for salespeople to manage themselves, their
customers, and information.
Professional, personalized communications, which are at the core of selling, are an

effective promotional tool for many businesses. Personal selling allows a company
to respond to the unique needs of customers with specific messages designed to
help customers make purchasing decisions.
Selling is not the best promotional method for every situation. There are dis-
tinct advantages and disadvantages to be weighed to determine where and when
personal selling fits a business’s needs, either alone or in conjunction with other
promotional methods. Salespeople find management skills are important to success.
Salespeople need to develop skills in self-management, customer management, and
information management.
Write a description of the procedure followed the last time you or a family
member sold something. If you had it to do over again, how would you improve the
process to get a better result?
The Process of Personal Selling

hen the selling function is a part of to purchase the company’s products and
W a company’s marketing mix, sales-

people provide the link between the
customer and the business. The key link in
services.
Successful sales occur when customers
are able to locate and purchase the prod-
the marketing process is when the sales- ucts and services they need and are satis-
person sells the products of the business to fied with the result. The business is then
the target market. able to make a profit on the money in-
The ultimate goal of any business is vested in developing and marketing those
to sell its products and services profitably. products and services. For businesses that
The resources of a business are wasted understand the marketing concept, all
and the efforts of the employees are of business efforts are coordinated, and mar-
no value if the products remain unsold. keting activities are directed toward the
Those resources and efforts often rest on profitable sale of products and customer
the shoulders of one group of people—the satisfaction.
salespeople. The selling process involves Selling is a part of the promotion
people who work for or represent the com- element of the marketing mix. Promotion
S pany. These people communicate directly includes the methods and information
N with customers in order to persuade them communicated to customers to encourage
476
476 CHAPTER 17 • Selling Satisfies Customers
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purchases and increase their satisfaction.
There are a variety of promotional methods Fa s t FAC T S
that businesses use, and each has a specific
purpose. Selling is direct, personal com- The 2006-07 Occupational Outlook
munications with prospective customers in Handbook reported that 1.9 million
order to assess needs and satisfy those needs people were employed as business-to-
with appropriate products and services. business salespeople and 4.2 million
were employed as retail salespeople in
the United States.
Direct and Personal
All promotional methods involve commu-
nication with customers. Most are directed need more information. Some may not yet
at large groups of customers. Those meth- have fully clarified their needs, so they are
ods must be more generalized to appeal to not ready to choose a specific product.
the common needs of the audience. The Sometimes salespeople try to substitute
larger and more diverse the audience, the a product they want to sell for the one that
less specific and individualized the promo- is best for the customer. It is appropriate to
tional messages can be. Personal selling, offer a product that the customer did not
however, is used to communicate with one originally intend to buy, but only if it is the
or a few customers. Salespeople work di- best match with customer needs. It is not
rectly with customers. If they devote time appropriate to sell a product just because
and effort to getting to know the customer, customers are uninformed or because the
they can tailor the information to meet salesperson needs to make a sale. The sales-
individual needs. person should discuss the purchase deci-
Direct communication means that the sion with each customer to make sure that
salesperson can meet and talk with the specific needs and concerns are addressed.
customer. Usually the meeting is face to The salesperson should then offer each
face but may be completed via telephone or customer the best possible solution the
newer technologies such as video con- company can provide to meet those needs.
ferencing or web conferencing. Based on Concerns about any part of the mar-
the discussions, the salesperson provides keting mix should be addressed to the
additional, specific information as needed. satisfaction of the customer. If a company’s
If a customer has concerns or asks ques- products will not meet a customer’s needs,
tions, the salesperson is able to respond.
By listening to the tone of voice or ob-
serving body language, the salesperson
may determine that the customer is still
uncertain about a decision. Based on that
feedback, the salesperson personalizes the
communication to address the customer’s
doubts and resolve concerns.
Assess and Satisfy

Effective marketing matches the most

appropriate products and services to
customer needs. Salespeople can tailor the
choices of a business’s products to individ-
ual customer needs and preferences. They
can also determine where each customer
is in the decision-making process. Some How might this jewelry salesman assess his S
people may be ready to buy while others customer’s needs? N
477
17-1 • The Value of Selling 477
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Virtual Marketing
Selling Yourself with Internet Almost all Internet services geared to
Job Services freelancers are available without charge
to job seekers. A key to success is writing
The development of the World Wide Web
a profile or resume that includes the right
and the proliferation of Internet-based
buzzwords, or keywords. Companies con-
employment and personnel services has
duct their own searches to find qualified
been a boon for freelancers (self-employed
freelancers, and you will draw their attention
professionals). Instead of wasting nonbillable
only if your information matches their search
hours and dollars searching classified listings
criteria. Another key is to include realistic
and networking for contacts of questionable
expectations so that you are not wast-
value, they can now post their qualifications
ing time with offers that don’t meet your
and requirements on the Internet and clients
requirements. When you are selling yourself,
will come to them.
qualifying customers is most important.
Even better, their search is no longer as
limited by geography as it used to be. With a Think Critically
few keystrokes, they can send their resume to
1. What keywords might you include in a
millions of potential clients around the world.
personal profile if you wanted to find
Meanwhile, they can also conduct highly
freelance marketing work?
targeted searches of Internet databases for
assignments to pursue. The same technol- 2. Does the advent of Internet job services
ogy that allows freelancers to find work easily mean that face-to-face networking is no
will also permit them to perform many tasks longer necessary?
in the comfort of their home rather than at a
client’s office hundreds of miles away.
there is no benefit in selling something. The salesperson and will be reluctant to make
customer will quickly realize that the pur- another purchase in the future.
chase was not appropriate and will likely
return the product to the company, result- Checkpoint
ing in a lost sale and higher costs. Even if
the product is not returned, the customer How does selling differ from other promo-
will be unhappy with the company and tional methods?
When to Use Personal Selling

here are advantages and disadvantages
T to personal selling. Those advantages

and disadvantages are summarized
in Figure 17-1 on the next page. Busi-
Advantages
Personal selling offers many advantages
that other forms of promotion do not. It
allows a business to meet customer needs
ness people need to understand when per- on an individual basis.
sonal selling is appropriate and when
it may not be the most effective promo- Information When a business provides
S tional tool. information through an advertisement,
N there is a limited amount of information
478
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FIGURE 17-1 Feedback Because personal
Organizations need to consider the advantages and selling is two-way commu-
disadvantages of personal selling when deciding whether nication, the customer pro-
to use it.
vides feedback. An effective
- salesperson asks questions,
Evaluating Personal Selling listens to customers’ concerns,
and determines if additional
Advantages of Disadvantages of information is needed. That
Personal Selling Personal Selling feedback is used to make the
information even more
More information Cost per customer specific to the individual
More time Time required needs of the customer. In
addition to obtaining feedback
Flexible Less control from the customer, the sales-
Uses feedback Skills required person provides feedback to
Persuasive
the company. If the customer
is dissatisfied with any part
Follow-up of the marketing mix or if
competing products appear to
that can be included. An outdoor billboard meet customer needs better,
or electronic display is usually restricted to the salesperson can inform the company
fewer than ten words because viewers pass so that changes and improvements can be
by very quickly. Television and radio com- made.
mercials last no more than a minute, with Persuasion Selling is typically used
most fitting into even shorter time slots. near the end of the consumer decision-
While newspaper and magazine advertise- making process. At that time the cus-
ments can be longer, few people will spend tomer is deciding whether or not to make
more than a minute or two reading a print the purchase. The customer may be com-
advertisement. More product information paring one or two very similar products
can be disbursed through personal selling. before making a final decision. A sales-
Time Salespeople spend a considerable person is able to be persuasive at
amount of time with customers. Even in that time. By knowing the important
the very shortest sales presentation to a needs of the customer and understanding
customer, the conversation may last for the product and those of main competi-
several minutes. Effective salespeople tors very well, customer needs can
often meet with customers several times. be matched with the features of the
Each meeting may last from ten min- company’s product and compared to
utes to one hour. With that amount of those of competitors. The salesperson
time, a great deal of information can be needs to be sure that the product will
exchanged. satisfy the customer. If it does, the
salesperson is in a position to help the
Flexibility Personal selling is very customer make the decision to purchase.
flexible. The sales presentation is typi- The salesperson also may be able to
cally scheduled at a time and place that offer adjustments in the marketing mix
is convenient for the customer. During such as offering credit, delivery service,
the meeting, if it is clear that a customer or even a modification in the product, if
understands certain information or if needed. By knowing what changes are
that information is not important to the possible and matching them with specific
customer, the salesperson can move on to customer needs, the salesperson can be S
another topic. very effective in making a sale. N
479
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Figure This
Pay-for-Performance Incentives incentives and management systems that rein
Salespeople are paid to sell, and many have in overly aggressive salespeople.
compensation packages that provide incen- Think Critically
tives based on their sales. Some receive base
1. A salesperson is paid $100 for every car
salaries plus incentives. Others are compen-
she sells plus 10% of the gross profit
sated solely on what they sell. These incen-
from each sale. She also receives a bonus
tive packages are designed to motivate the
of $100 for each car in excess of 20 in a
salespeople and keep them hungry for more
given month plus an additional 1% of her
sales.
total gross profits for each car she sells in
Common forms of incentives include
excess of 25 cars in a month. How much
quotas, commissions, bonuses, long-term
will she be paid if she sells 28 cars for a
incentives, contests, or a combination of
total gross profit of $65,000?
these methods. For example, car salespeople
are commonly paid a flat fee for each car they 2. A salesperson is paid $2,000 per month
sell plus a commission based on a percentage plus a 5% commission on sales in excess
of the gross profit from each sale. If they reach of $40,000 in a month. If he already has
a certain level—say, 20 cars in a month—their booked sales of $31,000 by the last day of
percentage of the profit is increased. the month, how much is it worth to him
Given that kind of pay structure, it is no if he can close on a $10,000 order by the
wonder that car salespeople are notorious for end of the day? If he is confident of getting
high-pressure tactics. Many businesses have a $50,000 order from another customer
found that such compensation systems hurt the following month, what might he be
customer relationships. They try to balance tempted to do with the $10,000 order?
compensation packages with long-term
Follow-up A sale is not completed at does not fully meet the customer’s needs, a
the time the customer makes a purchase. salesperson who is willing to make ad-
The customer must use the product and justments or accept a product return and
decide if it meets the customer’s needs. replacement can usually turn a negative
If the customer is dissatisfied with the situation into a positive one.
product, it will probably be returned.
The customer may not want to buy other
products from the company.
Disadvantages
An important responsibility of a sales- While there are many advantages of per-
person is to follow up with the customer sonal selling, there are also some disadvan-
after the sale. The follow-up provides an tages. One of the most important disad-
opportunity to ensure that the customer vantages is cost. You often hear of the high
is able to use the product correctly, has cost of advertising. A magazine ad can cost
everything needed, and is satisfied. Often tens of thousands of dollars, and a nation-
a customer just needs additional product wide television advertisement on a popular
information or reassurance to be fully show can cost hundreds of thousands. It
satisfied with the purchase. If, however, does not seem possible that personal sales
S the product does not work as expected or could be more expensive, but businesses
N
480
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are concerned about the cost per customer and complete a variety of record-keeping
as well as other issues. tasks. Individual time management,
personal responsibility, and self-discipline
Cost Per Customer If an advertise- are important attributes for an effective
ment reaches thousands of potential sales professional.
customers, the cost per person might be
as low as one dollar or often even less. A Skill The last disadvantage involves
salesperson’s expenses can include the the knowledge and skill required to be
cost of salary, travel, time spent with a an effective salesperson and the diffi-
customer, and equipment and materials culty of the selling job. Salespeople need
needed for sales presentations. A salesper- to understand selling procedures, com-
son may talk to only a few customers each munications, psychology, accounting, and
day. Therefore, the cost per customer can management. They also need a great deal
be very expensive. For sales of products of knowledge about their products and
to businesses, the cost of selling to each services and those of their competitors.
customer can easily be several hundred The selling process requires people who
dollars. For very high-value products are outgoing and creative, able to adjust
requiring months of negotiations and to different people and situations, and
often involving several people as a part of a good at solving problems. The job often
sales team, the cost of personal selling can requires long work hours and travel. It
be tens of thousands of dollars. However, if is not easy for companies to find skilled
the process results in a multimillion- salespeople.
dollar sale, that cost is well worth it.
Time Because a salesperson meets with
Choosing Personal Selling
either one or a very few customers at a Personal selling should be used when it
time, it takes a great deal of time for a improves the marketing efforts. It can be
large number of customers to be con- the only method of promotion used by
tacted. Compare that to an advertisement a company. Usually it is combined with
that reaches millions of people at the other methods as a part of a promotional
same time. The length of time needed to plan. Characteristics of products and
reach a large number of customers is a markets that indicate the need for personal
disadvantage of personal selling. A com- selling include the following:
pany can solve that problem by employing • Complex or expensive products
a large number of salespeople, but that
adds to the costs of selling. Usually per- • Markets made up of a few large cus-
sonal selling is used when the number of tomers
customers in the target market is small. • New or very unique products with
which customers are unfamiliar
Control The salesperson is responsible
for deciding what information to pro- • Customers located in a limited geo-
vide as well as how and when activities graphic area
are completed. Therefore, the company’s • Complicated or long decision-making
managers have limited control over the process
sales process. Salespeople often work
alone or in small selling teams. During • Customers who expect personal atten-
the time they are with a customer, they tion and help with decision making
provide the information they believe is
needed to help the customers decide to Checkpoint
buy. When salespeople are not meeting
with customers, they can plan additional How can time be both an advantage and a S
sales calls, follow up on previous sales, disadvantage of personal selling? N
481
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Make a Persuasive Presentation

There are many times when the most efficient on existing
way to move an issue forward is by making a technology
persuasive presentation. An effective presenta- or it could
tion requires a great deal of preparation. First, stem from
you should define specifically what you want to an entirely
accomplish with your presentation. What actions new innovation in the field.
are you trying to motivate your audience to take? Any visual tools used in the
Do you want them to become active supporters presentation should be atten-
of a cause? Do you want them to purchase the tion getting, easy to understand,
product or service you are selling? and memorable. Determine the
The presentation should be tailored most effective way to present
specifically to your audience members. If you your ideas visually and make
do a presentation on the same topic to different sure you are comfortable with
audiences, you should adjust the presentation to the technology.
effectively influence each audience. Engage the audience in
It is important for the audience to believe the presentation. Meaning-
that you are a credible source on the informa- ful examples and experi-
tion being presented. You need to “sell” yourself ences as well as language
and your knowledge base. Working in comments that evokes an emotional response are ways to
and information that show you have thoroughly accomplish this. Compelling endorsements from
researched your topic is one way to do this. You others that the audience identifies with are an
should also put your presentation in the context effective way to sway an audience. Since you are
of any related issues important to the audience. passionate about the topic, let that passion show
This way your audience members will know that through in your tone, mannerisms, and presenta-
you studied not only the topic you are present- tion style.
ing, but also other factors that could impact Construct your closing to move your idea
them. forward. Whether you are asking for a sale or
Dress in a manner that is appropriate for your asking for support, your goal is to persuade the
audience. If you are making a pitch for a new audience. Address any questions or concerns.
sports product, you could dress in neat, crisp Finally, define the next steps and make it easy
casual apparel. If you are presenting a business for people to take action. End with enthusiasm,
proposal for which you are seeking funding, then conviction, and a positive tone.
dressing in professional business attire would be
appropriate. Develop Your Skill
Presentation content should be carefully con- Define an issue you are passionate about. Decide
sidered. The product, service, or issue should be what action you would like people to take in sup-
clearly defined. It should be well supported with port of the issue.
simple, understandable facts and reasons. Using the methods noted above, prepare a
The audience should obtain a clear under- persuasive presentation. Practice the presenta-
standing of how they will benefit from what you tion several times to become comfortable. Then
propose. You should define how your idea or deliver it to a close friend, family member, or
proposal is superior to other choices. That superi- adult mentor to get feedback before presenting it
S ority might arise from providing an improvement to your target audience.
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Personal Sales Management
ersonal selling is a demanding career. informed. They need to con-
P Most salespeople are responsible for

their own time, with limited direction
from their managers. Often they are paid
tinue to learn about new
selling procedures, the
applications of tech-
on commission. This means they are not nology, and infor-
paid unless they sell something. mation about
A sales career can also be very reward- products,
ing. Professional salespeople who do their customers, and
jobs well are paid more than many other competitors. It
business people. Because salespeople are may seem that time
responsible for the sales presentation, there is better spent with
is a great deal of satisfaction when a sale is customers, but time has to
made and the customer is satisfied. Even be scheduled for personal and
though they may not manage other people, professional development as well.
successful professional salespeople have
the qualities of good managers. The impor-
tant areas of personal sales management
Customer Management
are self-management, customer manage- Selecting and scheduling customers is a
ment, and information management. difficult challenge for salespeople. Some
customers offer a greater potential for sales
because they purchase more frequently
Self-Management or in larger quantities. Certain custom-
Selling requires motivation and an effec- ers require a greater amount of time from
tive use of time. It is difficult to call on yet salespeople because they are at an earlier
another customer at the end of a long day. stage in decision making. Some customers
It is demanding to complete the necessary require more time because their needs are
research needed to plan a personalized not well identified or they ask for a great
sales presentation. Much of a salesperson’s deal of information. Salespeople must be
time is spent on non-selling activities— able to decide how much time to spend
paperwork, research, studying customer with each customer to maximize their
needs, and solving customer problems. sales.
A salesperson must be able to determine When salespeople travel to meet cus-
what needs to be done, set an efficient work tomers, they have to carefully schedule
schedule, and devote the necessary time their time. They need to limit the amount
until the work is completed. At times, it of time they are traveling in order to spend
may require more than an 8-hour day or a more time selling. Also, they need to keep
40-hour week. their travel costs as low as possible to in-
Salespeople need to be emotionally crease profits.
and physically healthy. Salespeople may
feel stressed because success depends on
customers deciding what to purchase and Information Management
when they will purchase. They may be ex- The Newsline at the beginning of the chap-
pected to achieve specific levels of sales for ter illustrates the importance of informa-
the company in a given time. Long hours tion to salespeople and their customers.
of work may seem to leave little time for Consider what would happen if a sales-
exercise and relaxation. person has almost no information about
Finally, an important part of self- specific customers yet attempts to develop a
management is personal development. sales presentation. That presentation will be S
Salespeople must be well educated and very general and based on the salesperson’s N
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assumptions. In the same way, if the sales- other sales records carefully and com-
person does not have immediate access pletely. If a salesperson makes an error in
to updated product information, price the price or quantity of an order or other
changes, distribution schedules, service required information, it can result in
records, and the like, it will be difficult to problems for the company, such as added
respond to customer needs and answer expenses or lost profits, and possibly even
customer questions in a timely manner. greater problems, such as legal liabilities.
Salespeople must be able to identify
needed information, develop effective Checkpoint
record-keeping systems, and use the
company’s information system. In addi- Identify three important elements of per-
tion, salespeople must complete orders and sonal sales management.

Determine the best answer. 5. Math A top business magazine has a total
1. Which of the following is not true about the readership of 971,435, and 57 percent of
process of personal selling? readers report seeing a company’s advertise-
a. The selling process involves people who ment in one issue. The cost of the ad was
work for or represent the company. $104,300. The company’s salespeople have
b. Salespeople communicate directly with a prospective client list of 8,327 business
customers to persuade them to purchase people and are able to arrange a meeting
a company’s products and services. with 93 percent of them. The total sales bud-
c. Selling is a part of the distribution element get for those calls was $37,280. Calculate the
of the marketing mix. cost per customer of each method.
d. All are true. 6. Career Success Use Internet career boards
2. True or False: The larger and more diverse the or the employment section of a large-
audience, the less specific and individualized circulation newspaper to identify four dif-
the promotional messages can be. ferent personal selling job opportunities in
business-to-business and retail sales. Study
3. True or False: An advantage of personal sell-
each job and prepare a table that compares
ing over advertising is that it can provide
the jobs, identifying things that are similar
more information than the typical advertise-
and different. Based on the analysis, write a
ment.
one-paragraph statement identifying which
4. Which of the following is true about the use of the jobs you would prefer and why.
of personal selling in the marketing mix?
a. It should be used when it reduces the cost Connect to
of marketing. 7. You are the sales manager of a neighbor-
b. It should not be combined with other hood office of a major cellular telephone ser-
promotional methods. vice provider. Your goal is to make sure the
c. It should be used when there is a large company’s service plans are well matched
number of customers located in many dif- to the needs of each customer. Prepare a list
ferent areas. of five questions you want each salesperson
d. It should be used when customers have to ask new customers to gather information
a long or complicated decision-making about their needs. Present your list of ques-
process. tions to your teacher (judge) and discuss the
S reasons for each question.
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Preparing for Effective Selling 17-2
GOALS KEY TERMS

• Describe the way effective salespeople qualify prospective cold calling, p. 485
customers and use their decision-making processes to plan qualifying, p. 486
their sales presentations.
feature, p. 489
• Explain why salespeople need to know their product benefit, p. 489
thoroughly and how product features will benefit their
customers.
• Demonstrate why it is important to understand the
competition’s products and marketing plans.
The success of a salesperson is typically measured by the sales that are made and
the satisfaction of the customers. That success is often determined well before the
salesperson ever meets with the customer. Many salespeople spend more time
preparing for sales than they do in actual contact with customers. In addition to
developing effective selling skills, three areas are important—understanding the
customer, understanding the product, and understanding the competition.
Imagine that you are preparing to interview for a well-paying job that you want
very much. You need to sell yourself to the employer, who in this situation is the
customer to whom you want to sell your services. You are the product, and other job
applicants are the competition. Make a list of two points each about the customer,
the product, and the competition that will determine your chances for success.
Understanding Customers
arketing is responsible for creat- represents. Even when high-potential
M ing satisfying exchanges between a

business and its customers. Because
salespeople negotiate the sale of products
customers are identified, additional infor-
mation is needed to tailor the best possible
match of products and services for each
and services with the customer, they need one. A great deal of time is wasted if the
to ensure that the customer is satisfied salesperson is talking to people who are
with the purchase. Understanding each uninterested or unable to buy the com-
customer helps a salesperson organize the pany’s products.
presentation to meet that customer’s needs. Some salespeople use a process called
Effective selling requires a great deal of cold calling. With cold calling, a salesper-
preparation. son contacts a large number of people who
are conveniently located without knowing
Identifying Customers a great deal about each person contacted.
Just as a business identifies its target mar- Examples of cold calls include a salesper-
ket, salespeople need to identify appropri- son for business products who plans to call
ate customers. Not everyone is a potential on every business listed in a city business S
customer for the products a salesperson directory with annual sales over $1 million. N
485
17-2 • Preparing for Effective Selling 485
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A telemarketer selling family health
insurance plans uses a computer
dialing system programmed to
randomly call all nonrestricted
residential telephone numbers.
A salesperson for a carpet clean-
ing business knocks on the door
of every home on a block to locate
prospective customers.
You can imagine that using
cold calling is both difficult and
discouraging for a salesperson. A
large number of customers will
have to be contacted before find-
©STOCKBYTE/GETTY IMAGES
ing someone who is interested in
the salesperson’s products. Also,
the salesperson has a difficult time
beginning the selling process if
almost nothing is known about
the prospective customer, whom How can a salesperson identify prospective customers?
the salesperson has just met. Most
important, people contacted by the customers are, where they are located, what
salesperson may be quite upset about the their important needs are, and when and
intrusion if they are not interested in the how each customer prefers to be contacted.
products being sold. They will have a belief
that the salesperson and the company are
bothering them for no good reason. The Qualifying Prospective
salesperson is not just wasting the time of Customers
people who have no current needs related Not all people in a target market are pre-
to those products. Also wasted are the pared or able to purchase a product at a
resources of the company that could be particular time. A salesperson will com-
better spent on interested consumers. plete a procedure known as qualifying a
A marketing-oriented business does customer. Qualifying involves gathering
not use cold calling as a part of personal information to determine which people are
selling. Salespeople gather information on most likely to buy.
possible customers and determine if they fit Three identifying characteristics
the characteristics of the company’s target qualify a person as a prospective customer.
market. Often, through the company’s Without all three characteristics present,
marketing information system or market- the person will not purchase the product.
ing research, information on prospective The characteristics include:
customers is already available to assist the
salesperson. Also, other promotional or
• A need for the product
marketing efforts such as coupons and • The resources to purchase the product
product registration cards are frequently • The authority to make a decision to
used to identify customers and gather other purchase
information before the salesperson makes
the first face-to-face contact. The selling While everyone in a target market has
process will be a much more positive expe- a general need for the product being mar-
rience for both the customer and the sales- keted, that need may not be as important
S person. It is also more productive when as other needs. The customer may have
N the salesperson knows who prospective already purchased another product to meet
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the need. Salespeople identify customers sale. Those mental stages are summarized
who have the strongest need and who are with the letters AIDCA. The meaning of
ready to make a purchasing decision. Most each letter is shown in Figure 17-2.
people have many more needs than they A salesperson knows that the customer
can satisfy at a given time. must first focus attention on the salesper-
A common limitation on purchasing son and the sales presentation. It is impor-
is a lack of resources to buy the product. It tant to get the customer’s interest in the
is possible that a customer does not have product early in the presentation. A cus-
the money or adequate financing through tomer moves from interest to desire when
the use of credit. No matter how hard the it is clear that the product meets important
salesperson works or how effective the sales needs. The desire turns to conviction when
presentation is, a sale is not possible if the the customer determines that the product is
customer is unable to afford the product. a good value and the best choice. That leads
Part of the information-gathering to action, or the purchase of the product.
process of salespeople is determining if A salesperson who understands con-
the customer has adequate resources or if sumer decision making and is able to
financing will make resources available. determine which of the AIDCA stages
Many times people want to buy a each customer is in will be able to provide
product but do not have the authority to
make the decision. A child may have to Mental Stages of Consumer Decision Making
ask a parent, a manager may need to get
approval from the purchasing department,
or a partner in a business may need to have Attention
the agreement of the other partners. Sales- A - terest
people often need to work with several I - In sire
e
people before a purchase decision is made. D -D nvictio
o n
It is important to determine which person C - C on
-A cti
A
or people will make the final decision and
to make sure they are included in the sell-
ing process at the appropriate time.
Understanding Customer
Decisions
Consumers go through a series of steps
when they make a decision. Those steps
include identifying a problem or need,
gathering information, evaluating alterna-
tives, making a decision, and evaluating FIGURE 17-2
the decision. Consumers need specific Salespeople need to understand the mental
and different types of information as they stages consumers complete in making a deci-
move through each step. If the consumer is sion and use that information to plan each
gathering information on possible prod- sales presentation.
ucts to satisfy a need, information on
financing alternatives will not be helpful.
On the other hand, if the customer has al- Wo r k i n g i n Te a m s
ready narrowed the choice to two products
and is comparing them, it will not help to Have team members identify a purchase they
provide general information on the needs a have recently made and describe how they
product satisfies. Salespeople often trans- completed each mental stage leading to a deci-
late the consumer decision-making steps sion. Discuss the similarities and differences in S
into a series of mental stages that lead to a how each person moved through the stages. N
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the specific information that each cus-
tomer needs at a particular time to assist Checkpoint
with an appropriate decision. An impor-
Why is it important to qualify prospective
tant advantage of personal selling is the
customers before involving them in a sales
capability of providing specific informa-
presentation?
tion to each customer when it is needed.
Understanding the Product

s the representative of the company Customers may not be able to determine
A to the customer, the salesperson is

responsible for providing the infor-
mation needed for the customer to make a
by examining a product, or even by re-
viewing the information that accompanies
a product, whether it is the one they should
good decision. There are two parts to that buy. Salespeople need to know a great deal
responsibility. The salesperson must have about the products they represent. They
adequate product knowledge and must must also be able to quickly access addi-
also be able to communicate the informational information when needed to answer
tion effectively to the customer. customers’ unique questions.
An effective salesperson is familiar
Product Knowledge with all parts of the marketing mix.
Choosing the best product to satisfy a Customers are concerned not only about
customer’s needs is often not an easy task. the product but also about the price and
Get the Message

Web Sites for Distributor web-based catalog that is available to
Communication anyone with a web browser, 24 hours a day,
seven days a week. Unlike print catalogs, it
For many industrial supply distributors, the
can be updated continuously, so product
World Wide Web is evolving into the key
listings and prices are always current.
medium for getting their message out to
From a buyer’s perspective, online
prospective customers. Since they are deal-
catalogs allow a business to query dozens
ing with standard parts and supplies that
of suppliers by e-mail at the touch of a few
can usually be obtained through a number
keystrokes. Distributors have learned to
of distribution channels, successful selling
reply promptly or risk losing an order to a
frequently hinges on price, availability, and
competitor.
reliability. Getting up-to-date information
out to customers is vital to staying competi- Think Critically
tive in what many believe has become an
1. What role does personal selling have in
“information transfer” business.
an “information transfer” business that
Even for small distributors, the Web
relies heavily on a web site to generate
opens the door to a potential worldwide
sales?
market for products, particularly those for
which shipping is not a big expense. Its 2. What are the advantages and disad-
big advantages are cost-effectiveness and vantages of web-based catalogs versus
printed catalogs?
S timeliness. Distributors can publish a
N
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availability. They may have seen other materials for salespeople to use as a part of
company promotions and have questions their sales presentations. Effective sales-
about that information. While an individ- people regularly read business publications,
ual customer is not interested in all of the attend conferences and trade shows, and
marketing mix information, the salesper- study other information sources to keep up
son must be able to tailor a sales presenta- to date on the products and services they
tion to the needs of each customer. sell. Knowing that they are well prepared
One customer may want to know with a great deal of product knowledge
about the construction and durability of a makes salespeople confident that they can
product. Another may be concerned about answer customer questions and provide the
the warranty and repair services. Still marketing mix each customer needs.
another may need to know about financ-
ing. A salesperson who does not know that Communicating Product
information or who is unable to obtain it Information
quickly will not be able to satisfy potential
customers and will lose their confidence A feature is a description of a product
and respect. Sales will be lost to other characteristic. A benefit is the advantage
salespeople who can provide the needed provided to a customer as a result of the
information. feature. Figure 17-3 illustrates this differ-
ence. To further illustrate, decide which of
the following statements is more effective
Information Sources as a part of a sales presentation?
A variety of sources of product informa- “The standard engine in this vehicle is
tion is available to salespeople. Companies a 3.5 liter V6.”
prepare information sheets and product “Our standard engine offers the best
manuals. Advertisements and other types combination of efficiency and power. You
of promotions often contain valuable will average 29 miles per gallon, but it will
information including price changes and also give you immediate acceleration, so
special incentives. The product’s market- you won’t have trouble merging into faster
ing plan and marketing research reports traffic when entering the freeway.”
are sources of useful information, as are The statements provide examples of
other salespeople and company personnel features and benefits. The first statement
including engineers, production personnel, describes a feature—the standard 3.5 liter
and other marketers. V6 engine. The second statement describes
Many companies offer frequent train- how the customer will benefit from the
ing for salespeople that emphasizes impor- engine—fuel efficiency and adequate
tant and up-to-date product information. acceleration when needed. Salespeople
They also prepare sales aids and other communicate most effectively when they
Feature-Benefit Comparison
FIGURE 17-3
Salespeople need to communicate the benefits of important product features based on each S
customer’s needs. In this case, the feature is an airbag, and the benefit is driver safety. N
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can describe the benefits of a product for a features, compare them to competitors,
customer in terms of important needs. translate them into customer benefits, and
Frequently a product’s features are sim- communicate the important benefits in an
ilar to those of competitors. Other features understandable way to each customer.
are different, and a few may be unique.
Customers want to know how various Checkpoint
products and brands are similar and how
they are different. They also want to know Why is merely describing a product’s
how the features will meet their needs. features not enough for an effective sales
The salesperson needs to understand the presentation?
Understanding the Competition

customer will seldom make a purchase customer is satisfied with the purchase.
A without considering several choices.

The consumer wants to buy the most
appropriate product and the best value. It is
The salesperson who is familiar with com-
petitors’ products can help the customer
understand differences among the choices.
not always easy for customers to make the Understanding competitors’ products and
final decision. With products that are very incorporating that information into a sales
similar, quite complex, or for which little presentation is not easy. Some salespeople
information is available, consumers may believe all they need to do is provide gen-
have a difficult time determining which eral and obvious information about com-
is best. It is not unusual for a customer to peting brands or to make only negative
buy one product only to realize later that comments about competitors. However,
another choice would have been better. customers will not find that information
Salespeople want to sell the products helpful. They are deciding between two
and services they represent, but they will or three alternatives and will not feel
be more successful in the long run if the positive if the salesperson inappropriately
S
N How can salespeople help customers make informed purchasing decisions?
490
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downgrades one of their final choices. Cus- products. The customer will be able to use
tomers will have a different view of a the information provided by the sales-
salesperson who demonstrates an under- person when examining a competitor’s
standing of the competition and carefully product and see the advantages of the first
helps customers compare advantages and brand. Just as with their company’s prod-
disadvantages so that they can make the ucts, it is important that salespeople study
most informed choice. all of the important parts of the market-
It is not unusual for customers to study ing mix for competitors’ products and call
several brands or similar products be- attention to benefits of each of the mix ele-
fore making a decision. A knowledgeable ments when appropriate.
salesperson can explain important differ-
ences to customers to assist them with the Checkpoint
comparison. The customer may not make a
final decision immediately but may spend Why is it necessary for a salesperson to
additional time comparing competing understand competitors’ products?

Determine the best answer. 6. Research You are a salesperson for an athletic
1. True or False: Salespeople who work for a uniform company. Your assigned market is all
company that believes in the marketing public and private schools within 200 miles of
concept will not need to gather customer your community. Locate two resources you can
information because detailed target market use to identify all of your potential customers.
information is already available. Describe the information in each resource that
will help you qualify the customer. List other
2. With , a salesperson contacts a large
information you will need to fully qualify each
number of people who are conveniently
school that is not available in the resources.
located without knowing a great deal about
each person contacted. 7. Ethics As an automobile salesperson, you
know that you can often sell customers expen-
3. The characteristics of a qualified prospective
sive cars by offering lower monthly payments
customer include all of the following except
requiring six years of payments. It increases
a. a need for the product
your current commissions, but it means that
b. the resources to make a purchase
customers will struggle to make monthly pay-
c. the authority to make a purchase decision
ments for many years. Write a three-paragraph
d. all are qualifying characteristics
analysis of your responsibility to the customer,
4. The letters that summarize the correct order of to your business, and to yourself.
the mental stages of a customer decision are
a. FIFO Connect to
b. AIDCA 8. Select a popular brand of luggage and gather
c. EFFORT information on a wheeled suitcase that can be
d. none are correct carried on an airplane. Develop a chart that
5. A is a description of a product charac- identifies five important product features and
teristic, and a is the resulting advan- a specific customer benefit statement for each
tage provided to the customer. feature. Use your own words for the benefit
statements rather than those of the manufac-
turer. Present the chart to your teacher (judge). S
N
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17-3 The Selling Process and Sales Support
GOALS KEY TERMS
• Detail the seven steps of the selling process. approach, p. 493 trial close, p. 496
• Explain why salespeople need support from preapproach, p. 494 suggestion selling, p. 497
other areas of the business. demonstration, p. 495 follow-up, p. 497
close, p. 496
A salesperson carefully assesses the needs of customers and uses the company’s
resources to design an effective marketing mix. The salesperson then presents that
mix and describes how it meets the customer’s needs. The salesperson asks ques-
tions to determine if the mix is satisfactory or if adjustments must be made and
helps the customer make the best decision. The best salespeople do not feel they
are finished once the sale is made. They will follow up with customers to make sure
they are satisfied and to provide any additional support needed.
Describe the last time you worked with a salesperson to buy something. What
did the salesperson do to convince you to buy? What could he or she have done dif-
ferently to be more effective?
Steps in the Selling Process

he selling process that is based on the represents the company to the customer
T marketing concept may not fit your

perception of selling. Remember that
not all companies and salespeople under-
but also is responsible for satisfying
customer needs. The selling process is
a cooperative process rather than a
stand or believe in the marketing concept. competition. The salesperson’s responsi-
It is not unusual to find salespeople who bility is to help the customer through the
believe their responsibility is to convince steps of the decision-making process so
the customer to buy their company’s that the final decision is the best choice.
products no matter what. They look at the A salesperson does need to be persuasive,
selling process as a type of contest between but it is easier to persuade people to
the customer and the salesperson. Each buy if they believe you understand
tries to negotiate the best deal possible. their needs and have their best interests
These salespeople use information and the in mind.
resources of the business as well as their Effective selling is a very demanding
personality and persuasion skills to con- profession. People who are skilled at sell-
vince the customer to buy. ing are in high demand in business because
S The marketing concept suggests an- their customers are very loyal and return
N other approach to selling. The salesperson again and again to buy. They are well
492
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compensated for their abili- FIGURE 17-4
ties because they help a com- Effective salespeople follow a specific procedure to match
pany sell products profitably. customer needs with the company’s products and services.
The procedures of ef-
fective salespeople can be Steps in the Selling Process
summarized in the seven
steps of the selling process. Step Purpose
Those steps are listed in Approach Contact customers, gain their attention
Figure 17-4. and interest, and create a favorable first
impression
Approach Determine Needs Gather information to determine
The approach is the first customers’ needs and how they can be
met
contact with the customer
when the salesperson gets Demonstrate Present the product in a way that em-
the customer’s attention phasizes cutomer benefits
and creates interest in the Answer Questions Overcome objections and ensure the
product. The approach may marketing mix meets customers’ needs
be initiated by the customer Close Obtain a decision to purchase
or by the salesperson. In Suggestion Selling Suggest other products customers may
either case, the salesperson see as valuable
is responsible for the result.
Follow-up Continue contact to ensure satisfac-
Retail Selling Consider tion, determine other needs, and build
the situation in which a relationships
customer enters a retail
store. The salesperson must decide the few products that appear to meet the
whether to approach the customer or to customer’s needs.
allow the customer to look around the As the customer is nearing a decision,
store. Some customers have a particu- the salesperson might review advantages of
lar product in mind. Others are making certain product features, payment options,
initial judgments about whether the store or any final important factors that will
offers products that interest them. Still help the customer decide to buy. Even if
others are simply spending time in the the customer does not buy, the salesperson
store without any real interest in making should be courteous and remind the cus-
a purchase. A salesperson who approaches tomer of important features and benefits
the customer in a pleasant way can to keep in mind. That will usually impress
quickly determine if the customer wants the customer and encourage a return visit.
assistance and where the person is in the
mental stages of decision making. Business-to-Business Selling
For the customer who is just beginning Salespeople who call on business cus-
to search for a product, the salesperson tomers have different factors to consider
provides information on the basic char- when planning an approach. Since sev-
acteristics of products that might meet eral people may be involved in making
the customer’s needs and may direct the a purchasing decision, the salesperson
customer to the appropriate location in the must decide whom to contact. Business
store. The salesperson allows the customer people receive frequent visits from many
to examine several choices but will step salespeople. They do not have time to
in if the customer appears to need help or meet with all of them, so they select only
has a question. With information gathered those who they believe can be of help.
by observing and talking to the customer, Telephone calls, letters of introduction, S
the salesperson can offer information on or special promotional materials sent to N
493
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the prospective customer can be used to Determine Needs
make the customer aware of the salesper- Determining needs is central to the mar-
son, the company, and its products. keting concept and the selling process.
When an appointment is set with a This step can be performed both before
business customer, the salesperson needs and after the initial customer contact.
to be on time and well prepared with all Whenever possible, salespeople should
materials required to discuss products and gather information about customers and
services with the customer. The salesper- their needs before the first meeting. Based
son needs to clarify who will participate on that information, they can outline and
in the initial meeting and whether others practice their sales presentation.
are involved in the final purchase decision. Efforts to prepare for a sales presen-
The initial call may be used to acquaint the tation in advance of the first customer
customer with the business and its prod- contact are called a preapproach. The
ucts and to gather information in order preapproach includes gathering prelimi-
to facilitate follow-up meetings. On the nary information and preparing a pre-
other hand, many business-to-business liminary sales presentation for a customer.
sales are completed in one sales call, so the Salespeople study target market informa-
salesperson needs to be well prepared with tion available on the specific customer.
customer information and the capability They also review information about their
to negotiate an order. It is beneficial if both own company, its products, and the mar-
the salesperson and the customer are in keting mix. The intention is not to memo-
agreement on the purpose and goals of the rize a sales presentation. Rather, prepara-
first meeting. tion and practice make the salesperson
Digital Digest
Effective Technology Boosts come across. This two-way movement of
Sales information ensures that everyone in an or-
ganization, including independent dealers,
Increasing the productivity of a sales force
can access the latest information when
takes more than just handing out hand-held
and where they need it. It also ensures that
digital organizers to manage appointments
everyone is working with the same informa-
and contacts. If information technology
tion at all times.
merely streamlines administrative tasks to
As a result, salespeople can target their
give salespeople more time to make unpro-
sales presentations more precisely and, if ap-
ductive sales calls, it is not worth the invest-
propriate, make adjustments to the market-
ment in money or time. Technology consul-
ing mix to fit the situation. That results in a
tants stress that truly productive systems
reduction in unproductive activities and an
provide salespeople with the very latest
increase in effective selling.
information on products, customers, com-
petitors, orders, and market conditions. And Think Critically
they include training to help salespeople get
1. What kinds of information about a busi-
the most out of the technology.
ness customer would you want to have
The best-regarded information systems
before making an important sales call?
not only give salespeople the latest infor-
mation available but also enable them to 2. Why is sales force information technology
S integrate any new information that they most beneficial for large organizations?
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more comfortable and allow the salesper-
son to concentrate on the customer during
the meeting.
Once customers are contacted, they
become the primary sources of informa-
tion. Salespeople confirm and fine-tune
the information they have and then zero
in on determining the customer’s specific
needs by direct questioning. The goal is to

find the best way to satisfy those needs and
lead the customer effectively to a decision
through a sales presentation. Preapproach
work with a customer may be done through
surveys and questionnaires, e-mail and
telephone contacts, or even a meeting with
the stated goal of gathering information. How could a vacuum cleaner demonstration
help persuade a customer?
Demonstrate
of the marketing mix that are most im-
The major part of the sales presentation is portant to the customer and describe how
the demonstration. The demonstration is the customer will benefit from each of the
a personalized presentation of the features features.
of the product in a way that emphasizes Characteristics of an effective demon-
the benefits and value to the customer. stration include the following:
The salesperson tailors the product in-
formation directly to the customer and • Use active, descriptive language that is
emphasizes the parts of the marketing understandable and meaningful.
mix that best meet the customer’s needs. • Direct the customer’s attention to a
The demonstration is designed to turn the specific feature and explain the benefit.
customer’s interest into desire.
As the salesperson moves from the • Observe reactions and listen to com-
approach to the demonstration, the main ments to keep the demonstration
needs of the customer should be identified. focused on the customer’s needs.
The salesperson confirms those needs and • Demonstrate the feature rather than
determines the information that will help just describing it when possible.
the customer make a decision by asking
questions and listening carefully to the • Involve the customer. Let the customer
customer. handle and test the product.
The most effective demonstrations are • Make the presentation dramatic so that
based on a feature-benefit presentation. the customer remains interested and
The salesperson must identify the features remembers important features.
• Use sales aids such as pictures, charts,
Fa s t FAC T S and computer demonstrations to en-
hance understanding.
A study by Dartnell Corp. found that
salespeople spend less than half of their
• Review the benefits that seem to be
most meaningful to the customer.
work time selling. More than half of their
time is spent traveling, waiting to see
customers, and completing paperwork Answer Questions
and other administrative tasks. A salesperson uses a customer’s questions S
to resolve concerns and provide additional N
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information. As a salesperson successfully decision to buy. This is especially true
responds to each question, the customer is for an expensive product or one that the
mentally moving from desire to conviction. customer has not purchased before. A
This step in the selling process is often salesperson needs to be skillful in closing
referred to as overcoming objections. In the the sale. A customer who feels pressured
traditional view of selling, it was believed will resist buying the product. On the
that customers raised objections to avoid other hand, some customers need encour-
making a purchase decision. Salespeople agement. If the salesperson does not ask
had to overcome that resistance by han- for the order, the customer may postpone
dling the objection. Again, that approach the decision and buy something later. The
set up the selling process as a competition salesperson must provide opportunities for
between the customer and the salesperson. the customer to purchase the product and
When the salesperson has the interests be willing to continue the sales presenta-
of the consumer in mind and is presenting tion if the customer is not ready to buy.
a product or service that meets customer Providing the customer with the op-
needs, there is less reason for resistance. portunity to buy during the sales presenta-
Customers want to be certain that they tion is known as a trial close. A customer
are making the correct decision. They ask who repeatedly handles the product, ap-
questions to gather information and to pears satisfied with answers to questions,
clarify their understanding. or responds favorably to a feature-benefit
A salesperson should welcome and description or demonstration may be ready
encourage questions. Questions will often to buy. The salesperson should take that
help the salesperson identify the most opportunity to ask for the order.
important needs of the customer. They There are several ways a salesperson
indicate the parts of the marketing mix can close a sale. The goal is to make the
that the customer does not yet under- decision easy for the customer. Methods of
stand. By answering each question well, closing a sale include:
the salesperson demonstrates an interest Close on an important benefit. “You
in the customer’s needs and the customer’s obviously are concerned about safety. This
understanding of the product. An effec- automobile not only has front and side air
tive procedure for answering questions is bags but also has built-in child safety seats
shown in Figure 17-5. in the rear. You can’t find a safer family
automobile.”
Close the Sale Offer the customer a choice. “We have
The close is the step in the sales process both the green and blue in stock. Which
when the customer makes a decision to would you prefer?”
purchase. A well-planned sales presenta- Provide an extra value. “This month
tion helps the customer move from at- we are offering a 3 percent discount if you
tention to interest to desire and then to decide to order 500 or more units.”
conviction. A customer Answering a Customer's Questions
must be confident that a
product or service will
meet important needs and
that it offers the best value. ?
At that point, the final step
in the decision-making listen restate
provide
information
check for
understanding
process can be complet-
ed—action.
It is not easy for the FIGURE 17-5
S customer to make a Answering questions requires effective communication skills.
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Ask about the method of payment.
“Will you pay cash, or would you like to
use the 6-month financing plan we dis-
cussed?” The close is the step in the sale when the cus-
Emphasize availability. “If you place tomer makes a decision to purchase. This can
the order today, we can have it delivered be the most difficult part of a transaction for a
and installed by Friday.” salesperson to handle. Access school.cengage.
Guarantee satisfaction. “You can try com/marketing/marketing and click on the link
it for two weeks. If you are not satisfied for Chapter 17. Read the online article about
for any reason, we will gladly replace it or closing techniques. According to the article,
offer a full refund.” how do retail sales closes get customers to
As soon as the customer decides to buy? Why does the author believe that retail
buy, the salesperson should reinforce that close techniques do not work well in business-
decision. Customers want to believe they to-business selling? Do you agree?
made the right choice, but they often have
concerns after the decision is made. The school.cengage.com/marketing/marketing
salesperson should re-emphasize the value
and briefly summarize the benefits the
customer will receive from the purchase. satisfaction is known as follow-up. Follow-
up also provides another opportunity
Suggestion Selling to reinforce the customer’s decision and
One of the responsibilities of the sales- determine if the customer has additional
person at the completion of a sale is to be needs that the business can meet. Follow-
certain the customer’s needs are as fully ing up each sale is an important part of re-
satisfied as possible. Frequently, a product lationship building that can lead to repeat
can be used more effectively if the cus- sales and referrals to additional customers.
tomer purchases related merchandise. A bi- Part of the follow-up responsibility
cycle rider needs a bicycle helmet. A coffee may include activities such as checking on
table may be useful for someone who just
purchased a living room suite. If customers
go home without all of the things needed
to use the product, they will probably be
dissatisfied. Offering additional products
and services after an initial sale in order
to increase customer satisfaction is known
as suggestion selling. Products offered
after a sale should be clearly related to the
product purchased and beneficial to the
customer. A customer who believes that the
salesperson is just trying to add to the sale
or is pushing products that the business is
currently promoting will no longer have a
positive view of the salesperson.
Follow-Up
Customers who purchase products and
services from a company and are satisfied
with their purchases are likely to buy
from that company again. Making contact S
with the customer after the sale to ensure How can salespeople follow up with their customers? N
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delivery schedules, making sure warranty completing follow-up activities, it will be
or product registration information is ac- evident that the customer is important.
curate, scheduling product installation and
maintenance, or making sure financing
paperwork is complete and accurate. If the Checkpoint
customer has any problems, the salesper-
son should arrange to resolve them quickly. Identify and describe each of the seven
When the customer sees the salesperson steps in the selling process.
Providing Sales Support

or selling to be effective, the
F salesperson must receive sup-

port from many parts of the
business, including other market-
Enterprise Intelligence | Supplier Intelligence | Organizational Intelligence| Customer Intelligence | Intelligence Architecture
ing personnel. To meet customer

needs, the salesperson must have Identify and keep
products and services that are well
designed, readily available, and your most valuable
priced competitively. People in pro- customers.
duction, finance, and management
©2003. SAS INSTITUTE, INC. CARY, NC, USA. ALL RIGHTS RESERVED.
need to coordinate their work with
the salespeople to match the sup-
ply of products with sales. Order
processing, customer service, and
many other business activities are SAS® provides you with a complete view of your
required. customers. So you’ll understand their needs, enhance
Each of the following descrip- their lifetime value and achieve greater competitive
advantage. To find out how leading companies are
tions of important marketing reaping the rewards of SAS customer intelligence

software, call 1 866 270 5723 or visit our Web site.
activities demonstrates how they www.sas.com/customer
support the work of salespeople.
• Marketing-Information Man-
agement: Salespeople need ac- SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries. ® indicates USA registration.
© 2003 SAS Institute Inc. All rights reserved. 239802.0603
cess to a wide variety of infor-

mation throughout the selling
process. In the preapproach, the There are many technology businesses, such as SAS,
that offer systems to help improve the effectiveness of
salesperson needs information
salespeople.
on customers and their needs.
During the sales presentation, need assistance in explaining financing
the salesperson may need to gather and completing the paperwork.
additional information about prod-
ucts, competitors, or the customer that • Pricing: Many prices are not firm and
should be maintained in the company’s can be negotiated by the customer. Of-
MkIS. fering discounts, accepting trade-ins,
and other methods can be used to ad-
• Financing: Many customers need to just the price. A salesperson must have
finance their purchases. Salespeople the authority to negotiate the price or
must have access to credit services to must be able to get pricing information
S offer their customers. They may also quickly.
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• Promotion: Usually customers obtain • Distribution: Products and services of-
information from sources other than ten need to be delivered to customers.
the salesperson to aid in making a buy- Salespeople rely on transportation
ing decision. Other types of promotion, services to get the products delivered
including advertising and publicity, can at the time the customers want them.
create interest, inform customers of Salespeople need to have information
product choices, or reinforce a pur- on transportation schedules and costs
chase decision. when they work with their customers.
• Product/Service Management: Salespeo-
ple can provide information on cus-
tomer needs and customer reactions Checkpoint
to the current products and services
offered by the business. That informa- Why do salespeople need support from
tion should be used to improve existing other areas of the business including other
products and develop new products. marketing personnel?

Determine the best answer. 6. Communication Choose a partner and as a
1. True or False: The selling process needs to be team, select a product that each of you is
viewed as a contest between the customer familiar with and would be comfortable selling.
and the salesperson to see who can negotiate For each of the methods of closing a sale, write
the best deal. a short script that a salesperson could use to
sell the product. Use the script to role-play
2. The first contact with a customer when the
each closing method for the class.
salesperson gets the customer’s attention
and creates interest in the product is the 7. Science When customers make expensive
a. preapproach purchases, they often use a scientific decision-
b. approach making process. Develop a chart that outlines
c. contact the steps in the decision-making process (see
d. cold call Chapter 6). Next to each of those steps, list the
step or steps in the selling process that help a
3. Which of the following is not a characteristic
customer with that part of the decision-making
of an effective product demonstration?
process. Write a one paragraph statement
a. use technical language to impress the
discussing how salespeople can help customers
customer
make the best decision possible.
b. keep the customer from asking questions
until the demonstration is complete Connect to
c. don’t let the customer handle the product
8. You are a salesperson meeting with a pro-
to prevent confusion and damage
spective customer to sell a new laptop com-
d. none are effective procedures
puter. Select the brand and model of computer
4. Offering additional products and services you want to sell, gather product information,
after an initial sale in order to increase cus- and prepare a five-minute sales presentation
tomer satisfaction is known as . that includes the appropriate approach,
5. True or False: For selling to be effective, the demonstration, response to questions, trial
salesperson must receive support from many close, close, and suggestion selling. Meet with
parts of the business, including other your teacher (judge) to complete your sales
marketing personnel. presentation.
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Now that you have completed the chapter, check describe the three important areas of personal
your understanding of the lessons with these ques- sales management?
tions. Record the score that best represents your explain why cold calling is not an effective
understanding of each marketing concept. method of identifying prospective customers
1 = not at all; 3 = somewhat; 5 = very well and what makes a qualified customer?
If your score is 42–50, you are ready for the assess- identify each of the mental stages in consumer
ment activities that follow. If you score 33–41, you decision making?
should review the lessons for the items you scored provide examples that demonstrate the differ-
1–3. If you score 32 or less, you will want to carefully ence between features and benefits?
reread the lessons and work with a study partner on explain why salespeople need to understand
the areas you do not understand. competitors’ products as well as their own?
Can you— identify each of the steps of an effective selling
define selling and describe the characteristics of process in the correct order?
effective personal selling? describe the importance of follow-up with cus-
describe when businesses should use per- tomers after the sale is completed?
sonal selling based on its advantages and suggest several important marketing activities
disadvantages? that support the work of salespeople?

1. Direct, personal communications with prospec- 9. The advantage provided to a customer as a re-
tive customers in order to assess needs and sult of the feature
satisfy those needs with appropriate products 10. A personalized presentation of the features of
and services the product in a way that emphasizes the ben-
2. The step in the sales process when the customer efits and value to the customer
makes a decision to purchase
3. A description of a product characteristic
4. Providing the customer with the opportunity to a. approach
buy during the sales presentation b. benefit
5. Gathering information to determine which c. close
people are most likely to buy d. cold calling
6. Gathering preliminary information and prepar- e. demonstration
ing a preliminary sales presentation for a cus- f. feature
tomer g. follow-up
7. A salesperson contacts a large number of people h. preapproach
who are conveniently located without knowing a i. qualifying
great deal about each person contacted j. selling
8. Making contact with the customer after the sale k. suggestion selling
to ensure satisfaction l. trial close
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11. True or False: Cold calling is usually a cost- and 16. When a customer indicates
time-effective method of finding sales leads. that he or she has decided
12. Personal selling is in that a sales- to place an order, the sales-
person can provide additional information person should take the first
or move on to another topic depending on a opportunity to
customer’s reaction to the sales presentation. the decision to assure the
customer that he or she has made the right
13. True or False: Personal selling generally has a move.
higher cost per customer than other methods of
promoting a product or service. 17. True or False: Successful salespeople are often
lacking in self-discipline and self-management
14. The mental stages of consumer decision making skills, but they succeed because they are very
are represented by the acronym . outgoing.
15. The step of the selling process referred to as an- 18. Successful sales occur when customers are able
swering questions is also known as . to buy what they need and the business is able
to .

19. The following is a list of important personal are interested in and able to buy the
selling concepts. Match each concept with the company’s products or services.
correct example or description. Fred March listens carefully to his customers
a. assess and satisfy needs so he can understand when they are ready
b. customer decision-making process to make purchase decisions.
c. feedback Sales publications, manuals, promotional
d. flexibility pieces, conferences, trade shows, and
e. follow-up trade publications are studied and used by
f. product knowledge effective salespeople.
g. qualifying 20. Salespeople are often paid bonuses or commis-
h. time sions on their total sales. Each of the following
During a sales presentation, the salesperson salespeople earns $60,000 per year and, in ad-
can respond to the customer’s questions or dition, earns 2 percent commission on all sales
determine if specific information is needed. over $250,000 per year.
Salespeople listen and ask questions to a. What is each salesperson’s total income
respond to the needs of each customer. for the year?
Customers get more detailed product b. What is the average amount of each
information than they can with other salesperson’s sale?
methods of promotion.
c. What percentage of calls resulted in a sale
Lin Chung estimates that she spends about
for each salesperson?
one-third of her time with
customers to help them with
products they have purchased. Number of Number of
Rosa Garcia likes to make sure Sales Calls Sales Per
her customers get the best Salesperson Total Sales Per Year Year
products possible to solve their
problems. Chin Miller $2,345,200 250 107
Salespeople use marketing
Jane Brown 3,395,200 350 120
research information to
determine the customers who Marcus Gonzalez 2,930,400 400 99
S
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21. Before making a sales call, the salesperson salesperson represents. Assume you are a sales-
should be armed with information about the cus- person selling a video camera. For each of the
tomer, the product, and the competition. Assume following features, describe a customer benefit
you are a salesperson of vehicle tires to be sold using descriptive, meaningful language.
to automobile manufacturers. List three pieces of a. automatic focus
information that would be helpful to know about b. date and event imprinter
your customer, your product, and the competi- c. case with carrying strap and ID tag
tion. List three methods or sources you can use d. removable flash memory storage
to find the necessary information. e. six-hour battery
22. Effective salespeople help to solve customer f. low-light lens
problems by explaining how a product or service g. detachable microphone
will benefit the consumer. It is helpful to prepare h. image stabilization system
a feature-benefit chart for each product a

23. As the CEO of a company that offers web site final price. Calculate the difference between
design and web hosting services to other busi- each list and offered price. Using a word pro-
nesses, you understand how important it is to cessing program, write a one-page report of the
provide support to your salespeople as they plan actions taken by salespeople you encountered
sales presentations and work with prospective to determine your needs and help you make a
and current customers. For each of the market- good purchase decision.
ing activities listed below, specify one way that a. motor scooter
the people working in these areas can provide b. a set of golf clubs
the necessary support for the salespeople. c. large screen plasma or LCD television
a. Distribution d. the newest full-featured cellular telephone
b. Financing e. work desk and chair for your room
c. Marketing-Information Management f. a musical instrument
d. Pricing 26. Form a three-person sales team with two class-
e. Product/Service Management mates. Your team represents a local vending
f. Promotion company that wants to enter into an exclusive
24. Search the Internet for six full-time job open- contract with your school to supply vending
ings in sales. Prepare a table that compares the machines that will offer only healthy beverages
industry and product/service to be sold, job and snack foods. You hope to be the only ven-
duties, qualifications (education and experience) dor, place ten machines in the school, and offer
and type of compensation (wage, salary, com- the school 20 percent of all revenues from the
mission). Add notes from the job announcement machines. Your company is willing to negoti-
that identify whether or not you believe the ate on the types of items in the machines, the
company expects the salesperson to understand number of machines, and the percentage of
and follow the principles of the marketing revenue shared, if necessary. As a team, identify
concept. the person in the school who will be your initial
25. Pick one of the following products listed below, contact, the other school personnel you expect
and go comparison shopping for a particular to be involved in the final decision, and how you
brand and model of that product at three dif- will make your initial contact. Prepare a team
ferent retailers. Obtain data on the list or sticker sales presentation following the steps in the
price, the prices of features or options you prefer, selling process. Prepare printed or computer-
and the final price offered by the salesperson. displayed materials and visuals to support your
Input the data into a computer spreadsheet sales presentation. Practice the presentation as
program and calculate the average list price, the a team, and then make the presentation to a
S average price of each option, and the average group of your classmates who will role-play the
N school’s decision makers.
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Technical Sales Event
The purpose Acceptable visual aids include three
of the Tech- standard-sized posters not to exceed 22” ⫻
nical Sales 30” each and one standard-sized presentation
Event is to display board not to exceed 36” ⫻ 48” to be
provide an placed on chairs or free-standing easels. Elec-
opportunity tronic presentations with no sound effects
for students may also be used in the Technical Sales Event.
to demonstrate knowledge of a technical
product. Participants will organize and deliver
a sales presentation for their selected techni- Performance Indicators
cal product to meet the needs of customers. Evaluated
The target customers are parents of students • Communicate reasons for buying a new
in elementary, middle, and high school. (New technical product. (Communication Skills)
product and/or service target market custom- • Take a concept from an idea to an actual
ers will be identified annually by DECA.) product. (Product/Service Management)
Society is becoming increasingly con-
cerned with the number of young people be- • Analyze product information to identify
ing abducted each day. You have been asked product features and benefits. (Selling)
to do an analysis of the Student Tracker—an • Set priorities and demonstrate effective
electronic device that allows parents to know time management. (Emotional Intelligence)
the location of their children at all times. First • Demonstrate critical-thinking/problem-
Alert sells a broad line of security products, solving skills. (Emotional Intelligence)
ranging from home security systems to GPS
tracking devices frequently used by business Go to the DECA web site for more
travelers to find their way around major cities. detailed information.
You must convince the CEO from First
Alert that the Student Tracker is an important
product with great potential for profitability.
Think Critically
You must analyze Student Tracker features and 1. How has the media been
benefits. The Student Tracker must be incon- a driving force behind the
spicuous, convenient to wear, and depend- need for the Student Tracker
able with a long battery life. You must explain product?
a strategy to convince students to wear the 2. Why must the Student Tracker de-
Student Tracker. Your presentation must ex- vice be small and inconspicuous?
plain how easy it is to monitor people wearing 3. Where are the best opportunities
the Student Tracker. for First Alert to present the Student
You must organize appropriate informa- Tracker to its target markets?
tion and present/defend a sales presentation.
The 20-minute oral presentation will consist 4. Why might students resist the Stu-
PHOTOS: ©DECA INC.
of 15 minutes for the sales presentation and dent Tracker device?

5 minutes for the judge’s questions. Your pre-
sentation will be evaluated for effectiveness
of public speaking and presentation skills and S
how well you respond to the judge’s questions.
503
17-1 • The ValueDECA
of Selling
Prep 503
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Chapter 18
Marketing in a
Global Economy
18-1 The Expanding World Economy
18-2 How Businesses Get Involved
18-3 Understanding International

Markets
Newsline )))
Responding to the World Economy
Are NAFTA, WTO, and EU the names among nations. Founded in 1995, it the economies of some countries,
of rock groups or characters from a now includes almost 150 member resulting in lost jobs and limited
science fiction movie? No, but they countries. It builds international protection for a country’s companies
have become as important in our trade agreements and resolves and products. Competition between
lives as music or movies. The acro- trade disputes. The WTO works to groups of countries may be fiercer
nyms stand for the North American support free trade and to change than it is between individual coun-
Free Trade Agreement, the World laws and regulations that businesses tries, and governments may become
Trade Organization, and the Euro- view as restrictions to international more committed to regional and
pean Union. They represent a few of trade. Critics fear that the WTO shifts worldwide economic development
the growing number of agreements power from citizens and national than to the economic well-being of
among nations. governments to a global group of its own citizens.
NAFTA is an example of a unelected officials.
regional trade pact. It was imple- A unique regional agreement Think Critically
mented between the United States, is the European Union because it 1. Why would individual govern-
Canada, and Mexico in 1994. The extends beyond improving trade ments be willing to change
purpose was to eliminate trade among countries. The EU started
some laws and regulations
barriers, facilitate cross-border in 1957 with six western European
to gain regional economic
movement of goods and services, countries and continues to expand.
and increase business investment In 2007, it included 27 member cooperation?
opportunities. It has been opposed countries. The EU promotes eco- 2. What are possible advantages
by people in the United States who nomic growth and social equality and disadvantages to citizens
fear the loss of manufacturing jobs across country borders with an EU of individual countries from the
to Mexico and the erosion of envi- parliament and a common currency, increasing unified planning and
ronmental and safety safeguards. the euro. economic cooperation of
The World Trade Organiza- There is concern that interna- the EU?
tion deals with the rules of trade tional agreements may damage
CH 18-B4491-DS_REV3.indd 504 12/5/07 9:45:27 PM


• Understand global trade’s impact to aid business • Identify the effects of global trade on retailing
decision making • Explain current retail trends driven by global trade
• Employ marketing information to develop a mar- • Access global trends and opportunities
keting plan
• Explain the nature of global trade
• Determine global trade’s impact on business deci-
• Discuss the impact of cultural and social environ-
sion making
ments on global trade
• Explain labor issues associated with global trade
Visual Focus
A business’s greatest competition traditionally
came from companies in its own back yard.
Now the competition can come from across
the country and even around the world. Busi-
nesses are becoming globally focused, not only
to respond to competition but also to identify
new and potentially profitable market oppor-
tunities. When competing internationally, the
marketing concept still applies, but target mar-
kets and marketing mixes may be very differ-
ent. Businesses moving into the global market
may look for help from other businesses that
have more international experience.
The strength to cover the world’s Focus Questions:

leading businesses and financial centers.
Based on the ad, what types of products and
services does XL Capital offer and who are its
customers? How would a business involved in
INSURANCE I REINSURANCE I FINANCIAL international trade benefit by working with XL?
The XL Capital group is rated A+ by AM Best (15 August 2006)
Visit www.xlcapital.com
Locate another ad of a company that
©XL
provides products or services to international

customers. Share your ad in a class discussion
on how marketing may be similar or different
in international markets.
CH 18-B4491-DS_REV3.indd 505 12/5/07 9:48:53 PM

18-1 The Expanding World Economy
GOALS KEY TERMS
• Describe the important role that international trade imports, p. 507
plays in the global economy. exports, p. 507
• Explain why businesses expand into international mar-
kets and how governments assist them in doing so.
Businesses often try to sell their products or services in international markets when
they run out of new customers in their home markets. Another reason for reaching
out to customers in other countries is to try to match the competition from foreign
firms that have entered their home markets. They hope to be able to satisfy a grow-
ing demand from foreign consumers for a greater variety of products.
Make a list of ten assorted products that are regularly used in your home, such
as food, electronics, medicine, clothing, and furniture. Identify the country or region
of the world where you believe each product was produced. What percentage of the
products did you identify as being produced or manufactured in a foreign country?
Do you believe that percentage reflects in general how consumer dollars in the
United States are spent on goods produced in foreign countries versus the United
States? Compare your answers with those of other students in a class discussion.
The United States and

International Trade
n 2006, the total value of all goods and
I services produced in the world was

nearly $66 trillion. That amount has
more than doubled in just five years. The
Worldwide Interdependence
Most of the products and services pro-
duced in the world are still consumed by
people in the countries where they are
United States has the world’s largest econ- produced. Yet about one-third of all world
omy. In 2006, it produced products and production is sold outside of the country in
services valued at more than $13 trillion, which it is produced. The sale of products
which is about one-fifth of the total pro- and services to people in other countries is
duction of all countries in the world. The known as international trade. Some coun-
United States is a very productive countries are more involved in international
try with only China and the combined trade than others, but almost all countries
production of countries in the European are expanding their involvement.
Union approaching the output of the U.S. It is easy to find examples of interna-
S economy. The top world economies are tional trade. Spend a short time looking at
N shown in Figure 18-1.
506
506 CHAPTER 18 • Marketing in a Global Economy
CH 18-B4491-DS_REV3.indd 506 12/5/07 9:50:18 PM

all the products and The World’s Largest Economies (2006)*
services you consume
during just one day to
determine where they
were produced. You
will quickly see that
many are not pro-
duced in the United
States but come from
countries around the
world. Products or ser-
vices purchased from
another country are
known as imports.
You may start your
morning with fruit
and cereal grown in
El Salvador and trans-
ported here in ships
from Panama. The *CIA World Factbook, 2007
clothes you wear may World $ 65.950 trillion
have been manufac- United States $ 13.130 trillion Italy $ 1.756 trillion
tured in Taiwan, and European Union $ 13.060 trillion Russia $ 1.746 trillion
you may ride to school China $ 10.170 trillion Brazil $ 1.655 trillion
on a bus that was Japan $ 4.218 trillion South Korea $ 1.196 trillion
assembled in Canada. Germany $ 2.630 trillion Canada $ 1.178 trillion
Your textbooks may United Kingdom $ 1.930 trillion Mexico $ 1.149 trillion
France $ 1.891 trillion Spain $ 1.109 trillion
have been published by
a company that is part FIGURE 18-1
of a British corpora- The United States is the world’s largest producer of goods and services, but
tion. After school, you other countries are increasing their production rapidly.
may call your friends
on a telephone that was produced in Japan music, movies, automobiles, and food
and use a computer made in Korea for products. U.S. manufacturers of airplanes,
homework. That evening you watch a computers, and communications equip-
movie that was filmed in Kenya on a DVD ment also have a large number of interna-
player assembled in Poland. Certainly, you tional customers.
will likely see that many of the products
and services you use were produced in the
United States, but you and the people in
your community are indeed international
consumers. Wo r k i n g i n Te a m s
International business is also impor-
tant to other countries. Just as you use As a team, identify three products for which you
products produced in foreign countries, believe U.S. companies are the largest producers
consumers in those countries are impor- based on worldwide sales. Now identify three
tant customers for U.S. businesses. Prod- products for which you believe foreign-owned
ucts and services that are sold to another companies are the worldwide sales leaders. Use
country are known as exports. Important the Internet to determine whether or not you
consumer products exported from the are correct. S
United States to other countries include N
507
18-1 • The Expanding World Economy 507
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Virtual Marketing
China’s Internet Develops from still does not have Internet access. Many
Infancy people go online at their workplace,
colleges, or in Internet cafes. U.S. companies
In 2000, only 2 percent of China’s popula-
recognize the potential for growth. Com-
tion had Internet access. But because China’s
panies such as Google have moved into the
overall population was so large, even this
Chinese market, but because the Chinese
small percentage of users made China the
government censors information that its
fifth largest Internet market behind the
people can access, Google limits the infor-
United States, Japan, Germany, and England.
mation on its site to adhere to Chinese law.
Since 2000, China’s Internet usage has
grown rapidly. In 2007, it was estimated Think Critically
that 12.3 percent of the country’s 1.3 billion
1. Even with the rapid growth of China’s
people were online. That represents
online population, why might businesses
162 million Internet users, up 620 percent
decide to avoid that market?
from 2000. Over half of all Internet users in
the country are under 25 years old. 2. What does the age of Chinese Internet
China has invested heavily in its Internet users say about its potential as a business
infrastructure, but because China has many market?
rural areas, a good portion of the population
The Changing Nature of between countries include communica-

International Trade tions, travel, education, financial services,
and information. One interesting example
The type of products and services ex- of the exchange of services is in the area
changed between countries is changing. of data management. Banks and other
Years ago, a great deal of international financial institutions in the United States
trade was devoted to obtaining raw materi- are using companies in India, Ireland, and
als. Some countries had an abundance of South Africa to complete a large amount of
raw materials (timber, iron ore, petroleum) the data processing for their businesses. At
but had not developed their manufactur- the end of the business day in the United
ing capabilities. Other countries were States, data is transferred to another coun-
heavily involved in manufacturing but try via telephone lines, fiber optic cable, or
did not have adequate supplies of needed satellite transmission. The data processors
resources to operate their factories. There- in the other countries complete work on
fore, they purchased the raw materials the information, update the customers’
from other countries. At that time, raw accounts, and transfer the data back to
materials made up almost all of the prod- the U.S. location in time for use the next
ucts traded between countries. Today, raw business day.
materials are less than one-third of the
world’s exports. Most exports now consist
of manufactured goods and services. Checkpoint
Currently, international trade in ser-
S vices is growing faster than trade in prod- What is the difference between imports and
N ucts. Common types of services exchanged exports?
508
CH 18-B4491-DS_REV3.indd 508 12/5/07 9:50:30 PM

Planning a Career in... International Hospitality
“My grandpa is finally going

to travel to Japan to study
a culture that has always
intrigued him. Since he
has some health issues, he
wanted to be sure that his • An understanding of and experience with var-
tour includes interpreters ied cultures is an advantage.
who are well versed in medi-
cal terminology in addition to the usual tourist • High school students may participate in a
information. His travel agent has assured him two-year program developed by The Hotel and
that competent interpreters will be available Lodging Association. Program completion re-
on his tour, so he should just relax and start sults in a professional certification in hospitality.
packing!”
How do corporations conduct business in What’s it like to work in...
foreign countries? How do tourists manage daily International Hospitality
life needs in foreign countries? Arden, an international sales agent for a hotel
International hospitality coordinators work to chain, is preparing a sales proposal. Tomorrow she
ensure successful, stress-free trips for international will be calling on the conference coordinator for
travelers. Because a variety of languages and an international professional society. The society
cultures may be represented, both interpreters has booked the local convention center for its an-
and translators need to be available in the host nual conference. Although the conference will not
countries. Interpreters focus on verbal language occur for two years, the organizers want to ensure
translations. Converting one written language into that the hotel they use responds to the needs of
another is the role of translators. international visitors.
Employment Outlook Arden has arranged the services of several in-
ternational language specialists for the entire con-
• Consolidations in some parts of the industry ference. Given the variety of countries represented
may reduce management opportunities, but
by conference attendees, Arden needed to secure
growth is expected in international business
a broad spectrum of interpreters and translators.
services.
Arden’s sales plan incorporates recommenda-
• Excellent job prospects exist in countries with tions from the hotel staff that focus on accommo-
developing economies and where business and dating the cultural needs of guests from various
tourism is expanding. countries. The entire hotel’s staff receives exten-
sive training about cultural differences.
Job Titles Proactively catering to the needs of interna-
• International Travel Coordinator tional travelers should give Arden’s hotel a com-
• Hotel Concierge petitive edge.
• Translator and Interpreter
• Cruise Line Guest Services Director

• International Convention Planner
Needed Skills
W h a t A b o u t Yo u
• Interpreters and translators must be fluent in Would you like to work with international travelers
multiple languages. to help make their visit to your country more S
• A bachelor’s degree in Hospitality Management enjoyable? N
is beneficial. 509
CH 18-B4491-DS_REV3.indd 509 12/5/07 9:50:33 PM

Why Businesses Are Going Global
he decision by businesses to become with the foreign companies in their own
T involved in international trade is not

always as carefully planned as you
might think. There are a number of rea-
country, they decide to enter international
markets to keep the competition more
balanced. In the 1970s, automobile manu-
sons why businesses typically get involved facturers from Japan and Germany moved
in international trade. into the U.S. market to take advantage of
the need for smaller, more fuel-efficient
Changing Markets and cars. One of the responses of U.S. firms
Competition was to increase efforts to sell their brands
in other countries.
Some businesses first decide to market A third reason for global marketing
products in other countries out of neces- is the increasing worldwide demand for
sity. They find that competition is becom- products. Consumers in many countries
ing very intense in their current markets look to the United States for product
and their sales and profits are declining. To and service ideas. As economies expand
gain sales and increase profits, companies throughout the world and standards of liv-
begin to look at other countries for poten- ing increase, consumers in those countries
tial markets. are willing to spend money for a variety
When the birth rate declined in the of products. Businesses that recognize the
United States, companies that manufac- increasing demand offer their products for
tured products for babies (formula, baby sale wherever customers are willing to buy,
food, diapers) looked for markets in other including internationally. Manufacturers
countries. And when attendance at U.S. of products ranging from blue jeans to mu-
movie theaters declined for several years, sic and hamburgers are finding success in
film distributors increased their efforts to world markets.
market films abroad. To some businesses, the idea of sell-
Other companies consider interna- ing products or services internationally
tional markets when they see companies seems complicated or difficult, so they may
from other countries entering their own decide not to become involved in inter-
markets. Rather than just competing national trade. But with improvements in
transportation, communication, banking
and finance, and other business processes,
it is often as easy to serve markets in other
countries as it is to sell in markets that are
several states away.
© COURTESY OF VOLKSWAGEN OF AMERICA;
AD AGENCY: ARNOLD WORLDWIDE, BOSTON.
Assistance with International

Marketing
Every country benefits from international
business because of the availability of a
greater variety of products and services
and the profits available from exporting
the country’s products. Most governments
are developing support for companies that
want to increase their business conducted
in other countries.
S Germany’s Volkswagen Beetle has been a popular U.S. import There are several examples of govern-
N for many years. ment support for U.S. businesses. The
510
CH 18-B4491-DS_REV3.indd 510 12/5/07 9:51:32 PM

Department of State maintains embassies In addition to government support, an
in most countries that can help with increasing number of other sources, such
passports, documents, and laws. The U.S. as banks and other financial services com-
Department of Commerce maintains the panies, insurance businesses, accounting
Trade Information Center and Export firms, transportation companies, and com-
Assistance Centers to provide support for munications services firms, may provide
U.S. businesses involved in international assistance to their customers.
trade. Even the Small Business Admin-
istration has an office to provide assis- Checkpoint
tance for small U.S. businesses wanting to
expand into foreign markets. Many states What are three reasons that businesses try
have trade promotion offices to help busi- to sell their products or services in interna-
nesses develop markets in other countries. tional markets?

Determine the best answer. 5. Math Use the information in Figure 18-1 to
1. True or False: As of 2006, the United States calculate: (a) the total value of goods and
had the world’s largest economy. services produced by all of the countries listed
(do not include the EU) and (b) the percentage
2. Products or services purchased from another
of the world’s total production represented by
country are known as
each country, by the EU, and by the combined
a. exports
total of all countries excluding the EU.
b. imports
c. quotas 6. Government Use the Internet to identify one
d. joint ventures federal agency or office and one agency or
office from your state that provides informa-
3. Today, raw materials make up about _____ of
tion and support for businesses seeking to
the world’s exports.
become involved in international marketing.
a. one-tenth
Based on your research, prepare a two- to
b. one-third
three-paragraph description of each agency or
c. one-half
office identifying the types of businesses they
d. three-fourths
support, the services they provide, and contact
4. Which of the following is not one of the rea- information.
sons for U.S. businesses to enter international
markets? Connect to
a. Competition is becoming very intense in 7. Your employer manufactures electric-powered
their home markets. scooters that have been very popular among
b. Foreign companies are entering U.S. mar- U.S. teenagers and young adults as well as
kets to compete. commuters. The company is deciding whether
c. There is an increasing worldwide demand to begin selling the scooters internationally.
for consumer products. Prepare a two-minute presentation with at
d. U.S. markets are getting smaller and are least one chart or handout describing the
no longer profitable. advantages and disadvantages of international
marketing for the company. Give your presen-
tation to your teacher (judge).
S
N
511
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18-2 How Businesses Get Involved
GOALS KEY TERMS
• Define indirect and direct exporting and balance of indirect exporting, foreign investment,
trade. p. 512 p. 514
• Explain how foreign production, foreign investment, direct exporting, p. 512 joint venture, p. 514
and foreign joint ventures operate. balance of trade, multinational
• Describe the way in which multinational companies p. 513 companies, p. 515
compete by thinking globally. foreign production,
p. 513
International trade is important to the U.S. economy. Nearly 250,000 businesses are
involved in exporting, accounting for more than 11 percent of all products and ser-
vices produced in the United States. Over 95 percent of exporting firms are small- to
medium-sized businesses. Manufacturers accounted for the largest portion of the
value of U.S. exports at nearly $500 billon. Wholesalers made up the next largest
portion at just under $100 billion.
Make a list of five manufacturing companies in your area. Identify the products
they produce. Do you believe these products are exported? What countries would
be good markets for the products manufactured by the companies you identified?
The Importance of Marketing in

International Trade
here are many forms of interna- in exporting activities but will rely on the
T tional trade. Most businesses first get

involved through exporting or selling
their existing products in other countries.
exporting business to serve the interna-
tional markets. With more experience, a
company may try direct exporting, which
When businesses have been successful involves taking complete responsibility for
selling products in their own country, they marketing its products in other countries.
may begin to look for additional markets In 2006, the United States was the
that they believe would want to buy their world’s second largest exporter selling
products. Or customers from other coun- $1.024 trillion of products and services to
tries may become aware of the company’s other countries. That accounted for about
products and seek to purchase them. 7 percent of the entire world exports. Ger-
Indirect exporting is the process in many led the world in exports with $1.133
which marketing businesses with export- trillion. The United States was the largest
ing experience represent the exporting world importer, with $1.9 trillion or nearly
company and arrange for the sale of prod- 16 percent of the world total in that year.
S ucts in other countries. The producer or Germany was second with $916 billion in
N manufacturer will not be directly involved imports.
512
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Those figures suggest one of the prob-
lems countries face concerning interna- Fa s t FAC T S
tional trade. The difference between the
amount of a country’s imports and exports The United States experienced its first
is known as its balance of trade. As you trade deficit of the twentieth century in
can see from the figures above, in 2006 the 1971, with the value of imports exceed-
United States had an $876 billion nega- ing exports by approximately $1.5 bil-
tive balance of trade while Germany had lion that year.
a $217 billion positive balance of trade. In
the short run, the balance of trade may
that businesses from other countries are
not have an effect on a country. But many
satisfying the needs of consumers better
economists believe that continual negative
than the country’s own businesses.
balances can create problems. A negative
balance of trade shows that a country is
sending more of its financial resources to Checkpoint
other countries through the purchase of
products than it is receiving from the sale How is a country’s balance of trade
of products abroad. It also demonstrates determined?
Foreign Production, Investment, and

Joint Ventures
ome other examples of ways that manufactured using parts produced in
S businesses participate in international

trade are through foreign production,
foreign investment, and joint ventures.
one country and then shipped to another
country for final assembly. Multicountry
production requires very effective plan-
ning and distribution systems.
Foreign Production There is a concern that too much for-
With foreign production, a company eign production can have a negative effect
owns and operates production facilities in on a country. One of the major issues is the
another country. As companies expand loss of jobs in the country from which the
into international markets, it becomes production is being moved. A U.S. com-
difficult to maintain manufacturing in pany may decide to open a manufacturing
only one country and meet all of the new facility in a country with much lower wage
market demands. With foreign production, rates. If it closes a U.S. factory to open a
manufacturing occurs where needed. Raw foreign facility, U.S. jobs are lost and over-
materials and resources can often be ac- all consumer purchasing power is reduced.
quired inexpensively close to the markets People defending foreign production
where the products will be sold. argue that companies from other countries
In the past, all of the production with U.S. markets are investing in produc-
activities for a product would be com- tion facilities in this country. As more U.S.
pleted in a country in the region where consumers purchase Toyotas, BMWs, and
the product would be sold. Today, it is not other foreign brands of automobiles, those
unusual for the production process to oc- companies have opened automobile plants
cur in more than one location. Computers, in the United States. Those companies hire
S
automobiles, and medical equipment are employees from the area and attract other
N
513
18-2 • How Businesses Get Involved 513
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World View
Global Travel: Representing Your A new industry has popped up that edu-
Country cates business travelers on courteous foreign
travel. Special schools of global management
It used to be that international business was
offer business travelers classes on global cor-
left to the large corporations. However, be-
porate diplomacy. The nonprofit group Busi-
cause of the Internet, adding an international
ness for Diplomatic Action works through
element to even the smallest business is
business travelers to maintain a positive
now possible. Today, there are approximately
image of America around the globe. Good,
40,000 multinational companies compared
courteous diplomacy while traveling is not
to just 7,000 in 1975.
just good for business; it is good for America.
As global business and travel grows, it is
increasingly important for American busi- Think Critically
ness people to be sensitive to the diverse
1. In Europe, it is common for people to
cultures around the world. An American
speak more than one language. How does
traveling on business in the Middle East, for
this compare to people in the United
example, is a representative not only of his
States, and what impression might it give
or her company but also of the United States.
of Americans?
How people in other countries perceive the
United States is often based on their encoun- 2. What kinds of cultural differences must
ters with Americans. business travelers be sensitive to as they
travel to different parts of the globe?
businesses that produce component parts needs of the company making the foreign
used in the production of the vehicles. investment.
U.S. companies have been active in
Foreign Investment foreign investments for many years, but
Some companies have identified businesses recently other countries have increased
in other countries that have already devel- their foreign investments. Today, the
oped production or marketing capabili- United States has about one-third of the
ties. Rather than entering the country and world total with about $14 billion invested
starting a new business, the company pur- in other countries. In addition, the United
chases the existing business. Owning all States is an attractive country in which
or part of an existing business in another foreign businesses like to invest. Currently,
country is known as foreign investment. it is the leading host country for foreign in-
Through foreign investment, businesses vestments with over $16 billion of foreign
can move more quickly into another assets invested in the United States.
country. They can also use the past
financial performance of the purchased Joint Ventures
business to determine whether it is a good When two or more companies in differ-
investment. The new owners may decide ent countries determine that they have
to change the business or continue to common interests, they may form a joint
operate it in the same way as the previous venture. In a joint venture, independent
S owners. That decision will be based on companies develop a relationship to coop-
N the past success of the business and the erate in common business activities. The
514
CH 18-B4491-DS_REV3.indd 514 12/5/07 9:52:19 PM

agreement may be in the form of a contract companies believe the cooperative activi-
where the companies agree to a specific ties make them more competitive for the
set of activities for a predetermined period international traveler. It offers ways to
of time. In another form of joint venture, reduce costs and increase customer service.
each company actually agrees to purchase It is not always an easy alliance since each
a portion of the other company to create of the cooperating airlines is still an inde-
joint ownership. They then have a continu- pendent company serving its own markets
ing relationship based on that ownership. and customers.
One of the largest joint ventures
involves ten international airlines that Checkpoint
have signed agreements to cooperate in
coordinating flight schedules, marketing If a U.S. company wants to expand its
activities, travel reward programs, and manufacturing operations in other coun-
airport resources. Called oneworld®, the tries, what options does it have?
Multinational Companies
ome companies have been involved in operates over 32,000 stores in more than
S international business for a long time.

They may use several of the strate-
gies described above and sell services and
100 countries. U.S. stores account for only
35 percent of the company’s annual sales.
Other examples of well-known multina-
products in a large number of countries tional companies that started in the United
throughout the world. They probably are States are Coca-Cola, Hilton Hotels, John
purchasing products and services from Deere, 3M Corp., Nike, and IBM. There are
companies in many countries to use in also many multinational firms that started
production and operations. Businesses in other countries. Some familiar examples
that are heavily involved in international include Nestle S.A., Panasonic, Seiko,
business usually develop factories and Hyundai, L’Oreal, and Ciba-Geigy.
offices in several countries in order to Figure 18-2 shows there are many em-
keep operations closer to the customers. ployment opportunities in multinational
Businesses that have opera-
FIGURE 18-2
tions throughout the world
Multinational companies offer many employment opportunities throughout
and that conduct planning the world.
for worldwide markets are
multinational companies.
Multinational businesses no The World’s Largest Employers
longer think of themselves as Home No. of
being located in one country Company Country Employees
selling to customers in other Wal-Mart Stores (retailing) United States 1,900,000
countries. They think globally. China National Petroleum (petroleum) China 1,086,966
There are many businesses
that you may think of as U.S. U.S. Postal Service (mail services) United States 796,199
companies that are really Sinopec (petroleum) China 681,900
multinational. They operate Siemens (electronics) Germany 475,000
throughout the world and de-
rive a large part of their sales McDonald’s (food service) United States 465,000
and profits from countries Deutsche Post (mail services) Germany 463,350
other than the United States. Carrefour (retailing) France 456,295
McDonald’s is an example of S
Agricultural Bank of China (financial) China 452,464
a multinational company. It N
515
18-2 • How Businesses Get Involved 515
CH 18-B4491-DS_REV3.indd 515 12/5/07 9:52:22 PM

companies. Multinational companies hire that compete for customers in all parts
employees, including managers, from of the world. Thinking globally opens up
many countries. They expect their em- many opportunities for businesses, but it
ployees to be able and willing to work with also makes business and marketing deci-
people from all over the world. Employees sions even more complex.
often travel, and some even relocate and
live in other countries while they work for
the multinational company.
Competitors for multinational busi- Checkpoint
nesses also come from many different loca-
tions. A business may compete with one Why do multinational companies operate
set of companies in Australia and another in so many different markets and hire
in Africa or South America. There are an employees and managers from so many
increasing number of large multinationals countries?

Determine the best answer. 6. Economics Use the library or Internet to
1. True or False: In 2006, the United States was gather historical information about the amount
the world’s largest exporter of products and of foreign trade for the United States during
services. the most recent ten years for which informa-
tion is available. Prepare a line graph that
2. The difference between the amount of a
illustrates the values of exports and imports for
country’s imports and exports is known as its
each year. Write one paragraph summarizing
a. trade deficit
what the graph illustrates.
b. amount of foreign investment
c. balance of trade 7. Geography Select a large retail business
d. export balance that operates in countries around the world
(McDonald’s, Wal-Mart, Starbucks, Holiday
3. When independent companies develop a re-
Inn, and others). Visit the company’s web site
lationship to cooperate in common business
and determine the countries in which the
activities, they are involved in
business operates and the number of locations
a. foreign investment
it has in each country. Locate and print a
b. foreign production
map of the world. Identify the countries
c. a joint venture
and number of locations for the business
d. forming a multinational company
on the map.
4. True or False: While U.S. businesses are active
in foreign investments, our laws prevent for- Connect to
eign companies from investing in the United 8. You have been asked by a local citizens’ group
States. to speak to the organization on how the local
5. Businesses that have operations throughout community benefits from international trade.
the world and that conduct planning for Prepare a two-minute informational speech.
worldwide markets are _____ companies. Deliver the speech to your teacher (judge).
S
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Understanding International 18-3
Markets
GOALS KEY TERMS
• Explain how economic conditions affect the preindustrial economy, p. 518 purchasing power, p. 520
ability to market within a country. industrial economy, p. 518 consumer price index,
• Describe the factors that determine the postindustrial economy, p. 519 p. 520
best marketing mix for particular countries. inflation, p. 520
gross domestic product
• Examine how conditions in international (GDP), p. 520 recession, p. 520
marketing affect the completion of market- business cycles, p. 521
gross national product
ing functions.
(GNP), p. 520 quotas, p. 522
standard of living, p. 520 tariffs, p. 522
productivity , p. 520 subsidy, p. 522
The marketing concept applies in other countries’ markets like it does in the United
States. While the same marketing functions are needed in international business,
there are differences in how specific marketing activities are completed from one
country to another. Business people involved in international business often work
with marketing experts from the foreign country in which they are operating to be
sure they use the most effective procedures that are understood and accepted by
the country’s consumers.
Try to identify three consumer products that are popular in other countries but
which are not in high demand in the United States. Why are these products popular
elsewhere but not in the United States? Now identify three products that originated
in another country but are popular in the United States? What makes them attractive
to U.S. consumers?
The International Economic

Environment
he concept of a market in other coun- as it would be a mistake in the United
T tries is the same as a market in this

country. A market refers to the pro-
spective customers a business wants to
States to market to all consumers as if they
were the same, businesses need to recog-
nize important differences among pro-
serve and their location. Business people spective customers in other countries.
should not assume that all countries have There are many similarities but also
the same kinds of markets as are found some differences between marketing
in the United States or that all people in internationally and marketing within one
a country have the same characteristics, country. The idea of identifying target S
needs, and interests (see Figure 18-3). Just markets and developing a marketing mix N
517
18-3 • Understanding International Markets 517
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FIGURE 18-3 distribute, or sell products
Businesses must gather a great deal of information in order to until the economy is further
determine if they can successfully market their products and developed.
services in another country. Leaders in a country at
the preindustrial economy
stage recognize the impor-
Culture and
Customs tance of moving to the next
Consumer Technology stage. They see their natural
Characteristics
resources being consumed
and few job choices for their
citizens. Those countries
Economic
Environment
MARKET INFORMATION Political and
Legal Structure are unable to participate in
NEEDS
the international economy
except through the sale of raw
materials. The leaders of the
remains the same. So does the need to countries are looking for help
complete each of the major marketing in developing their economies.
functions. The characteristics of markets, Countries with preindustrial econo-
the information needed and how it is ob- mies were once viewed as offering few
tained, and the procedures used to develop opportunities for foreign businesses. Some
each of the marketing mix elements will companies purchased raw materials from
change as companies concentrate on target the countries. Others actually developed
markets in other countries. mining, lumbering, or oil drilling activi-
The level of economic development of ties. Often, those companies were accused
a country and the current condition of the of exploiting the countries. Some com-
economy must be understood for effective panies took natural resources and re-
marketing. A country that has a high turned very little to the economies. Today,
standard of living will already have well- many preindustrial countries provide
established businesses that manufacture opportunities for companies that want to
and sell a variety of both consumer and sell manufacturing equipment, cooperate
business products. That country will offer in the development of manufacturing busi-
very different marketing opportunities nesses, or improve production processes.
than a country that is struggling to meet Many countries also seek assistance
basic social and economic needs for its in developing distribution systems. There
citizens. Economies of the world’s coun- must be effective methods of getting
tries can be grouped into three broad products to customers and places for the
categories: preindustrial, industrial, and products to be sold. Roads, railroads, river
postindustrial. systems, and airports are needed to dis-
tribute products as manufacturing devel-
ops. Developing distribution systems and
Preindustrial Economies organizing wholesale and retail businesses
The preindustrial economy is based will make it possible to sell products.
on agriculture and raw material develop-
ment through activities such as mining, oil
production, and harvesting timber. In this
Industrial Economies
type of economy, many of the country’s Today, most countries have industrial
citizens provide for all of their own needs economies. In an industrial economy, the
and have a very low standard of living. primary business activity is the manufac-
Manufacturing, distribution, and retail turing of products. Much of the manufac-
S systems are just beginning to develop. This turing in the early stages of an industrial
N makes it difficult for businesses to produce, economy is devoted to the production of
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equipment and materials for businesses and marketed in the global marketplace.
and the development of marketing sys- Countries with postindustrial economies
tems. Later, as people work in the factories have very high standards of living with
and other businesses, wages increase and many international business opportunities.
the standard of living improves. There is Companies use up-to-date technologies
greater demand for a variety of consumer and business procedures. Countries with
products, and businesses develop to meet postindustrial economies work with other
those needs. countries to develop effective laws and
There are many opportunities for procedures that encourage and support
international businesses in industrial international trade.
economies. There is demand for both People living in postindustrial econo-
business and consumer products. Often, mies are very aware of products and ser-
products and services that are successful in vices available from other countries. They
countries with more developed economies expect the businesses in their country to
can be sold in the industrial economies as produce similar products of equal or higher
those countries develop. Businesses in in- quality at a reasonable price, or they will
dustrial economies may be willing to par- buy from companies in other countries.
ticipate in joint ventures with businesses
from other countries in order to obtain Condition of the Economy
needed expertise and experience. A country’s stage of economic develop-
ment shows the long-term picture of its
Postindustrial Economies economy. The short-term condition is
The largest and most-developed economies important as well. If a country’s economy is
in the world have moved into the postin- strong and growing, citizens will have more
dustrial stage. A postindustrial economy job opportunities and money to spend.
is based on a mix of business and con- Businesses will have a better environment
sumer products and services produced for sales and profits. The government will
Judgment Call
Bribery Common but Not Legal to get the contract, or they can decline to
Offering bribes or demanding kickbacks pay and lose the business.
to facilitate international business is wide- Some U.S. businesses opt to transact
spread even though it is outlawed in virtu- foreign business through foreign partners or
ally every country. Because it is so common subsidiaries. Then foreign employees handle
and so difficult to fight, it is one of the the distasteful transactions while the parent
toughest barriers to international trade company avoids violating U.S. laws.
faced by U.S. businesses. Think Critically
Unlike some countries, U.S. law makes it
1. If a business person encounters a foreign
illegal for a U.S. company to bribe a foreign
citizen who expects an illicit payment to
official. So Americans generally have no
facilitate a business deal, what options
good choices when they encounter foreign
does he or she have?
officials who demand payment before they
will award them a contract or issue neces- 2. Why are attempts to combat bribery in
sary permits. They can either break the law international trade so difficult? S
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employees produce a larger number
Wo r k i n g i n Te a m s of units working the same number
of hours, businesses have increased
Use the library or Internet to identify three their productivity. Productivity
countries, each representing one of the eco- shows the efficiency of a country’s
nomic categories. A good source of information work force and technology used in
is the CIA World Factbook. As a team, prepare production. Productivity can in-
a chart that compares the three economies to crease as a result of a more educated
illustrate the reasons for your classification. and skilled workforce, more efficient
operations, and increased use of tech-
nology to support work procedures.
have more resources for roads, schools, A final measure of the condition
education, and other services. of an economy is purchasing power.
There are several important measures Purchasing power is the amount of
of a country’s economy. One of the most goods and services that can be pur-
used measures is gross domestic product. chased with a specific amount of money.
Gross domestic product (GDP) is the total A specific measure of purchasing
value of goods and services produced with- power is the consumer price index. The
in a country during the year. It is some- consumer price index (CPI) is the change
times referred to as gross domestic income in the cost of a specified set of goods and
(GDI). A related measure is gross national services over time. If a country’s CPI de-
product. Gross national product (GNP) clines, the number of purchases consumers
is the total value of all goods and services can make with the same amount of money
produced by a country during the year, will be fewer. Purchasing power declines
including foreign investments. GNP is a with inflation, where prices increase faster
broader measure and includes the produc- than the value of goods and services, and
tion of multinational companies that oc- during a recession, a period of time in
curs outside a country’s borders. A grow- which the economy slows resulting in
ing GDP and GNP is a sign of a strong
economy.
A country’s standard of living is a
measure of the quality of life for its citi-
zens. It is based on factors such as housing,
food, education, clothing, transporta-
tion, and employment opportunities. A
country’s standard of living is calculated
by dividing the total income of the country
(GDP) by its population. This figure is also
referred to as GDP per capita. A country
with a high standard of living produces
and sells larger quantities of goods and
services, meaning more jobs, higher wage
rates, and better markets for businesses.
A fourth economic measure is produc-

tivity. Productivity is the average output
by workers for a specific period of time.
For example, if a business has 20 employ-
ees working 40 hours a week and produces
80,000 units of a product during the week,
S the productivity is 100 units (80,000 units Why is education a factor in a country’s
N ⫼ 800 work hours per week). If the same standard of living?
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lower production, employment, and in-
come. Even while economies grow, they go Checkpoint
through periods of expansion and decline.
What are the three stages of economic
Those recurring changes in an economy
development that can affect a country’s
are called business cycles.
receptiveness to international trade?
Finding the Right Mix for

Foreign Markets
ach international market can be very have a similar heritage and experience.
E different and may require changes in

the marketing mix. A company that
believes in the marketing orientation will
Customs are accepted or habitual practices.
Family structures, religion, beliefs and
values, language, personal habits, and daily
carefully study the consumers in each activities may be quite different from what
country to determine if appropriate mar- the marketers are used to in their own cul-
kets exist. If so, the company will study the ture. Failure to recognize differences may
markets to identify unique characteristics. result in misunderstanding and mistrust.
It will then begin to design an appropri- Businesses moving into countries with
ate product or service, determine how the different cultures for the first time should
product will be distributed, establish pric- seek advice and assistance from people
ing policies, and develop promotion strate- who are knowledgeable about the country’s
gies that are appropriate for the country cultures and customs. Many multina-
and the specific market. This strategy is tional companies employ people from the
likely to result in differences from the way countries they are entering to provide the
the products are marketed in the original needed expertise.
country but will provide the best opportu-
nity for the company to be successful. Technology
The technology of business and market-
Consumer Characteristics ing is changing rapidly. Businesses are
Information needs to be gathered about adopting new methods of manufacturing,
the people in a country. Businesses need transportation, product handling, and
to determine if there are enough pro- communication. Consumers have access
spective customers. They need to know to computers, new types of appliances, and
demographic characteristics such as age, changing technology.
income, employment, and education. Once these new technical products are
Businesses must determine where prospec- developed in one country, they are usually
tive customers are located in the country, distributed and accepted in many other
where and how they typically buy prod- countries. Businesses cannot assume,
ucts, what methods of transportation will though, that the same technology used in
work best, and which communications their home country is available or used in
media are available. other countries. Even if the technology is
used, there might be important differences.
Culture and Customs An excellent example is the metric system.
The culture and customs of a country may Several years ago, there was an attempt to
determine whether certain products or convert most of the measurement systems
marketing methods will be appropriate or in the United States to the metric system,
acceptable. Culture is the common beliefs which is widely used throughout the rest of S
and behaviors of a group of people who the world. That attempt was not successful, N
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people. In the recent past, one of the
major political structures, commu-
nism, was rejected in many Central
International marketing activities can be quite dif- European countries and in the former
ferent when serving customers in another country. Soviet Union. Those countries reorga-
Access school.cengage.com/marketing/marketing nized their political systems to adopt
and click on the link for Chapter 18. A wealth of more democratic principles. Even the
information about doing business in other coun- largest communist country, China, is
tries can be found on the Executive Planet web site. adopting many of the free enterprise
Look through the site, and then briefly describe the principles for operating businesses.
tone that should be taken in promotional material The stability of the political
aimed at the German market. Also, find a country system is important for businesses.
that would not appreciate an advertising campaign If a country is politically unstable, it
that pokes fun at older folks. Explain your answer. is possible that business ownership
and operating procedures may be
school.cengage.com/marketing/marketing threatened. There have been many
examples of countries in which the
government was overthrown and the
although metric measures are used more businesses owned by people from
widely than before. other countries were destroyed or taken
Other interesting examples of possible over by the new government.
conflicting technologies in international Countries develop laws to regulate
business include different cell phone com- business. Many of those laws affect inter-
munication frequencies used in most other national business operations. Some coun-
countries compared to the United States tries have laws that provide strong support
and the voltage requirements and power for their businesses in the sale of products
supplies for a country’s electrical systems. in other countries or protect the country’s
businesses from foreign competition.
Political and Legal Structure Because the leaders of industrial
One of the most important factors that can economies want the businesses in their
affect the success of international market- countries to be successful, they may try
ing is a country’s political and legal sys- to restrict the amount of imports through
tems. The types of political systems range the use of quotas or tariffs. Quotas are
from democratic, in which the citizens of limits on the numbers of specific types of
the country control the decisions of the products that foreign companies can sell
government, to autocratic, where power in the country. Tariffs are taxes placed on
is in the hands of a very small group of imported products to increase the price for
which they are sold. Countries may also
support their businesses through subsidies.
A subsidy is money provided to a business
to assist in the development and sale of its
products. International free trade efforts
have attempted to reduce these types of
restrictions and protections.
Checkpoint
Name four factors that can affect the suc-
S Why would U.S. businesses be concerned about the political cess of a marketing plan in an international
N structure of another country? market.
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Digital Digest
Video Conferencing: The Global became feasible for businesses. Even then,
Conference Room it was expensive because it required spe-
cial equipment and used a large amount of
Ask any salesperson, and they will probably
bandwidth. More recent technology, how-
tell you that the best way to interface with
ever, has made video conferencing much
clients is in person, face-to-face. Likewise,
easier and more affordable with a much
meetings that take place between market-
higher quality. Many personal computers
ers, advertisers, and other businesspeople
even have cameras, microphones, and
are typically more efficient when everyone is
software built in that allow people to video
in the same room. However, with some com-
conference from their own desks or work-
panies having offices and clients in multiple
stations. These advances have made video
countries on multiple continents, it is often
conferencing an important tool in global
not possible or cost-effective to fly people
business.
around the globe for meetings. That’s where
video conferencing comes in. Think Critically
A video conference is a meeting of two
1. Why do you think it is so important to
or more people in different locations via a
meet “face-to-face” with clients and
digital transmission that allows the parties to
co-workers?
see and hear each other. Currently, it is the
closest thing to meeting in person available. 2. Can you think of any negative aspects
Although video conferencing was first of a company relying heavily on video
invented in the late 1960s, it wasn’t until conferencing?
the technology boom in the 1990s that it
International Marketing Activities

efore a business can begin to plan
B the marketing mix that will be used

for an international market, it needs
reliable information about that market.
Gathering Market
Information
The characteristics of specific countries re-
quire special attention to both marketing-
The procedures for gathering and analyz-
ing market information are quite similar information management and marketing
for international markets to those used in research. The sources of information, the
a business’s home country. The business types of technology and research capabili-
needs to develop a marketing information ties, the ways that people respond to re-
system to collect and analyze information. search procedures, and the laws relating to
It also may need to complete marketing information collection will likely be quite
research or work with local or interna- different. For example, in the United States,
tional research companies to answer much of today’s consumer research is com-
specific questions about customers and pleted using Internet or telephone surveys,
S
competitors. or data is collected using technology at the
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time of sale. In some countries, technology on the appropriate shipping method from
is not as well developed, eliminating those country to country and within the new
options. And in some cultures, asking markets. How effective, reliable, and safe
many types of personal questions is con- are the various methods of transportation
sidered discourteous. and how are products normally stored
Companies often work with businesses and distributed?
and business people from the country in Selection of the types of businesses in
which they hope to market products to which the product will be sold is part of
gather needed information. This helps to distribution. It is important to know the
ensure that those doing the research better amount of time it will take from process-
understand the unique characteristics of ing an order until the product is available
the country and that the research will be to customers. Also, laws regulating distri-
completed in a way that does not harm the bution, including taxes, tariffs, and quotas,
image of the business. People in interna- must be observed. Most countries require
tional business need to listen carefully inspection of imported products, which
to people from the countries they want must be arranged either before the product
to serve in order to avoid biases and is shipped or when it reaches the country.
stereotypes.
Selling A country’s customs play an
important role in successful selling. Sales-
Adjusting the Marketing Mix people must be aware of the need to be
and Marketing Functions formal or informal, who initiates conver-
After business people have gathered the sations, how a business card is presented,
necessary information to understand the and whether it is appropriate to conduct
new market, they can develop the market- business during a meal. In some cultures,
ing mix. With this information, the mix salespeople are expected to present a gift
can be specifically designed to meet the to a prospective customer while in other
needs of each international market. The countries the gift would be seen as a bribe
types of marketing activities often will be and would be illegal or offensive.
the same or similar to those previously
used by the company. However, there are Financing In most cases, the company
some important differences in the market- will need to extend credit to the businesses
ing functions as shown with the following that will distribute its products in the oth-
examples. er country. It will also need to consider the
accepted credit practices for consumers
Product/Service Management and ensure the procedures used to assist
Products and services must be developed customers in purchasing conform to the
to meet the needs of customers and mar- country’s laws and customs. The types of
ket conditions. Important activities for contracts and forms used, as well as the
international markets include packaging monetary system, may be different. While
for protection and for easy use by cus- some credit cards are used internation-
tomers. In addition, brand names must be ally, they may not be the form of payment
carefully selected to fit the language of the used by consumers in each country. The
country. Finally, any product information business also will need to develop rela-
must be written to meet the laws of the tionships with banks and other financial
country and to clearly communicate with organizations in the new country.
the customers.
Pricing It is not likely that customers
Distribution Effective distribution of from another country will have the same
products to and within other countries is perception of value as those in the busi-
S often one of the most challenging market- ness’s home country. Even if that percep-
N ing functions. Decisions need to be made tion is similar, a different money system is
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used, and the costs of marketing are often Promotional planning for international
higher, so prices may have to be changed. markets includes careful selection of the
The customs of the country may require a media to be used. Mass media may not be
new approach to deciding how prices are as available in some countries or may not
set, changed, and communicated to the be used for promotion. In many coun-
customer. tries, television is not used extensively for
advertising. Use of the Internet is growing
Promotion Promotion is the market- rapidly in many countries, but it may not
ing function where a country’s customs be used in the same ways for communica-
and culture are particularly important. tion between businesses and customers.
Promotion relies on effective communica-
tion. Language and pictures communicate
a business’s message to customers. There Checkpoint
are many examples of promotional mis-
What must be done before developing a
takes where words were not translated
marketing mix for a targeted international
correctly or had very different meanings.
market?

Determine the best answer. 5. Math A method to calculate a country’s
1. True or False: The concept of a market in standard of living is to divide its GDP by its
other countries is the same as a market in this population. Use the Internet to determine the
country. amount of the GDP for the top ten countries in
the world and the population for each country.
2. The economy that is based on agriculture and
Use the information to calculate the standard
raw material development through activities
of living for each country. Prepare a table that
such as mining, oil production, and cutting
compares the GDP and standard of living rank-
timber is
ings of the ten countries.
a. preindustrial
b. industrial 6. Research Choose a foreign country in which
c. postindustrial you might be interested in working if you have
d. self-sustaining a career in international marketing. Use the
library or Internet to gather information about
3. Which of the following should be completed
the country’s population, economy, culture,
first by a company entering an international
political and legal system, and business envi-
market?
ronment. Prepare a two-page report discussing
a. establish product prices
what you learned.
b. make sure companies are available to
distribute the products Connect to
c. adjust promotion to avoid stereotypes
7. A Chinese bicycle manufacturer wants to begin
and biases
selling its most popular model in the United
d. gather reliable information about the
States and has asked your marketing team for
market
advice on effective marketing. Prepare one im-
4. True or False: The Internet is now an effective portant recommendation on selecting a target
method for communicating between busi- market and on each marketing mix element that
nesses and consumers in most international will help the manufacturer understand the U.S.
markets. market for bicycles. Make a team presentation of
your recommendations to your teacher (judge).
S
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Now that you have completed the chapter, check provide examples of direct and indirect
your understanding of the lessons with these ques- exporting?
tions. Record the score that best represents your demonstrate how to calculate a country’s bal-
understanding of each marketing concept. ance of trade?
1 = not at all; 3 = somewhat; 5 = very well discuss the differences between foreign produc-
If your score is 42–50, you are ready for the assess- tion, foreign investment, and joint ventures?
ment activities that follow. If you score 33–41, you identify why multinational businesses no longer
should review the lessons for the items you scored think of themselves as located in one country?
1–3. If you score 32 or less, you will want to carefully describe the three broad categories of economies
reread the lessons and work with a study partner on and how each affects international marketing?
the areas you do not understand. list several factors about a country and its people
Can you— that businesses need to consider when develop-
describe several reasons for the growing impor- ing a marketing strategy?
tance of international trade? provide examples of how marketing functions
differentiate between imports and exports? might need to change in international markets?
identify why businesses decide to become
involved in international trade?

1. A measure of the quality of life for its citizens
a. balance of trade
2. The difference between the amount of a coun- b. business cycles
try’s imports and exports
c. consumer price index
3. The average output by workers for a specific d. direct exporting
period of time e. exports
4. The primary business activity is the manufactur- f. foreign investment
ing of products g. foreign production
5. Owning all or part of an existing business in h. gross domestic product (GDP)
another country i. gross national product (GNP)
6. The change in the cost of a specified set of goods j. imports
and services over time k. indirect exporting
7. Products or services purchased from another l. industrial economy
country m. inflation
8. A company takes complete responsibility for n. joint venture
marketing its products in other countries o. multinational companies
9. Taxes placed on imported products to increase p. postindustrial economy
the price for which they are sold q. preindustrial economy
10. Based on a mix of business and consumer prod- r. productivity
ucts and services produced and marketed in the s. purchasing power
global marketplace t. quotas
11. Products and services sold to people in other u. recession
countries v. standard of living
S w. subsidy
N x. tariffs
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12. True or False: The total value of goods and ser- 18. True or False: A multina-
vices produced in the world is growing rapidly, tional company usually
having doubled in the five years before 2006. competes with the same
13. True or False: Preindustrial economies offer good countries no matter in
opportunities for foreign businesses, but these what part of the world it
opportunities are limited due to the economies’ operates.
needs and resources. 19. True or False: There is almost no similarity in the
14. True or False: Most of the countries in the world way a company markets internationally and the
have industrial economies. way it markets within its home country.
15. True or False: The decisions of businesses to 20. True or False: A country’s gross national product
become involved in international business are (GNP) is usually larger than its gross domestic
always very carefully planned. product (GDP) because the GNP includes foreign
investments.
16. True or False: Because of cultural and language
barriers, there is very little international trade in 21. True or False: International free trade efforts
services. include increasing the use of subsidies, quotas,
and tariffs.
17. True or False: There is almost no foreign invest-
ment in the United States by companies from
other countries.

22. In order to be successful, businesses that sell d. Fresh flowers
their products in other countries must be able to e. Auto repair service
offer a product that has advantages compared to Assume you are deciding how to market the
the competing products in the country. product or service to another country. For each
Look at several products you own or use regu- of the nine marketing functions, describe a spe-
larly and identify five that were manufactured cific marketing activity that must be completed
outside the United States. For each product, in order to market that product internationally.
identify the part of the marketing mix (product,
24. Search the Internet for a site that contains
price, distribution, or promotion) that was the
economic and demographic statistics for vari-
most important reason you decided to purchase
ous countries. Pick a continent or region with at
the product. Then make a recommendation for
least ten different countries. Using a computer
U.S. manufacturers on how they can improve
database or spreadsheet program, compile a
their marketing mix to be more competitive.
database of statistics for each country, including
Next, identify five products you own or use that
population, GDP, and GDP per capita. Sort and
were manufactured by U.S. companies. For
rank the countries by each of the statistics.
each product, identify the part of the marketing
mix that was the primary reason you selected 25. Use the Internet to search the U.S. Department
that product rather than one manufactured in of Commerce web site or another source for
another country. Make a recommendation to statistics on U.S. exports for the latest full year
foreign manufacturers on how they could offer a that has been reported. List the top ten countries
more competitive marketing mix. for U.S. exports and the main types of goods
and ser vices they purchase. Now, complete the
23. Choose one of the following:
same activity for U.S. imports. Identify the top
a. Large piece of equipment used for road
ten countries that sell goods and services to the
construction
United States and the main types of goods and
b. Vitamins and mineral supplements for use by
services the United States imports from each
consumers
country. Prepare two tables to illustrate your S
c. Movies
results. N
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26. Businesses must make decisions that are ethical However, it had to compete with a successful
and socially responsible. When marketing prod- smaller airline based in the Asian country
ucts internationally, the cultures and values of that already had many flights into the
countries may conflict. Business people may be United States, making it difficult to get new
criticized for decisions that seem to be positive customers. The U.S. company’s advertising
and acceptable in another country but are not agency suggested it could find former
viewed as appropriate in their home country. employees of the smaller airline who would
The following scenarios describe ethical deci- say that they were concerned about the
sions faced by U.S. businesses when marketing in safety and quality of the airline’s service. The
other countries. Read each scenario carefully and statements would all be true, but they clearly
consider the effects of the decisions on the com- did not represent the beliefs of most of the
pany, its customers, and the country in which company’s employees. The goal would be to
it plans to market the products. Also, consider raise questions in the media about the airline,
the business’s social responsibility in the United causing travelers to question whether they
States and internationally. For each scenario, would fly with that airline. At the same time,
write two paragraphs that describe how you the U.S. airline would begin an ad campaign
would respond to the ethical situation facing the promoting its expanded service to the United
company and provide reasons for your decision. States as well as its quality and safety record.
a. A prescription drug manufacturer has spent c. A hotel chain was considering a joint
over five years of research to develop a venture with a company in another country.
new medication to help young children The plan was to build five new hotels in
with asthma. The company is certain the resort areas that were growing rapidly. The
medication is safe although there have been businesses already located in the resorts were
minor side effects in some who used it during experiencing a great deal of success, and it
testing. The company has spent over was clear that other hotels would be built
$40 million developing the medication and in the resorts as soon as companies could
wants to begin selling it as quickly as possible purchase the land and obtain financing. The
to begin to recover those costs and return a advantage of the joint venture for the hotel
profit. The U.S. Food and Drug Administration chain was that the company it was working
(FDA) requires an additional three years with already owned land in several of the
of testing before the medication can be resort areas and had available cash to begin
approved for sale in the United States. A large hotel construction while additional financing
international wholesaler is willing to purchase was being arranged. As the hotel company
the drug and sell it over the Internet from its management was preparing the paperwork
distribution facilities in another country that to finalize the joint venture, it received a letter
does not require the lengthy testing period. from a civil rights group providing evidence
The procedure would allow people from any that the company with which it was planning
country, including the United States, to order to cooperate had an unwritten but clear
the medication online as long as they could policy to discriminate in its hiring practices. A
fax a letter from their physician certifying that check of the company’s employment records
the patient was under treatment for asthma. showed that the employees were 96 percent
b. A U.S. airline recognized that the number of white in a country that had a 35 percent
business people and vacationers traveling nonwhite population. Also, no women had
to the United States from a Southeast Asian ever been promoted beyond the level of
country was growing faster each year than supervisor in the company. The management
from any other country in that region. It knew that if the joint venture was not
wanted to enter the market and capture a successful, it was unlikely that they would find
large percentage of that growing business. a similar company with which to work.
S
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Food Marketing
The Food Marketing the grocery store’s uniqueness and contribute
Individual Series to this image by offering features such as an
Event consists of online newsletter and recipes for healthy living.
a 100-question You must present a plan for collecting the
multiple-choice comprehensive exam and e-mail addresses of Fresh Produce’s loyal
role-plays. The role-play portion of the event customers. The web site should provide clear
requires participants to accomplish a task instructions on how to order online and how
by translating what they have learned into to access coupons for items offered at Fresh
effective, efficient, and spontaneous action. Produce.
Students have ten minutes to prepare their
strategy for the role-play and an additional Performance Indicators
ten minutes to explain their strategy to the Evaluated
judge. The judge can ask questions during or • Identify ways that technology impacts
after the presentation. business. (Information Management)
The highly competitive supermarket
industry has tried new strategies to market • Describe current business trends. (Informa-
and distribute products to consumers. Many tion Management)
of the smaller grocery stores have closed due • Identify issues and trends in retailing.
to the competition from larger supermarkets. (Information Management)
Larger supermarkets offer customers a wide • Explain ways that technology impacts food
array of goods and services. While grocery marketing. (Information Management)
store customers are usually price-conscious,
• Explain issues and trends in the food mar-
their loyalty can be fickle.
keting industry. (Information Management)
Fresh Produce is an independent neigh-
borhood grocery store that is known for Go to the DECA web site for more detailed
its fresh meats, vegetables, and fruits. Cus- information.
tomer service is a top priority. Fresh Produce
employees carefully bag groceries and carry Think Critically
them to the customers’ vehicles. Fresh Pro- 1. How will senior citizens react to
duce also excels at fulfilling and delivering using Fresh Produce’s web site?
telephone orders. This service is greatly ap- How can you overcome their
preciated by senior citizens in the community. objections?
Employees at Fresh Produce know customers
2. How can the web site make
by name.
Fresh Produce more efficient?
Some major supermarkets have unsuc-
cessfully tried to sell groceries online. Fresh 3. What type of contest could
Produce believes that a web site showcasing the web site offer customers?
its unique qualities could be a successful pro- 4. Why must the web site be user-
PHOTOS: ©DECA INC.
motional tool. friendly?

You are a web designer who must design
an attractive web site for Fresh Produce. You
S
must explain how the web site will emphasize w w w. d e c a . o r g N
529
18-1 • The Expanding WorldDECA
Economy
Prep 529
CH 18-B4491-DS_REV3.indd 529 12/5/07 9:54:09 PM

Chapter 19
Managing
Risks
19-1 Assessing Business
Risks
19-2 Identifying Marketing
Risks
©RUBBERBALL/GETTY IMAGES
19-3 Managing Marketing
Risks
Newsline )))
Successful New Products Are No Easy Task
American businesses are appar- participating in the survey believe past. New products can be
ently finding it harder than ever to it is because the costs of new prod- developed and moved to the
develop new products. Managers uct development are too high and market quickly. However, managers
from America’s top retail and manu- it takes too long to see a profit. believe that is one of the biggest
facturing businesses were asked Therefore, companies are not will- weaknesses of the process. When a
about the success rate of their new ing to spend the time and money company needs to move fast, it
products. While the typical success needed to develop new products. is more likely to make mistakes.
rate had been reported at between Another problem reported is the
10 and 20 percent in the past, the tendency for company managers to Think Critically
managers responding to the survey change new products to fit their own 1. Why do you think business
indicated that only 8 percent of their ideas rather than relying on research managers would change new
new product ideas ever reach the gathered from the target markets
products to fit their own ideas
market. Of those that are introduced for the new products. When man-
rather than follow their market
to consumers, fewer than 20 percent agers think they know more than
succeed. Simple analysis of those customers about what will work and research?
results shows that nearly 99 percent what will not work, the result may be 2. If companies can develop new
of product ideas developed by busi- a product that customers will products quickly and get them
nesses fail. not buy. to the market faster than ever
Why does it appear that new Managers report that their before, why aren’t more new
product results are moving in the new product development process products successful?
wrong direction? The managers is much faster than it was in the
CH 19-B4491_RP_REV3.indd 530 12/7/07 8:08:39 PM


• Understand economic systems to be able to • Identify speculative business risks
recognize the environments in which businesses • Explain the nature of risk management
function
• Identify factors affecting a business’s profit
• Identify potential business threats and opportuni-
• Determine factors affecting business risk
ties to protect a business’s financial well-being
Visual Focus
Businesses have to make decisions every day
that involve some kind of risk. While risks can
result in opportunities for business success,
they can also lead to financial loss or business
failure. Marketers need to understand the
types of risks they face and ways for dealing
with them. Risk management involves provid-
ing security and safety for the business and its
customers and reducing risk. Marketers must
consider the risks associated with each ele-
ment of the marketing mix and address them
as they are developing the marketing plan.
Focus Questions:
What service is being offered by Zurich in this
advertisement? How do insurance provid-
ers help businesses manage risk? As this ad
indicates, Zurich can help businesses identify
hidden risks. Why are insurance companies
better at finding hidden risks?
Locate another ad that focuses on risk.
©ZURICH
Share your example in class and explain the

type of risk identified in the ad.
CH 19-B4491_RP_REV3.indd 531 12/7/07 8:09:15 PM

19-1 Assessing Business Risks
GOALS KEY TERMS
• Explain why businesses take risks and how they risk, p. 532 speculative risk, p. 533
are classified. opportunity, p. 533 controllable risk, p. 534
• Describe the four ways available for businesses natural risk, p. 533 uncontrollable risk,
to deal with risks. p. 534
human risk, p. 533
economic risk, p. 533 insurable risk, p. 534
pure risk, p. 533 uninsurable risk, p. 534
Risks can be classified in four ways—based on the source of the risk, result of the
risk, control of the risk, and insurability of the risk. Business people deal with risks in
one of four ways or in a combination of ways. They can avoid a risk by choosing an
alternative that does not entail that risk. They can transfer a risk to someone else,
usually at a cost. They can insure the potential loss from a risk. Or they can assume
the risk and accept the consequences.
Describe a risky course of action that you chose to undertake in the recent past
and the potential losses and gains that you faced. What was the outcome? Would
you repeat your action if you faced the same risk again?
The Nature of Business Risk

very year thousands of people
E decide to open their own busi-

nesses. Most entrepreneurs will
use all of the money they have saved.
They will borrow thousands of addi-
tional dollars. They may quit their
current jobs to devote all their time
to the new business. Each believes
he or she has an idea that will attract
customers, earn a living, and maybe
even make a lot of money.
At the same time that thousands
of entrepreneurs are opening new
businesses, many others are closing
their doors. Their dreams did not What are some risks new business owners face?
come true. They are disappointed and
discouraged. Most lost the money
they invested in the business. Many a new product, there is a chance for suc-
will never attempt a new business again. cess and a chance for failure. The possibil-
S When a person decides to open a ity that a loss can occur as the result of a
N business or a company decides to develop decision or activity is known as risk.
532
532 CHAPTER 19 • Managing Risks
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Seeking Opportunities
Why do people invest a great
deal of time and money in new
businesses or products when
there is a risk of loss? While there
is a chance of loss, there is also
an opportunity. An opportunity
is the possibility for success.
Success takes many forms.
For both individuals and busi-
nesses, it can mean recognition,
being viewed as a leader, or
providing personal satisfaction
and satisfaction for others. An
important measure of success
in business is profit. The private
enterprise economy is organized
COURTESY OF LIBERTY MUTUAL GROUP. ©2004
to encourage risk-taking. People

invest money and take risks in
business to make a profit.
Each of us takes risks every
day. You might decide whether
to speak to a new person you
meet. The risk is that the person
might not respond in a positive
way. The opportunity is that you
will establish a new friendship.
You may have spent a great deal Insurance companies such as Liberty Mutual can help
of time and effort in the past few businesses plan for unexpected risks.
years selecting difficult courses,
unpredictability of nature, such as the
completing homework, and preparing
weather or an earthquake. Human risk
yourself for college. Nevertheless, there is
arises because of the potential actions
a risk that your effort will not pay off. Your
of individuals, groups, or organizations.
grades might not be high enough, or you
The uncertainty associated with market
may not have the money needed to attend
forces, economic trends, and politics cre-
the college you have chosen. But you have
ates economic risk.
chosen to assume these risks for the oppor-
tunities provided by a college education. Result of the Risk A risk that presents
the chance of loss but no opportunity for
Classification of Risk gain is known as a pure risk. When you
Marketers need to understand the risks are driving, you are at risk of being in an
they may face in order to deal with them. accident. If you have an accident you will
There are four classifications of risk. The likely suffer a loss. You could be injured,
classifications are based on the source of you could injure others, or there could be
the risk, the result of the risk, the control damage to the vehicles. You do not gain
of the risk, and the insurability of the risk. anything if you simply avoid an accident.
The result is different for other risks.
Source of the Risk Business risks If you have the chance to gain as well
generally arise from one of three as lose from the risk, it is known as a S
things. A natural risk is caused by the speculative risk . If you invest money in
N
533
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the stock market, it is possible you could risk is pure rather than speculative, and if
lose a great deal of money if the value of the amount of the loss can be predicted,
the stock goes down. On the other hand, it is an insurable risk. For example, many
there is an opportunity for making money people who own homes or buildings
if the stock price increases. face the risk that their property could be
destroyed by flooding. Insurance com-
Control of the Risk A risk that can panies look at the amount of losses from
be reduced or even avoided by actions you flooding in past years and sell insurance
take is a controllable risk. If you are con- that would pay for the buildings that
cerned about losing jewelry or cash, you could be damaged.
might decide to put it in a safe or a safety For an uninsurable risk, it is not pos-
deposit box in a bank. If the roads are sible to predict if a loss will occur or the
slippery, you can avoid driving or drive amount of the loss. Speculative risks are
very carefully to reduce the chance of an usually not insurable. A business is not
accident. able to buy insurance that will pay for
If your actions do not affect the result losses suffered because customers did not
of a risk, it is an uncontrollable risk. The buy a new product. The person who invests
weather cannot be controlled although in the stock market must accept any losses
the type of weather has a big impact on or gains because it is not possible to accu-
businesses such as farms. If the weather is rately predict the result of the investment.
favorable, farmers have the opportunity
to grow and harvest crops. With poor
weather, crops will not develop. Checkpoint
Insurability of the Risk If a risk is Why do businesses take risks even when
faced by a large number of people, if the failure and financial losses may result?
Dealing with Risk

learly, people prefer success rather than difficult to enter a market to compete with
C failure. Marketing activities are subject

to many risks. Every activity per-
formed has the chance of success or failure.
several larger businesses, that market can
Dealing with Risk

Each target market may provide a profit or Management
loss for the company. Marketers need to be Strategy Result
familiar with ways to deal with risks.
Avoid the Risk Business chooses a different
People responsible for risk manage-
strategy that doesn’t involve
ment go through a careful process to that risk
decide the best way to deal with each risk Transfer the Risk Business lets another business
faced by the business. Four methods can complete the risky activity
be considered (see Figure 19-1).
Insure the Risk Business pays insurer to
reimburse the amount of losses
Avoid the Risk from the risk
It is possible to avoid some risks. For Assume the Risk Business proceeds with the
example, some shipping methods are decisions made and takes full
more likely to result in lost or damaged responsibility for the results
products. To avoid that risk, the marketer FIGURE 19-1
S would choose another shipping method. When facing a risk, managers have several choices
N If there is evidence that it will be very of how to respond.
534
CH 19-B4491_RP_REV3.indd 534 12/7/07 8:09:47 PM

Judgment Call
Chinese Protest Starbucks at an American coffee shop in such a symbolic
Cultural Landmark location was inappropriate and denigrated
Chinese culture.
The global economy is in full swing. Some of
After years of controversy, and after con-
the largest American companies now have
sidering many options, Starbucks decided to
customers in almost every country on every
close the store in 2007. Starbucks continues
populated continent. But there is always
to operate more than 250 stores in other
room for growth, and restaurant chains are
parts of China.
always looking for new, high-traffic places
to open profitable stores. What happens, Think Critically
though, when a company wants to open a
1. What factors do you think went into Star-
store somewhere, but the citizens do not
bucks’ decision to close its store?
want that store in that place?
This is exactly what happened when 2. What are the positive and negative
Starbucks opened a store in China’s historic results of the store closing for Starbucks?
Forbidden City in 2000. The former impe- 3. Are there any places in the United States
rial palace is China’s top tourist attraction. where companies should not open stores?
Chinese critics claimed that the presence of
be avoided. Market research can be a good Insure the Risk

way for a business to anticipate such risks If a financial loss is possible from the risk
in advance. and that loss can be predicted, the risk can
be insured. The company facing the risk
Transfer the Risk pays a small amount of the potential loss
A common method of dealing with risk in to an insurer. If the loss occurs, the insurer
marketing is to transfer the risk to oth- guarantees payment to the company. The
ers. A business that believes it will have company accepts a small, certain loss (the
difficulty collecting money from credit cost of insurance) for protection from
customers does not offer its own credit. a larger, uncertain loss. Remember that
Instead, it accepts several national credit many risks are not insurable because they
cards. The credit card companies accept are speculative.
the risk for the opportunity to make a
profit. Assume the Risk
A company that assumes a risk faces the
risk and deals with the result. This strategy
Fa s t FAC T S is sometimes referred to as risk retention.
Some risks are unlikely to occur. Other
When businesses transfer the risk of risks have relatively small losses compared
credit to credit card companies, there to the opportunities. And some risks are
is a cost. Every time a retail business simply a normal part of doing business. In
accepts a national credit card like Visa each case, it may be best to assume the risk
or Discover for payment, it is charged a because it will not have a serious negative
transaction fee of anywhere from one to effect on the business.
five percent of the price of each sale. Sometimes a business must adopt a S
risk retention strategy because a risk N
535
19-1 • Assessing Business Risks 535
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cannot be avoided, transferred, or insured.
For example, once a product is in the
market, many things can happen that may
result in much lower sales than expected.
The business accepts that possibility and
attempts to make the product as successful
as possible. Economic conditions some-
times change rapidly, and the business
faces a risk that was not anticipated. There
is not enough time to make changes, so the
business must assume the risk.
Checkpoint
What are the four ways people deal with
What outcomes does a business face if a prod- the risks that are inherent in operating a
uct does not sell well? business?

Determine the best answer. 6. Visual Art Work as a group to draw or use
1. True or False: Speculative risks are generally technology to create a picture, graphic, or
uninsurable. other visual representation of the different
types of risks. Present your visual to the class
2. A(n) _____ is the possibility of success.
and explain how each image represents a
3. If your actions do not affect the outcome of a category of risk.
risk, it is a(n)
7. Communication How might the formation
a. pure risk
of a joint venture between two companies
b. uncontrollable risk
be a way of dealing with risk? What method
c. human risk
of dealing with risk does it represent? Explain
d. insurable risk
your answer in a one- to two-page report.
4. If a business decides to hire a third party to
dispose of hazardous material rather than Connect to
disposing of the material itself, the business is 8. Because many employees have trouble find-
a. transferring the risk ing adequate day care for their children, your
b. assuming the risk company is considering opening an on-site
c. insuring the risk day care facility for employees’ children. You
d. avoiding the risk have been asked to develop a report for
5. Which of the following conditions is neces- management that outlines the potential risks
sary in order for a risk to be insurable? involved with such a venture. You must also
a. the amount of the potential loss must be describe the four management strategies
unpredictable the company could use to handle the risk,
b. it must be a speculative risk weighing the pros and cons of each. Present
c. it must be faced by a large number of your report to your teacher (judge) and rec-
people ommend a strategy, explaining your choice.
S d. all of the above
N
536
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Identifying Marketing Risks 19-2
GOALS KEY TERMS

• Explain how changes in the economic and competitive risk management, p. 537
environment create marketing risks. liability, p. 539
• Describe marketing risks associated with each of the
marketing mix elements.
Marketing poses many different kinds of risks. Many factors combine to determine
whether or not a business is successful. These factors include the type of competition,
the economy, laws and regulations, technology, and customer needs. As factors change
in unpredictable ways and market conditions shift, each poses risks and also offers
opportunities. Marketers try to take advantage of the opportunities before conditions
change at the risk of making a decision that ends up being inappropriate by the time it
is implemented.
When a company has choices of marketing mixes, the company often selects the one
that emphasizes its strengths and can be completed successfully. Yet each of the market-
ing mix elements—product, distribution, price, and promotion—is subject to certain risks.
Marketers consider those risks when planning and implementing marketing decisions.
Make a list of five factors in the current economy and legal environment that pose
serious risks to area businesses. Explain why each should be considered a risk.
The Risk of Change

usiness people, including marketers, to take a risk if there is a real possibility of
B face a variety of risks. Risk manage-

ment is an important marketing
function. Risk management in marketing
success.
includes providing security and safety for

products, personnel, and customers and
reducing the risk associated with market-
ing decisions and activities. It is possible to
analyze the marketing environment and
marketing mix to identify the areas where
risks are likely to occur.
Many factors combine to determine
whether or not a business is successful.

These factors include the type of competi-
tion, the economy, laws and regulations,
technology, and customer needs. Each fac-
tor poses risks and also offers opportuni-
ties. Marketers are always looking for prof- How can a business provide security for its per- S
itable new opportunities. They are willing sonnel and customers? N
537
19-2 • Identifying Marketing Risks 537
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Economy
Businesses regularly face the risk of a
change in the economy. Sales may be high
and customers may value the product
until faced with a recession. Suddenly, the
business is unable to maintain sales, and
profits fall. High unemployment or an
increase in taxes could have similar effects
on a business.

Laws and Regulations
Failure to follow laws and regulations can
put a company at risk. For example, if a res-
taurant does not follow the proper health
regulations, it could be shut down. Imple-
mentation of new laws or a court ruling can How can technology, such as bar code scanners,
require a major change in operations. Even be a risk factor for businesses?
inadvertently breaking the law could have
disastrous consequences for a business.
Customer Needs
Competition Customer needs can change with little
A company can lose market share by notice. Marketing responds to customers’
failing to consider the actions of its com- needs, so such a change will cause a loss of
petitors. New technology and products business if the needs go unmet. Product life
can enter the market at any time. Those cycles illustrate how demand changes for
changes can have an immediate effect on products. Some life-cycle stages last only a
a business. Consider how quickly a new very short time and require the business to
video game or a new version of computer make changes to maintain sales and profits.
software can cause existing products to be-
come outdated. When a few supermarkets
and retail stores converted to self-service
scanner technology to speed customer Checkpoint
checkouts, other stores had to decide if
they should install the equipment or risk How do changes in the economic environ-
losing customers. ment affect marketing risks?
Risks to Elements of the Marketing Mix

hen selecting from among several a group that has no previous experience
W target markets, a company reduces

its risk if it works with markets
that can be clearly identified and located.
with the company. When a company has
choices of marketing mixes, the company
will often select the one that emphasizes
The company should choose a market for its strengths and that can be completed
which adequate information is available. successfully.
A group of customers that has purchased Each marketing mix element is subject
a company’s products before and has been to some risks. Marketers should consider
S very satisfied presents a better opportu- those risks when planning and implement-
N nity for introducing a new product than ing marketing decisions.
538
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Product
The product itself faces several risks.
Probably the most obvious is the risk of
damage before the product is sold or used. Businesses supply information with all products
The product needs to be designed so it is informing customers about their safe handling
sturdy and durable. Packaging needs to and use. However, product warnings some-
protect the product while it is transported times appear to be a bit excessive or unneces-
and stored. You have probably purchased sary. Access school.cengage.com/marketing/
products that were damaged or broken marketing and click on the link for Chapter 19.
when you opened them. Perhaps they Watch the video from ABC News reporter John
did not perform the way you expected Stossel about product warning labels. Do the
when you used them. It is likely that you warnings seem excessive to you? Why or why
returned the product for a refund. You not? What kinds of risks do you think the com-
may have lost confidence in that product panies using these labels are trying to prevent?
and others with the same brand name. A
company risks a great deal with a poorly school.cengage.com/marketing/marketing
designed product.
Businesses must study how the con-
sumer will use the product. They must be
sure it is designed to meet consumer ex- continue to buy the same product when
pectations for use. The product also must they see that a superior design is available.
not spoil or deteriorate before it is used if it The product risk that concerns busi-
will not be consumed immediately. Many nesses most is liability. Liability is a legal
food products are dated to tell consumers responsibility for loss or damage. You
when they were processed or when they frequently hear or read of a company that
should be used. Restaurants that prepare has to pay millions of dollars to a person
foods in advance must discard food if it who was injured while using the compa-
sits too long before being ordered. ny’s products. Companies are responsible
The product design must be up to date. for the design and use of their products.
If competing products have improvements When injury, death, or financial loss oc-
or incorporate new technology, customers curs that involves a company’s product in
will quickly see the differences and switch any way, the company may be held legally
to those brands. There are many examples liable. Even services are subject to that risk.
of businesses that failed because their One of the highest expenses for physicians
products did not change with the times. is the cost of malpractice insurance. The
Even the most loyal customers will not insurance is needed for protection from
the cost of lawsuits brought by patients
who believe they were mistreated or
injured while under the doctor’s care.
Distribution
As a team, brainstorm a list of consumer prod-
When planning for the distribution
ucts that have become obsolete because of
of products, businesses need to be
advances in technology. Next to each item,
concerned about safety, security, and
record the new consumer product that replaced
performance of distribution activi-
it. For example, the typewriter was replaced by
ties. Safety risks include the safety of
the computer. Then, discuss some actions that
products, buildings, and equipment.
the manufacturers of the obsolete items might
They also include the safety of people
have taken to reduce or eliminate the risk posed
involved in distribution activities and S
by the new technology.
customer safety. Whenever products N
539
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World View
Coca-Cola Angolan Gamble in southern Angola. The government also
Pays Off helped put a damper on black-market sup-
pliers of canned Coke who undercut prices
In 2000, during a long-running civil war
by evading import duties.
where even major roads were too risky for
Today, Coca-Cola is the largest consumer
transporting goods because of guerrilla at-
goods provider in Africa. Its sales on the con-
tacks, Coca-Cola opened a $36 million plant
tinent continue to grow, and its production
in Bon Jesus, Angola. Coca-Cola was already
and distribution centers employ over 55,000
making a lot of money in Africa, but it saw
Africans and help strengthen the growing
room for growth and determined that the
African markets.
risk of opening a new plant in the unstable
environment was worth the risk. Think Critically
The risk paid off. With the help and pro-
1. How did the formation of a joint venture
tection of the Angolan government, which
with the Angolan government help to
had a 45 percent stake in the Coca-Cola
reduce Coke’s risks?
venture, production at the Bon Jesus plant
reached 14 million cases in the first year, and 2. What political and economic risks did
Coca-Cola opened a second plant in Lubango Coke take by investing in a country amid a
civil war?
are moved from one location to another, special product handling procedures that
there is a possibility for damage or in- are an inconvenience to customers and an
jury. Procedures for product handling, extra expense to the business.
storage, and transportation are planned The final area of business risk related
carefully to reduce that possibility. People to distribution is the performance of the
are trained in proper handling procedures. distribution system. Products need to be
Safety standards are used in the design of available to the customer at the place and
facilities and equipment. time they are needed. If the product is not
As products move through a channel there, a sale is missed. Products must move
of distribution, there are many opportu- through the distribution system efficiently.
nities for theft. Products can be stolen by Ordering and order processing, inventory
burglars, by customers who shoplift, and control, materials handling, and transpor-
by employees. Surveillance equipment, se- tation must all work effectively. If an order
curity procedures, and personnel are used is misplaced, a shipment is sent to the
to protect against theft. wrong location, or inventory levels are not
You can see the importance that is maintained correctly, customers cannot
placed on security when you visit most obtain the products they want. Product
retail stores. Well-designed merchandise damage is another concern in the distribu-
displays, security tags, video monitors, se- tion system. Procedures and equipment are
curity personnel, and electronic sensors at used that protect the products while they
all exits are used to reduce shoplifting and move through the channel of distribution.
employee theft. Even with the thousands of It is even possible for factors outside
dollars invested in security, shoplifting loss the control of a business to interfere with
in many businesses is as much as 10 per- distribution. Poor weather conditions can
S cent of sales. That loss adds tremendously slow transportation or damage or destroy
N to the price of products. It also requires buildings, equipment, and inventory.
540
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Evaluate Information Sources

In modern society, we are bombarded by infor- 2. Determine the
mation. Electronic information is available objectivity of the
through text messaging, blogs, spam, pop-ups, information.
forums, and listservs. Traditional information out- • Does the author
lets—such as radio, TV, newspapers, magazines, have an obvious bias
and billboards—also remain prevalent. concerning the topic?
The Internet has dramatically changed the
way information is gathered and distributed. • Are all sides of the issue presented, or
By providing an inexpensive and instantaneous only one point of view?
distribution channel for information, the Internet • Is the language calm and reasoned or
has enabled everyone, from individuals to special emotional and inflammatory?
interest groups to large corporations, to distrib- • Are the statements factual? Can they be
ute their message quickly and expansively. But proved?
the quality of that information can sometimes be
questionable. 3. Identify the purpose for the
Traditional information outlets typically information.
employ people to check the accuracy of data • To whom is the information directed?
before it is published. In contrast, bloggers and • Is someone trying to sell you something
other online information providers often work or change your mind?
independently with no one monitoring the
accuracy of their facts. Inaccurate information • Are opinions stated as facts?
is frequently published online, and the speed of • Does the presenter express a preference
distribution simply compounds the problem. for a person, group, or idea?
Informed readers can use a variety of strate-
4. Is the information current?
gies to evaluate the accuracy of information.
These strategies are appropriate for both elec- • Is this a topic on which it is important to
tronic and traditional media. have up-to-date information?
1. Consider the source of the information.

• Is there copyright or footnote informa-
tion that will help you determine when
• Where did it come from? the content was created?
• Who published it?
Develop Your Skill
• What qualifications does this person or
organization have to discuss this topic? Pick a topic that you know is controversial.
Research a claim within that topic. Look for infor-
• Is the person or organization widely
mation that will support both sides of the claim.
recognized as a source of reliable
Gather information from both electronic sources
information?
and traditional sources.
• What other information can you find After you have located a number of sources,
about the author or organization respon- compare and evaluate their accuracy, timeliness,
sible for this information? and reliability using the above strategies. Prepare
a table listing the sources and assign each one a
“credibility rating” of 0–5. Explain how you arrived
at that rating. S
N
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Price
Customers must see the product
FRENCH’S® AND THE FRENCH’S® PENNANT DEVISE ARE REGISTERED TRADEMARKS OF RECKITT BENCKISER, INC.
price as a value. They must also
be able to afford the product.
Companies face two risks when
pricing products and services.
The price can be set too high,
reducing demand and causing
products to remain unsold. On
the other extreme, if products
are priced too low, the company
is unable to make a profit.
Setting a product price is
very difficult. A number of fac-
tors enter into the price, includ-
ing the costs of production,
marketing, and operations.
Any services offered, discounts,
markdowns, and the cost of
credit must be figured into the
price for a profit to be earned.
Every business in a channel
of distribution must be able
to make a profit after paying
its costs. Finally, customers
will usually compare the price
of a product with those of
competitors. To reduce the risks associated with introducing new prod-
ucts, French’s used a coupon and a contest to encourage
customers to try its new mustard flavors.
Promotion
The goal of promotion is to com- promotions or from information commu-
municate with consumers to influence nicated by people or other organizations.
them to purchase the company’s products. Sometimes other companies’ promotions
Anything that interferes with that goal is contain misleading or incorrect informa-
a business risk. The media need to per- tion about a competitor’s products. While
form as planned. If a radio or television it may be possible to get the company to
commercial is not aired as planned, or if a stop using those promotions, damage may
newspaper or magazine is not distributed already be done. It is difficult to correct
on schedule, the promotional plan is less misinformation. Customers who have had
effective. If a salesperson cannot meet with a negative experience with a product will
a customer or does not communicate ef- often tell many other people about their
fectively, sales are lost. experiences. That word-of-mouth publicity
Just as companies are subject to prod- can be very damaging.
uct liability, there are legal responsibilities
related to promotion. Information must be
honest and accurate, or the company may
be liable for the harm caused by inappro- Checkpoint
priate or illegal promotion.
S Another area of risk is the damage For most businesses, what is the product
N that can result from other businesses’ risk that most concerns them?
542
CH 19-B4491_RP_REV3.indd 542 12/7/07 8:12:55 PM

What problems might occur if a newspaper ad contains inaccurate information?

Determine the best answer. 5. Ethics To minimize competition risk, employ-
1. Risk in marketing includes providing ees from a local restaurant regularly “keep
security and safety for products, personnel, tabs” on competitors by posing as potential
and customers as well as reducing the risk customers. Do you think this is ethical? Ex-
associated with marketing decisions and plain why or why not. What are some ways
activities. a business can legitimately research the
competition?
2. True or False: Product life cycles illustrate how
demand changes for products. 6. Economics The economy can be a contribut-
ing factor to the success or failure of a business.
3. The legal responsibility for loss or damage is
Examine the current state of the U.S. economy.
called
Identify three potential risks a business faces
a. liability
today based on current economic conditions.
b. exposure
Summarize these risks in a one-page report.
c. indemnity
d. insolvency Connect to
4. Which of the following is a risk associated with 7. Your team members manage an auto parts
the product element of the marketing mix? company that provides parts and supplies to
a. a product is priced higher than a competi- a wide variety of local auto repair businesses.
tor’s product As a team, talk about the types of distribution
b. a restaurant undercooks the food it pre- risks your business faces. Discuss some pro-
pares cedures your business can take to minimize
c. a television commercial is not aired as performance errors in the distribution system.
planned Develop a plan to implement those proce-
d. inventory is too low to meet customer dures. Make a three-minute team presentation
demand of your plan to your teacher (judge). S
N
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19-3 Managing Marketing Risks
GOALS KEY TERMS
• Explain how the various sections of the marketing plan surety bond, p. 547
should be used to avoid risks and limit the business’s product liability insurance, p. 547
exposure to risks.
professional liability insurance, p. 548
• Describe other ways to eliminate or control marketing-
related risks.
Businesses need to find ways to prevent risks from interfering with marketing plans,
either by eliminating risks or minimizing the effects of risks that cannot be elimi-
nated. The marketing plan provides an excellent tool for developing risk manage-
ment strategies. Each of the three sections of the marketing plan includes elements
related to risk management. The action plan needs to identify activities and respon-
sibilities for controlling and reducing risks.
In addition to managing risks through the marketing planning process, busi-
nesses can effectively manage risks by training marketing personnel in safety and
security policies and by purchasing various types of insurance to cover damages
that arise from risks.
Make a list of the safety and security policies your school has that are designed
to eliminate risks or reduce the damage potential of risks that cannot be eliminated
entirely.
Handling Risks with Marketing Planning

ith the large number of risks in Developing a marketing plan provides
W marketing, businesses must find

ways that prevent those risks
from interfering with the marketing
an ideal opportunity for a business to
plans. The first goal should be to prevent

risks. If it is not possible to prevent a
risk, plans should be made to reduce the
negative effects of a risk on the business
and its customers. Remember that there
are four ways to deal with risks. They

are to avoid the risk, transfer the risk,
insure the risk, or assume the risk. No
matter which method is used, careful
planning is needed. Risk management is
so important to the success of a business
S that it should be incorporated into the Why is planning an important component of risk
N company’s marketing plan. management?
544
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identify potential risks and make plans Reducing Risk Using the Marketing Plan
to avoid or reduce those risks. Each of
the three sections of a marketing plan G PLAN O
UTLINE Gather information to identify possible
MARKETIN sis
provides opportunities to identify and I. MarketeA
na ly
n of the Bus
iness risks and opportunities
develop plans for managing risks (see
and Missio ies
A. Purpos and Strateg
t Markets esses
on of Curren ngths/ Weakn
B. Descripti and Their Stre
Competitors
C. Primary nt Analysis 4. Competition
Figure 19-2).
Env iron me
D. External 5. Tec hno logy
y
1. Econom s 6. Social Fac
tors
Regulation
2. Laws and
3. Costs
Analysis
E. Internal
1. Strengths
Analysis es
2. Weakness Changes
3. Anticipate
d
Examine each target market and
g Strategy marketing mix to determine which ones
II. Marketin
When completing a market analysis, in-
s
ted Outcome
Goals /Expec
A. Marketing t Description
rke
B. Target Ma Characteristics
present the greatest risk
formation is gathered on current market-
g ors
1. Identifyin es, Behavi
eds, Attitud
2. Unique Ne Description
Mix
C. Marketing
ing strategies, competitors, the marketing duc t /Se rvice

1. Pro
n
2. Distributio
3. Pricing
environment, and strengths and weak- 4. Promotion tement

D. Positionin
g Sta
Plans
nesses of the company. Each of these areas III. Action Identify activities and responsibilities
A. Activity
Schedule
for reducing risk when implementing
1. Responsib
ilities
can be studied to determine risks and 2. Schedule

the marketing strategy
3. Budget
Pro cedures
opportunities. Changes in the economy,

B. Evaluation of Success
1. Evidence Evidence
of Collecting
2. Method
new technology, and competitors’ actions

that can affect a business should be iden- FIGURE 19-2
tified as part of the market analysis. The marketing plan is a tool that can be used to reduce and man-
age risk. Risk management should be a part of each section of the
Strategy marketing plan.
The second section of the marketing
plan is used to develop the marketing activities and responsibilities for the
strategy. Target markets are identified and marketing strategy are identified. Some
the marketing mix needed for each mar- of the activities and responsibilities will
ket is described. When identifying market relate to risk reduction. For example,
segments within the target markets, the people are given responsibility for qual-
risks that exist in each market should also ity control, scheduling and coordinating
be examined. The study of marketing mix distribution activities, checking promo-
alternatives should also include a review of tional plans to make sure they meet all
the possible risks. Likely, the business will
have choices of mix alternatives. Some will
be more risky than others.
For example, small retail businesses
must decide whether to accept credit
and debit cards and personal checks. The
alternative is to accept only cash. Credit
and debit cards add an additional expense
for the business, and accepting checks is
an added risk. Then again, the payment
options may help attract customers who
otherwise would not shop at the store. The
business must decide if the lower risk and
cost of accepting only cash is worth the
potential lost business of credit customers.

It will analyze the risks and compare them
to the opportunities presented with each
choice.
Action
The final section of the marketing plan How can a business reduce risk by assigning S
is the action plan. In this section, the responsibilities to its employees? N
545
19-3 • Managing Marketing Risks 545
CH 19-B4491_RP_REV3.indd 545 12/7/07 8:13:42 PM

legal requirements, and the many other
activities that deal with the risks in mar- Checkpoint
keting. A responsibility of the marketing
What are the three sections of the market-
manager is to carefully review each part
ing plan that can be used to identify and
of the action plan to determine if risks are
develop plans to manage marketing risks?
adequately addressed.
Other Ways of Dealing with

Marketing Risk
n addition to planning, most businesses
I implement specific security and safety

plans, purchase insurance to protect
against financial loss, and regularly review
Fa s t FAC T S
Every minute, an average of 640 acts
of shoplifting occur in U.S. retail busi-
marketing activities and operations to
nesses. That adds up to more than
identify and reduce risks.
300 million occurrences per year. It is
estimated that shoplifting costs retailers
Security and Safety nearly $10 billion in losses annually.
Because of its importance, security and
safety planning is often a responsibility
of people specifically trained in that area. safety experts to identify areas needing
In many businesses, security and safety attention and procedures to use that will
management is part of the operations area. reduce those problems.
It must be coordinated throughout the All marketing personnel should receive
business, including marketing activities. special training in safety and security pro-
Marketers will work with security and cedures. They should:
S
N How can retailers prevent shoplifting and theft?
546
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Figure This
Risks, Rewards, Expected Value value can be used to determine whether a
With almost any business or investment activ- course of action is a worthwhile risk. For a
ity, the results are uncertain but not wholly large number of actions, the average outcome
unpredictable. In most cases, there is a known should approximate the average expected
range of possible outcomes. For example, value.
investing in a company’s stock will result in a Business people need to keep in mind
complete loss if the company goes bankrupt. that an expected value is only as good as the
On the other hand, if it does very well, the probability estimates from which it is derived.
value of the stock might double or triple over If a highly favorable outcome is given an
a period of time. unreasonably optimistic (high) probability,
Through detailed analysis, reasonably a risk might seem well worth taking when it
accurate estimates can be made of the likeli- actually is not.
hood of the various outcomes. Those esti- Think Critically
mates, expressed as probabilities, can be used
1. In a game of chance played by flipping
to derive what is known as the “expected
a coin, when a coin comes up heads the
value” of a course of action. Expected value is
player wins $5, and if it comes up tails the
calculated by multiplying each possible out-
player pays $5. If there is a 50% chance
come by the probability of its occurrence and
of getting heads or tails, what is the
then adding all of the subtotals. That final sum
expected value of each flip?
is the expected value, although “expected
value” is something of a misnomer since for 2. What would the expected value be if the
any single action the outcome is not likely player had to pay $6 when the coin came
to be the expected value. Still, the expected up tails?
• know how to recognize problems the financial loss for the insured risk to
the insurance company. There are some
• know how to prevent accidents and common areas of marketing in which busi-
injuries nesses purchase insurance.
• be aware of company policies regard- Insurance on marketing personnel
ing surveillance, shoplifting, and theft includes health and life insurance as well
prevention as surety bonds. A surety bond provides
insurance for the failure of a person to per-
Salespeople and customer service
form his or her duties or for losses result-
personnel need to discuss risks and safety
ing from employee theft or dishonesty.
concerns related to product use with cus-
Property insurance protects the build-
tomers. Products and packaging should
ings, equipment, and in some cases, the
be analyzed to ensure that they meet all
inventory of the business. Liability insur-
safety and health requirements. Informa-
ance pays for damage caused to other
tion should be supplied with all products
people or their property. Theft insurance
informing customers about safe handling
also provides property protection. There
and use of the products.
are several types of insurance available
to protect against damaged and lost mer-
Insurance chandise while it is being transported.
One method of transferring risk is to Another important type of insurance is
purchase insurance. The payment of insur- product liability insurance, which S
ance premiums transfers some or all of provides protection from consumer N
547
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actions by business professionals.
Examples of professional liability
insurance include malpractice
insurance for physicians and er-
rors and omissions insurance for
financial advisors, attorneys, and
accountants.

Risk Reduction
Marketers are constantly searching
for opportunities. Those opportu-
nities include new target markets
and improved marketing mixes.
Why do personal service businesses and professional organizations
With every opportunity comes a
need insurance? certain amount of risk. Risks can
never be eliminated entirely. How-
claims arising from the use of the ever, careful planning and effective
company’s products. Similar insur- marketing management can help compa-
ance is available for service businesses. nies avoid some risks and limit damages.
Professional liability insurance protects The most important way to reduce risks
against claims of negligent or harmful is with careful planning. The marketing
Digital Digest
The Newest Business Risk breaking through a corporate firewall or by
After the terrorist attacks on the United utilizing a glitch in technology. But with the
States in September 2001, security threats new awareness of terrorism, companies re-
took on a much different meaning to U.S. assessed their vulnerability to a cyber attack
businesses. They began paying increased from terrorists.
attention to possible attacks on buildings, U.S. businesses now spend an average
distribution systems, and sources of energy of 12 percent of their information technol-
and raw materials. But computer security ogy budgets on security for their computer
also became a greater priority. systems. Security experts warn that amount
Many security specialists believe that may not be enough, but the added attention
the greatest damage could be done to to computer security certainly helps reduce
the United States by attacking its informa- the chances of a cyber attack.
tion and communication systems. A cyber Think Critically
attack could shut down air transportation,
1. What type of damage might result from a
emergency services, major media, energy
cyber attack on a large business?
distributors, major financial centers like Wall
Street, and many other forms of commerce. 2. How would your personal life be affected
In the past, the greatest threat to com- if there was a cyber attack on businesses
panies’ computer systems had been hackers supplying energy or communications?
S attempting to demonstrate their prowess in
N
548
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plan provides a useful structure to identify cause problems for the business or harm to
risks and develop ways to deal with them. customers or other people. When problems
Another important method of reducing are identified, changes should be made to
risk is with the careful selection and train- reduce the risk and avoid damage or loss.
ing of marketing personnel. Employees
should be selected based on their concern
about customers and their needs. Em- Checkpoint
ployees should want to perform their jobs
effectively. Then they should be trained Which marketing personnel should receive
to follow safety and security procedures. special training in dealing with surveillance
Finally, all marketing employees should be techniques and with safety and security
constantly alert to possible risks that can risks?

Determine the best answer. 6. Government The Occupational Safety and
1. Which of the following is the first step to take Health Administration (OSHA) aims to ensure
to reduce risk by using the marketing plan? employee safety and health in the United
a. gather information to identify possible States by working with employers and employ-
risks and opportunities ees to create better working environments.
b. examine each target market and market- Prepare a two-page report about OSHA focus-
ing mix to determine which ones present ing on its mission, history, and impact on work-
the greatest risk place safety. Also, explain how compliance with
c. incorporate a risk retention strategy into OSHA regulations can help a business reduce
the marketing plan workplace risks.
d. identify activities and responsibilities for 7. Social Studies Doctors’ groups, patients, and
reducing risk when implementing the insurance companies have criticized medical
marketing strategy malpractice litigation as expensive, unpredict-
2. True or False: Salespeople and customer ser- able, and inefficient. These critics claim that the
vice personnel do not need special training cost of malpractice insurance has forced many
involving safety and security risks. doctors to go out of business. Others claim
that the “malpractice crisis” is a myth. Research
3. A bond provides insurance for the
the issues surrounding medical malpractice
failure of a person to perform his or her duties
litigation, including potential solutions to the
or for losses resulting from employee theft or
problems. Present your findings in a three-
dishonesty.
page paper.
4. Malpractice insurance is an example of what
type of marketing-related insurance? Connect to
a. property insurance 8. You manage a clothing store. The owner has
b. professional liability insurance asked you to prepare a presentation about the
c. theft insurance types of insurance your company should pur-
d. life insurance chase to reduce risks. Develop a three-minute
5. True or False: The marketing manager is presentation using visual aids for your teacher
responsible for determining if marketing risks (judge) in which you describe the types of insur-
are adequately addressed. ance your company should have and explain
why the company needs this type of insurance. S
N
549
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Now that you have completed the chapter, check identify the various ways risks are classified?
your understanding of the lessons with these ques- describe the four ways available for businesses
tions. Record the score that best represents your to deal with risks?
define the term risk management?
1 = not at all; 3 = somewhat; 5 = very well explain how changes in the economic and com-
If your score is 42–50, you are ready for the assess- petitive environment create marketing risks?
ment activities that follow. If you score 33–41, you describe marketing risks associated with each of
should review the lessons for the items you scored the marketing mix elements?
1–3. If you score 32 or less, you will want to carefully explain how the various sections of the market-
reread the lessons and work with a study partner on ing plan can be used to avoid risks?
the areas you do not understand.
discuss the role of insurance in risk
Can you— management?
distinguish between a risk and an opportunity? describe other ways to eliminate or control
explain why businesses take risks? marketing-related risks?

1. A risk that presents the chance to gain as well as 12. The possibility that a loss can occur as the result
the chance to lose of a decision or activity
2. A risk that is caused by the unpredictability of 13. A risk that arises because of the potential actions
nature, such as the weather of individuals, groups, or organizations
3. A risk that can be reduced or even avoided by 14. A legal responsibility for loss or damage
actions you take 15. Provides insurance for the failure of a person to
4. Provides protection from claims arising from the perform his or her duties or for losses resulting
use of the company’s products from employee theft or dishonesty
5. A risk that is present when a person’s actions do
not affect the result a. controllable risk
6. A risk that is faced by a large number of people, b. economic risk
is pure rather than speculative, and the amount c. human risk
of the loss can be predicted d. insurable risk
7. The possibility for success e. liability
8. A risk that is caused by the uncertainty of market f. natural risk
forces, economic trends, and politics g. opportunity
9. A risk that presents the chance of loss but no op- h. product liability insurance
portunity for gain i. professional liability insurance
10. In marketing, it includes providing security and j. pure risk
safety for products, personnel, and customers as k. risk
well as reducing the risk associated with market- l. risk management
ing decisions and activities m. speculative risk
11. A risk for which it is not possible to predict if a n. surety bond
S loss will occur or the amount of the loss o. uncontrollable risk
N p. uninsurable risk
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16. If a business chooses an alternative strategy 21. A(n) risk presents
because the strategy does not pose a particular the chance for loss but no
risk, what kind of risk management strategy is it opportunity for gain.
practicing? 22. Business people assume
a. avoiding risk the risk of failure in order to
b. transferring risk gain the for suc-
c. insuring risk cess.
d. assuming risk
23. Incorrect or inadequate product information is a
17. When a business hires another company to risk associated with the element of the
perform a risky activity that it does not want to marketing mix.
undertake itself, it is practicing which type of risk
24. Late delivery of a product is a risk associated with
management strategy?
the element of the marketing mix.
a. avoiding risk
b. transferring risk 25. When businesses buy insurance to cover their
c. insuring risk risk of financial loss, they exchange the certain
d. assuming risk cost of the for the uncertain cost of the
covered damages.
18. When a business forms a joint venture with other
companies that are better prepared to handle 26. The three sections of a marketing plan are
certain risks, it is practicing which type of risk marketing , marketing , and
management strategy? .
a. avoiding risk 27. Employees should be trained to
b. transferring risk a. be aware of company safety policies
c. assuming risk b. recognize problems
d. all of the above c. prevent injuries
19. If a risk cannot be avoided, transferred, or d. all of the above
insured, a business must adopt a risk 28. True or False: The marketing plan is not an effec-
strategy. tive tool for businesses to use to help avoid risks.
20. True or False: A surety bond is a financial invest- 29. A toy company that manufactures a motorized
ment that pays a guaranteed rate of return and scooter would most likely have insur-
cannot decrease in value over the stated term. ance to protect against claims of injuries due to
use of the scooter.

30. The management of a local drug store has just Dollar Losses
received the monthly figures for gross sales and Due to Shoplifting
losses due to shoplifting for the past year (see
Month Gross Sales
January $200,356 $2,003.56
the table).
a. Calculate the percentage of gross sales lost to February 237,595 4,039.11
shoplifting each month. March 377,920 7,558.40
b. Calculate the total gross sales and the total April 394,395 9,859.75
dollars and percentage of sales lost to May 420,400 4,204.00
shoplifting for the year. June 310,497 7,762.42
c. Develop a bar graph by month showing the July 292,304 2,923.04
dollar amount lost to shoplifting. August 230,422 5,760.55
31. Interview a local businessperson concerning the September 379,295 11,378.85
types of risk faced by his or her business. Use the October 599,395 29,969.75
following questions as a guide for your discus- November 735,284 40,440.62
December 923,502 55,410.12
S
sion, but do not limit yourself to these questions. N
551
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•What industry is your business in? products or services. Using your knowledge of
•What types of risk does your business face? marketing information, describe a marketing
•How can you prevent, reduce, or avoid these risk associated with each of the following areas.
risks? Explain how a marketing information system can
reduce the risk.
After you have completed your interview, bring a. New tax laws
your results to class and share them with your b. Increased cost of raw materials needed to
classmates. Tabulate the class results and answer manufacture your product
the following questions. c. Possible strike of transportation workers
a. What types of risks did each business name? d. Price-cutting tactic of a major competitor
b. Are there similarities and/or differences in the
types of risks faced by various businesses? 33. You are a marketing student and a part-time
c. What types of solutions or remedies did the employee of an ice cream store. You decide that
businesses employ to prevent, reduce, or you need to explain to your manager the value
avoid their risks? of competitive positioning in reducing the risks
associated with operating the business. Recently,
32. The best method of reducing risk is to be an a chain of ice cream stores has opened in your
informed marketer. The information needed by town. They have taken many of your customers
a marketer is usually gained by maintaining a away. Your manager is unsure of how to respond
marketing information system and doing specific to these problems. In your discussion, remember
market research. Marketers cannot make good to explain problems versus opportunities, com-
decisions without knowing as much as possible petitive positioning, and customer satisfaction.
about all internal and external influences on their

34. Digital televisions that can also access the Inter- a. Penetration pricing
net are gaining in popularity although design b. Price skimming
standards are still unsettled and most people c. Non-price competition
have had little or no experience with them. It is d. Discounts
predicted that in the near future, these systems e. Price lining
will replace most standard televisions. Millions 36. Search the Internet for the web site of an insur-
of dollars have been invested in the research ance company that specializes in insuring busi-
and development of these systems. Using your ness risks. Write a one-page report on the types
knowledge of new product development of services it offers, the types of business risks it
and risk management, answer the following insures, and how it uses its web site to market its
questions: insurance coverage to businesses.
a. What type of risk is involved in the develop-
37. Search the Internet for a news article describing
ment of this revolutionary product?
a corporate bankruptcy filing or financial reor-
b. How can a company attempt to minimize the
ganization. Describe the circumstances that led
risks? Can it avoid these risks completely?
to the company’s financial problems and explain
c. Explain how the steps in the new product
how it failed to successfully manage the risks
development process help minimize risk.
it faced. What could it have done differently to
35. Using correct pricing strategies is an effective avoid those risks or minimize the damage it
way of managing risk. Explain how the suffered?
following pricing strategies are used in effective
risk management:
S
N
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Business Services Marketing
The Business (personal identification number) to access cell
Services Individ- phone accounts and should contact the bank
ual Series Event immediately if the cell phone is lost or stolen.
consists of a 100-question, multiple-choice, You must prepare a presentation to per-
comprehensive exam and role-plays. The role- suade customers to use cell phone banking
play portion of the event requires participants and present it to the bank’s CEO (judge).
to translate what they have learned into
effective, efficient, and spontaneous action. Performance Indicators
The five performance indicators specify the Evaluated
distinct tasks participants must accomplish.
Students have ten minutes to prepare their • Describe the use of technology in the
strategy for the role-play and ten additional product/service management function.
minutes to explain their strategy to the judge. (Product/Service Management)
The judge can ask questions during or after • Identify consumer protection provisions
the presentation. of appropriate agencies. (Product/Service
Some of the nation’s largest banks are of- Management)
fering online banking through the use of cell • Explain the concept of product in
phones. Banks send customers a text mes- business services. (Product/Service
sage when their account balance falls below a Management)
certain level or unusual activity occurs in their • Describe the concept of promotion in
account. business services. (Promotion)
Currently consumers’ interest in cell • Analyze product information to identify
phone banking is limited. Young consumers product features and benefits. (Selling)
who are comfortable using their cell phones Go to the DECA web site for more detailed
to browse the Internet are the most likely information.
users of the newest bank services. Banks do
not charge for cell phone services, but this Think Critically
does not mean that the service is free. The 1. Which age groups should be
cell phone banking services can increase the targeted first for cell phone
customer’s cell phone bill because of charges banking?
incurred for text messages received. Many
cell phone customers have plans that do not 2. Why might customers
include online minutes. They will incur extra hesitate to use cell phone
charges for time spent online monitoring banking?
their account balance. 3. What joint venture op-
Banks that offer cell phone banking have portunities exist for the
security measures to protect customers. banks and cell phone
Banks require customers to use a six-digit providers?
access code to use the banking service. Cus-
PHOTOS: ©DECA INC.
4. Will the growth of cell phone

tomers will not be liable for losses caused by banking be gradual or rapid?
fraud, but it can be a difficult process to get
the money back. Customers who choose to
S
use cell phone banking should make sure the w w w. d e c a . o r g N
bank requires the use of a password or PIN
553
19-1 • Assessing Business
DECARisks
Prep 553
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Chapter 20
Marketing
Requires Money
20-1 Marketing Affects Business
Finances
20-2 Tools for Financial Planning
20-3 Budgeting for Marketing
©BLEND IMAGES/JUPITER IMAGES

Activities
Newsline )))
Improving Quality While Cutting Costs
Xerox was focused on cutting costs to change its operations using a tool in a savings of nearly $200,000.
and increasing profits when it called Lean Six Sigma. It evaluates all Xerox’s sales and profits have since
decided to reduce the number of work from the simplest to the most rebounded, and both employee and
administrative service centers from complex throughout the company, customer satisfaction have been
36 to 3 in 1999. At the same time, it removing unnecessary steps and restored. Cost cutting alone did not
reorganized its sales organization improving those that remain. It make the difference. It required a
to broaden the responsibilities of brings together people from each company-wide commitment to
the salespeople to include customer department involved in a process to improving the work process.
service and administrative tasks. evaluate it and make changes.
The results were disastrous. Billing The Lean Six Sigma process Think Critically
errors resulted in customers receiv- focused the attention and energy 1. Why did the efforts of Xerox to
ing invoices for products they never of Xerox on two important issues— cut costs have such a negative
ordered or prices to which they how to get people working together
result?
never agreed. Months were spent and how to maintain both quality
resolving customer complaints. and efficiency in every procedure. 2. Why does involving people
Customers left, revenues decreased, Its impact soon became evident. from several departments
employee morale dropped, and The time taken to design and build increase the chances of improv-
turnover increased. a complex machine was reduced ing quality?
With the help of General Electric by a full year. Reviewing a docu-
Capital, Xerox discovered a way ment management process resulted
CH 20-B4491_RP_REV3.indd 554 12/5/07 9:55:17 PM


• Analyze cost/profit relationships to guide business • Determine relationships among total revenue,
decision making marginal revenue, output, and profit
• Manage financial resources to ensure solvency • Describe the concept of economies of scale
• Understand tools, strategies, and systems used • Understand promotional and marketing budgets
to maintain, monitor, control, and plan the use of • Plan sales activities to meet sales quotas
financial resources
Visual Focus
Although marketing is vital to the success of a
business, it can be a big expense for the busi-
ness. Expenses are incurred for each element
of the marketing mix—product, distribution,
price, and promotion. The costs of marketing
activities must be carefully planned and moni-
tored. If marketing costs are not controlled,
profits will suffer. Marketers must be skilled
at financial management. Financial forecasts,
budgets, and financial statements can help
marketers anticipate expenses and revenues
related to marketing activities. This informa-
tion can be used to develop marketing plans
that will meet the needs of both customers
and the business.
Focus Questions:
What is the focus of the advertisement for
Credit Suisse? Why do both consumers and
businesses need to manage their finances?
©CREDIT SUISSE
What are the benefits to both? Discuss with

other students the importance of financial
planning for a business. How could poor finan-
cial planning affect a business?
CH 20-B4491_RP_REV3.indd 555 12/5/07 9:57:42 PM

20-1 Marketing Affects Business Finances
GOALS KEY TERMS
• Explain how marketing affects a business’s financial revenue, p. 556
planning. capital expenses, p. 559
• Define short- and long-term marketing expenses and operating expenses, p. 560
the various types of financing for marketing activities.
Marketing can be very expensive. There are several important categories of market-
ing costs including capital expenses, inventory costs, and operating costs. Sources
of financing need to be developed for each category of costs. Those sources include
financial institutions, credit offered by sellers, cash available in the business, and
money obtained from the sale of products and services.
Marketing activities also affect the revenue of a company. Target markets and
marketing mixes should be studied to identify ways to increase revenue and control
costs. The result should be increased profits for the company.
Choose a local business or nonprofit organization in your area. Identify what you
believe are the primary types and sources of revenue and expenses. Discuss why
the business or organization must carefully plan and monitor both its revenues and
expenses.
Marketing Costs Affect Business Success

arketing costs money. On average, In the end, there will be reduced profits for
M 50 percent or more of the retail price

of products and services is needed
to pay the cost of marketing activities.
the company. This makes financial man-
agement an important marketing skill.
Therefore, managing marketing costs is The Importance of Finances

important to the profitability of a business.
If marketing costs are carefully controlled, One of the results of effective marketing
there is more money available to use for is revenue—the money received from the
important activities such as marketing sale of products and services. In order to
research, product improvement, and cus- sell products, money must be spent to pay
tomer services. The result should be greater for the products and services to be sold. The
customer satisfaction. On the other hand, cost of operating and managing the busi-
if marketing costs are not well managed, ness must be covered. The expenses of the
the company does not have the money to marketing activities needed to facilitate
improve the marketing mix. Production the exchanges between the business and its
costs may need to be reduced, market- customers must be paid. When all of those
ing activities cut back, or prices increased costs are subtracted from the revenue, the
to customers. The result is a product or result is a profit or loss for the business. This
S service that is less satisfying to customers basic financial equation is:
N and not as competitive with other brands. Revenue ⫺ Costs = Profit or Loss
556
556 CHAPTER 20 • Marketing Requires Money
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Even in nonprofit businesses or other
organizations, finances are important. If
the expenses of those organizations are
higher than the available funds, they can-
not operate at the level they would prefer.
If expenses exceed revenue, they cannot
offer the products and services their clients
need or expect.
For example, a day care center might
operate as a nonprofit organization, but it
is still involved in marketing. The center
must offer the appropriate services in a
safe and comfortable facility. It must be
open when clients need child care services,
and it must offer affordable prices. The
organization needs to communicate with
current and prospective clients about the
center’s services. If the revenue collected
from the clients is not adequate to support Why is it important for all types of businesses to
the marketing mix, the center will not be increase revenues and control marketing costs?
able to continue to operate. Therefore, the revenue and expenses related to marketing
manager of the day care center must care- activities. Marketers need to identify ways
fully plan and control finances in order to increase revenues while controlling
to keep the center open and available to the costs of marketing. They must decide
families in the community. which markets present the most profitable
opportunities and which choices in a mar-
The Role of Marketing in keting mix are the most cost-effective.
Financial Planning Target Markets A variety of decisions
Most large organizations have depart- that marketers make affects the financial
ments that deal specifically with financial performance of a company. One example
planning and management. Experts in is the choice of target markets. Suppose a
finance and accounting are responsible for company has a choice between two mar-
maintaining the best financial position for kets. One market has a smaller number of
their company. These experts assist other potential customers, but those customers
managers with planning. They maintain fi- spend a higher percentage of their income
nancial resources and records and provide on the product. There are also fewer com-
information on revenue and expenses. petitors. Would this be a good fit for the
Even small businesses and other orga- company? Also, what about international
nizations usually have assistance to help markets? On one hand, it may be difficult
managers with financial planning and and expensive for the business to enter a
record keeping. A business may employ distant market with which it has no expe-
an accountant full- or part-time, use an rience. If the business is not successful in
accounting service, or consult a financial the market, a great deal of money will be
planner. Several easy-to-use computer soft- lost. On the other hand, successful entry
ware programs can help even the newest could mean substantial profits for many
and smallest organizations with financial years to come and opportunities to enter
decisions. adjoining markets in other countries. In
While marketers may employ people each of these examples, decisions about
and other resources to help with financial the target markets determine the amount S
planning, they are still responsible for the of sales and revenue that can be obtained. N
557
20-1 • Marketing Affects Business Finances 557
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Marketing Mix In the same way, time needed to get products to customers.
decisions about the marketing mix have Expenses involved with the pricing ele-
an important impact on the company’s ment include offering credit, coupons, or
financial resources. As the product ele- rebates. Expenses associated with the pro-
ment of the marketing mix is developed, motion mix element include more frequent
marketers may decide that additional advertising, direct marketing efforts such
customer services or improved packag- as telemarketing, or additional training for
ing to prevent product damage is needed. salespeople. Each time marketers consider
Each of those choices increases the cost changes in the marketing mix, they need
of the product. The changes may also to study the costs of those changes and
result in increased sales or customers who predict the effect of the changes on sales.
are willing to pay more because of the
improvements. Checkpoint
Distribution decisions can also in-
crease expenses. Examples include using Why are marketing and its effectiveness
several channels for distribution or oper- so important to an organization’s financial
ating regional warehouses to reduce the planning process?
Managing Marketing Costs

o determine the amount of money
T needed for marketing, marketing

expenses need to be classified as
either long term or short term. Long-term
expenses are for items that the company
can use for several years. Short-term
©DIGITAL VISION /GETTY IMAGES

expenses are for current activities or items
used within a short time, typically less
than one year. Long-term expenses are
usually paid over an extended period of
time. They are often financed by borrow-
ing money from a bank or other financial
institution. Normally, short-term expenses
must be paid when they are purchased. How would you classify the construction costs
for a new retail site?
Sometimes they are financed with credit
from the seller and must be paid within direct sales to customers through factory
one or a few months. outlet stores need to build or rent facili-
ties and equipment for retail operations.
Long-Term Expenses The increased use of technology in other
Most long-term business costs apply to parts of marketing requires investments in
production or operations rather than mar- special equipment. For example, computers
keting. The costs of land, buildings, and are essential for effective marketing re-
equipment are the typical expenses in this search and marketing information man-
category. Some marketing plans identify agement. Companies that use telemarket-
land and building needs. A company that ing or provide customer information and
distributes products may need buildings, service often invest in high-speed Internet
S vehicles, and equipment for product stor- access, telephone systems, computers, and
N age and handling. Manufacturers using other office equipment. Advertising and
558
CH 20-B4491_RP_REV3.indd 558 12/5/07 9:58:43 PM

other types of promotion require sophis-
ticated audio, video, and print produc-
tion equipment and facilities. While most
companies hire advertising agencies and
production companies to develop their
advertising and promotional materials,
some larger companies maintain their own
facilities, equipment, and personnel for
those tasks.
Short-Term Expenses
Most marketing expenses result from
performing specific marketing activities
that are completed in a short period of
time. These types of expenses depend
on the marketing mix, but most busi-
nesses commonly incur short-term ex-
©CHICK-FIL-A. USED WITH PERMISSION.
penses in areas such as salaries and wages,
administrative costs, operating expenses,
order processing, customer services, adver-
tising and promotion, and transportation
costs.
Financing Marketing
Activities
Creative ad campaigns, such as the Chick-fil-A ads,
An important part of financial planning can be a big marketing expense but are designed to
is identifying the sources of money increase sales and revenues.
needed to pay for marketing activities
and expenses. Marketers work with a
company’s executives and financial man- Inventory Expenses The assort-
agers to identify financial needs. They ment and quantities of products that a
must also identify the methods that will company maintains for sale to customers
be used to obtain the needed money. The is inventory. Inventories for manufactur-
three main types of financial needs are ers are produced with the anticipation
capital expenses, inventory expenses, and that they will be sold to customers. For
operating expenses. other channel members, inventories are
purchased and then resold to their cus-
Capital Expenses Long-term invest- tomers. The cost of the inventory is not
ments in land, buildings, and equipment recovered until the products are sold and
are capital expenses. They are usually the customer pays for the purchase.
financed with money borrowed from a Financing of inventory is usually done
financial institution such as a bank or in one of two ways. Short-term loans may
insurance company. Some manufacturers be obtained from financial institutions.
provide long-term loans to their customers Most banks will not loan the full value
to help finance a major equipment pur- of the inventory since it may not sell as
chase. It is also possible to lease equipment expected. The other common method of
and buildings instead of buying them. The financing inventory is through credit ex-
financial personnel of an organization tended by the seller. Since most sellers
are usually responsible for arranging the will finance the sale for only a short S
financing of capital purchases. period, often 30 to 60 days, the purchasing N
559
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Get the Message
Billboards Enter the is a veritable carnival of lighted, animated,
Computer Age spectacular billboards. These types of
billboards are expensive, but they can be
Billboards are perhaps the oldest form of
very captivating, and they allow advertisers
advertising, going back to when merchants
to deliver dynamic messages to their audi-
in small towns put signs out to attract cus-
ence. The message can even change from
tomers to their shops. Today, they line many
moment to moment during the day.
of the nation’s highways and interstates,
Although electronic billboards are
advertising hotels, restaurants, theme parks,
generally limited to extremely high-profile
radio stations, and much more. Although the
areas, they have been popping up more and
media dollars spent on outdoor advertising
more on highways across the country. While
is only about 15 percent as much as televi-
they may never completely replace tradi-
sion, billboards remain effective, especially
tional static billboards, we will probably be
for local businesses.
seeing much more of them in the future.
Some advertisers see billboards as an
out-of-date medium when compared to the Think Critically
flash of television and Internet. But technol-
1. What about billboards makes them espe-
ogy is changing that. While a traditional
cially appropriate for local businesses?
billboard message remains static for a
month or more, new electronic billboards 2. What types of businesses might change
allow for bright, animated messages. High- the message on their billboard depend-
traffic places like Times Square in New York ing on what time of day it is?
company must be able to sell the inventory Operating expenses include the variety
quickly to pay for the order on time. In of other marketing activities completed
both cases, the purchaser pays interest on regularly to sell products and services and
the money borrowed and factors the cost to meet customer needs. Operating costs
of financing into the price of the products. are normally paid as they are incurred or
shortly thereafter. The money for pay-
Operating Expenses The final cat- ment of operating expenses comes from
egory of marketing expenses is operating the cash on hand in the business and the
expenses. Operating expenses are the income from sales. Monthly and weekly
costs of day-to-day marketing activities. budgets and financial reports moni-
They include salaries and wages, materials tor operating expenses and income to
and supplies, advertising and special ensure that money is available to pay the
promotions, and customer services. expenses. Marketing managers pay careful
attention to operating budgets and make
Wo r k i n g i n Te a m s changes rapidly if it appears that operat-
ing expenses are too high or revenues are
As a team, make a list of expenses typically in- too low.
curred by all businesses. Next to each expense,
record whether it is a capital expense, inventory Checkpoint
expense, or operating expense. Then discuss
potential ways to finance each of the expenses What is the difference between capital
S your team has listed. expenses and operating expenses in terms
N of how they typically are financed?
560
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Why is it important for marketing managers to monitor operating expenses?

Determine the best answer. 5. Economics Read through the business section
1. True or False: If costs consistently exceed rev- of your local newspaper or an online edition
enues, a business cannot offer the products of a newspaper from another community and
and services its clients need or expect. find at least one story related to a company’s
capital expenses. Find a second story related
2. Most marketing expenses result from
to another company’s operating expenses.
a. specific marketing activities that are com-
Summarize each article and explain why you
pleted in a short period of time
classified each as relating to capital or operat-
b. long-term costs such as building and
ing expenses.
equipment
c. unexpected costs arising from changes in 6. Math Suppose your company takes a $25,000
the marketplace loan for one year at 8 percent interest with
d. paying off long-term loans used to finance equal monthly payments. Calculate the month-
marketing activities ly payment on this loan so the principal and
interest will be paid at the end of the year.
3. expenses are usually financed with
money borrowed from a financial institution Connect to
such as a bank or insurance company.
7. You work as a classroom aide at a nonprofit day
4. Which of the following is not considered an care center. Today, the director of the center
operating expense? remarked to you that she had been told by
a. salaries and wages a board member not to worry about watch-
b. advertising ing expenses and revenues because the day
c. major equipment purchase care center is a nonprofit organization. She
d. customer services asked you to prepare a brief but tactful report
explaining to the board member why this per-
ception is incorrect. Present your report to your S
teacher (judge). N
561
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20-2 Tools For Financial Planning
GOALS KEY TERMS
• Describe the principal planning and operating financial forecast, p. 562 balance sheet, p. 565
tools used by business. budget, p. 563 assets, p. 565
• Detail how marketers develop forecasts, budgets, financial statement, p. 564 liabilities, p. 565
and financial statements.
income statement, p. 564 capital, p. 565
• Explain the kinds of financial analyses marketers
perform to increase profits.
Three factors contribute to the financial performance of a business—revenue, costs,

and results (profit or loss). Managers are responsible for operating the business so that
customers are satisfied and the business makes a profit. Several financial tools help
managers meet that responsibility. Those tools can be classified as planning tools and
operating tools.
The primary planning tools are forecasts and budgets. Forecasts predict long-term
financial performance, generally for periods of a year or longer. Budgets are shorter-
term tools used to develop detailed plans for specific activities. The primary operating
tools are income statements and balance sheets. Managers use these summaries of
financial performance to determine the effectiveness of business operations. Marketers
must be able to interpret financial statements to develop marketing plans and improve
decision making.
Obtain a copy of an annual report for a publicly owned corporation from the library
or Internet. Make copies of the income statement and balance sheet in the annual
report. How many months or years of financial information does each statement cover?
What items are reported on the financial statements? Discuss with other students why
understanding the financial information is important to managers and investors.
Planning and Operating Tools

usinesses have a number of tools they the progress of the business in meeting its
B can use for planning and operating

the company. These tools include
forecasts, budgets, the income statement,
goals. Two important types of financial
plans are forecasts and budgets.
Forecasts Plans are based on estimates
and the balance sheet.
of future events. Managers want those
estimates to be as accurate as possible.
Planning Tools They prepare forecasts to aid in planning.
Businesses operate from plans. Plans A financial forecast is a numerical pre-
identify the goals of the business and diction of future performance related to
determine the best ways to achieve those revenue and expenses. Forecasts are usu-
S goals. Business plans guide the activities ally made for a period of at least one year
N of employees. Plans are used to evaluate or more into the future.
562
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Digital Digest
Screen Out Costly Customers have more time to spend on cultivating sat-
The layout of a typical income statement in- isfied customers who are likely to buy more.
dicates why sales or revenues are commonly Unfortunately, too many businesses spend
referred to as the “top line” and profits are 80 percent of their time and energy trying to
called the “bottom line.” In between top-line appease chronic complainers who account
sales revenues and bottom-line profits are for 20 percent of their sales.
all the costs. A key to business success is They would be better off turning that
making sure that as much of the top line as ratio on its head by identifying their best
possible makes it to the bottom line rather existing customers and spending 80 percent
than being eaten up by expenses. of their time and energy on them. Good,
Modern information management reliable customers are the least expensive
systems make it possible to analyze in detail sources of increased sales revenue. Track-
which parts of a business are the most effi- ing marketing costs by customer allows
cient in terms of the percentage of revenues businesses to see which are supporting the
that are delivered to the bottom line. In bottom line and which are eating it up.
many cases, data can be analyzed customer Think Critically
by customer.
1. How do information management sys-
Marketing experts recommend two
tems make it easier to screen out undesir-
steps to increase that percentage—screen
able customers?
out undesirable customers and increase
sales to desirable existing customers. By 2. Why are existing customers usually a
getting rid of hard-to-please customers who business’s best prospects for increased
cost more than they are worth, businesses sales?
Some companies develop forecasts for that projects its share dropping to 10
as long as five years, although they are usu- percent in two years. Expense forecasts
ally not as accurate as shorter forecasts. project changes in the amount a company
Conditions can change that cause long- will need to spend for specific operations
range forecasts to become inaccurate. or activities. For example, a forecast for an
The most important financial forecasts office supplies company that uses trucks to
for marketing are sales, market share, make deliveries to customers might project
and marketing expenses. Sales forecasts that transportation costs will increase by
predict the quantity of sales or the dollar 24 percent over the next five years due to
volume of sales for a product or a specific an anticipated gasoline shortage.
market. For example, a sales forecast may
predict the sales of a product to increase Budgets When planning for a shorter
by 6 percent for each of the next two years time period, managers use budgets. A
and then by 4 percent for the third year. budget is a detailed projection of fi nan-
Forecasts of market share anticipate the cial performance for a specific time
percentage of sales in a market that will period, usually one year or less. When
be made by each of the major competitors. managers identify the activities that must
An appliance store that currently has be completed to accomplish the goals
14 percent of the market in a city will need of the business, they develop budgets to S
to determine how to respond to a forecast anticipate the costs of those activities and N
563
20-2 • Tools for Financial Planning 563
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the revenue that can be expected to be analyze the performance of all of the stores
generated by them. Two common exam- operating in a specific country or region
ples of budgets used in marketing are of a country. Additionally, each store will
sales and advertising budgets. Separate have its own income statement. Managers
budgets are usually developed for each may also want to determine the profit-
product, market, and major marketing ability of specific parts of the business
activity.
Operating Tools FIGURE 20-1

Managers use several tools, An income statement shows the relationship between sales and
known as financial state- expenses in order to determine if operations are profitable.
ments, to determine the
effectiveness of operations. Dendum Products, Inc.
A financial statement is a Income Statement
detailed summary of the For the Six-Month Period Ending June 30, 20—
Revenues:
specific financial perfor-
Gross Sales:
mance for a business or a NE region ...................................................... $123,528
part of the business. The NW region .................................................... 195,426
important financial state- SE region ....................................................... 232,965
ments for marketers are SW region ..................................................... 148,258
income statements and Total Gross Sales ..........................................................$ 700,177
balance sheets. Less Sales Returns:
NE region ..................................................... $ 6,123
Income Statement NW region..................................................... 5,896
An income statement SE region ....................................................... 8,344
reports on the amount SW region .................................................... 7,421
and source of revenue Total Sales Returns....................................................... 27,784
and the amount and type Net Sales ...............................................................................$ 672,393
of expenses for a specific Cost of Products Sold:
period of time. The pur- Inventory, Jan. 1, 20— ............................. $ 86,593
pose of an income state- Purchases ................................$583,226
Less: Purchase Returns ........ ⫺6,048
ment is to determine if
Purchase Discounts ........ ⫺3,582
the business earned a Net Purchases ............................................. 573,596
profit or loss on its opera- Total Cost of Products for Sale ................... $660,189
tions. A sample income Inventory, June 30, 20— ......................... ⫺78,190
statement is shown in Net Cost of Products Sold ............................................... 581,999
Figure 20-1. Gross Margin ...................................................................................$ 90,394
An income state- Operating Expenses:
ment can be developed to Rent Expense..................................................... $ 8,225
analyze the profitability Bad Debts Expense ......................................... 695
of the entire company or Credit Card Fee Expense ............................... 1,200
just one operating unit of Transportation Expense ................................ 10,150
the company. For example, Equipment Purchases ................................... 860
Equipment Depreciation .............................. 620
Starbucks operates stores
Insurance Expense .......................................... 1,050
in many different coun- Salaries and Wages ......................................... 12,845
tries. It can develop an Payroll Taxes....................................................... 1,926
income statement for the Supplies Expense ............................................. 734
entire corporation, which Advertising Expense ...................................... 18,040
includes the income and Total Operating Expenses ..............................................$ 56,345
S expenses of all stores in Net Income before Taxes ...........................................................$ 34,049
N every country. It can also
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CH 20-B4491_RP_REV3.indd 564 12/5/07 10:00:08 PM

operations. An income statement can be to spend on such things as new product
developed for a specific market, a category development, buildings, equipment, and
of customers, or a product or product other resources needed to improve market-
category. The income statement in Figure ing activities.
20-1 analyzes the financial performance
of a company for a six-month period, with
sales figures for four different regions of
Checkpoint
the country. What kinds of financial information do
Marketers use income statements income statements and balance sheets
to determine if marketing activities are contain?
achieving an adequate
sales volume. Income FIGURE 20-2
statements are also used A balance sheet shows the relationship between the assets,
to identify the costs of the liabilities, and capital of a business.
activities needed to attain
that sales volume.
Froerich Fundamentals
Balance Sheet A Balance Sheet
balance sheet describes December 31, 20—
the type and amount of
assets, liabilities, and Assets
capital in a business on Current Assets:
a specific date. Assets Cash .......................................... $ 95,436
include the things the Accounts Receivable ........... 42,827
business owns. Liabilities Product Inventory ................ 135,673
are the amounts the busi- Supplies ................................... 21,128
ness owes. The difference Prepaid Insurance ................ 2,442
between the amount of Total Current Assets....................................$ 297,506
assets and the amount Capital Assets:
of liabilities is the actual Buildings ................................. $647,545
value of the business, or Vehicles .................................... 97,221
capital. Managers must Equipment .............................. 228,322
be able to identify changes Capital Assets ......................... $973,088
in those amounts to Less: Depreciation of
determine if the financial Capital Assets .................... 13,286
condition of the business Total Capital Assets .................................... 959,802
is improving or declin- Total Assets ...........................................................................$1,257,308
ing. Figure 20-2 shows an Liabilities
example of a balance sheet.
Current Liabilities:
Important information
Accounts Payable .................. $ 92,286
that marketers obtain from
Mortgage Payable ............... 296,243
balance sheets includes
Notes Payable ........................ 63,552
the value of assets used
for marketing activities, Payroll Taxes Payable ........... 71,074
the levels of inventory of Insurance Payable ................ 6,995
products for sale, and the Total Liabilities ....................................................................$ 530,150
amount owed by custom- Capital
ers who have been offered Retained Earnings ................................. $286,680
credit. A balance sheet also Owners’ Equity ........................................ 440,478
identifies whether the com- Total Capital ......................................................................... 727,158 S
pany has money available Total Liabilities and Capital ............................................$1,257,308 N
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Using Financial Tools
arketers work with finance and
M accounting experts to develop and

use financial tools. Some of the
information used to prepare forecasts,
budgets, and financial statements comes
from the marketing department and its
operations. Marketers help to collect and
©DIGITAL VISION /GETTY IMAGES

report the necessary information. When
the reports are prepared in accounting and
finance, they are distributed to market-
ing personnel for use in decision making.
Marketers must be able to understand and
interpret financial statements. Marketers
use the information to develop marketing What methods could a new window washing
plans and to improve marketing operations. business use to prepare financial forecasts and
budgets?
Developing Forecasts and actual results, planners can see which
Budgets ones were accurate and which were not.
Financial plans are not helpful unless they Using that past experience makes plan-
are reasonably accurate. Planners use sev- ning more accurate.
eral methods to develop accurate forecasts
and budgets.
Industry Performance A second
method is to use information from com-
Past Performance The most common parable businesses and markets to develop
planning method to use is past perfor- plans. New businesses frequently rely
mance. By comparing the forecasts and on this method to develop forecasts and
budgets from previous years with the budgets since they have limited past per-
formance on which to base projec-
tions. Often, trade associations or
information services collect and
report on the financial performance
of businesses in a particular indus-
Multinational companies must have a way to try. Some government agencies,
calculate currency exchange rates. The FXCon- including the U.S. Department
verter (Foreign Exchange Currency Converter) of Commerce, also gather and
on the Oanda web site performs this very func- report financial information on
tion. Access school.cengage.com/marketing/ businesses.
marketing and click on the link for Chapter 20.
Use the converter to convert 25,000 Japanese Marketing-Related Data
yen to U.S. dollars using today’s Interbank rate. Additionally, planners can look for
What is the result? Now convert 25,000 Japa- related figures that help to predict
nese yen to U.S. dollars using the Interbank performance. For example, the
rate from one year ago today (change the date number of tires that an auto service
in the “with rate of [date]” box accordingly). business might sell can be based
What is the result? How does it differ from your on the number of cars in a mar-
first answer? ket and the age of those cars. The
S original tires on a car will normally
N school.cengage.com/marketing/marketing need to be replaced bet ween two
566 and three years after the car is sold.
CH 20-B4491_RP_REV3.indd 566 12/5/07 10:00:10 PM

Identifying the number of those cars in FIGURE 20-3
the shopping area of the business will help This budget helps the manager analyze the costs and
in developing a forecast for tire sales. benefits of operating a customer service department.
Marketing Plan The most effective Developing a Budget for a

way to develop a budget for market- Marketing Activity
ing expenses is to calculate the costs of
performing the necessary marketing Planned Monthly Customer Service
tasks. Here again, the marketing plan Department Expenses
is an effective tool. A marketing plan Management Salary $ 4,028
describes the marketing activities neces- Personnel Wages 18,840
sary to implement the marketing mix. Facility Expense (space and utilities) 3,526
The marketing manager analyzes each of Office Equipment 305
the planned activities to determine what
Telephone Expense 498
personnel and resources will be needed.
Then the wages, costs of resources, and Computer Expense 295
the amounts of all other expenses are Postage 86
matched with each activity. When all of Supplies 175
those items are totaled, the marketing Travel Expense 830
manager has a specific estimate of the Product Returns and Replacements 644
amount that needs to be budgeted for that Total Budgeted Expenses $29,227
activity. An example of that type of bud-
get development is shown in Figure 20-3.
using a cash register or a point-of-purchase
Gathering Information for computer.
Financial Statements Today, much of this information is
The information needed to prepare income captured by electronic scanners that read
statements and balance sheets is the actual bar codes on products and then automati-
financial performance of the business. cally enter data into computer databases.
Therefore, the marketing department is re- As products move through a manufactur-
sponsible for maintaining accurate records ing and distribution process, the bar codes
on sales, expenses, inventory levels, cus- are scanned automatically or by employees
tomer accounts, and equipment. using scanning equipment. Additional
Traditionally, employees were asked to information can be entered along with the
record information while completing a bar code data using a keyboard, a touch-
marketing activity. For example, when screen, or an electronic pen.
a sale was made, information about the FedEx, UPS, and other delivery com-
customer, product, and terms of the sale panies track each item they handle using
would be recorded on a purchase order, in- this kind of technology. From the time
voice, or sales receipt. In retail businesses, packages are received to the time they are
the information may have been recorded delivered, information on each item at
each step along the way is maintained in
computers. Reports on numbers of items
Fa s t FAC T S delivered, speed of delivery, costs, and
location can be obtained at any time.
According to recent financial state-
ments, Wal-Mart is the largest corpora- Checkpoint
tion in the United States, with annual
revenues of more than $351 billion and Where does the information come from that S
total assets of over $151 billion. businesses use to develop financial state- N
ments, forecasts, and budgets? 567
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Planning a Career in... Credit Marketing Management
“Since starting a new job, my brother has been

getting multiple credit card offers from his com-
pany’s credit union. After reviewing a
brochure, he realized that he would
be able to not only save on his annual
usage fee but also receive one percent
of his monthly charges back. Now that • A thorough knowledge of laws, regulations,
he has received the new credit card, he and tax implications specific to the credit card
likes to use it frequently. In effect, it industry is necessary.
provides him with a one-percent
discount on all purchases.” • Continuing education, either through a univer-
How do credit card com- sity or professional society, is needed to remain
panies obtain new card holders? current with changes affecting the industry.
How do they approach existing
card holders whose cards have What’s it like to work in…
expired from prolonged non-use? Credit Marketing Management
Credit marketing managers work to increase As a credit marketing manager at a large depart-
the use of credit cards among consumers. Enticing ment store, Miguel is responsible for expanding
potential customers to obtain credit cards through the use of credit cards within each division of his
various promotional efforts and determining the corporation. This morning he is analyzing the
appropriate target groups for direct mail marketing effectiveness of a direct mailing campaign to
campaigns are among the strategies they employ. prospective customers that he had initiated. By
comparing the forecasted growth of credit cards
Employment Outlook to the actual growth of credit cards for each divi-
• Average growth is anticipated. sion, Miguel can gauge the campaign’s effective-
• Increased demand for credit managers resulting ness. Miguel needs to follow up with representa-
from economic growth will be offset somewhat tives from each of the two divisions that did not
by industry consolidations. meet their forecast. He wants to understand why
the forecasts were not met so that a new, more
• Fierce competition for customer retention and
effective campaign can be developed.
for new customers will drive the demand for
Tomorrow Miguel is teaching a course for
marketing specialists working in credit services.
recently hired credit marketing representatives.
Miguel wants to ensure that each representative
Job Titles is well versed in the incentives offered to credit
• Online Promotions Manager card holders. For example, many consumers were
• Co-Branding Credit Card Marketer eager to sign up for a store credit card when they
• Direct Mail Credit Manager learned that periodically they would receive an
additional 10 percent off all store purchases made
PHOTO:©DIGITAL VISION/GETTY IMAGES
• Credit Card Portfolio Manager with the store credit card.

• Credit Sales Manager
Needed Skills W h a t A b o u t Yo u
• A bachelor’s degree with a major in a quanti-
tative business discipline (like accounting or Would you like to help a corporation increase its
S
finance) is usually required. credit card revenue from its customers?
N
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Analyzing Financial Information
nformation available from financial information is needed to determine what
I tools can be very valuable in improving

marketing decisions. Forecasts and bud-
gets are evaluated to determine their accu-
marketing activities the organization can
afford to complete and the impact of those
activities on profits. Financial planning is a
racy. The projections are compared with critical marketing skill.
actual performance. When differences are Marketers use financial information
found, they are studied to determine why to identify how to increase revenue and
the differences occurred. It is possible that reduce costs. As shown in Figure 20-4, if
the projections proved to be inaccurate, a greater volume of sales can be achieved
indicating that methods used to develop while controlling expenses, profits will
the forecasts and budgets need to be modi- increase. In the same way, if sales can be
fied. Or it could be a sign that marketing maintained while reducing the costs of
activities were less effective than antici- marketing, the company will also be able
pated and need to be improved. to increase profits.
Using Financial Information Increasing Revenues

Financial statements are evaluated to de- Increased revenue results from selling
termine the changes that occur from one more products and services. Financial
period of operations to the next. A market- information is analyzed to determine the
ing manager studies various markets to products that sell the best and the cus-
determine if sales are increasing or de- tomer groups that buy the most products.
creasing. Inventory levels can be compared Efforts are directed at the best products
from year to year as can the amounts owed and markets. Poorly performing prod-
by customers. If the information shows ucts and markets are either improved or
that the financial performance is improv- dropped. Each time a new marketing plan
ing, the marketing manager will want to is developed, the most important products
continue with the same activities. If sales and markets are identified.
are decreasing or inventories and customer
accounts are increasing too quickly,
FIGURE 20-4
marketing activities may need to be
When the goal of a business is increased profits, marketers have two
changed. basic ways of getting there: (1) They can increase sales while holding
Another method of analysis is to costs steady. (2) If sales are not increasing, they can reduce the cost of
compare one type of financial perfor- achieving those sales.
mance to another. For example, sales
volume can be compared to advertis- Marketing Strategies to Increase Profits
ing expenses. If expenses are going up
at a faster rate than sales, a problem Sales
may be developing. Other important
comparisons in marketing are the
level of inventory to sales, costs of Sales
transportation compared to costs of
product handling and storage, and Profit
product costs compared to marketing
Profit
expenses.
Information is essential for effec-
tive marketing. Marketing research
provides information to aid in un- Costs Costs S
derstanding customers. Financial (1) (2) N
569
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How could providing laptops to its salespeople help a business control costs?
Marketers are also concerned that an customers cannot be eliminated without

effective price for a product is maintained. considering the impact on customer sat-
It is possible that more products can be isfaction. It is often possible to find ways
sold to customers if discounts are offered to perform marketing activities in a less
or the price is reduced. Some salespeople costly way while keeping the same level of
who have control over price are quick to customer service. For example, an insur-
reduce the price, believing that is the only ance company provided its salespeople with
way the customer will buy. Yet the lower laptop computers to reduce the time it took
price may reduce revenue to the point to complete the required forms and to ex-
where a profit cannot be made. Salespeople change information between the salespeo-
who understand customer needs make an ple and the company. The company found
effective presentation of the entire market- that the use of laptops not only reduced
ing mix in response to those needs. They expenses by over 15 percent but also cut the
know that customers look for the best number of errors on insurance applications
value, not the lowest price. by nearly 5 percent.
Another example of reducing market-
Controlling Costs ing expenses comes from a large supermar-
Marketing managers are very concerned ket in the Southeast. It operates a very large
about reducing and controlling the costs fleet of trucks to deliver products from its
of marketing activities. When businesses warehouses to its stores. The trucks would
are in very competitive markets, it is of- deliver the products and return to the ware-
ten the company that operates most effi- house empty. The transportation manager
ciently that makes a profit. Businesses that started to identify suppliers of products
are concerned about satisfying customer that were located in the towns where the
S needs must be very careful in cutting costs. supermarket had stores. When a truck was
N Marketing activities that are important to delivering a load from the warehouse to
570
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a store, the manager would determine if be performed more efficiently, the amount
a nearby supplier had an order to be sent of supplies or materials can be reduced, or
to the warehouse. If so, the supermarket’s waste can be eliminated. Many companies
truck would pick up the order rather than provide incentives for employees who iden-
driving back empty. This procedure saved tify cost savings.
the company several thousands of dollars
each month in transportation costs.
Marketing employees as well as man-
agers need to be aware of the costs of Checkpoint
marketing activities and identify ways
to reduce expenses. It is often possible to What are the two basic ways that busi-
identify ways that marketing activities can nesses can increase profits?

Determine the best answer. 5. Finance Use the library or Internet to locate
1. True or False: A financial forecast is a detailed the financial statements of a business you
summary of the specific financial perfor- admire and find (a) the company’s net income
mance for a business or part of the business. before taxes last year and (b) the dollar amount
of the company’s value (capital). Record these
2. A budget differs from a financial forecast in
figures and explain which financial statement
that it
you used to find the information.
a. predicts the long-term financial perfor-
mance of a business 6. Ethics Suppose a radio manufacturer decides
b. is usually not as accurate as a financial to cut costs by reducing the terms of its prod-
forecast uct warranties from two years to one year. Do
c. does not take capital expenses into you think this decision is ethical? Why or why
account not? What if data show that about 8 percent
d. typically covers short-term rather than of the company’s best-selling model becomes
long-term financial performance defective after about 18 months of use?
3. The difference between the amount of a busi- Connect to
ness’s assets and the amount of its liabilities is
7. You and a friend have decided to start a small
the actual value of the business, or .
computer repair shop. Since you are new en-
4. The most effective way to develop a budget trepreneurs, your business has no past perfor-
for marketing expenses is to mance on which to base a budget. Using the
a. calculate the costs of performing the nec- library or Internet, compile a list of resources
essary marketing tasks you can use to help you prepare the first bud-
b. use data from comparable businesses and get for your business. Estimate revenues and
markets expenses and create a startup budget for your
c. look at last year’s figures and increase new business. Present it to your teacher (judge)
them based on the current rate of inflation and explain how you arrived at the amounts in
d. ask all marketing personnel to submit your budget.
a sample budget, and then average the
figures to arrive at the final budget S
N
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20-3 Budgeting for Marketing Activities
GOALS KEY TERMS
• Explain the various ways that businesses raise revenue accounts receivable, p. 576
through marketing activities.
• Describe the kinds of marketing expenses that arise in
conjunction with each element of the marketing mix.
Every activity in a business costs money. Decisions need to be made on the most
effective use of that money. Marketing managers then decide on the best way to
use the marketing budget. They do that by analyzing the expenses involved in
marketing.
Marketing activities generate revenue. Most of the revenue comes from the sale
of primary products and services. Secondary and after-sale products and services
can also contribute substantially to revenues and profits. Offering credit can gener-
ate interest revenues.
Completing marketing activities also incurs costs. There are expenses associated
with each of the four marketing mix elements.
Make a list of five activities that you or your family performed in the past month
that resulted in revenue. Also list five expenses associated with those activities.
Effects of Marketing on Revenue

marketing strategy provides the basis distribution. A decision needs to be made
A for developing the marketing budget.

The marketing strategy identifies the
target markets that the business intends to
whether to put more money into the prod-
uct or into distribution. That decision is
often based on which of the mix elements
serve and the marketing mixes to be used is most important to the customer, the type
for each market. A written marketing plan of mix offered by the competition, and the
is prepared to show how the business will actual costs of each choice to the company.
implement the marketing strategy. The The marketing mix and budget are also
plan describes the activities to be com- affected by the way the company has spent
pleted and the resources needed. money in the past. If the company was re-
The people who develop a marketing sponsible for the transportation of its prod-
plan often find that they do not have ade- ucts, it may have invested in trucks or other
quate resources to develop the most effec- equipment needed to move products from
tive marketing mix. For example, research the business to customers. Warehouses or
might show that customers prefer a product distribution centers may have been built
with several options that is sold through a to handle the inventory. If the company
large number of outlets. Yet the company has already made those investments, it
S cannot afford to spend money on both will typically try to use marketing mixes
N product improvements and more extensive that take advantage of those resources. If a
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Virtual Marketing
Consumer-Generated As judges of the contests, Frito-Lay and
Advertising the NFL could control what was said in the
commercials. But one of the negatives of
The term Web 2.0 refers to the perceived shift
consumer-generated content is that com-
in the way people began to use the Internet
panies do not have as much control over
in the early 2000s. Although the technol-
the messaging. When Chevy provided
ogy did not fundamentally change, in this
consumers with footage of its Tahoe and
second generation of the Internet, social
invited them to make their own commercials
networking sites, blogs, discussion boards,
and post them online, they got over 30,000
and wikis allowed for much more user-
entries in four weeks. Some touted the bene-
generated content. Companies slowly began
fits of the Tahoe, but a small percentage were
to embrace this approach, recognizing that
criticisms of the Tahoe’s low gas mileage and
while traditional media like television and
negative impact on the environment. Surpris-
print were a one-way stream of communica-
ingly, Chevy did not remove the negative
tion, the strength of the Internet was that it
entries from the web site. To them, keeping
allowed for users to also contribute meaning-
an honest dialogue was more important than
ful content. Rather than companies talking
ensuring that all the messages were positive.
at consumers, they could now engage in a
dialogue with them. Think Critically
In 2007, the approach of letting con-
1. From the company’s standpoint, what are
sumers generate content spilled over into
some positives of consumer-generated
traditional media. Both Frito-Lay and the NFL
advertising? What are some negatives?
held contests in which consumers submitted
ideas for television commercials. The win- 2. Do you think consumers care whether
ning commercials were broadcast during the a commercial message was created by
Superbowl. another consumer instead of the company
doing the advertising? Why or why not?
company has relied on other businesses to products and services, and interest earned
store and transport products in the past, it on credit services.
may be very expensive for the company to
change and instead provide those market- Sales of Products and Services
ing activities itself. The primary objective of a marketing strat-
Marketing activities are completed in egy is for the business to obtain the most
order to generate revenue. Most of the rev- profitable level of sales possible while satis-
enue for a business results from the sale of fying a target market. The marketing mix
products and services. The marketing plan is developed to increase customer satisfac-
identifies the markets that the company tion by offering a product or service that is
plans to serve. Marketing activities are different from and better than those offered
developed to meet the needs of customers by competitors. It is possible for a company
in the market so that they will purchase to improve a product by offering additional
the products or services offered by the features and options, better packaging,
company. There are several parts of the or customer services. The product can be
marketing mix that can affect the amount made available in a more convenient or
of revenue. Sources of revenue affected more appropriate location. Credit can be of- S
by mix elements include sales, after-sale fered to make the product more affordable. N
573
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What kinds of products and services might a garden center offer to generate after-sale revenue?
Promotion and other types of com- to existing customers while satisfying their
munication can clearly show the customer needs. Automobile dealers and movie the-
the value of the product and how it can aters provide two examples of this market-
be used most effectively. Marketers need ing strategy. Selling automobiles today is a
to study the impact of each mix choice on very competitive business. Customers care-
sales and profits and then select the mix fully shop for the best price, so dealerships
that achieves the best combination for the often have to cut prices so low that they
company. The most important source of make little profit on the sale of the auto-
revenue for an organization is the sale of mobiles. Profit for the business comes
its primary products and services. from activities that occur after the sale.
Several factors can reduce the level of A very important source of revenue and
sales. Customers may not be satisfied with a profit for automobile dealers comes from
product because it is damaged, is not what servicing and repairing automobiles they
the seller promised, or does not meet the have sold. They work very hard to en-
customers’ needs. In those cases, customers courage customers to return to the dealer-
will return the product to the seller and ship for service.
expect a replacement or a refund. Returned In the same way, many movie theaters
and replacement products reduce the level rely on the sale of other products to op-
of sales and add to the seller’s costs. erate profitably. Most movies are shown
The seller may offer the customer a dis- several times a day for many weeks. The
count on the price charged if the customer is first few times a new movie is shown, the
not satisfied or receives less than promised. theater may be full of customers, and the
Again, the amount of discounts reduces the sale of tickets by itself will make a profit.
sales volume. If the company offers a rebate Later on, however, fewer customers will
to customers, the amount of the rebates come to see the movie. The sale of conces-
must be subtracted from the total sales. sion items (popcorn, soft drinks, candy)
provides the opportunity for the theater
After-Sale Revenue to make a profit when ticket sales alone
It has been said that a current customer do not. Think of the number of businesses
S is more profitable than a prospective that have a variety of products they sell
N customer. There are ways to increase sales that complement the original purchase.
574
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Sometimes businesses identify other the late fall and winter. However, some of
ways of generating revenues in addition to these companies may contract with cities,
the sale of the primary products and ser- large businesses, and even homeowners to
vices. Restaurants may sell baseball caps, clean the snow from streets, parking lots,
coffee mugs, or packaged popular food and driveways. This provides some revenue
items such as pasta sauce or baked goods. during a time when they otherwise would
Those sales are both effective promotional not be able to operate.
tools as well as another source of revenue.
In the northern states, landscaping and
grass-cutting businesses often see their Credit and Interest
profits reduced during winter months Many purchases are made with cash,
because of poor weather. People simply do and the seller receives payment as soon
not need to have much yard work done in as the sale is made. If credit is offered to
Figure This
Unit Sales Provide Another that the company has raised its prices too
Perspective high. Often, price increases will boost dollar
volume initially. Customers may continue to
While higher sales are generally a good sign
buy the product because that is what they
for a business, the way those higher sales are
are accustomed to doing, or because other
achieved can be even more important. One
aspects of their business have been devel-
way marketers analyze sales is to distinguish
oped to work best with that product. As time
between the dollar volume of sales and unit
goes by, however, they begin to search for
volume. Dollar volume is measured by the
and find cheaper alternatives that are equally
revenue derived from sales. Unit volume is
effective. Also, competitors might be drawn
the number of products or services that are
to the market by high margins and a chance
sold. Regardless of the dollar volume on an
for easy profits. So after an initial increase
income statement for a given period, the
in revenue following a price hike, a busi-
number of units sold can be a good indica-
ness might see future revenues start falling.
tion of where the business is headed.
Declining unit sales are an advance warning
Marketers can quickly derive unit sales
of future revenues.
from dollar volume by dividing sales revenue
by the price per unit or by the average price Think Critically
per unit. Conversely, the average price per
1. If the dollar volume of sales for a product
unit sold can be calculated by dividing dollar
increases 4.5 percent, and the number of
volume by the number of units sold. Either
units sold increases 10 percent, what
figure can be a valuable tool for analyzing
happens to the average price per unit?
sales trends.
If unit sales are flat or declining, it is usu- 2. An income statement indicates that
ally a sign of trouble. Perhaps one of the tar- total revenue for a product line was
get markets for a product or service is matur- $10 million. The basic model costs $250,
ing, and new markets need to be developed and a new advanced model costs $400.
to resuscitate growth. Or maybe competitors The unit volume of basic models was
have grabbed a larger share of the market. 30,000. How many advanced models
were sold?
If a decline in unit sales is accompanied S
by increasing revenues, it might indicate N
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customers, the sale is not complete.
Financial statements often include
an item called accounts receivable.
Accounts receivable are sales for
which the company has not yet been
paid. Credit is often offered to in-
crease sales beyond the amount that is
possible if customers had to pay cash.
Credit Cards Many businesses
use credit services offered by other
companies rather than developing
and managing a credit department.
For example, a retail store may
accept credit cards such as Master-
Card, Visa, or Discover. The credit
card company pays the retailer who
accepted the customer’s credit card
for the amount of the purchase. It
is then the credit card company’s
responsibility to collect the account
from the customer who made the
credit purchase. In return for using
the credit card company, the retail
business is charged a fee that usually
amounts to 2 percent or more of the Do the benefits of extending credit to customers out-
total amount of its credit sales. weigh the risks? Why or why not?
Some companies have their own
credit systems, or even their own other equipment are needed to maintain
credit cards, that can be used only for the the credit records, billing, payments, and
purchase of products from their business. other information. Since credit customers
There are several costs for companies that do not pay for their purchases for a month
choose to manage their own credit ser- or more after the sale is made, additional
vices. The company needs to design the money is needed to finance the expenses of
credit system and determine the terms the company until payment is received.
that will be offered to customers. Then Businesses offering credit frequently
personnel must be hired and trained to charge interest to their customers to pay
manage the credit system. Computers and for the credit services. If most accounts are
paid in full, it is possible that the interest
charges will even provide a profit for the
Fa s t FAC T S company.
As of 2007, there were more than Unpaid Credit Even with the most
1.55 billion Visa cards in circulation careful and effective credit system, some
around the world—more than any other customers do not pay their accounts when
credit card on Earth. MasterCard has billed. Even a small amount that is unpaid
about 750 million cards in circulation. can eliminate any profit the company
Together, Visa and MasterCard control makes on credit sales and reduces the
75 percent of the $1.3 trillion credit card total dollar amount of sales. Companies
S market in the United States. offering credit to customers work to
N develop effective credit procedures to
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reduce the amount of unpaid accounts. important federal laws is the Equal Credit
They carefully track the age of the unpaid Opportunity Act, which prevents com-
accounts. If an account remains unpaid panies from discriminating among the
for several months beyond its due date, it people to whom they offer credit. The
will likely never be paid. Truth-in-Lending Act specifies the type
No matter how carefully credit ac- of information businesses must provide to
counts are managed by a company, it is credit customers. The Fair Credit Report-
normal to have at least a small percentage ing Act regulates the use of the credit
of credit sales that are uncollectible. Those information that businesses gather about
uncollected accounts and the cost of col- individual customers. Also, the methods
lection activities are an important business companies use to collect money owed by
expense. While credit may appear to be customers are controlled under the Fair
an important service to offer customers, Debt Collection Practices Act.
businesses must carefully study whether
the increases in sales resulting from credit
actually add to or reduce their profits.
Checkpoint
Regulation Companies that offer
credit need to be aware of laws that What activity has the biggest impact on the
regulate credit activity. Among the amount of revenue a business generates?
Expenses Associated with the

Marketing Mix
ust as the sale of products and services addition, many businesses offer customer
J by marketers results in income for a

business, the completion of marketing
activities adds to the business’s expenses.
services, some of which can be very
expensive.
Some services, such as delivery and
Expenses are associated with each of the setup or training, are offered as part of the
marketing mix elements. actual sale. Other services are provided for
a long time after the sale while the cus-
Product Expenses tomer is using the product. For example,
many companies that manufacture and
The majority of expenses related to product
sell home theater components have tech-
development for manufacturers is a part of
nicians who will work with customers if
the production budget. Those expenses in-
they are having problems with a prod-
clude the cost of materials, equipment, and
uct. KitchenAid has a toll-free telephone
personnel needed to produce the product.
number that customers can call to get
Also, the cost of packaging is considered a
information about the use of any product
production cost. For wholesale and retail
the company manufactures, ranging from
businesses, products must be purchased
small appliances to large industrial equip-
from other companies, so their costs are
ment. Several automobile manufacturers
determined by the prices paid for the mer-
offer 24-hour-a-day roadside repair service
chandise.
for their customers.
There are other expenses related to the
product mix element. The expenses associ-
ated with offering a guarantee or warranty, Distribution Expenses
as well as the costs of repairing items that Distribution costs are a major area of mar- S
are damaged or fail, must be included. In keting expenses. Companies must pay to N
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How could a business decrease promotion-related costs, such as travel expenses for salespeople?
transport, store, and display their prod- expense of pricing products is so great that
ucts. These costs include long-term ex- they have introduced other methods. The
penses, such as buildings and equipment, products no longer carry price stickers.
and short-term expenses, such as wages Instead, the price is posted on the display
and supplies. Even service businesses have shelf. The price is stored in the company’s
expenses associated with delivering the computer and is identified through a bar
services to customers or operating the code on the product package. A price
location where customers come to pur- change is made by simply changing the
chase the services. In addition to the obvi- amount in the computer and updating the
ous costs of distribution, other expenses price on the product display shelf.
for most businesses include the costs of
developing and managing the channels Promotion Expenses
of distribution, inventory control costs, Many costs are associated with promo-
materials handling expenses, and the costs tion. Few inexpensive ways are available
of order processing. for companies to communicate with
customers. Each type of promotion has its
Price Expenses own set of expenses.
The major expense related to the price Advertising is the most common type
mix element is the cost of offering credit. of promotion. The major cost of advertis-
Another price expense item is the cost of ing is the expense of purchasing space in
communicating prices to customers. This newspapers or magazines or buying time
may seem like an unimportant item, but on television or radio. It is also expensive
consider the thousands of items that a to create and produce the advertisements.
business stocks and sells during one year. These expenses include the salaries of a
If each item needs a price tag, the cost of variety of creative people as well as the
printing the stickers or tags and the ex- equipment and materials they need for
pense of placing them on the products their work.
can be high. This cost increases if a price Selling is also an expensive promo-
S change needs to be made. Many retail tional method. The biggest cost of selling is
N businesses have found that the time and the salaries of salespeople. Additional costs
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include training and management as well ensure that it is done well. When a cus-
as the equipment, materials, and product tomer buys a product, the company may
samples salespeople use. Salespeople for make a follow-up phone call to make
manufacturers often travel regularly to sure the customer is satisfied. Letters and
meet with customers. Their sales territories gifts may be sent to show that the com-
can cover several states or countries. The pany appreciates the customer’s business.
costs of operating an automobile, air travel, Some companies offer satisfied customers
hotel rooms, meals, and other related money or other incentives if they identify
expenses can be hundreds of dollars each a prospective customer who then buys a
day. Salespeople need to be very effective product.
in order to make enough sales just to cover
their expenses.
It is said that the most inexpensive Checkpoint
form of promotion is word of mouth. But
companies that want customers to help Which elements of the marketing mix give
sell their products often spend money to rise to related marketing expenses?

Determine the best answer. 7. Research There are many costs associated
1. True or False: When a company offers its with promotion. The costs of each type of
customers credit, profits always rise due to promotion vary. Research the costs of at least
increased sales. five different advertising media (radio, televi-
sion, newspaper, outdoor advertising, etc.) by
2. The major expense related to the price mix
contacting various media companies to obtain
element is the
pricing information. Some companies may be
a. cost of packaging
able to send you a media kit containing adver-
b. profit margin
tising prices. Prepare a table listing each type
c. cost of offering credit
of media and its costs.
d. production cost of the product
8. Government Use the library or Internet to
3. Sales for which the company has not yet been
find information about the Fair Debt Collection
paid are called accounts .
Practices Act. When was the Act passed? What
4. The most common type of promotion is are its major provisions, and what effect has
a. word of mouth it had on the debt collection industry? Report
b. advertising your findings in a two- to three-page paper.
c. press releases
d. personal selling Connect to
5. All of the following are expenses related to 9. You work in the marketing department for a
the distribution mix element except local chain of coffee shops. To increase revenue
a. inventory control in your stores, you have been asked to develop
b. materials handling some ideas involving the sale of products other
c. storage than the primary product your stores offer—
d. warranty costs hot coffee. Describe the target markets and the
6. True or False: Many businesses rely on after- types of products you would recommend to
sale revenue to operate profitably. your teacher (judge). Explain why your ideas
would be effective and profitable. S
N
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Now that you have completed the chapter, check list and describe the three main types of financial
your understanding of the lessons with these ques- needs a business typically has?
tions. Record the score that best represents your describe the principal planning and operating
understanding of each marketing concept. tools used by business?
1 = not at all; 3 = somewhat; 5 = very well detail how marketers develop forecasts, bud-
If your score is 42–50, you are ready for the assess- gets, and financial statements?
ment activities that follow. If you score 33–41, you explain the kinds of financial analyses marketers
should review the lessons for the items you scored perform to increase profits?
1–3. If you score 32 or less, you will want to carefully distinguish between an income statement and a
reread the lessons and work with a study partner on balance sheet?
the areas you do not understand. explain the various ways that businesses raise
Can you— revenue through marketing activities?
explain how marketing affects a business’s finan- describe the ways credit can increase or decrease
cial planning? a business’s revenues?
define short- and long-term marketing expenses describe the kinds of marketing expenses that
and the various types of financing for marketing arise in conjunction with each element of the
activities? marketing mix?

1. The money received from the sale of products 11. The amounts a business owes
and services 12. The difference between the amount of assets
2. Long-term investments in land, buildings, or and liabilities, or the actual value of a business
equipment
3. The costs of day-to-day marketing activities
4. A numerical prediction of future performance a. accounts receivable
related to revenue and expenses b. assets
5. A detailed summary of the financial performance c. balance sheet
for a business or a part of a business d. budget
6. A description of the type and amount of assets, e. capital
liabilities, and capital in a business on a specified f. capital expenses
date g. financial forecast
7. A detailed projection of financial performance h. financial statement
for a specific time period, usually one year or less i. income statement
8. Things a business owns j. liabilities
k. operating expenses
9. Sales for which the company has not yet been
paid l. revenue
10. A report on the amount and source of revenue
and the amount and type of expenses for a spe-
S
cific period of time
N
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13. The basic financial equation is ⫺ 18. True or False: The most
= . common method of devel-
14. True or False: Decisions about distribution rarely oping financial forecasts or
impact expenses. budgets is to use informa-
tion from comparable busi-
15. Which of the following would not be considered
nesses.
a short-term expense?
a. supplies 19. The marketing department is responsible for
b. a new fleet of delivery trucks maintaining accurate records on
c. the monthly utility bill a. inventory levels
d. salaries and wages b. customer accounts
c. sales
16. Which of the following is a typical way to finance
d. all of the above
inventory?
a. through a short-term loan 20. True or False: Generally, current customers are
b. through credit extended by the seller more profitable to a business than prospective
c. both a and b customers.
d. neither a nor b 21. If a greater volume of sales can be achieved
17. True or False: An income statement can be used and expenses can be controlled, profits will
only to analyze the profitability of an entire com- .
pany, not just one operating unit of the company.

22. Two important methods of planning and ana- to complete new product planning. You believe
lyzing financial information are (1) comparable that you can make the most effective decisions if
information from similar businesses and (2) the you have financial information available related
costs of performing specific marketing tasks and to the marketing activities you control.
activities. Write a one-page memo to Frances Payton,
A number of reference books published chief financial officer of EnviroSaf. Identify the
by the federal government, trade and types of financial information you need, list the
professional associations, and private businesses financial tools that will help you with planning
contain this information. Using the library, a and operations, and explain why it is important
business information encyclopedia, business for the marketing manager to be involved in
reference books, the Internet, or the resources financial planning. Use information from the
of a businessperson you know, identify at least chapter to help you prepare the memo.
two sources of financial information available 24. One of the methods of forecasting sales for prod-
to marketers. Review one of the sources and ucts and services is to identify relationships be-
prepare a written summary of the information tween two products or services. In the chapter,
contained in the reference. Provide examples it was suggested that the volume of automobile
of the specific information. sales can be used to predict the sale of automo-
23. You are the marketing manager for EnviroSaf, a bile tires. If business people can identify similar
company that has developed a new type of lawn relationships among products and services, they
care product that controls weeds and insects can increase the effectiveness of their forecasts.
without chemicals. The product is currently sold List at least ten other product/service relation-
through garden centers in eight states in the ships where you believe the sale of one affects
northwestern United States. You are responsible the sale of the other. Two more examples are
for all distribution and promotional activities given to help you.
and for completing marketing research. You The sale of Is related to the sale of
work with other managers to set product prices, computers computer software
S
to develop and provide customer services, and winter coats gloves and hats N
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25. The school club to which you belong needs to statement format illustrated in the chapter.
raise funds to pay for a trip to a state conference. Include projections of all types of revenues and
The members want to plan a fundraiser that reasonable expenses. Estimate those expenses
will be fun, provide a community service, and for which no costs are given. Develop at least
result in a reasonable profit for the club. The idea three projections of revenues using alternative
being considered is an ethnic food celebration. prices charged for the booths, varying admission
Your club would be responsible for contacting prices, or different attendance levels. Calculate
community groups to staff a booth in which a the impact on profit or loss.
specific type of ethnic food would be sold. The 26. A hardware store has decided to add free de-
group would also develop a display representing livery as a service for customers who purchase
each ethnic culture or provide a short presenta- over $250 of merchandise in one order. Delivery
tion (dance, historical story, and so on) about will also be available to other customers, but a
each culture. The event would be held on a Sat- delivery fee will be charged. The store can pur-
urday afternoon for three hours in the school’s chase a delivery van for $18,000. Three methods
gymnasium. People would come to sample the of financing the van are being considered.
food and to enjoy the presentations. a. The store’s bank will provide a one-year
For financial planning, some of the anticipated capital improvement loan at 9 percent
costs are: interest. To qualify for the loan, the company
Gymnasium rental . . . . . . . . . . . . $300 must maintain 150 percent of the value of the
Table rental for booths . . . . . . . . $3 per table vehicle in checking or savings accounts with
(minimum of 50 tables) the bank.
Security . . . . . . . . . . . . . . . . . . . . . . $45 per hour b. A finance company will purchase all of the
Insurance . . . . . . . . . . . . . . . . . . . . $80 company’s accounts receivable for 86 percent
Cost of possible promotional materials: of their value. The store’s accounts receivable
Flyers . . . . . . . . . . . . . . . . . . . . . . . . $0.08 each currently are valued at $26,000.
Posters . . . . . . . . . . . . . . . . . . . . . . $0.45 each c. The store can use cash on hand to make the
Envelopes and postage . . . . . . . $0.32 each purchase. The current balance sheet for the
30-second radio ad . . . . . . . . . . . $58 each store shows the cash balance is $31,800. The
(10 for $500) + $80 production costs cash budget for the coming 12 months shows
(fixed) that the highest projected cash total during
Salesperson commission . . . . . . $8/booth sold that time is $38,000 and the lowest projected
Labor costs (Set up, tear down, cash total is $12,200.
cleaning) . . . . . . . . . . . . . . . . . . $6 per hour Analyze the three sources of financing to deter-
The plan is to sell booths for the celebration. mine the direct cost of each to the business and
There is space for up to 40 booths in the gym- the possible advantages and disadvantages of
nasium if three tables are used per booth. The each method. Prepare a written recommenda-
groups would be able to sell their foods and tion of the method you believe the store should
keep all revenues from the sale after paying the use to finance the delivery van.
booth fee. Also, an admission could be charged, 27. Search the Internet for a public corporation’s
and other products, such as t-shirts and souvenir annual report and find the section that discloses
cups, could be sold. its revenues, expenses, and income for three or
Develop a plan of activities to be followed more years. Using a spreadsheet program, calcu-
by your class in planning and managing the cel- late the percentage increase or decrease in sales
ebration. Include all aspects of a marketing mix revenue for each year. Also, calculate the annual
(product development, distribution, pricing, pro- ratio of sales revenue to earnings or net income.
motion). Based on the plan of activities, prepare Print the results of your calculations.
a budget for the celebration using the income
S
N
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Financial Analysis
Management Team
Student You have 30 minutes to prepare your pre-
Lawn sentation, 10 minutes to present your plan to
Services the owner of Student Lawn Services (judge),
has been a and 5 minutes to answer the judge’s ques-
successful tions about your plan.
lawn service operation for the past two years.
It is located in a growing suburb of a large city Performance Indicators
that has a mild climate year round. Evaluated
The owner of Student Lawn Services • Explain the concept of productivity.
started the business by maintaining the (Economics)
yards for five customers. He gives satisfied • Explain the concept of economic
customers poinsettias in December as an resources. (Economics)
expression of customer appreciation. The • Describe the concepts of economic
business has grown rapidly through word-of- scarcity and economic activities.
mouth promotion from satisfied customers. (Economics)
It has expanded to 50 customers who require • Explain the principles of supply and
weekly lawn services. Profits from the busi- demand. (Economics)
ness operation allowed him to upgrade his • Determine factors affecting business risk.
lawn equipment. (Economics)
The owner has become overwhelmed • Explain the nature of positive customer/
with the growth of the business. Much of the client relations. (Emotional Intelligence)
demand is due to an expanding community • Identify factors affecting a
and numerous new housing developments. business’s profit.
Competitors have entered the market in (Economics)
hopes of intercepting some of his business.
However, customers still prefer the personal Go to the DECA web site for
touch provided by Student Lawn Services, more detailed information.
and the prices are reasonable compared to
the competition.
Think Critically
The owner of Student Lawn Services has 1. Why is financial management
called upon your financial management team important for a growing business?
to suggest strategies for maximizing sales 2. How does this case involve supply
without negatively impacting the personal- and demand?
ized services offered. The owner began the 3. What is the advantage of partner-
business as a sole proprietorship. He is consid- ing with a competitor?
ering partnering with some of the competing
lawn service businesses in the community. 4. What public relations campaign
PHOTOS: ©DECA INC.
Your team must outline a strategy for can Student Lawn Services use to
Student Lawn Services to successfully grow maintain positive relationships
the business. Your team must explain the with customers?
advantages and disadvantages of partnering S
with another business. Your team must also w w w. d e c a . o r g N
explain pricing strategies for lawn services. 583
20-1 • Marketing Affects BusinessDECA
Finances
Prep 583
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Chapter 21
Entrepreneurship
and Marketing
21-1 Understanding Entrepreneurship
21-2 Characteristics of Entrepreneurs
21-3 Business Ownership
Opportunities
21-4 Legal Needs of Entrepreneurs
21-5 Developing a Business Plan
©CORBIS
Newsline )))
Avoiding the Glass Ceiling
Many people have been known to of a company. When you start your Asian-Americans, and 0.9 percent by
hit the “glass ceiling” in business. own business, no one can place a Native-Americans.
What is the glass ceiling? Over the glass ceiling over your head. Statis-
years in some companies, it was very tics bear out the growing diversity of Think Critically
difficult for women and racial or small business ownership. According 1. Do you believe the glass ceiling
ethnic minorities to move onto and to the most recent data from the has been a major reason for the
up the management ladder in their Small Business Administration (SBA),
growth in new business owner-
career. Older white males held the nearly 10.4 million firms are owned
ship by the groups identified? If
top management spots. When they by women. They employ more than
retired or moved to other positions, 12.8 million people and generate the glass ceiling disappears in
other white males usually replaced $1.9 trillion in sales. For the past two large businesses, do you believe
them. It may not have even been decades, women-owned companies the growth in minority-owned
an apparent attempt by the older have continued to grow at around small businesses will slow? Why
managers to discriminate. They just two times the rate of all businesses. or why not?
felt more comfortable with and had The number of companies 2. While the number of women-
greater confidence in the people owned by other minorities has more owned and minority-owned
with whom they worked. While most than doubled in that same time
businesses is increasing, the
businesses have attempted to make to now represent 18 percent of all
percentage is much smaller
changes, there is a belief that the businesses. Those companies sell
glass ceiling is still in place in some more than $600 billion of products than the percentage of the total
organizations. and services each year. Of all U.S. U.S. population that each group
Entrepreneurship has been a businesses, 6.6 percent are owned represents. Why do you believe
way for women and other minority by Hispanic-Americans, 5.0 percent that percentage remains low?
business people to get to the top by African-Americans, 4.6 percent by
CH 21-B4491-DS_REV3.indd 584 12/7/07 8:29:32 PM


• Understand the concepts, processes, and skills • Develop a concept for a new business venture to
associated with identifying new ideas, opportuni- evaluate its success potential
ties, and methods and with creating or starting a • Determine needed resources for a new business
new project or venture venture to contribute to its startup viability
• Employ entrepreneurial discovery strategies to
generate feasible ideas for business ventures
Visual Focus
Every large business that is an industry leader
once started as a small business. Often it was
the creation of an entrepreneur who was will-
ing to risk financial resources, time, and effort
to develop a product or service idea. A goal
of most entrepreneurs is to make a profit, but
they are also driven by the need for personal
achievement. This chapter introduces you to
entrepreneurship and how entrepreneurs start
and develop effective businesses. You will
determine if you have the characteristics of an
entrepreneur and if it would be a career choice
that interests you.
Focus Questions:
General Electric was formed from the business
ideas of inventor and entrepreneur Thomas
©GENERAL ELECTRIC
Edison. Today the multibillion-dollar company

is still viewed as one of the most innovative in
the world. Why do you believe GE focuses on
innovation and new product ideas in many of
its advertisements? What image do you have
of the company after viewing and reading the
ad shown here? Discuss with your classmates
whether you believe large companies can be
as creative and innovative as new companies
led by entrepreneurs.
CH 21-B4491-DS_REV3.indd 585 12/7/07 8:31:14 PM

21-1 Understanding Entrepreneurship
GOALS KEY TERMS
• Provide examples of successful entrepreneurs and the entrepreneur, p. 587
businesses they started. entrepreneurship, p. 587
• Describe the importance of entrepreneurship to the
U.S. economy.
Entrepreneurs are unique people. They are willing to take risks to start businesses.
Successful entrepreneurs often start several companies during their business
careers. They are usually not content to start the business and then continue to
operate it for years and years as the manager. In fact, once the business is well estab-
lished, many entrepreneurs do not succeed when they are required to switch to the
role of manager.
Consider the following questions. Why is it important in a free enterprise
economy to have people who are willing to take risks to start new businesses? How
do the personal characteristics and skills needed to start a business differ from those
needed to manage a business? Do you believe you would rather be an entrepreneur
responsible for creating a new company or a manager responsible for the continu-
ing success of an existing company? Share your ideas with other students.
Starting a Business
ou may have heard the story of Henry
Y Ford, who created Ford Motor Com-

pany. Today, Ford Motor Company is a
giant international corporation. But it had
its beginnings in 1896 when Henry Ford
produced his first automobile in a Michi-
gan garage.
Bill Gates provides another example of
a person who started with an idea and de-
veloped a successful large business, in his
case, Microsoft. The idea for the company
began when, as college students, Bill and

his friend Paul Allen developed a com-
puter program to operate the first personal
computers.
Many other people have put their
personal stamps on the U.S. economy with
S business ideas and the commitment to Why do you think starting a business is the
N bring the ideas to life in new companies. American Dream of many people?
586
586 CHAPTER 21 • Entrepreneurship and Marketing
CH 21-B4491-DS_REV3.indd 586 12/7/07 8:31:54 PM

Examples include Madam C. J. Walker,
who started a business in the early 1900s
to produce and distribute hair-care prod-
ucts and cosmetics for African-Americans
who were not being served by other busi-
nesses. Levi Strauss invented a process in
1873 to use rivets in the manufacturing of
denim work pants to add strength to the
seams, creating a clothing company that
still manufactures blue jeans today. Ben
Cohen and Jerry Greenfield began mix-
ing unique flavors of ice cream in a reno-
vated Vermont garage in 1978. Ben and
Jerry’s Ice Cream is known worldwide for
its high-quality products and its unique
company environment. Margaret Rudkin
developed the Pepperidge Farm company
that she later sold for several million dol-
©COURTESY OF BEN & JERRY’S®
lars. The business idea grew as she baked
and then sold bread and cookies from her
home in the 1930s.
The American Dream

Starting your own business has been called
the American Dream. People go into busi- Ben & Jerry’s unique ice cream flavors as well as its
ness to make a profit, but they also start unique view of ownership responsibilities help it stand
their own businesses to have the freedom out from its competitors.
to do work that they enjoy and to take
responsibility for the success or failure of
the business. There is little that is more re- major change in the business. On the other
warding than seeing your ideas and efforts hand, the manager does not take on the
grow into a profitable business, offering financial risks faced by owners. If the busi-
jobs to others, and providing products ness fails, the manager will lose a job but
and services that satisfy customers. On will not have lost any money invested in
the other hand, being a business owner the business.
presents a continuing challenge to meet While entrepreneurship is an impor-
a payroll, pay the bills, and find ways to tant part of U.S. business, there are
compete successfully.
An entrepreneur is someone who
takes the risk to start a new business. That
risk involves investing his or her money Wo r k i n g i n Te a m s
in the business. Entrepreneurship is the
process of planning, creating, and manag- Individually, team members should think about
ing a new business. the work of entrepreneurs and of business
An entrepreneur is different from a managers and prepare two lists: (1) things that
business manager. A manager is respon- are different and (2) things that are the same. As
sible for a business created and owned by a team, compare the items in the two lists and
others. The manager is an employee and discuss whether entrepreneurs and managers
so takes direction from the owners of the are more alike or more different. S
business. The owners must approve any N
587
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Get the Message
Making Convincing in the new company. If the presentation
Presentations does not get their attention in the first
minute and present two or three meaning-
A new business will not be successful if the
ful points and supporting information in
entrepreneur cannot obtain funding from
the first few minutes, it will probably not be
investors, loans from banks, or financing
successful.
from other companies to be able to pur-
chase or lease buildings, equipment, and Think Critically
materials needed to operate the business.
1. Why do prospective investors and other
The entrepreneur prepares a business
business people want to hear a short
plan to provide the information needed by
presentation from the entrepreneur?
others in deciding whether to invest or pro-
vide financing. Most people will not read the 2. If you were an entrepreneur, what would
full plan, though, until they are interested in be your first statement to generate inter-
the business idea. est in your new company?
So an entrepreneur must be able to 3. Create a presentation outlining the major
make a short oral presentation when meet- topics you would cover in three to five
ing with potential investors and business minutes to interest investors in a new
people that will cause them to be interested business.
entrepreneurs starting businesses around other deliveries could be moved rapidly by

the world. In developing economies, airfreight through a system of hub cities.
entrepreneurs are often the first to start From that idea, he created FedEx, which
businesses to produce and sell products today is the world’s largest express trans-
and services. Some of the most renowned portation company. Mrs. P.F.E. Albee took
global businesses, such as Sony, Mercedes- the products of the California Perfume Co.
Benz, and IMAX theaters, were originally and pioneered the now famous door-to-
the ideas of international entrepreneurs. door selling and distribution methods of
Avon Products.
Entrepreneurship Those are just a few examples of people
Opportunities in Marketing who had ideas for how to distribute, sell,
promote, and service the thousands of
Entrepreneurs start all types of businesses. products consumers demand. Retail and
Manufacturing businesses tend to be the wholesale businesses, finance and credit
most recognized, but marketing opportu- companies, transportation businesses, ad-
nities also exist for entrepreneurs. Some of vertising agencies, and many other organi-
the best-known entrepreneurs had market- zations are involved in the distribution and
ing ideas. exchange of products and services between
Sam Walton developed an efficient producers and consumers. All provide op-
method to distribute products from manu- portunities for entrepreneurs.
facturers to his discount retail stores. He
grew his small Arkansas business into to-
day’s Wal-Marts and Sam’s Clubs. Freder- Checkpoint
S ick Smith wrote a paper as an undergradu- What is the difference between an entre-
N ate student at Yale on how packages and preneur and a manager?
588
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Writing a Press Release

A press release is a communications tool used attending the event. For people who might
by organizations and companies to inform the have questions, provide as
media about exciting new developments. The much contact information as
purpose of a press release is to “sell” the media possible. Phone numbers,
outlet on the newsworthiness of whatever the web sites, and e-mail
press release is seeking to promote so that it pro- addresses are all good.
vides media coverage to inform the public. Decide who in your
A variety of media outlets are available for organization will
press release distribution. These outlets include be responsible for
newspapers, magazines, radio, and web sites. answering inquiries.
Press releases are distributed using fax, e-mail, A variety of
or “snail mail” to the decision makers in media press release tem-
organizations. These organizations are bom- plates are available
barded by competing press releases, so a concise, online and in popu-
well-written, professional press release is crucial. lar word processing
A press release should be written with a particu- programs.
lar media outlet in mind. Carefully think
To catch the reader’s attention, each press about when to distribute the press release.
release should lead with a thought-provoking, Consider the time each media outlet will take
attention-grabbing heading. Effective press to make a decision, prepare, and run the news
releases have a tantalizing tone that motivates feature to provide adequate lead time before the
the reader to finish reading the entire release. event.
Always consider the target audience of the Follow up on the press release by calling the
development or event that is the focus of the decision maker who received the release. Prepare
press release. For example, if your school drama a brief outline of pertinent points prior to the call.
club is trying to raise money by performing as When you have the decision maker on the phone,
clowns at children’s birthday parties, you might engage him or her in a brief conversation to “sell”
want to send a press release to a local publication the importance of your press release.
that focuses on children’s activities.
A press release should use language and con- Develop Your Skill
tent that evokes an emotional response. Quotes Volunteer to write a press release for an upcom-
can be used effectively. Sometimes a quote from ing school event. Work with an advisor to clarify
an expert expressing enthusiasm adds credibility. the target audience of the release and the key
A quote from a typical “person on the street” can information to include. Develop the content of
make the product or event seem relevant to a the release using the guidelines described.
general audience. After distributing the press release to the

Just as answering the “who, what, when, appropriate media outlet, follow up with the
where, and why” questions are mandatory for decision maker and review the results with your
journalism articles, it is necessary to include advisor.
the same information in a press release. Other Save copies of your press release and any
types of information are essential as well. If you media reports that resulted. They provide a good
are promoting an event, include a description addition to your educational and career portfolio.
of the sponsoring organization and the cost of
S
N
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The Importance of Entrepreneurship
t is sometimes easy to confuse small
I business with entrepreneurship.

Not all small businesses are owned
and operated by entrepreneurs. Many
people buy an existing small business
or operate a franchise and may not be
considered entrepreneurs. Neverthe-
less, almost all businesses developed
by entrepreneurs start out as small
businesses.
Economic Role
Entrepreneurs develop small businesses,
and small businesses are important
to the U.S. economy. Over 600,000
new small businesses are started each
year. Over 10 percent of the working
population in the United States is self-
employed. Some additional important
small business statistics provided by
the Small Business Administration are
shown in Figure 21-1.
Small businesses are more likely Why are small businesses more likely to employ
to hire younger and older workers and younger and older workers?
workers who need part-time jobs. Small
businesses have historically been the well as the knowledge and skills to per-
source of the initial job training for many form the job.
people. A first part-time or full-time job
working for a small business teaches im- Personal Benefits
portant lessons such as time management, Entrepreneurs work long hours to make
human relations, and good work habits as their businesses successful. They sacrifice
to invest their savings and often have little
or no income for the first few years of op-
FIGURE 21-1 erations. They are responsible for the suc-
The role of small businesses (20 or fewer cess of the business, so they have to handle
employees) in the U.S. economy. complaints and solve problems. With all of
those difficulties, why would anyone want
Small businesses… to be an entrepreneur?
• Make up over 97% of all businesses Owning a small business offers many
personal benefits. Many people are able to
• Employ 52% of all non-government workers add to their income by operating a part-
and 38% of workers in high-tech occupations
time business in addition to their full-time
• Provide about 75% of all new jobs job. Most entrepreneurs start their first
• Are responsible for over half of all goods
business while they are still working for
and services produced another company. They often start the
business at home on a part-time basis and
S • Make up over 95% of all companies involved expand it to a full-time business if it is
in exporting successful.
N
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Entrepreneurs receive a great deal of
personal satisfaction from developing an
idea into a business and completing work
that is interesting and uses their skills.
Watching a business grow, opening new
businesses, providing jobs for people in the
community, and being able to control the
profits from the company are all identified
by entrepreneurs as reasons they prefer
business ownership.
Checkpoint
Why are small businesses an important part
of the U.S. economy?
How can small businesses help their com-
munities grow?

Determine the best answer. 6. History Identify a large, well-known corpora-
1. The American Dream is tion that is a successful business today. Use the
a. starting a new business Internet to conduct research on the original
b. getting rich owner(s) and how the business was started.
c retiring early Prepare a short report on that history and
d. becoming a manager in a large business whether or not it is an example of entrepre-
neurship.
2. True or False: There are very few opportuni-
ties to start new marketing businesses in 7. Technology Use information from the les-
today’s economy. son on the role of small businesses in the U.S.
economy or gather additional or more recent
3. True or False: Not all small businesses are
information. Use a computer and graphing
owned and operated by entrepreneurs.
software to prepare three bar or pie charts that
4. Which of the following is not true of the role illustrate that role. Make sure to prepare spe-
of small businesses in the American cific and meaningful titles and labels for each
economy? chart.
a. make up over 97% of all businesses
b. employ over 50% of all non-government Connect to
workers 8. Your team has been asked to prepare a presen-
c. provide about 75% of all new jobs tation for a local community television channel
d. all of the above are true to promote the importance of entrepreneur-
5. True or False: Most entrepreneurs start their ship. Develop a five-minute presentation that
first business while they are still working for uses an informational poster as a visual aid.
another company. Videotape your team presentation so that it
can be viewed by your teacher (judge). S
N
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21-2 Characteristics of Entrepreneurs
GOALS KEY TERMS
• Identify personal characteristics of entrepreneurs. risk-taking, p. 593
• Describe the education needed to prepare for self-confident, p. 593

entrepreneurship. creativity, p. 593
netiquette, p. 597
Some characteristics that make a successful marketer also make a successful entrepre-
neur. Creativity, determination, risk-taking, and willingness to take responsibility and
make decisions are all important both in marketing and in starting a new business.
You are often involved in activities in school, in clubs and other organizations,
and in part-time jobs that demonstrate the qualities needed for success as an entre-
preneur and as a marketer. List the characteristics identified above. Now make a
list of the school activities, clubs, organizations, and jobs in which you have partici-
pated. Compare the lists and identify specific assignments, activities, and leadership
roles that gave you an opportunity to develop and demonstrate each of the charac-
teristics. After you have finished, consider which of the characteristics are currently
personal strengths and which are not yet as well developed.
What Does It Take?

hy is it that some people have
W started several successful busi-

nesses, often when they are still
quite young, while other people have never
considered starting one? What makes one
person suited to be a business owner and
other people suited to be managers or
employees? Researchers have studied suc-
cessful entrepreneurs and have identified
qualities that make them different from
other people.
Characteristics of
Entrepreneurs
It is important to recognize that almost
anyone can be an entrepreneur if he or
she has a strong desire and will. Women
S and men of all races, ages, and educational Why do you think some entrepreneurs succeed
N backgrounds have become successful while others fail?
592
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entrepreneurs. People are not born with
entrepreneurship skills. The skills can be
developed if you want to start your own
business.
Studies of successful entrepreneurs
show that they usually have the following
characteristics.
• Entrepreneurs are focused and goal-
oriented. Many successful entrepre-
neurs thought about and planned their
business for many years. They may
have faced a number of obstacles be-

fore they were able to succeed, but they
did not give up on their plan.
• Entrepreneurs are risk-takers.
Risk-taking is a willingness to risk the
chance of failure in order to be suc-
cessful. Entrepreneurs invest time and
money in ideas that others may not Why is it important for entrepreneurs to be
goal-oriented?
have tried. Yet entrepreneurs are not
gamblers. They carefully consider the solving differently and are likely to
risk. They work hard to reduce the risk develop original ideas and solutions.
and increase the chances of success. That creativity is often the reason that
• Entrepreneurs want to achieve. They set entrepreneurs develop products and
high personal goals, and then do every- services others have not considered.
thing they can to meet those goals. You can see by looking at the list of
They may stubbornly keep working at characteristics that not everyone is suited
the goal even when it does not seem to be an entrepreneur. Also it is apparent
likely they will succeed. why an entrepreneur may not make a good
• Entrepreneurs are independent. They business manager or team player and may
are often not involved in team activi- prefer to work independently rather than
ties and may not do well when asked to working for someone else.
cooperate with others. They are more Often, the business started by an entre-
comfortable when they are in charge preneur fails when it begins to grow and
and responsible for results. the owner has to spend time managing the
growing business. The entrepreneur may
• Entrepreneurs have a high level of not have the patience or the interpersonal
self-confidence. When people are skills needed to successfully manage the
self-confident, they believe in them- business. It is not unusual for an entrepre-
selves and their abilities and expect to neur to sell the business after several years
be successful. If they do not succeed and then begin the process of starting a
at an activity, they will either decide it new business all over again.
was not important, put the responsibil-
ity for failure on others, or work hard
to improve to succeed the next time. Do You Want to Be an
• Entrepreneurs are creative. Creativity Entrepreneur?
is the ability to use imaginative skills Most people know whether they want to
to find unique ways to solve problems. be an entrepreneur. Remember, you can be S
Creative people often approach problem a small business owner without being an N
593
21-2 • Characteristics of Entrepreneurs 593
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entrepreneur. You can buy FIGURE 21-2
and operate a business that Check your entrepreneurship characteristics.
was successfully started by
another person. You can — I usually set realistic and achievable goals for myself.
become a franchisee and
— I like to take responsibility for my own actions.
operate a business using the
— I like to solve problems and identify new ways to do things.
standards and procedures
developed by the franchiser. — I’m willing to take risks when I know there is a chance to be
successful.
If you have thought
about starting your own — I am able to manage my time well and usually complete
the tasks I start.
business, you should assess
your potential. Determin- — When I am doing something I enjoy, I will commit many
hours to the work.
ing whether you have what
it takes to be a successful — I like challenges and don’t mind the pressure.
entrepreneur is an impor- — Things do not have to be simple; I can manage several
tant step. If your desire to things at the same time.
start a business is strong, — I usually have confidence in the things I choose to do.
you can develop the charac- — I often put personal priorities ahead of socializing.
teristics and skills that are — I would rather do things where I can control the results
necessary. rather than relying on others.
Use the checklist in — When I don’t have the answer to something, I will go out
Figure 21-2 to determine and find it.
if you have the qualities — I understand my strengths and weaknesses.
needed to successfully start — When I have accomplished an important goal, I often want
your own business. For the to move on to something else.
items for which you can-
not place a checkmark, plan
ways to develop the quality so that you can Checkpoint
improve your chances for success as an
entrepreneur. Why do some businesses started by entre-
preneurs fail when they begin to grow?
Preparing for Entrepreneurship

ou may know others your age who and then start a business. However, that
Y have already started successful busi-

nesses on a part-time basis, or you
may have done so yourself. If you have not,
was a time when business was not as com-
plex as it is today and fewer people were
educated. It was possible to run a business
but you have the desire, you should begin based on what the person had learned
planning now if you want to become an through experience.
entrepreneur. When you begin planning, Today, consumers and business people
you may well find that you have already are more educated, and business proce-
done several things that will improve your dures and technology are more complex.
chances for successfully starting a new While there are certainly successful young
business. entrepreneurs and older entrepreneurs
In the early part of the 20th century with a high school education or less, most
and before, many entrepreneurs did not people who start successful businesses to-
have a great deal of education. It was not day have completed high school and often
S unusual for an entrepreneur to drop out of have one or more college degrees.
N school, work in business for many years,
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World View
An Inventor and an potential for both a children’s toy and an
Entrepreneur adult puzzle. Working with Erno Rubik,
Mr. Laczi signed agreements with companies
Combine the curiosity of an inventor and the
in several countries to produce and market
business skills of an entrepreneur and you
the Rubik’s Cube.
have multimillion-dollar international busi-
It has become the most popular puzzle
ness success.
in history and has made both men multimil-
Erno Rubik was a Hungarian designer
lionaires. More than one-eighth of the entire
who was intrigued by mathematical prob-
world’s population has played with a Rubik’s
lems. He developed a cube comprised of
Cube.
26 smaller six-colored cubes that were con-
nected but could be rotated independently. Think Critically
Mr. Rubik wanted to determine how to
1. What personal characteristics do you
solve the problem of aligning all of the
believe are similar and different between
same-colored sides of the small cubes on the
an inventor and an entrepreneur?
same side of the larger cube. He invented
and applied for a patent for the cube. 2. Why do you believe the Rubik’s Cube was
When Hungarian businessman Tibor such a successful international product?
Laczi saw the cube, he believed there was
Education is an important part of Oral communications are especially

preparing to become an entrepreneur. The important to entrepreneurs. You will make
classes you select should develop academic presentations to investors, bankers, law-
abilities, technology skills, and an under- yers, other business people who will pro-
standing of business. vide products and services for your busi-
ness, and prospective customers. You must
Academic Preparation communicate effectively with employees
To plan and start a business, you will need to conduct meetings, give directions, and
to work with many people, develop and explain procedures.
communicate your business plans, seek Public speaking, speech, and other
financing, prepare and review financial oral communications courses are impor-
documents, make decisions, and solve tant to you if you are planning to be an
problems. A strong academic prepara- entrepreneur. In addition, find leadership
tion will provide the knowledge and skills roles in class projects, become an officer in
needed for these tasks.
Communications Skills Writing Fa s t FAC T S
and speaking are essential entrepreneur-
ial skills. You will write business letters, A survey by QuickBooks of 1,300 of its
memos, and reports. You will prepare small business customers revealed that
written materials such as employment 43% of the entrepreneurs said they were
advertisements, job descriptions, and loners as kids, 25% considered them-
product information. Use classes in Eng- selves nerds, 10% identified themselves
lish and composition to develop your abil- as jocks, and 1% said they had been
ity to write clearly and efficiently using bullies. S
the form and style expected by the reader. N
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clubs and other organizations, and
participate in activities in which
you are responsible for formal and
informal presentations.
Math Skills As an entrepre-
neur, you are responsible for the
profitability of your new business.
If the business is not profitable in
a short time, it will fail. If there is
no profit, you will not be able to
pay yourself, so you will need to
work at another job to receive a
paycheck.
Basic math skills are used to
develop financial plans for the
business as well as in day-to-day
business operations. You will need
to make calculations quickly and

accurately involving the math-
ematical functions of addition,
subtraction, multiplication, and
division. You will frequently calcu-
late percentages and use fractions
and decimals. The ability to esti-
mate the accuracy of a calculation What kinds of math skills would be valuable for entrepre-
will allow you to quickly check neurs? Why?
a budget, an invoice, or a sales
estimate. based on careful and objective analytical
Advanced math skills, including procedures.
statistics and accounting, will be useful in Scientific skills include identifying
conducting research and in preparing and problems, reviewing information, con-
analyzing financial reports. You will be sidering alternative solutions, and basing
able to select the best investment opportu- decisions on objective information. Sci-
nities, negotiate favorable loan terms, and ence classes also teach careful observation
compare the performance of your business skills, note taking, and the preparation of
with similar businesses. written reports.
To develop the needed skills, you Using Technology
should take a number of mathematics
classes, including algebra, and business Many tools are available to help entrepre-
classes that include mathematics, such as neurs plan and manage their businesses.
accounting, finance, business statistics, You are probably familiar with many of
and marketing research. the tools since they are commonly used
by students in schools and are available in
Scientific Skills You may believe that many homes.
science classes cannot contribute a great The most common and important
deal to helping you become an entre- business tool is a computer. Business plan-
preneur unless the business is a scien- ning can be completed much more easily
tific business. Yet science classes are an and accurately using a computer and avail-
important way to learn to solve problems, able software. Business records, including
S conduct research, and make decisions payroll, taxes, budgets, accounts payable
N
596
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and receivable, and others can be devel-
oped, maintained, and analyzed using a
computer.
In addition to being computer literate,
entrepreneurs need to be able to use a va- Entrepreneurs need to follow correct principles
riety of business software including word of netiquette, or Internet etiquette, when com-
processing, spreadsheet, database, graph- municating with customers, employees, and
ics and presentation design, web design, other business people. How well do you know
accounting, and statistics programs. Other the rules of netiquette? Access school.cengage.
technology used by business people in- com/marketing/marketing and click on the link
cludes printers, fax machines, cell phones, for Chapter 21. Take the Netiquette Quiz from
and personal digital assistants (PDAs). In albion.com. How well did you do? Can you
addition to being able to use these types of think of any other netiquette rules you should
technology, entrepreneurs need to be able follow when conducting business online?
to select the technology that will perform
the needed tasks. school.cengage.com/marketing/marketing
The Internet is becoming an essential
personal and business communication
medium and information resource. Entre- through experience. They often worked
preneurs need to be able to use the Internet in another business for many years and
to quickly gather information, analyze advanced to become managers before de-
competition, and communicate with ciding to start their own business. Others
other business people, investors, bankers, learned from the mistakes they made when
customers, and employees. Understand- starting a business. If they were lucky,
ing search engines, web site design, and they were able to correct the mistakes, but
communication resources is an impor- many entrepreneurs had to suffer one or
tant technology skill. Effective use of the more business failures before succeeding.
Internet also involves understanding and Today, there are many opportuni-
following security procedures and follow- ties to learn about business and develop
ing netiquette principles for professional the knowledge you will need as an entre-
communication. Netiquette, or Internet preneur. High schools and colleges offer
etiquette, is the informal code
of conduct regarding acceptable
online behavior.
It is possible to learn how
to use business technology in a
number of ways. Many classes
in your school will help you
develop computer skills. Busi-
ness classes will introduce you
to common business software.
Part-time jobs and internships
also provide opportunities to
use technology. Many of your
interests, hobbies, clubs, and

activities will allow you to
develop technology skills.
Business Skills
In the past, many entrepre- Why do today’s entrepreneurs need to complete higher levels of education S
neurs developed business skills compared to entrepreneurs in years past? N
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many business classes. Often, you can take education or internship programs and
courses in entrepreneurship that actually become a member of a student business
help you develop your business idea and organization such as DECA. These activi-
business plan. ties will give you practical experience, al-
Important business classes for entre- low you to identify and work with business
preneurs are accounting, business commu- mentors, and develop important leader-
nications, business law, finance, business ship, interpersonal, and teamwork skills.
management, and marketing as well as
computer classes. Because many new busi- Checkpoint
nesses are using the Internet, e-commerce
is an increasingly important business class. What are the academic skills that are
You should also participate in cooperative important for entrepreneurs?

Determine the best answer. 6. Visual Art Work with a team to create a bul-
1. Which of the following is a characteristic of letin board in your classroom titled “Char-
most entrepreneurs? acteristics of Successful Entrepreneurs.” Use
a. enjoy participating in team activities both text and pictures to illustrate each of
b. are willing to gamble the characteristics discussed in the lesson.
c. are goal-oriented 7. Reading Use the library and Internet to
d. all of the above collect and read newspaper and magazine
2. True or False: In the early part of the 20th articles that have been written about a well-
century, many entrepreneurs did not have a known entrepreneur. Based on your reading,
great deal of education. how do the personal characteristics of the
entrepreneur compare to those discussed in
3. Which of the following is not an academic
the lesson? Make a list of the characteristics
area that is useful in preparing to be an entre-
you were able to identify.
preneur?
a. communications Connect to
b. math
8. You are a mentor for a middle-school student
c. science
who will enroll in your high school next fall
d. all are important
and wants to start a business after gradua-
4. _____ is the informal code of conduct regard- tion. Prepare a written educational plan in
ing acceptable online behavior. which you recommend the courses from your
5. True or False: Since entrepreneurs do not work school’s curriculum for each year, student
well in teams, there is little benefit in partici- organizations and activities to consider, and
pating in a student business organization as a other experiences that would help the stu-
way to prepare to be an entrepreneur. dent prepare for the career choice. Present
the plan to your teacher (judge) and discuss
S the reasons for your recommendations.
N
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Business Ownership Opportunities 21-3
GOALS KEY TERMS

• Identify business opportunities related to mar- viral marketing, p. 599
keting functions. microcredit, p. 600
• Describe how marketing can help you identify
business ownership opportunities.
Entrepreneurs start all types of businesses. Many entrepreneurs open businesses that
use special skills they have developed. For example, a person who has developed web
design skills may start a business developing web sites for other businesses. Others start
a business that is related to the type of business experience they have. For example, a
person who manages the accounting department of a large company may decide to
open her own accounting business. A third area for business ideas is a person’s hobby
or interests. If someone likes to cook, a catering business could be a possibility. A person
who enjoys traveling may start a business organizing and leading tours.
Think carefully about specific skills, work experience, and interests and hobbies you
have. List them on a sheet of paper. Then under each category, list several businesses
you could start related to the category. Share your ideas in a discussion with other stu-
dents and brainstorm other ideas to add to each student’s list.
Business Opportunities in Marketing

here are unlimited opportuni- and services are exchanged between pro-
T ties for starting your own business.

Entrepreneurs own manufacturing,
retail, wholesale, and service businesses.
ducers and consumers. Businesses can be
developed to provide these functions.
Promotion
Specialized areas such as farming, clothing
design, home remodeling, fitness train- Several types of businesses offer pro-
ing, and computer programming provide motional services. Advertising agencies,
entrepreneurship opportunities. public relations firms, graphic design,
We have learned that marketing copywriting, and printing companies are
businesses are an important part of our examples of businesses involved in promo-
economy. Both retailing and wholesaling tion. Other companies build displays for
companies are marketing businesses that stores or design billboards and electronic
provide a number of marketing activities signs to promote businesses and products.
in completing the exchange process. The new area of viral marketing offers the
Even if you decide not to start a retail opportunity to offer unique promotional
or wholesale business, there are many services. Viral marketing is a promotional
other marketing opportunities available for approach that encourages people to pass
entrepreneurs. Each of the marketing func- along marketing messages through word S
tions needs to be performed as products of mouth, creating a rapid dissemination N
599
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Figure This
Return on Investment Think Critically
To finance a new business, an entrepreneur 1. What was the 3-year return on invest-
was able to invest $75,000 of her own money. ment of the entrepreneur and of the
She obtained $490,000 of additional funds investors (profit ⫼ investment ⫻ 100)?
from a group of people who owned a venture
2. What was the total amount invested in the
capital company. Venture capital companies
business and the total amount of profit?
look for attractive new business ideas where
they can get a good return on the money they 3. Why would an entrepreneur be willing
invest. The table below shows the amount of to accept a smaller return on investment
money invested and the profit received at the than the venture capital group is willing
end of three years of operation. to accept?
Entrepreneur Investors
Amount of Investment $75,000 $490,000
3-Year Profit $9,500 $112,000
of information. The use of viral marketing companies help determine the value of
on the Internet has allowed marketers to products and negotiate agreements be-
have an almost instantaneous impact on tween the buyer and seller. An example of
large numbers of people. that type of business is an auction house,
where products are presented and sold
Selling to the highest bidder. eBay is an example
Sales agencies are hired to sell the prod- of an Internet business that helps buyers
ucts and services of companies. This is and sellers negotiate a fair price for prod-
often done when it is not profitable for a ucts. Other companies provide pricing
company to employ its own sales force. information to prospective buyers so that
Another type of business opportunity they know how much they should pay for
related to selling is offering sales training products.
or developing resources that are used by
salespeople, such as computer programs, Financing
sales materials, or product models. Banks and credit card companies are
marketing businesses that provide finan-
Distribution cial services to businesses and consumers.
Many types of companies are involved in Financial advisors help in obtaining credit
storing and distributing products from and making investments. Newer entre-
producer to consumer. Trucking com- preneurial companies are providing very
panies, express delivery businesses, and small amounts of financing for people who
couriers handle thousands of products are considering starting new part-time
each day. Warehouses and storage centers businesses. Microcredit provides small
ensure that products are held safely until value loans to people who cannot qualify
they are needed. for traditional bank loans. Microcredit has
become a way of increasing the number of
Pricing small businesses in rural and high poverty
S It is difficult to identify businesses related areas that can benefit from economic de-
N to the pricing function. Yet a number of velopment and in preindustrial countries
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businesses perform this marketing
Wo r k i n g i n Te a m s function. Some companies pay
consumers to test products, conduct
As a team, choose one of the marketing func- surveys in malls, or send shoppers
tions. Have each member in turn identify a into businesses to determine the
product or service idea related to that function effectiveness of customer service.
that could result in a new business. Be creative Businesses gather information and
and do not criticize any idea suggested. When prepare reports for other companies.
ideas related to the function have ended, select
another function and repeat the process.
Product and Service
Management
that are just starting to develop their busi- You can find a company that will provide
ness economies. assistance to other businesses in new prod-
uct research and design. Other companies
Risk Management will provide testing to ensure the quality of
Businesses constantly face risks that chal- a product or to compare the strengths and
lenge business operations. Entrepreneur- weaknesses of competing products.
ship opportunities exist for people who
have expertise in security, safety, and the Market Planning
application of technology to help busi- Many companies need assistance in iden-
nesses anticipate, manage, and reduce their tifying new markets and determining the
risks. Today, many businesses face security feasibility of entering those markets. En-
issues resulting from terrorism threats as trepreneurs with expertise in underserved
well as maintaining the privacy and secu- markets (ethnic consumers, international
rity of business and customer information. markets) can offer specialized services
They often look to experts to help them to other businesses. Many exporting and
respond to those new issues. importing businesses have been formed by
entrepreneurs.
Marketing-Information
Management Checkpoint
Gathering and analyzing information and
conducting marketing research are impor- Why do each of the marketing functions
tant marketing activities. Many types of provide entrepreneurship opportunities?
Identifying Business Ownership

Opportunities
nderstanding marketing gives you Successful marketing uses a two-step
U an important set of skills to help you

identify possible business opportuni-
ties. Many entrepreneurs select a business
process. The first step is to identify cus-
tomers and their needs. The second step
is to develop a marketing mix to meet the
idea based solely on their interests, skills, needs of the customers. A successful busi-
and experience. It is important to choose ness should follow the same procedure.
a business that you like and for which you Rather than starting with an idea for prod-
are skilled to operate successfully. But that ucts and services, an entrepreneur should S
is not enough. begin by studying the market. N
601
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Identify a Target Market Develop a Unique Offering
Before you decide to start a business, you Based on a study of the customers and
should determine if a target market exists competitors, determine if you can provide
for the business. Who are the possible cus- a competitive product. Unless you can
tomers and where are they located? What identify something your business will offer
are their specific needs? Are those needs that is better than the competition in some
generally satisfied by existing products important way, it is not likely that your
and services or are they unsatisfied with new business will be successful. Using
current choices? your understanding of marketing planning
will help you identify successful business
Study the Competition opportunities.
A new business will have difficulty com-
peting with an existing business unless
the existing business has a weakness.
Identify companies offering similar prod- Checkpoint
ucts. Determine the prices they charge
and the services they offer. Find out what What is the two-step marketing process
customers in your target market like and that can be used to identify business
dislike about each competitor. opportunities?

Determine the best answer. 6. Math There are 5,789 fitness center cus-
1. True or False: Starting a retail or wholesale tomers in a community. Research shows
business is an example of entrepreneurship that 18 percent are very dissatisfied with
opportunities in marketing. their current fitness center. If a new busi-
ness can enroll 25 percent of the dissatisfied
2. _____ provides small value loans to people
customers, how many members will it have?
who cannot qualify for traditional bank loans.
What percentage of the total market will the
3. True or False: The first step an entrepreneur fitness center enroll?
should take in starting a new business is to
7. Finance Use the Internet to gather informa-
identify an idea for a product or service that
tion on an organization that offers micro-
he or she wants to offer.
credit to support new entrepreneurs in a
4. After an entrepreneur identifies a target mar- country with a developing economy. Prepare
ket and studies the competition, the next a written report on the organization and the
step in planning is to results of the program.
a. find an effective location
b. obtain needed financing Connect to
c. create a unique offering 8. Your marketing research team has been
d. develop a memorable business name asked to study why consumers do or do not
5. A company that assists businesses in identi- shop at small businesses. Prepare a short
fying global markets performs which of the questionnaire and collect information from
following functions? 20 people. Summarize the results using
a. promotion c. pricing tables and charts. Make an oral presentation
S b. financing d. market planning to your teacher (judge).
N
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Legal Needs of Entrepreneurs 21-4
GOALS KEY TERMS

• Describe the legal forms of ownership for a proprietorship, p. 603 corporation, p. 605
business. proprietor, p. 603 charter, p. 605
• Discuss legal steps to follow in starting a new partnership, p. 605
business.
partnership agreement, p. 605
Entrepreneurs are quite independent and want to be totally responsible for business
decisions. This makes it difficult to share ownership of a new business with other
people. However, having multiple owners in a business often increases the chances
that the business will be successful. Form small groups with other students and dis-
cuss the advantages and disadvantages of each of these three scenarios:
1. An entrepreneur starts a new business with his or her own money and is the
sole owner and decision maker.
2. An entrepreneur identifies another person to be a partner in a new business.
The partners contribute an equal amount of money and share in the ownership
and decision making.
3. An entrepreneur sells stock to four other people to finance a new business. The
entrepreneur owns half of the stock, and the other four own equal amounts of
the remaining stock. The entrepreneur manages the business, and the other
owners serve as the board of directors to approve major plans for the business.
The Ownership Decision

ne of the first decisions made by an
O entrepreneur is the legal form of

ownership for the new business.
While it would seem that an entrepreneur
would be the sole owner, there are three
common ownership choices. They are pro-
prietorship, partnership, or corporation.
Each form of ownership offers advantages
and disadvantages.
Proprietorship
A business owned and managed by one
person is a proprietorship. A proprietor
is a person who has sole ownership of a
business. Proprietorship is the most com- Why is a proprietorship a popular form of S
mon form of business ownership, with ownership for entrepreneurs? N
603
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Judgment Call
Whose Idea Is It? start a business from an idea developed on
Sometimes entrepreneurs will have an idea the job. The agreements usually give the
for a new product while they are working for employee rights to some of the profits the
another company. If the company they are company makes from ideas developed by
working for decides to develop and market the employee.
the product, the person who developed it Think Critically
may not share in the profits if the product is
1. Do you believe employees should
successful.
be able to take ideas they developed
Some entrepreneurs take their idea and
while employees and start their own
start their own business rather than sharing
businesses?
it with their employer. In this case, the idea
was developed while they were employed, 2. Should a company be obligated to share
but the former employer does not share in profits from a new product with the
the profits of the new product. employee who had the idea?
Some companies now ask employees 3. Do you agree with the idea of the legal
to sign legal agreements that they will not agreement described? Why or why not?
nearly three-quarters of all businesses business are drawn to this form of business
organized in this way. Under the propri- ownership.
etorship form of organization, the owner is
responsible for the money needed to start Disadvantages of Proprietorships
and operate the business as well as all busi- Running a business successfully requires
ness planning and management. many skills. A proprietor is totally res-
ponsible for the business and may not
Advantages of Proprietorships have all of the skills needed. There is a
The sole owner of the business is the boss greater chance that the business will fail
and can make all decisions. That feature due to lack of planning and management
suits many entrepreneurs, who are gener- skills or other areas where the proprietor
ally quite independent. is not well prepared.
The proprietor receives all profits of the While a few businesses can be started
business. Because of the profit motive, en- without a lot of money, most new busi-
trepreneurs work very hard to make their nesses are quite expensive to form. One
businesses successful. The proprietor also person may not have the needed money
has full claim to all of the business’s assets and may not be able to borrow adequate
if there are no debts. funds. Many business ideas are never de-
The owner can make decisions with- veloped due to a lack of funds.
out consulting others, so he or she can act In a proprietorship, the owner assumes
quickly when needed. As a result, propri- a great deal of risk. While the owner re-
etorships are very flexible and can adjust ceives all the profits of the business, that
rapidly to changing conditions. person also suffers all the losses if the busi-
Forming a proprietorship is relatively ness is not profitable. Creditors can make
easy. There are few legal requirements to claims on everything the entrepreneur
S start the business or to end it. As a result, owns, not just the assets of the business if
N people who are trying to form their first it fails.
604
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The business will not be able to con- one person is responsible for repaying the
tinue to operate for long if the owner loan.
becomes ill or dies. The business will either If one person decides to leave the busi-
have to be sold or must close. Sometimes an ness or dies, the business does not have to
entrepreneur loses interest in the business close. Partnership agreements specify how
or does not have adequate time to devote to a partner can be replaced. The remaining
developing and managing it. With no other partners can continue to operate the busi-
owners, the business is likely to fail. ness until a new partner is located.
Partnership Disadvantages of Partnerships

Disagreements on important decisions
A partnership is a business that is owned can occur among partners. It may take
and operated by two or more people who time for partners to discuss issues and
share in the decision making and profit- agree on the best solution. Many part-
ability of the company. A partnership is nerships fail due to disagreements that
formed using a partnership agreement, a cannot be resolved among the partners.
legal document that specifies the respon- In a partnership, all partners are generally
sibilities and financial relationships of the responsible for any actions and decisions
partners. made by another partner. If money
Advantages of Partnerships Part- is owed, each partner is liable for the
nerships pool the knowledge and skills entire debt.
of all the owners. There are more people
available to manage the business. Corporation
Because more than one person owns A corporation is a business owned by peo-
the business, there is usually more money ple who purchase stock in the company.
available. Also, banks are more likely to Corporations are granted a charter by the
loan money to companies when more than state in which they are formed. A charter
S
What are the advantages of the partnership form of business? N
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is a legal document allowing the corpora- Disadvantages of Corporations
tion to operate as if it were a person. That Because corporations operate based on a
means the business can borrow money, charter, they face more rules and regula-
enter into contracts, and is liable for its tions than other forms of businesses. They
decisions and actions. are watched carefully by the states in
which they operate and must fi le regular
Advantages of Corporations A reports.
corporation is most often formed by an The people who own the company’s
entrepreneur to raise money and to limit stock usually do not have as much interest
the liability faced by the owners. Because in the business as the entrepreneur. They
an owner invests in stock, the losses suf- may be more concerned about the prof-
fered by the business in case of failure are its earned by the company than they are
limited to the amount of the investment. about the day-to-day operations. No one
The life of a corporation does not individual has to take responsibility for
depend on any one owner. If an owner business operations and decisions.
decides to sell his or her stock, another Corporations usually are taxed at a
person can buy it, and the business con- higher rate than the other forms of busi-
tinues to operate. ness. Also, individual investors must pay
As a corporation grows, it is easier for taxes on any profits distributed to them.
the owner to turn day-to-day management
responsibilities over to managers. Policies
and direction of a corporation are con- Checkpoint
trolled by a board of directors who hire
well-prepared executives to manage the How is ownership different in each of the
business. three legal forms of business ownership?
Starting Your Business

nce you have decided to start a busi- trademark can be obtained. If so, file an
O ness, several legal steps need to be

completed before you can open for
business.
application.
• Purchase or lease buildings and equip-
ment. Obtain necessary financing for
• Select the form of ownership. Decide if the purchases and for business opera-
your business will be a proprietorship, tions. Complete mortgage, lease, and
partnership, or corporation. If it is a loan applications and financial docu-
partnership, prepare and sign the part- ments.
nership agreement. If it is a corporation,
prepare and file a charter and complete
the other forms required by the state. Fa s t FAC T S
• Decide on a business name and register
it with the state and local government. A leading business consultant lists the
top reasons for new business failure
• Determine the licenses and permits as: starting the business for the wrong
that are needed to operate your busi- reason, poor management, lack of
ness. Complete the procedures to money, wrong location, lack of planning,
obtain each one. expanding too quickly, and no business
S • If you are creating a new product, web site.
N determine if a patent, copyright, or
606
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• Create necessary business records. You can see that starting a business
involves many steps and requires a great
• Identify insurance needs and purchase deal of legal information. An entrepreneur
the necessary policies. should work with a lawyer skilled in busi-
• Prepare personnel policies and proce- ness startups and should seek assistance
dures if employees will be hired. Iden- from experienced business people, busi-
tify and comply with all employment ness associations, and government offices
and tax laws. to make sure all procedures are followed
and all legal requirements are met.
• Develop procedures and prepare
forms you will use to sell products to
customers and make sure they meet Checkpoint
all legal requirements. Be prepared to
Why is it important to get legal assistance
collect and report all local, state, and
from a lawyer and others when starting a
federal taxes.
new business?

Determine the best answer. 5. Government Use the Internet to identify the
1. A business owned and managed by one per- procedures that must be followed to form a
son is a corporation in your state. Prepare a written list
a. small business of the procedures including the name of the
b. proprietorship state department or office that administers the
c. charter process.
d. new venture 6. Visual Art Use the flowcharting function on a
2. A disadvantage of a partnership compared to computer graphics program to prepare a flow-
a corporation is chart of the legal steps described in the lesson
a. there can only be two owners in a that an entrepreneur should take to start a
partnership new business. Compare your flowchart with
b. each partner must assume all of the finan- those prepared by other students and discuss
cial risks similarities and differences.
c. the government controls partnerships
Connect to
more carefully than corporations
d. a partner cannot be involved in the day- 7. A family friend has worked for a large advertis-
to-day management of the business ing agency and now wants to start a new busi-
ness to provide promotion and public relations
3. A _____ is a legal document allowing the
services to other small businesses. He plans to
corporation to operate as if it were a person.
form the business as a proprietorship since it
4. True or False: Because starting a new business is very simple to start. You want to convince
is quite simple, an entrepreneur generally him that the business will be more successful if
does not have to obtain advice and assistance organized as a partnership or corporation. Par-
from lawyers, accountants, or other business ticipate in a role-play with your teacher (judge)
professionals. to present the reasons for your beliefs and to
answer questions.
S
N
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21-5 Developing a Business Plan
GOALS KEY TERMS
• Discuss the importance of a business plan for a new business plan, p. 609
business. executive summary, p. 611
• Identify and describe the parts of a business plan.
The characteristics of entrepreneurs make them more interested in starting and

operating the business than in taking the time to carefully plan for a business. Yet
studies have identified that one of the most important tools to the success of a new
business is a carefully developed, well-written business plan.
Before you study this lesson, consider all of the information needed and all of
the decisions that must be made before a business can open. Think about the activi-
ties that must be completed to successfully operate a business.
Make a list of all the things you would include if you were preparing a written
plan for a new business. For each item listed, write a short statement describing why
you believe it would help an entrepreneur to carefully plan for that business ele-
ment. Share your list with other students to identify the similarities and differences.
As you complete this lesson, compare your list to the information in the lesson.
The Importance of Planning

n entrepreneur will make many deci-
A sions before the business ever opens.

Many more decisions must be made
after the business begins operations. If the
correct decisions are made, the business
will be successful, but if enough of the
owner’s decisions are incorrect, the
business will join the thousands that fail
each year.
An experienced business owner may
know enough about the business to make
many of the important decisions quickly

with the information available at the time.
A new entrepreneur does not have that
experience or the information to easily
make good decisions. It will be valuable if
the entrepreneur has help readily avail-
S able when problems are encountered and How can inexperienced business owners improve
N decisions must be made. their chances of success?
608
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The Business Plan
A business plan is a written
document prepared to guide
the development and operation
of a new business. It contains
the information used and the
initial decisions made to man-
age each of the major areas of

the business.
Each new business will
have a slightly different plan.
The business plan should
be prepared by the business
owner and should reflect the
owner’s knowledge, ideas, Why would a lending institution want to see a business plan?
and experience. But all busi-
ness plans must communicate
several things.
the business is developing according to the
• The purpose of the business and the plan and if changes need to be made.
types of products and services it plans In addition to the value of the plan to
to offer the business owner, however, other people
• Descriptions of the business’s cus- who are involved in starting the business
tomers and their important needs benefit from a well-prepared business plan.
• Major business activities that will be Prospective Partners and
completed Stockholders If the entrepreneur
wants to organize the business as a part-
• Resources needed, including materials, nership or a corporation, potential owners
equipment, and people will want information about the business
• Sources of financing and the amount of to determine if they want to participate.
money needed to start and operate the
business Bankers and Investors Most new
businesses will need to borrow money
• The type of competition to be faced to finance buildings, equipment, prod-
and major competitors uct purchases, and several months of
• Financial requirements and profit operations. Bankers and other people who
projections might consider making loans will need
detailed information to make sure the
Using the Business Plan business is a solid investment. Most inves-
tors and financial institutions insist that
A business plan would be important entrepreneurs provide a well-developed
even if only the entrepreneur used it. By business plan.
gathering and studying information and
using that information to make decisions Employees of the Business The
about the business, the owner will usu- owner of a new business works many
ally be more careful and more objective in hours each week and is very busy making
determining how the business will operate. sure the business is successful. Employees
The business plan becomes an impor- are an important part of the operations.
tant guide for starting and operating the The business plan provides information
business. Because of the detailed planning, to employees so the owner will not have S
the entrepreneur can use it to determine if to orally communicate the information to N
609
21-5 • Developing a Business Plan 609
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employees when they need it or when the may need the help of lawyers, accoun-
owner is not available. tants, advertising agencies, and others.
A business plan assures the cooperating
Other Business People Other busi- businesses that the owner is well prepared
nesses will be a part of the success of the to work with them.
new business. If the new business manu-
factures products, it will need coopera-
tion from retailers to sell products. It will Checkpoint
need to purchase raw materials, supplies,
and equipment and usually will want Why is it important for a new entrepreneur
credit from suppliers. The new business to have a written business plan?
Developing a Business Plan

business plan FIGURE 21-3
A is used to make
important decisions
about business opera-
Each section of a business plan provides detailed information on
decisions made for that part of the new business.
Outline of a Business Plan for a New Business

tions, to communicate
those decisions to others,
I. Introduction to the Business
and to serve as a guide A. Description of products and services
for business operations. B. Owners and form of ownership
The parts of a business C. Business organization
plan are shown in D. Long- and short-term objectives
Figure 21-3. E. Strengths and weaknesses
The sections of the II. Description of the Industry
business plan present A. Economic conditions
the specific decisions B. Types of competition
that have been made C. Strengths and weaknesses of competitors
and describe how the D. Anticipated changes in the industry
business will be orga- III. Market Analysis
A. Description of target markets
nized and managed. The
B. Analysis of needs and purchase behavior
written plan identifies C. Sales forecasts for major markets
the resources that will IV. Operations
be needed to operate A. Organization of operations and departments
the business success- B. Descriptions of major activities
fully. Financial plans C. Identification of equipment, materials, and other operating
describe the money that resources needed
will be needed to oper- D. Staffing requirements and management plans
ate the business and V. Marketing
how the money will be A. Description of marketing mix
used. Detailed financial B. Procedures for implementing marketing activities
projections are made to C. Resources needed for marketing
VI. Financial Plans
show income, expenses,
A. Startup costs
profit, and the return B. Semiannual income and expense projections
on investment that C. Monthly cash flow budgets
investors, including the D. Annual balance sheet projections
entrepreneur, can expect E. Analysis of financial plan
S from the financing they F. Sources of financial and funding requests
N provide.
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points in the business plan. It high-
Wo r k i n g i n Te a m s lights the major planning decisions
made by the business owner. The
As a team, review the sections of a business plan executive summary is useful when
listed in Figure 21-3. Using a local telephone or the owner needs to present the plan to
business directory, identify an organization or others in order to build understand-
individual that could serve as an advisor or re- ing and support for the new business.
source to help develop each section of the plan. It should capture the attention of
Consider business professionals, experienced readers and make them want to learn
business owners, government agencies, college more about the entire business plan.
and university personnel, and others.
After the business plan is complete,

the owner should prepare a one- or Checkpoint
two-page summary of the plan. The
executive summary provides an overview What are the major sections of a business
of the business concept and the important plan?

Determine the best answer. 6. Communication Plan and practice a per-
1. True or False: A business plan is not needed suasive speech to persuade new business
unless the entrepreneur needs to obtain owners that they can benefit from preparing
financing from a bank or other investors. a detailed written business plan. The speech
should include at least four specific benefits
2. True or False: Each new business will have a
of the written business plan. Present your
slightly different business plan.
speech to other students.
3. A business plan should be prepared by
7. Reading Use the library or Internet to locate
a. the business owner
a sample business plan for a new business.
b. a communications specialist
Read the plan as if you were a prospective
c. an experienced entrepreneur
investor to determine if it provides the infor-
d. all would be appropriate
mation you need to understand the business
4. A business plan should be shared with each and make a financing decision. Write a three-
of the following groups except paragraph analysis of the strengths, weak-
a. prospective partners and stockholders nesses, and effectiveness of the plan.
b. bankers and investors
c. employees of the business Connect to
d. competitors 8. Identify a target market and choose a small
5. True or False: An entrepreneur only needs business idea to serve that market. Use
to prepare a one- or two-page summary of the outline of a business plan shown in
a business plan rather than a long, detailed Figure 21-3 to prepare a one- or two-page
written plan. executive summary of the planning decisions
for your small business. Use the executive
summary to present your business idea and
plans to your teacher (judge).
S
N
611
21-5 • Developing a Business Plan 611
CH 21-B4491-DS_REV3.indd 611 12/7/07 8:38:27 PM


Now that you have completed the chapter, check describe the academic, technology, and business
your understanding of the lessons with these ques- skills needed to prepare for entrepreneurship?
tions. Record the score that best represents your identify new business opportunities that are
understanding of each marketing concept. related to each of the marketing functions?
1 = not at all; 3 = somewhat; 5 = very well compare the steps in the marketing strategy to a
If your score is 42–50, you are ready for the assess- procedure entrepreneurs should follow in identi-
ment activities that follow. If you score 33–41, you fying new business opportunities?
should review the lessons for the items you scored explain the advantages and disadvantages
1–3. If you score 32 or less, you will want to carefully of each of the three legal forms of business
reread the lessons and work with a study partner on ownership?
the areas you do not understand. identify several important legal steps that should
Can you— be followed when starting a new business?
define entrepreneur and entrepreneurship? justify the value of a written business plan for a
discuss ways in which entrepreneurs and entre- new business?
preneurship benefit the U.S. economy? outline the major sections of a business plan?
list several characteristics that are common to
most entrepreneurs?

1. A person who has sole ownership of a business 12. A legal document that specifies the responsibili-
2. A legal document allowing the corporation to ties and financial relationships of the partners
operate as if it were a person
3. The informal code of conduct regarding accept-
able online behavior
4. A business that is owned and operated by two or a. business plan
more people who share in the decision making b. charter
and profitability of the company c. corporation
5. A willingness to risk the chance of failure in order d. creativity
to be successful e. entrepreneur
6. A written document prepared to guide the de- f. entrepreneurship
velopment and operation of a new business g. executive summary
7. The process of planning, creating, and managing h. microcredit
a new business i. netiquette
8. Provides small value loans to people who cannot j. partnership
qualify for traditional bank loans k. partnership agreement
9. A business owned by people who purchase stock l. proprietor
in the company m. proprietorship
10. Someone who takes the risk to start a new n. risk-taking
business o. self-confident
S 11. The ability to use imaginative skills to find p. viral marketing
N unique ways to solve problems
612
CH 21-B4491-DS_REV3.indd 612 12/7/07 8:38:28 PM

13. True or False: Few new small businesses today 21. True or False: Unless an
succeed due to the competition from large inter- owner can identify some-
national businesses. thing a business will offer
14. True or False: One of the reasons people start that is better than the
businesses is to have the freedom to do work competition in some im-
they enjoy. portant way, it is not likely
that the business will be
15. True or False: All small businesses are owned by
successful.
entrepreneurs.
22. The form of business ownership in which the
16. True or False: Small businesses represent about
owners assume the least amount of risk is
half of all of the businesses operating in the
a. entrepreneurship
United States.
b. partnership
17. True or False: Often, a business started by an c. proprietorship
entrepreneur fails when it begins to grow. d. corporation
18. True or False: Successful small businesses are 23. True or False: A disadvantage of a partnership is
seldom owned by people from minority groups. that if money is owed, each partner is respon-
19. Which of the following is not a characteristic of sible for the entire debt.
entrepreneurs? 24. True or False: The business plan should be shared
a. Entrepreneurs want to achieve. with prospective customers so that they are
b. Entrepreneurs are independent. more confident in the business’s success.
c. Entrepreneurs are wealthy.
25. The financial section of a business plan includes
d. Entrepreneurs are risk-takers.
a. an analysis of customer needs
20. When selecting an idea for a business to start, an b. a description of the marketing mix
entrepreneur should choose one that c. identification of startup costs
a. has never been tried before d. staffing requirements
b. meets his/her interests and skills
26. True or False: The complete written business plan
c. requires only a small investment
should be no more than one or two pages long.
d. is recommended by friends and family

27. Identify a small business you would be interested 28. Use a word processing program to develop a
in starting as an entrepreneur. Use the Internet questionnaire using the items in Figure 21-2.
to locate the following information about that Add three additional items asking respondents
type of business: to identify their age, gender, and number of
• Two existing businesses that offer the same years of education.
type of product or service Give a copy of the questionnaire to five
• Two businesses that could supply products people and ask them to complete it. When you
or services needed by the business for its have all of the completed questionnaires, enter
operations the items into a spreadsheet. Calculate the totals
• Two sources of small business assistance for each item. Prepare a report of your findings.
available to a new entrepreneur Working with other students in your class,
• Two financial institutions in your area that enter the information from all questionnaires
may provide startup financial support for the into one spreadsheet and calculate the class
new business totals for each item. Discuss the results. Identify
any differences in responses that seem to relate S
to age, gender, and education. N
613
CH 21-B4491-DS_REV3.indd 613 12/7/07 8:38:28 PM

29. The number of businesses formed as proprietor- to calculate the total number of businesses in
ships, partnerships, and corporations is identi- the country and in your state. Calculate the per-
fied and reported by state and federal govern- centage of U.S. businesses in each category, the
ments each year. Use the Internet to obtain the percentage of the total number of businesses in
most recent information on the number and your state in each category, and the percentage
type of businesses for the entire United States of the U.S. totals represented by the businesses
and for your state. in your state. Prepare national and state pie
Develop a spreadsheet to report the charts to illustrate the results. Make sure to label
information you obtained. Use the spreadsheet the charts and all data presented.

30. Becoming a successful entrepreneur requires (added features, easier to use, more portable or
a person who has the necessary personal char- efficient, etc.). When you and your classmates
acteristics, education, and experience, as well have finished your designs, display the new
as the financial resources to be able to provide products around the classroom. Have a “gallery
some of the initial financing of a new business. walk” where small groups walk from product to
Prepare a personal analysis of your current product and the designer describes the product,
status as a possible entrepreneur and a plan to its features, and its benefits.
improve your preparation. Use a word process- 32. Working in small groups and with the help of
ing program and prepare a two-column table your teacher, identify a small business owner
titled “My Entrepreneurship Preparation.” The from your community who is a graduate of your
heading of the left column is “What I Have.” The high school. Contact the person and arrange an
heading of the right column is “What I Need.” interview. If possible, obtain a video camera and
Using information from the chapter, videotape the interview. If it is not possible to
complete the table to describe what you have meet the business owner in person, it may be
already done to prepare to be an entrepreneur appropriate with the permission of your teacher
and what you need to do to continue your to complete the interview using the telephone
preparation. Use the following headings for the or e-mail. Make sure to take careful notes during
rows in your tables: the interview.
Entrepreneurship Characteristics Ask the business owner the following
Academic Preparation questions:
Communication Skills
1. Why did you decide to start your own
Math Skills
business?
Scientific Skills
2. What did you do to prepare for business
Technology Skills
ownership?
Business Skills
3. What steps did you take to start your
Work Experience
business?
31. Entrepreneurship opportunities often result from 4. Who is your target market?
the design of new products or the development 5. Who are your main competitors?
of improvements in existing products. Select one 6. What are the characteristics of your marketing
of the following products or identify another mix: product, price, distribution, and
product category approved by your teacher: promotion?
a. portable television and video player 7. What do you believe are the most important
b. miniaturized computer keyboard factors in being a successful small business
c. student backpack owner?
d. cellular telephone
When your interview is completed, summarize
e. beverage cooler for the beach
the information your team obtained and prepare
Use a computer graphics program or craft an oral report on the entrepreneur to present to
S materials to create a new design for the product your class.
N that you believe improves on the current design
614
CH 21-B4491-DS_REV3.indd 614 12/7/07 8:38:31 PM

s
Entrepreneurship
Participating Event
The purpose of idea. The business plan should convince finan-
the Entrepreneur- cial institutions and/or venture capitalists to
ship Participating invest money in your idea.
Event (Creating an
Independent or Performance
Franchising Business) is to provide an op- Indicators Evaluated
portunity for the participant to develop and
present a proposal to form a business. The • Analyze the opportunity for starting
event provides an opportunity for partici- a business. (Communication Skills)
pants to develop and demonstrate mastery of • Interpret financial statements.
essential skills as they apply to the analysis of (Financial Analysis)
a business opportunity, the development of a • Take a concept from an idea to a
marketing/promotion plan, and the develop- business proposal. (Information
ment of a financial plan. Management)
After conducting research, participants • Set priorities and demonstrate
must choose an independent or franchise effective time management.
business for a selected location. The written (Emotional Intelligence)
plan will consist of the following sections: • Demonstrate critical thinking/
Executive Summary Write a one-page de- problem-solving skills.
scription of the project. (Emotional Intelligence)
Description and Analysis of the Business
Situation Include rationale and marketing Go to the DECA web site for
research, introduction, self-analysis, analysis more detailed information.
of business opportunity, and proposed orga-
nization for the business. Think Critically
Proposed Marketing/Promotion Plan De- 1. Why is the executive summary
scribe the proposed product or service, for the business plan so important?
proposed pricing policy, personal promo-
2. Why would financial institutions and
tion, nonpersonal promotion, and place
venture capitalists want to see projected
(distribution).
financial statements for a three-year
Proposed Financing Plan Include projected
period for a proposed business?
income/cash flow statement, projected three-
year plan, capital, and repayment plan. 3. Why is it important to analyze the existing
Bibliography List all resources used. competition when proposing a new
business?
Participants will have 15 minutes to pres-
PHOTOS: ©DECA INC.
ent and defend their business prospectus to 4. What is the major advantage of proposing
the judge. The judge has an additional five a franchise business rather than an inde-
minutes to ask the participant questions pendent business?
about their business plan. Your presentation
must convince the judge to invest in your
S
615
21-1 • Understanding Entrepreneurship
DECA Prep 615
CH 21-B4491-DS_REV3.indd 615 12/7/07 8:38:31 PM

Chapter 22
Take Control with
Management
22-1 The Functions of Management
22-2 Managing Effectively with
a Marketing Plan
22-3 The Work of Marketing
Managers
© PHOTODISC/GETTY IMAGES
Newsline )))
Quality Is a Top Management Responsibility
One of the most important responsi- to complete shopping, and how modern technology. They also want
bilities of a retail manager is main- quickly the store processes credit employees to know how to use the
taining quality. And it is more than and debit cards or other forms of cash registers quickly and accurately.
the quality of the products offered payment. Second in importance Improving the quality of the
in the store. The look of the store, was how the customer is treated. shopping experience is one of
the atmosphere, employees, and the Consumers want to feel that the the best ways to ensure customer
entire shopping experience must store is concerned about their needs satisfaction. If managers are unwill-
meet customers’ expectations. Even and that each employee is helpful, ing to spend the time and money to
the lowest prices will not attract friendly, and courteous. improve the factors customers see as
customers to a store if they are not Efficiency, including the number important, they will pay through lost
comfortable and satisfied with their of open checkout lanes or registers sales and lost customers.
experience in the store. So what is and the ease of locating and choos-
required to maintain the quality of ing merchandise, was rated third. Think Critically
the retail shopping experience? Price and the physical environment 1. Why do you think time was
A survey asked nearly 1,000 were tied for fourth place. Customers so important to the survey
shoppers to rate 21 specific factors are concerned that prices are clearly
respondents?
that influenced their attitudes about marked and accurate and advertised
a store. The most important quality specials are easy to locate. They 2. What retail stores in your com-
feature to consumers is time. Time want to shop in a pleasant, roomy, munity provide the highest-
was rated twice as important as any uncluttered atmosphere. Finally, quality shopping experiences?
other category. Time includes how consumers are concerned about What makes each effective in
long it takes to check out, total time technology. They want stores to use your view?
CH 22-B4491_RP_REV3.indd 616 12/5/07 8:47:01 PM


• Understand the tools, techniques, and systems • Provide input into strategic planning
that businesses use to plan, staff, lead, and orga- • Manage staff growth and development to increase
nize their human resources productivity and employee satisfaction
• Utilize planning tools to guide an organization’s/ • Involve staff in company activities
department’s activities
• Determine and respond appropriately to personal-
• Manage internal business relationships to foster ity types
positive interactions
Visual Focus
Management involves making sure that the
right things happen in the right way. Even
small businesses with only a few employees
require management to plan, coordinate
people and activities, and make sure the
expected results are being achieved. Think of
the challenges that face the managers of a
The CFO needs to reduce costs.
huge multinational company. Ultimately the
The COO needs better ways to manage processes.
effectiveness of management determines the
success of a company. Marketing managers
The CMO needs more ways to reach customers.
must plan, organize, staff, lead, and control
The CEO needs to know it’s getting done. the many marketing activities and employees
needed to satisfy customers and ensure a
profit for the business.
The CIO has a strategy for IT to meet all their needs and deliver results.
Welcome to Business Service Management from BMC Software. Business Service Management (BSM) Focus Questions:
means the goals of IT are the same as the goals of the business. And with proven software and processes
from BMC Software, BSM can be implemented in stages, demonstrating the value of IT as you go. What are the main responsibilities of each of
All business success stories have to start somewhere. With BSM, they begin in IT.
the types of managers listed in the ad—CFO,
©BMCSOFTWARE
www.bmc.com/results COO, CMO, CEO, and CIO? Why is it important

© 2007 BMC Software, Inc. All Rights Reserved.
for them to be able to easily communicate and
share information with each other? If you were
a manager in a large company, would this ad
interest you? Why or why not?
Locate another advertisement or visual
example of a product or service designed to
help managers complete their work. Share
CH 22-B4491_RP_REV3.indd 617 12/5/07 8:48:41 PM

22-1 The Functions of Management
GOALS KEY TERMS
• Explain the importance of management managing, p. 619 organizing, p. 623
in business and the role of managers in marketing management, p. 619 staffing, p. 623
effective marketing.
planning, p. 621 leading, p. 623
• Define the five functions of long-range planning, p. 621 controlling, p. 623
management.
short-term (operational)
planning, p. 621
The people in a business complete thousands of activities intended to achieve certain

goals. If the goals are going to be reached, those activities and the people who per-
form them have to be coordinated. Each business activity must occur at the proper
time and place, using procedures that accomplish the tasks in the correct way. All of the
resources needed to complete the tasks must be available as well. Making sure that busi-
ness activities are well planned and occur as planned is ultimately the responsibility of
management.
All parts of a business including marketing require management to be successful.
Market managers plan and implement an efficient marketing strategy and coordinate
the people, activities, and resources needed to accomplish the company’s marketing
goals. Business management entails five basic functions—planning, organizing, staffing,
leading, and controlling. These five functions apply to all organizations, large and small,
and to every manager from the chief executive officer to the newest supervisor.
Make a list of ten activities that must be coordinated in order for this marketing class to
be effective and successful. Compare the items on your list with those of other classmates.
Coordinating People and Resources

he work of an organization con-
T sists of thousands and thousands of

activities. Those activities often seem
unrelated to each other. Many employ-
Key to Success
What makes a company successful? A
quality product? Satisfied customers? Well-
trained and motivated employees? Efficient
ees in a business and most customers are operations? Profit? Each of these is im-
unaware of the variety of activities that go portant, but successful organizations have
on every day in many different locations. another key factor—effective management.
However, all of that work is necessary for Effective managers are able to organize
products and services to be produced and the resources and work of a company in
distributed and for customer orders to ways that result in success. Companies
be received and processed. Each activity with effective managers usually have good
needs to be completed on time and accu- products, employees, and operations re-
S rately. Each activity must be coordinated sulting in satisfied customers.
N with other related activities.
618
618 CHAPTER 22 • Take Control with Management
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Management is one of the most impor- delivered. If prod-
tant functions of a business. Very simply, uct development
managing is getting the work of an or- costs much more
ganization done through its people and than budgeted,
resources. pricing decisions
Are managers important to a business? will need to be
Consider the following scenarios. If the changed.
resources available are not the ones needed Marketing
for a task, that task cannot be performed. management
If employees are dissatisfied with their jobs is the process
or are not well trained, motivation will be of coordinating
low and work quality will decline. If cus- resources to plan

tomer service is not performed well, cus- and implement an
tomers will not get what they expect and efficient market-
are likely to complain. If someone in order ing strategy.
processing is not careful in calculating The work of
prices on an invoice, someone in account- more than one
ing will face the problem of explaining an company usually
overcharge or the need for an additional needs to be coordi- Why is marketing information
payment to a customer. nated as products important to marketing managers?
Each of these problems will require move through a
management attention and will need to channel of distribution. The channel may
be resolved. If they can be anticipated and include a manufacturer, transportation
prevented, the business will have a much company, finance company, wholesaler, re-
better chance of success. tailer, advertising agency, and others. You
can see how the work of marketing manag-
Marketing Management ers can be very complex.
You are aware of the many resources and Now that you understand what a mar-
people involved in planning and imple- keting strategy is, you are able to describe
menting a marketing strategy. Customer the work of marketing managers. Mar-
and market information needs to be gath- keting managers are responsible for the
ered and studied. Products and services success of the company’s marketing efforts.
need to be planned, priced, distributed, Those marketing efforts are all of the activ-
and promoted. Each of the marketing ities involved in planning and implement-
mix elements must be coordinated with ing a marketing strategy. They manage the
the others. If a product is not distributed people and resources needed to identify
in the time or the way that is expected by markets and plan marketing mixes.
salespeople or advertisers, customers may You also know how to determine if
be promised a product that cannot be marketing managers are doing a good job.
According to the marketing concept,
effective marketing results in satisfy-
Wo r k i n g i n Te a m s ing exchanges. Marketing managers
are successful when customers in the
As a team, create a diagram of the marketing target markets are satisfied and the
mix with each mix element identified. Draw a company is profitable.
line from one element to another and discuss
how a problem in one element can have a nega- Checkpoint
tive effect on the other elements. Connect each
element with another until all of the relation- What is the role of marketing managers in
ships have been discussed. making sure that a company’s marketing S
efforts are successful? N
619
22-1 • The Functions of Management 619
CH 22-B4491_RP_REV3.indd 619 12/5/07 8:54:20 PM

Planning a Career in... Business Coaching
Joshua Mannes was nearing his 67th birthday,

which put him at the mandatory retirement age
for his company. Even though he was the CEO, he
would have to step down, yet he did not feel ready
to retire. In 45 years of work, he had moved from
an entry-level sales position Needed Skills
through four levels of manage- • A broad knowledge of business derived from a
ment, spending the past variety of successful business leadership
12 years as the top executive. positions
Mr. Mannes wanted to pass his • Expertise in problem solving, performance
expertise on to others, and he evaluation, and planning
decided that the best way to • Ability to build rapport, listen, provide positive
do that was to become a busi- feedback and encouragement, and motivate
ness coach. improved performance.
A business coach is an
expert in many aspects of
What’s it like to work in…
business who provides indi-
vidualized information, advice, Business Coaching
support, evaluation, and feedback to people who Joshua Mannes is now in the third month of his
are trying to improve their job performance and new business and loves his work as a business
career success. Business coaches are different from coach. Today he has meetings with three clients.
mentors in that they work on specific tasks for de- The first is a CEO who is having difficulty com-
fined periods of time and are paid for their efforts. municating with her board of directors. Joshua
Business coaches may be hired by a company to is working with her on ways to keep the board
provide support for one or more of its employees members updated with short written reports and
or by individuals looking for professional sup- follow-up telephone calls. The second client is a
port. Business coaches work with top executives, sales manager who has accepted his first interna-
beginning managers, employees in key positions tional assignment. Joshua is drawing on his eight
in a company, or individuals who want to move up years as a sales manager in South America to
professionally. provide advice on working with different cultures.
At the end of the day, he will meet for the first
Employment Outlook time with a young entrepreneur who wants to be
• The career field is relatively new so current sure he has the management skills needed to ef-
employment opportunities are limited but with fectively lead his rapidly growing business. Joshua
expected future growth. is especially interested in working with this new
• Success is dependent on each business coach’s client because he wants to see the young person
ability and results. realize his dream.
Job Titles
• Business Coach W h a t A b o u t Yo u
• Career Coach
• Life Coach As you increase your knowledge and experience
in business, would you like to pass what you know
• Executive Coach on to others to help them flourish in their careers?
S
N
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Management Functions and Activities
he definition of managing
T presented earlier in the lesson

is a general view of the role of
managers. It is hard to determine
specifically what managers do from
that definition. A better under-
standing of the work of managers
comes from examining the five
functions of management—plan-
ning, organizing, controlling, staff-
ing, and leading.
Planning
Planning involves analyzing infor-
mation, setting goals, and deter-
mining how to achieve them. The Why is planning an important function of management?
president of a company is respon-
sible for determining the direction Long-range planning is difficult be-
of the business and making sure that plans cause it relies on information from a vari-
are in place to move forward. Supervisors ety of sources. The information available to
determine what their work groups need to managers cannot accurately predict the fu-
accomplish each day and assign duties to ture. Managers need to use the information
each person they supervise. Even though to help them anticipate what might occur
the two managers work at very different over the time that the plan will be in place.
levels in the organization with quite differ- They rely on their experience, a variety of
ent responsibilities, both have planning as data, and the help of planning experts and
a part of their jobs. There are two types of tools to make decisions. Using manage-
planning that managers complete—long- ment skills, they will make decisions that
range planning and short-term planning. will guide the business in the future.
Short-Term Planning
Long-Range Planning In Short-term planning (often known as
long-range planning, information is operational planning) identifies specific
analyzed that can affect the business objectives and activities for each part of
over a long period of time. Long-range the business for a time period of a year or
plans are typically developed to cover a less. Often managers prepare a plan for
year or more and may include long-term a three-month period and then review
goals and direction for five to ten years. or extend the plan on a month-to-month
Long-range planning includes setting basis. In that way, they are always looking
broad goals and direction. Examples of three months in advance.
long-range planning in a business are Short-term planning is based on the
the strategic plan and business plan. In long-range plan, so that all of the areas of
marketing, the marketing plan is often the business are working to achieve the
considered a long-range plan because it same goals. The objectives and activities of
sets direction and goals for all market- each part of the organization that are de-
ing functions and personnel. However, it scribed in short-term plans must be coor-
must be coordinated with the company’s dinated with each other to avoid conflicts S
overall strategic plan and business plan. and inefficiency. N
621
CH 22-B4491_RP_REV3.indd 621 12/5/07 8:54:57 PM

Digital Digest
Spam: It Isn’t Just a In general, spamming is viewed as an-
Meat Product noying and unethical. It is often a vehicle
through which fraud, identity theft, and
Anyone with an e-mail address is probably
numerous other scams are perpetrated. In
familiar with spam. Spamming is the use of
addition, people collectively waste thou-
any electronic messaging system to deliver
sands of hours a year deleting spam mes-
unsolicited bulk messages. The most recog-
sages from their work and personal e-mail
nized type of spam is e-mail, but it can also
inboxes. For these reasons, respectable
take the form of instant messages, news-
companies avoid spamming, and the U.S.
group posts, blog posts, or faxes.
government regularly debates ways to curb
Spamming is basically electronic junk
spamming without infringing on the right to
mail. But unlike junk mail, technology allows
free speech.
spammers to operate at very little cost. The
collection of e-mail addresses, the mailing Think Critically
of messages, and even response mecha-
1. Should spam be treated differently than
nisms for anyone who replies to the spam
traditional “junk mail”? Why or why not?
can all be automated. Spam has a very low
response rate, but with such a low operating 2. How would your perception of a com-
cost, spamming can still be profitable. pany change if it began sending you
spam messages?
Marketing planning in a large or- Marketing information managers

ganization provides a good example of determine the information needed to
long-range and short-term planning. The make good decisions about each part of
marketing plan serves as the long-range the marketing mix. They make sure the
plan for the company’s marketing efforts. needed information is available to all other
It identifies the target markets that the managers when needed for their planning.
business plans to serve and describes the The distribution managers determine what
marketing mix that must be developed to products need to be moved to specific loca-
meet the needs of each market. It also sets tions at what times and in what quanti-
goals that the company will use to evaluate ties. They determine how products will be
whether the plan is successful. packaged, stored, and transported at the
The managers of each specific area of lowest cost with the least damage.
marketing, such as marketing information, Sales managers provide training and
distribution, sales, and customer service, product information to salespeople. They
use the information from the marketing help identify detailed information about
plan to guide short-term planning. They customers and prepare the salespeople to
must determine the objectives and activi- use the information. They make sure cus-
ties for each of their areas. They will need tomers understand the entire marketing
to communicate with each other and share mix and how it meets customer needs.
information about their plans and activi- Customer service managers ensure that
ties. In this way, each of the specific short- personnel and resources are available to
term plans will coordinate with each other respond to customer needs after a product
to meet the long-range goals outlined in purchase. They may develop delivery, in-
S the company’s marketing plan. stallation, and repair services. They make
N sure that problems are solved and that
622
CH 22-B4491_RP_REV3.indd 622 12/5/07 8:55:24 PM

customers are satisfied with
their purchases.
Organizing
Organizing resources is im-
portant so that work can be
accomplished effectively and
efficiently. Organizing as a
management function means
arranging people, activities,
and resources in the best way

to accomplish the goals of an
organization. Many businesses
develop organizational charts
to illustrate how the company
is divided into divisions or
departments and to show the
relationships among those
work units. Why is staffing one of the most difficult management functions?
There are many ways to
divide the work in a business. Managers also responsible for evaluating the perfor-
organize by assigning responsibility and mance of each employee. They can reward
authority to others to get work done. They those who are doing well, but they may
identify the types of resources that will need to dismiss employees who cannot
be needed by employees including build- meet the requirements of their jobs.
ings, equipment, and supplies. Managers
develop effective working relationships Leading
within the work group and with other Is there a difference between being a
work groups to make sure the organization manager and being a leader? Who do you
works effectively. identify as leaders—in your class, school,
community, or country? What are the
Staffing characteristics of an effective leader? Today
The activities needed to match individu- in business, leadership is identified as one
als with the work to be done are known as of the most important qualities of effec-
staffing. Managers prepare job descriptive management. Leading is the ability to
tions, recruit and select employees, deter- communicate the direction of the busi-
mine how personnel will be compensated, ness and to influence others to success-
and provide the necessary training so that fully carry out the needed work. Effective
employees can complete their work well. leadership includes having commitment
Staffing is often considered the most and motivation, using effective communi-
difficult of the management functions. cation, establishing good working rela-
There are a number of activities involved tionships, and recognizing and rewarding
in staffing, and the manager must be able effective performance.
to work well with a variety of people. It
may be difficult to find people with the Controlling
skills that match the jobs in a company. Ef- When controlling, managers measure
fective training requires time and money. performance, compare it with goals and
Some companies are not willing to invest objectives, and make adjustments when
in good training programs, making the necessary. If a company establishes a goal S
manager’s job more difficult. Managers are that 95 percent of all customer orders will N
623
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the goal is met. When the manager sees
that fewer than 95 percent of the orders
are being delivered on time, quick action
must be taken. The manager must deter-
mine why orders are late and take steps to
improve performance.
Specific controlling activities include
setting standards, collecting and analyz-
ing information, considering methods of

improving performance, changing plans
when necessary, solving problems, and
resolving conflicts. Several common tools
are used by managers to control opera-
tions, including plans, budgets, financial
reports, and management information
What activities are involved in the controlling systems.
function of management?
be delivered within 24 hours, the manager Checkpoint

must regularly review information on
order processing and delivery to be certain What are the five functions of management?

Determine the best answer. 5. Technology Make a list of the five functions
1. Which of the following is an important factor of management. Using the Internet or other re-
in the success of a company? sources, identify one technology product that
a. well trained and motivated employees could be used by a manager when completing
b. efficient operations each of the functions. Write a two-sentence
c. effective management description of the technology and how it sup-
d. all of the above ports the specific management function.
2. Managing is getting the work of an orga- 6. Math A marketing vice-president estimates
nization done through its and her time at work in an average week is divided
. among the management functions in this way:
planning, 16 hours; organizing, 8 hours; staff-
3. Which of the following is not one of the func-
ing, 4 hours; leading, 20 hours; and controlling,
tions of management?
18 hours. Prepare a pie chart to illustrate the
a. planning
hours and percentage of time devoted to each
b. organizing
function.
c. marketing
d. controlling Connect to
4. True or False: Short-term planning identifies 7. Develop a three-minute presentation on why
specific objectives and activities for a specific each of the management functions contributes
part of the business for a time period of a year to an effective marketing strategy in a busi-
or less. ness. Prepare visual aids to support your ideas.
S Give your presentation to your teacher (judge).
N
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Managing Effectively with 22-2
a Marketing Plan
GOALS KEY TERMS
• Describe how a marketing plan serves as a guide for performance standard, p. 628
effective marketing management. marketing effectiveness, p. 629
• Explain how marketing managers determine effective- self-directed work team, p. 632
ness by gauging customer and business satisfaction.
Marketing plans, which are detailed, written documents, help marketing managers
perform each of the management functions effectively. Marketing managers are
engaged in planning when they develop the marketing plan. Details in the marketing
plan provide direction and support for each of the other management functions—
organizing, staffing, leading, and controlling. So the act of developing a marketing
plan establishes direction for marketing management.
A marketing plan also provides a means for evaluating the effectiveness of the
company’s marketing efforts. Overall marketing effectiveness is determined by how
well customers and the organization itself are satisfied. Customer satisfaction is based
on how well important needs are met. Organizational satisfaction is gauged by meet-
ing its goals.
Work with a group and identify two goals. The first should deal with how to
increase the overall academic performance of students in your school. The second
should relate to improving the school environment. Identify the activities, people, and
resources needed to accomplish each goal. Describe how you will determine how well
the goals are met.
Improve Management with

a Marketing Plan
tudies have been done that compare the company for the length of time that the
S successful companies with unsuc-

cessful companies. One of the most
important differences typically seen is
plan is in effect. The first part of the plan,
Market Analysis, describes and reviews
internal and external information that
that successful companies develop and affects marketing. By studying this part of
follow written marketing plans while the plan, managers learn about the compe-
unsuccessful ones do not. Figure 22-1 on tition, the economy, and other important
the next page shows the outline of a typical factors that can affect the success of their
marketing plan. plans. They are made aware of strengths
and weaknesses of the business so that
Information for Planning weaknesses can be improved and strengths
It is easy to see how the marketing plan is can be emphasized. S
related to the planning function. It is a long- The second section of the marketing N
range plan that sets goals and direction for plan is the Marketing Strategy. In this 625
22-2 • Managing Effectively with a Marketing Plan 625
CH 22-B4491_RP_REV3.indd 625 12/5/07 8:56:35 PM

section, target markets are iden- FIGURE 22-1
tified and the marketing mix is Each section of a marketing plan is important to a
described. Most important, the marketing manager in completing the five functions of
goals and outcomes that will be management.
used to measure the success of
the marketing plan are described. Marketing Plan Outline
Every manager who has marketing I. Market Analysis
responsibilities needs to be very A. Purpose and Mission of the Business
familiar with this section of the B. Description of Current Markets and Strategies
plan. Every planning activity in C. Primary Competitors and Their Strengths/
the company is directed at imple- Weaknesses
menting that strategy and achiev- D. External Environment Analysis
1. Economy
ing those goals and objectives.
2. Laws and Regulations
The managers responsible for each 3. Costs
marketing function must deter- 4. Competition
mine how their function supports 5. Technology
the overall marketing strategy. The 6. Social Factors
goals and objectives they develop E. Internal Analysis
for their part of the business must 1. Strengths
contribute to the goals identified in 2. Weaknesses
the marketing plan. 3. Anticipated Changes
In the final section, the Action II. Marketing Strategy
Plan, specific activities and respon- A. Marketing Goals/Expected Outcomes
sibilities are identified to guide B. Target Market Description
1. Identifying Characteristics
short-term operations. All of the
2. Unique Needs, Attitudes, Behaviors
managers of marketing activities C. Marketing Mix Description
contribute to the development of 1. Product/Service
this section. It identifies the work 2. Distribution
needed in their part of the business 3. Pricing
and guides them in planning day- 4. Promotion
to-day activities, including creating D. Positioning Statement
schedules and budgets. III. Action Plan
A. Activity Schedule
1. Responsibilities
Direction for Organizing 2. Schedule
Much of the organizing work in a 3. Budget
company is done before a market- B. Evaluation Procedures
ing plan is developed. A company 1. Evidence of Success
2. Method of Collecting Evidence
decides which marketing functions
and activities it will perform and
which will be provided by other structure unless it sees ways to improve per-
companies. It develops a structure that formance or save money with the change.
organizes marketing personnel and ac-
tivities into departments. It identifies the Support for Staffing Decisions
responsibilities of managers for the various Effective marketing requires people with
departments and activities. Those deci- the skills necessary to perform the required
sions usually will not change a great deal marketing activities. Again, the marketing
even though many marketing plans will plan provides a useful tool for managers to
be written. If a company is successful with determine staffing needs. The Action Plan
S its target markets and makes only minor is important because it describes activities
N adjustments in the marketing mixes, it will and responsibilities that need to be accom-
626 not want to change its basic organizational plished by marketing personnel.
CH 22-B4491_RP_REV3.indd 626 12/5/07 8:58:01 PM

Managers match those activi-
ties with the current marketing
employees. If the employees do not
have the necessary skills to perform
the activities, managers will need
to develop training programs. If
there are not adequate numbers of
employees to perform the necessary
work, new employees must be hired,
or other businesses can be brought

into the marketing channel to per-
form those activities. In some in-
stances, current employees may not be
needed for the activities required in
a new marketing plan. Managers will
have to make difficult decisions about
the future for those employees and Why should managers involve employees in marketing planning?
may need to help them find other jobs
in the company or elsewhere. plan with employees when it is completed.
Using the marketing plan to evalu- In that way, the employees see why the plan
ate staffing needs is an important way for is important. They understand how it can
managers to determine where problems lead to success for the business and the
are likely to occur. You are probably people who work for the business.
familiar with businesses that had prob- The marketing manager also deter-
lems because they did not have adequate mines the working relationships that are
numbers of employees or the employees necessary to implement the plan. Those
did not have the needed skills or were not relationships may be among people in the
motivated to serve customers well. Manag- same department, in different departments
ers who pay careful attention to staffing in the company, and even with people in
needs, training, and employee motivation other businesses. A good leader develops
often have a decided advantage over their effective working relationships and finds
competitors. ways to recognize and reward the people
who do their work well. When activities
Managers as Leaders are completed that are an important part
of the marketing plan, the people who are
Many marketing efforts fail because the responsible need to know that they are do-
people responsible for the activities do ing the right things and that their manager
not perform them well. Poor performance and coworkers appreciate the good work.
does not always occur because people do
not have the skills to do the work. It may
be due to a lack of leadership. Even though Fa s t FAC T S
a manager has developed an effective plan
and has the people and resources needed Hewlett-Packard requires every business
to carry out the plan, another ingredient is that is a part of its business-to-business
necessary—leadership. sales channel to participate in customer
Employees need to be a part of the satisfaction surveys. HP uses customer
business for it to be successful. They want satisfaction as a competitive weapon
to be involved and understand why the in the marketplace and expects high
work they do is important. A marketing customer satisfaction numbers from its
manager who is a leader involves employees business partners. S
in developing the plan and discusses the N
627
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Gaining Control of
Marketing
An old proverb says, “If you don’t know
where you’re going, you will never know
when you get there.” A marketing plan
states clearly whom the business wants to
serve, what marketing activities are re-
quired, and the goals the business expects
to achieve. Each of those decisions is used

to measure the effectiveness of marketing.
Evaluating effectiveness is a part of the
controlling function of management.
Evaluating Effectiveness Market-
ing managers study how well they are
reaching and serving each target market.
They determine the market potential, the How can managers learn about changes in the
company’s market share, and the share external environment that may affect their
held by each competitor. Most businesses marketing plans?
evaluate customer satisfaction with prod- that environment could affect the success
ucts and services as well as with other of the marketing plan. Managers read
parts of the marketing mix. They want research reports, magazines, and news-
to see high satisfaction levels. A business papers. They attend conferences, talk to
becomes concerned if satisfaction begins colleagues, and review other information
to decline or if customers rate competi- so that they will be up to date and pre-
tors higher. pared to respond to changes.
The marketing mix is developed as a The types of environmental factors
part of the overall marketing strategy in that often change are the economy, tech-
the marketing plan, and then the activities nology, competition, and laws and regula-
and resources needed to implement each tions. For example, during 2000 and early
mix element are identified. Schedules, bud- 2001, many economic signs indicated that
gets, and other planning tools are prepared businesses were changing their spending
to guide implementation. Finally perfor- patterns, particularly for technology and
mance standards are developed for mar- related products and services. Manufactur-
keting activities. A performance standard ers immediately began to adjust their own
specifies the minimum level of expected inventory levels and production capacities
performance for an activity. Marketing so that they would not be caught carry-
managers evaluate each one to see if the ing too much inventory or have to write
performance standards are being met. down the value of outdated products. In
Whenever managers receive information 2005 and 2006, mixed economic signals
that shows activities are not being per- were seen in the worldwide economy. Since
formed as expected, they must take imme- consumer spending remained strong, most
diate action to correct problems. businesses continued with their plans but
Environmental Change There is kept an eye on both U.S. and worldwide
another valuable way that the marketing economic forecasts.
plan helps managers with the control-
ling process. The first part of the market- Checkpoint
ing plan carefully describes the internal
S and external environment on which the Why is a marketing plan a key to effective
N plan is based. A change in any part of marketing management?
628
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World View
Ethical Decisions = Profits prospective customers who share its ethi-
Some business people argue that ethics and cal and social values, leading to consistent
profits are not always compatible. But in growth in profits and clientele.
2001, the Co-operative Bank of Manchester, In recent years, other businesses in vari-
England, enacted an ethics policy stating ous industries, from clothing labels and auto
that the bank would not work with com- manufacturers to diamond companies, have
panies with poor human rights and environ- adapted ethics policies reflecting their stance
mental records. on workers’ rights, fair trade, and the environ-
Some people predicted that the bank ment. Many of these ethics policies attract
would fail due to this new ethics policy. In new, like-minded customers.
fact, it did turn down over $12 million in Think Critically
business early on. However, the company
1. Why would people believe that acting
has seen a significant increase in investors
ethically might reduce profits?
attracted by the ethical stance. Thirty percent
of its 2003 profits could be directly attributed 2. Why would a business want to select a
to those customers, an increase of 6 percent bank with the ethical and social policies
in just one year. The bank carefully targets described?
Determining Marketing Effectiveness

anagers are responsible for get- marketing is effective, marketing managers
M ting the work of the business done

through other people and resources.
If the work is not done well, the managers
need to be able to determine when the cus-
tomers and business are satisfied.
have not been successful. An important

management responsibility is determining
the effectiveness of marketing.
How can managers decide if market-
ing is effective? Is it based on the highest
sales, largest market share, or most profit?
Is the company with the best products or
the products that have been on the market
longest the most effective?
Managers may not always agree on

what effective marketing is. The definition
of marketing presented at the beginning of
the book states that effective marketing re-
sults in satisfying exchanges. Accordingly,
marketing effectiveness means that both
customers and the business are satisfied. If you were the marketing manager of a company, how would S
Based on that definition, to determine if you know whether or not marketing is effective? N
629
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Measuring Customer Many retailers and other businesses
Satisfaction have customer service centers in each store
to make it easy for customers to return
Customers are satisfied when they select products, make exchanges, or get help with
a company’s product or service to meet a problems. Internet businesses also try to
need, use it, and choose it again when they make customer service easy by providing
have the same need. Therefore, an increas- options for customers to contact the busi-
ing level of sales is usually a good indica- ness through telephone, e-mail, or instant
tion of customer satisfaction. However, messaging. Easy procedures to make prod-
companies should be careful to gather uct returns or to obtain service and repairs
information on repeat purchases and use. are also important to companies that sell
They should be able to identify the level products via the Internet, telephone, or
of sales for specific target markets and, if catalog.
sales are growing, how much is from new It is important to keep records of cus-
customers and how much is from repeat tomer questions, problems, and complaints
purchases by satisfied customers. as well as positive responses. Customer
Many companies spend a great deal of service employees should complete a re-
time and money studying customer satis- port of each contact, the reason for service,
faction. They telephone customers or ask and the results so that common problems
them to complete surveys. They may ask can be identified and eliminated. Any cus-
customers who have just made a purchase tomer contact, its purpose, and the actions
to provide feedback on their shopping taken should be documented.
experience and satisfaction.
Figure This
Rule of 72 Makes Quick Work of to grow if a business wants it to double in a
Projections given number of years. In that case the for-
mula is: Rate = 72 ÷ Years.
Calculating market share is not always as
The Rule of 72 works well for rates of
simple as it looks, even when companies
growth up to about 20 percent per year. For
have information about the current size and
rates ranging from 20 percent to 36 percent,
spending habits of a market segment they
substitute 78 for the 72 in the formulas.
want to target. That is because market seg-
ments are always shifting, and businesses Think Critically
want to target those that are growing or that
1. If Samco Inc. wants to double its Midwest
can be expected to grow if the right strate-
sales in five years to justify a new ware-
gies are applied. What is really important is
house, how fast must sales grow each
not how big the segment is today, but how
year?
big it will be in the future. In other words, by
how much and how quickly can it grow? 2. If Samco wants to double its Midwest
The Rule of 72 is a simple tool that can be sales in three years, what rate of growth is
used to quickly estimate how fast a market required?
share can be doubled, assuming a constant 3. If Samco’s marketing manager estimates
rate of annual growth. Here is the formula: that segment sales will grow 12 percent
Years = 72 ÷ Rate where Rate is the annual annually indefinitely, how long will it take
rate of growth and Years is the number of to double sales? How long will it take to
S years needed to double a beginning value. quadruple sales?
N It can also tell you how fast a market needs
630
CH 22-B4491_RP_REV3.indd 630 12/5/07 9:00:51 PM

Companies should not ignore the sat-
isfaction of other businesses in the channel
of distribution. Retailers and wholesalers
are customers of manufacturers. If they
are not satisfied with the manufacturer’s Employee satisfaction is a key concern of man-
products and services or their working re- agers. Many factors contribute to employee satis-
lationships, they may decide to work with a faction, and everyone has his or her own unique
competitor. Retailers and wholesalers need set of requirements for the “dream job.” Satisfied
to inform manufacturers of any problems employees are more productive and are less likely
customers have with their products so that to leave the company. Access school.cengage.
the problems can be resolved. Many busi- com/marketing/marketing and click on the link for
nesses now involve other channel members Chapter 22. Since 1986, Working Mother magazine
in planning customer service and evalua- has published a list of the “100 Best Companies
tion procedures. They regularly check with for Working Mothers.” What factors does Working
those businesses to make sure they are Mother consider to determine its list of the
receiving the support needed to be effec- 100 best companies? Are these the criteria you
tive and to provide customer feedback that would use to establish a list of companies for
relates to the cooperating business. which to work? Why or why not?
Measuring Business school.cengage.com/marketing/marketing

Satisfaction
Every business operates for a purpose. For
many businesses, the purpose is to make a Most goals of businesses and organiza-
profit. For some businesses, however, profit tions are quite specific and can be mea-
is not the most important purpose. Some sured. Businesses gather information on
people start and operate a business because sales, costs, market share, and profits to
they enjoy the work. Some organizations determine their success. Nonprofit orga-
are developed because of the contribution nizations gather information on increases
they make to the community. The success in attendance, use of services, changes in
of schools, churches, city missions, public behavior, or differences in attitudes and
health centers, and other similar organiza- beliefs.
tions is usually not measured by the level
of profit. These organizations determine Financial Analysis When people
their success by looking for improvements think of marketing, they often fail to
in the community or society that result recognize the importance of budgets and
from their work. financial performance. Marketing man-
agers must understand and use financial
Analyzing Goals The success of a information to determine the success of
business is determined by its goals. If the marketing activities. Sales of products in
goal of a business is to increase sales or various markets can be compared from
market share, it will not be successful if one year to the next. Costs associated
sales or market share decline. If a busi- with specific activities can be analyzed.
ness sets a goal to achieve a profit of 4 Profits from one target market can be
percent of all sales or an 11 percent return compared with those from another. The
on the owners’ investment, it will be suc- profitability of a specific marketing strat-
cessful when it achieves that goal. Even if egy can be analyzed.
the goal of an organization is to change
the attitudes or behaviors of people Employee Satisfaction Managers
(stop smoking, stay in school), it will be also need to be concerned about the sat-
successful only if people in its target mar- isfaction of the people who work for the S
ket change those attitudes or behaviors. business. There is a great deal of evidence N
631
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that employees who enjoy their work are setting goals. They may determine the
more productive. ways that work should be completed or
Marketing managers need to deter- how to solve customer problems. They
mine the level of employee satisfaction. may even be responsible for hiring other
Some companies ask their employees to members of the team and determining
complete surveys. Others hold regular how bonus money is distributed. Involving
meetings where employees can discuss employees in decisions usually increases
problems and make suggestions. their satisfaction. A company that uses
Today, many companies form self- self-directed work teams will want to
directed work teams. A group of employees evaluate the effectiveness of that strategy
who work together toward a common pur- and prepare the team members to be able
pose or goal without the usual managerial to evaluate the results of their work.
supervision is a self-directed work team.
While the work team is not a part of man- Checkpoint
agement, it is given many of the manage-
ment responsibilities for planning, orga- When marketing managers use the mar-
nizing, and evaluating its work. The teams keting concept, what gauge do they use in
have a great deal of responsibility for determining marketing effectiveness?

Determine the best answer. 6. Management Identify three activities you
1. companies develop and follow writ- complete on a regular basis at home, school,
ten marketing plans while ones don’t. and in your after-school activities or hobbies.
For each activity, prepare a specific perfor-
2. The first major section of a marketing plan
mance standard that specifies the minimum
is the
level of expected performance for the activity
a. market analysis
in order for it to be completed successfully. For
b. marketing strategy
example, “A student can have no more than
c. management plan
two unexcused absences in a semester.”
d. action plan
7. Research Use the library and Internet to
3. True or False: Marketing effectiveness means
locate information on factors that contribute
that either customers or the business must be
to employee satisfaction. Prepare a two-page
satisfied.
report of your findings. Make sure to reference
4. Which of the following would be the best the information sources you used to prepare
specific measure of customer satisfaction? your report.
a. increasing sales
b. increasing percentage of repeat customers Connect to
c. increasing profits 8. Your team has been asked to develop a survey
d. increasing number of new products for sale that can be given to customers of a local movie
5. A group of employees who work together theater to determine their level of satisfaction
toward a common purpose or goal without with important aspects of the entertainment
the usual managerial supervision is a(n) experience. Prepare an easy-to-complete
a. unsupervised group survey of no more than ten items. Present the
b. experienced employee team survey to your teacher (judge) and discuss
S c. self-directed work team the importance of each item as a measure of
N d. executive committee customer satisfaction.
632
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The Work of Marketing Managers 22-3
GOALS KEY TERMS

• Describe the kinds of activities marketing managers perform policies, p. 634
in carrying out the planning and organizing functions. procedures, p. 634
• Detail the way in which marketing managers staff, lead, and
control their organizations effectively.
The activities managers perform while carrying out the five management functions
vary. The activities will depend largely on the specific position and the type of orga-
nization. Senior executives tend to do long-range planning and develop strategies.
Lower-level managers often spend time implementing the decisions made by senior
executives. Marketing managers, of course, work on marketing activities while man-
agers in other parts of the business concentrate on the business functions for which
they are responsible.
Choose a retail business and a manufacturing business. For the businesses
chosen, identify several activities the top executive of the business would spend
most of his or her time doing. Now identify several activities a supervisor of market-
ing employees would spend most of his or her time doing. Which of the five man-
agement functions do the activities of each manager represent? Discuss with other
students how management is similar or different for the two positions.
Planning and Organizing

yang Chen is the executive vice presi- company must change over the next five
O dent of marketing for an international

automobile manufacturer. James
Swathmore is a field sales manager for a
to ten years. Ms. Chen studies consumer
purchasing and economic trends through-
out the world. She is very concerned about
food products wholesaler. He supervises international trade agreements, increases
five salespeople in a large northeastern and decreases of quotas, and changes in
U.S. state. The partial organization charts tariffs among several countries that have a
in Figure 22-2 on the next page illustrate major impact on the international automo-
the differences between Chen’s and Swath- bile industry. Energy sources and prices,
more’s positions. inflation, and the values of world curren-
cies are also concerns for Ms. Chen.
Planning The major responsibility of Ms. Chen’s
Ms. Chen spends most of her time office is to prepare the company’s market-
planning with four other top executives ing plan. The plan is developed for a five-
and the CEO to set direction for the com- year period, with specific plans for each of
pany. She is involved in long-range stra- the five years. Each year the plan is revised
and extended for another year so that the S
tegic planning, which identifies how the
N
633
22-3 • The Work of Marketing Managers 633
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company is always planning five The Work of Two Marketing Managers
years in advance. The marketing International Automobile Food Products
plan is used by seven regional Manufacturer Wholesaler
managers to prepare more specific
plans for their regions of the global Chief Executive Officer Chief Executive Officer
market.
Mr. Swathmore is also involved Executive Vice-President
in planning, but he concentrates of Marketing—Oyang Chen
Vice-President of Marketing
on short-term plans. He develops

quarterly plans, but he implements
monthly and weekly plans. While Seven Regional Managers National Sales Manager
Mr. Swathmore must be familiar
with the entire company’s market-
ing plan, he is most concerned with Manager of Institutional Sales
the promotional mix element and
the selling responsibilities. How- Field Sales Manager—
ever, he must be very familiar with James Swathmore
the product mix element, distribu-
tion, and pricing strategies because FIGURE 22-2
each of those has a major impact Oyang Chen and James Swathmore hold very different
on the work of his salespeople. positions within their companies. Both must be effec-
Mr. Swathmore spends most tive at planning, organizing, staffing, leading, and
controlling.
of his planning time identifying
customers, assigning them to sales- manufacturer is organized into seven
people, developing schedules and budgets worldwide regions. The food wholesaler
for each person, and helping salespeople to is organized by customer type and geo-
develop specific sales strategies for major graphically by state. Several common ways
customers. that companies organize their marketing
operations are shown in Figure 22-3.
Organizing Ms. Chen’s organizing activities focus
Mr. Swathmore and Ms. Chen have very on developing marketing policies and pro-
different organizing responsibilities. cedures for the entire company. Policies are
The overall marketing structure of each rules or guidelines to be used in a company
company is already set. The automobile to make consistent decisions. Procedures
Organizing Marketing Operations

Functional Product
MkIS Sales Promotion Raw Materials Components Finished Goods
Market Customer Sales
Nonprofit Government Business $1,000,000 Under New

and over $1,000,000 Business
Geographic Location
Pacific Rim Middle East South America

FIGURE 22-3
S Marketing activities can be organized in several different ways depending on the type of business
N and its markets.
634
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are the steps to be followed for consistent and assigning those duties to the sales-
performance of important activities. Those people. He delegates authority and respon-
policies and procedures will help determine sibility to each salesperson to complete the
the organizational structure for marketing, necessary selling tasks.
the functions that are performed, and the
types of companies that will participate in Checkpoint
marketing the automobiles.
Mr. Swathmore must work within the What are the key distinctions between the
policies and procedures established by his types of planning and organizing activities
manager. He is responsible for determin- engaged in by a top-level and lower-level
ing the activities that need to be performed marketing executive in a business?
Managing the Work of Marketers

oth of the managers are responsible executive in the company. Yet Mr. Swath-
B for getting the work of the organi-

zation done through other people.
Therefore, they need to identify the need
more must be an effective leader if the sell-
ing team is to be successful in its territory.
All managers must be able to involve people
for personnel and fill those positions with in planning, communicate expectations,
the most qualified people. and build effective teams to accomplish
the work. They need to be able to recognize
Staffing performance that contributes to the goals
Ms. Chen will hire a few people to be her of their company and provide rewards that
assistants. Her main responsibilities for encourage people to continue to perform
staffing are to work with the company’s well.
human resources personnel to develop
employment policies and procedures. She Controlling
makes decisions about the percentage of the
Controlling is another area of marketing
marketing budget that will be allocated to
where both managers have similar respon-
employee salaries, benefits, and expenses.
sibilities. Each prepares objectives and spe-
Mr. Swathmore is directly responsible
cific plans to guide their work. They have
for the salespeople who work in the ter-
developed standards for performance of
ritory he manages. He may not have total
the various marketing activities for which
responsibility for hiring each person, but
they are responsible. The major controlling
he identifies when an opening exists and
activity is to gather and review information
describes the requirements for any open po-
to determine if the objectives, plans, and
sition. He helps with recruiting, interview-
ing, and selecting the person to fill
the position. Most sales managers are
very active in training new salespeo- Wo r k i n g i n Te a m s
ple and helping to improve the selling
skills of experienced employees. A student club will operate a school concession
stand at the varsity athletic events this fall, and
Leading your team will manage the project. List each of
Leading is an important responsibil- the five management functions on a separate
ity for each of the managers. Some sheet of paper. For each function, make a list of
people would expect that Ms. Chen the activities your team will need to complete
has more leadership responsibilities to successfully operate the concession stand. S
because she is the top marketing N
635
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Judgment Call
Technology Raises Privacy business uses aside from the monitoring of
Issues employee activities.
The ethics of using those resources to
The development and spread of digital in-
evaluate employees, however, is far from
formation technologies in the workplace has
clear. On one hand, employers have openly
greatly increased the ability of employers
used timekeeping and surveillance systems
to monitor employees’ work habits. While
for decades to monitor workplace activi-
the technology has raced ahead, the ethical
ties. Moreover, the availability of phone and
issues raised by those advances have multi-
computer records should be no secret to
plied. In many cases, the issues have arisen
employees in today’s working environment.
much faster than businesses and manag-
Still, there are lines that most employers
ers have been able to confront and resolve
would not think of crossing. As technology
them.
advances, the question is where those lines
Typically, the legality of employers’ ac-
should be drawn.
tions is not in question because the actions
they are monitoring (or capable of monitor- Think Critically
ing if they choose to do so) are conducted
1. What guidelines would you set for busi-
on company time using company equip-
nesses in establishing privacy policies for
ment or property. Telephone records, e-mail
management and employees?
and Internet traffic records, and computer
files are all kept and stored as standard 2. What responsibilities do managers and
business practices by many if not most busi- employees have in preserving ethical
nesses. The information has many possible behavior and respect for privacy in the
workplace?
standards are being met. Ms. Chen will be on products or regions that have high and
concerned about the entire marketing plan low performance. Mr. Swathmore is con-
and performance in all of the marketing cerned about individual customers and
departments. Mr. Swathmore will concen- salespeople.
trate on the activities and results of his spe- When a specific problem is identi-
cific department and salespeople. fied, the managers work quickly to correct
An effective marketing information it. They review budgets, schedules, and
system is important to both managers. activities from their plans to see if some
Without an efficient MkIS, neither man- are not being performed in the way that
ager will be able to analyze and understand was expected. They may have to revise the
the many activities under their control. plans if it is clear that the original plans
The marketing information system gath- will not work.
ers and analyzes information. It identifies
when problems are occurring. Both Mr.
Swathmore and Ms. Chen spend a great Checkpoint
deal of time studying reports. They must
identify the parts of their plans that are For which management functions do top-
S working well and the areas where problems level and lower-level marketing managers
N may be developing. Ms. Chen concentrates tend to have similar responsibilities?
636
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How can a manager determine if objectives are being met?

Determine the best answer. 5. Visual Art Work with a team to create a poster
1. True or False: An important planning respon- that illustrates the types of activities marketing
sibility of most top marketing executives is to managers complete for each of the manage-
prepare the company’s marketing plan. ment functions. Other than the names of the
functions, use only pictures and other graph-
2. Which of the following is true about the
ics on the poster. Show the finished poster to
planning done by lower-level marketing
other students and see if they can identify the
executives?
activities represented.
a. They do not do any specific planning
but follow the plans developed by top 6. Career Success Based on the descriptions of
executives. the two marketing management jobs discussed
b. They concentrate more on short-term in the lesson, decide whether you would prefer
planning than on long-range planning. to hold an executive management position or
c. Their plans do not need to be in writing. a specialized management position as a career
d. They do not need to be familiar with the choice. Prepare a three-paragraph report on
entire company’s marketing plan. the reasons for your choice.
3. The steps to be followed for consistent per- Connect to
formance of important activities are known as
7. Work with another student to prepare two
a. plans
role-play scenarios of a retail store department
b. policies
manager meeting with a salesperson to discuss
c. procedures
the importance of customer service. One role-
d. none of the above
play should demonstrate effective leadership,
4. True or False: Top marketing executives have and the other should demonstrate ineffective
more leadership responsibilities than lower- leadership. Present both role-plays to your
level managers. teacher (judge) and be prepared to answer S
questions about your demonstrations. N
637
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Now that you have completed the chapter, check identify the three major sections of a marketing
your understanding of the lessons with these ques- plan and the important planning information
tions. Record the score that best represents your included in each section?
understanding of each marketing concept. explain the need for performance standards for
1 = not at all; 3 = somewhat; 5 = very well marketing activities?
If your score is 42–50, you are ready for the assess- describe the two parts of marketing
ment activities that follow. If you score 33–41, you effectiveness?
should review the lessons for the items you scored discuss why self-directed work teams need to
1–3. If you score 32 or less, you will want to carefully understand the functions of management?
reread the lessons and work with a study partner on identify the types of planning activities that are
the areas you do not understand. completed by top marketing executives?
Can you— describe the difference between a policy and a
offer definitions of management and marketing procedure?
management? provide examples of how a marketing informa-
list and describe the five management functions? tion system helps marketing managers with the
explain how the work of top executives and controlling function?
lower-level managers is similar and different?

1. Both customers and the business are satisfied 10. Specifies the minimum level of expected perfor-
2. The process of coordinating resources to plan mance for an activity
and implement an efficient marketing strategy
3. The activities needed to match individuals with
the work to be done a. controlling
4. A group of employees who work together b. leading
toward a common purpose without the usual c. long-range planning
managerial supervision d. managing
5. Identifies specific objectives and activities for e. marketing effectiveness
each part of the business f. marketing management
6. Measuring performance, comparing it with goals g. organizing
and objectives, and making adjustments when h. performance standard
necessary i. planning
7. Arranging people, activities, and resources in the j. policies
best way to accomplish the goals of an k. procedures
organization. l. self-directed work team
8. Rules or guidelines to be used in a company to m. short-term (operational) planning
make consistent decisions n. staffing
9. The ability to communicate the direction of the
S business and to influence others to successfully
N carry out the needed work
638
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Read each of the following statements and determine 18. A multinational corporation
if it describes a planning, organizing, leading, control- restructures its marketing
ling, or staffing function. operations by product lines
11. The home office of a drugstore chain sends rather than by countries or
directions on how merchandise should be dis- regions.
played on the shelves. 19. The sales manager at
12. The owner of XPert Hardware surveys her cus- Brevardo’s Auto Sales holds a weekly meeting
tomers regarding the hours the store should be with his sales staff to keep them focused on sales
open and decides to open one hour earlier. goals.
13. Aries Stavros holds a staff meeting every week to 20. Marketing executive Carol Hoerst skims through
make sure that staff members understand their five online newspapers every morning for news
job assignments and to hear any complaints and that might affect the competitive environment
questions they may have. for her company’s products.
14. The owners of a dog grooming service decide 21. Melvin B. Goode hires an executive assistant in
to offer training classes to their employees in order to free up more of his own time for
customer service. strategic planning.
15. Su Lee Han finds it necessary to review the bud- 22. The CEO of an international conglomerate antici-
get allocations for her department once a week. pates retiring in two years and brings together
an executive team to begin discussing the
16. Jack Erbinsky attends a training session to learn
company’s future.
about a new line of refrigeration products his
company will carry. 23. The general manager of a restaurant reviews
menu prices every three months to determine if
17. Julio Chavez reduces the number of employees
changes are needed to keep prices in line with
by three employees when his boss reassigns two
fluctuating food costs.
product lines to another supervisor.

24. Look at the classified ads in your local news- tool of your choice. Write a 400-word paper
paper. Cut out at least five ads for managers. explaining the tool, how it is used, and whether
Paste each ad on a piece of paper and list the or not it is considered effective. Cite at least
qualifications for each job. Is there one qualifica- three research sources. Be prepared to present
tion that is predominant in all of the ads? If so, your paper to the class.
which one? 27. Mark Peters is the owner/manager of a wholesale
25. Identify a specific business and the product or electrical supply house. He has 40 employees
service it markets. In a memo to your teacher, ex- and until recently has managed the entire opera-
plain how each section of a marketing plan can tion himself. Lately his business is growing. He
be used as a guide for each of the management has decided he needs to reorganize the business
functions within that organization. Describe and have a layer of management that reports
the function and the marketing management to him.
activities that would be completed to market the Eighteen people work in the warehouse. They
product or service. are responsible for shipping, receiving, and
26. There are many management tools such as total inventory. The supply house has five employ-
quality management, six sigma, benchmark- ees who work the counter, maintain inventory
ing, balanced scorecard, continuous process records, and handle some of the more routine
improvement, and others to help managers paperwork. There are ten truck drivers who de-
improve the effectiveness of their organizations. liver and pick up merchandise. And finally, seven S
Search the Internet for articles on a management people work in the office handling budgets, ac- N
counts receivable, and orders. 639
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Develop a complete organizational chart for can support their employees through positive
the business, adding the new layer of manage- motivation. State which ones in your view are the
ment. Indicate management and employee levels most effective and why.
and areas of responsibility. 29. A business will usually be successful if satisfac-
28. Managers realize that a good product or service tory exchanges are made. Both the company and
will go unsold unless the employees do the best the customer must be satisfied that they have
job possible in dealing with customers. Manag- received the most value for their money. List five
ers spend a great deal of time motivating and specific things that indicate a customer is satis-
encouraging employees to do their very best. fied and five that indicate business satisfaction.
From your personal experience or using research, Describe how each of the types of customer and
identify and describe five ways that managers business satisfaction can be measured. Be specific.

30. A home improvement store recently decided 31. Form a team as directed by your teacher for this
to survey its final and business consumers to project. Using the Internet or the school library,
determine if they were satisfied with the type of access the Statistical Abstract of the United
service they were receiving. The results shown in States published by the U.S. Census Bureau.
the following table were obtained. On the Internet, use a search engine to locate
a. The company surveyed 1,100 final consumers the publication. Find the section titled Income,
and 550 business consumers. Develop a table Expenditures, and Wealth and go to the table that
that identifies the number of yes and no lists the most recent year’s gross domestic prod-
responses to each of the questions for final uct (GDP) for each state.
consumers and business consumers. Use a computer to create a spreadsheet. Enter
b. Develop a bar graph comparing the responses each state name and the state-by-state GDP fig-
of business and final consumers for each of ures into two columns of the spreadsheet.
the survey items. Use a map of the United States to organize the
c. Identify three problems that company states into ten contiguous sales regions. Include
managers can address and recommend Alaska and Hawaii in a region with west coast
an action that can be taken to correct the states. Cut and paste the information in your
problems. spreadsheet to organize it into ten groups repre-
d. For each of the actions you identified develop senting the sales regions your team developed.
a specific performance standard that can be Use the spreadsheet functions to calculate the
used to measure its effectiveness. total GDP in dollars for each sales region. Also
calculate the percentage GDP (based on total
U.S. GDP) for each region.
Final Business Prepare a report that identi-
Consumers Consumers fies the ten sales regions
with their constituent states,
Yes No Yes No
showing the GDP in dollars
Are sales items usually available? 45% 55% 75% 25% and the percentage GDP for
Do you wait more than two each region. Use the spread-
minutes to be helped? 15% 85% 37% 63% sheet to prepare one or more
Is sales staff knowledgeable? 95% 5% 83% 17% pie charts for your report
that illustrate the sales region
Are prices competitive? 50% 50% 94% 6% information.
Is sales staff courteous? 82% 18% 85% 15%
S
N
640
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Public Relations Project
Successful Bibliography List all resources used.
business Appendix Inclusion is optional.
leaders under-
The Public Relations Project gives stu-
stand the
dents an opportunity to promote their orga-
importance of developing good community
nization, a project, school, DECA chapter, or
relations. Students participating in the Public
marketing department in a favorable manner
Relations Project will demonstrate the skills
to the community.
needed in planning, organizing, implement-
ing, and evaluating a single public relations
campaign conducted by the group. The cam- Performance Indicators
paign may focus on any topic or subject of Evaluated
interest to the group and should involve the • Develop and/or identify a theme for a pub-
majority of the chapter members. lic relations campaign. (Operations)
The Public Relations Project can be com- • Plan and organize a public relations
pleted by one to three students. The project campaign for the local community.
consists of two major parts: the written docu- (Operations)
ment and an oral presentation by chapter • Work as a team to successfully complete
representatives. The body of the written entry a public relations project. (Emotional
must be limited to 30 numbered pages, includ- Intelligence)
ing the appendix (if an appendix is attached)
but excluding the title page and the table of
• Implement a public relations campaign.
(Operations)
contents. The oral presentation will consist
of ten minutes for students to present their • Evaluate the planning and implementation
public relations project and five minutes for process. (Strategic Management)
the judge to ask questions about the project. Go to the DECA web site for more
The body of the written entry consists of detailed information.
the following parts:
scription of the project.
Think Critically
Campaign Theme or Focus Describe the 1. Why do businesses have pub-
issue to be addressed, rationale for selecting lic relations departments?
the issue, and the target population. 2. What types of personalities
Local Media and Other Promotional Possi- are best suited for success-
bilities Describe the local print and broad- ful public relations depart-
cast media available, other possible promo- ments?
tional activities, media mix, and rationale for 3. Why is it important for
media and other promotional activities. organizations such as DECA
Campaign Organization and Imple- to establish positive relation-
mentation Include organizational chart, ships with the local media?
member involvement and job descriptions, 4. When should publicity be used
PHOTOS: ©DECA INC.
description and documentation of the cam- as part of a public relations campaign?

paign, and estimated impact on the target
population.
S
Evaluation and Recommendations Include w w w. d e c a . o r g N
evaluation and recommendations for future
campaigns.
641
22-1 • The Functions of Management
DECA Prep 641
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Chapter 23
Planning
Your Future in
Marketing
23-1 Benefits of a Marketing Career
23-2 Employment Levels in Marketing
23-3 Marketing Education and Career Paths
23-4 Beginning Career Planning
Newsline )))
What Do Employees Want?
It’s a startling statistic. In a recent Do people who change careers Think Critically
survey, only 3 percent of employees obtain the things they are look-
1. Does the percentage of people
said they were satisfied with their ing for? Almost three-fourths of
who are dissatisfied with their
current job. Half of the respondents voluntary job changers do make
jobs surprise you? Why or why
said they would consider changing more money. In order to get those
their careers to entirely different increases in pay though, most had not?
types of work. Almost one-fourth to complete additional education or 2. What does the information
are planning to make changes in training. about job satisfaction say about
the next year. Less than one in five The results related to the other the way that people choose
employees said they would never reasons for change are less encourag- their careers? Why do you
consider a career change. ing. Respondents were nearly evenly believe people choose careers
What are people looking for? divided about whether they were
that they later find dissatisfying?
Nearly 30 percent want to be able happier with their new jobs. Most
to make more money and don’t reported the new job was more chal- 3. Why do you think “to make more
believe their current job offers that lenging and satisfying but believed money” is cited so frequently as
opportunity. Coming in second was they spent too many hours working the most important reason for
the desire to increase their personal and had only limited control over the wanting to change jobs?
happiness. Nearly 25 percent of the hours they worked. One of the great-
4. If people report being dissatis-
people wanting a career change est values is that the individuals who
fied with their jobs, why do only
believed they would be happier in changed jobs believed they were in a
7 percent want to change jobs
another job. The third and fourth better position to withstand changes
reasons for changing careers were in the job market and to take advan- to increase job satisfaction?
greater job satisfaction (7 percent) tage of other job opportunities that 5. If you were an employer read-
and better working hours (4 percent). might become available. ing this report, what would you
do about it?
school.cengage.com/maketing/marketing
CH 23-B4491_RP_REV3.indd 642 12/6/07 7:05:42 PM


• Understand concepts, tools, and strategies used to • Assess personal interests and skills needed for suc-
explore, obtain, and develop a business career cess in business
• Acquire self-development skills to enhance • Explain possible advancement patterns for jobs
relationships and improve efficiency in the work • Identify skills needed to enhance career
environment progression
• Participate in career planning to enhance job suc- • Develop personal traits to foster career
cess potential advancement

©IBM; CREATED BY OGILVY & MATHER, NY; PHOTOGRAPHY: CHRISTIAN STOLL/BRANSCH/NEW YORK. USED BY PERMISSION.
Visual Focus
The world is opening to you. As you continue
your education and gain work experience,
more and better career opportunities will be
available. You may have decided that market-
ing jobs match your interests and abilities. If
so, the choices are almost limitless. Even if you
choose another career interest, your knowl-
edge of marketing will be useful. This chapter
explores the many career opportunities in
marketing and helps you plan for an exciting
career no matter what choices you make.
Focus Questions:
What products do you think of when you see
the name IBM? In the past, IBM was a world
leader in computer hardware and software.
Today it emphasizes how its employees can
help other businesses. Based on this ad, how
does IBM want to help its customers? What
does it want customers to think about when it
asks, “What makes you special?”
Locate an ad that emphasizes the impor-
tance of a company’s employees and their
skills. Discuss why employees are such a valu-
able resource to businesses.
CH 23-B4491_RP_REV3.indd 643 12/6/07 7:12:33 PM

23-1 Benefits of a Marketing Career
GOALS KEY TERMS
• Identify the impact of marketing careers on the marketing job, p. 644
economy. job, p. 647
• Describe the benefits of choosing a marketing career. career, p. 647
career planning, p. 648
Marketing jobs exist in every community and almost every business. Many people get
their first job while they are still in high school or even earlier. That first job is often a
marketing job. It may be delivering newspapers, taking tickets at a movie theater, or
serving customers in a fast-food restaurant.
While those first jobs do not require a great deal of education and experience, they
are important in developing an understanding of business operations as well as impor-
tant career skills that are used even by people who hold the highest jobs in a company.
Make a list of any part-time or full-time jobs you have held. For each job, identify two
or three things you learned that will be helpful in advancing into higher positions in a
business. Compare your answers with the answers of other students to see what the jobs
have in common in preparing people for careers in business.
The Importance of Marketing Careers

arketing is one of the most impor- of products from manufacturers to con-
M tant functions of business today. It

provides employment for millions
of people. Many of the fastest-growing and
sumers, customer service, assistance with
financing and credit procedures, and many
other activities. Because of people who
highest-paying jobs in our economy are effectively perform their marketing jobs
marketing jobs. Whether you are still in every day, customers are able to obtain the
high school, have a two- or four-year col- products and services they need at a fair
lege degree, or have a graduate degree such price, and businesses are able to sell their
as an MBA or PhD, there are employment products and services at a profit.
opportunities in marketing that match
your interests and skills.
Between one-fourth and one-third of Marketing and Business
all jobs in the United States are market- Opportunities
ing jobs. In a marketing job, the comple- Marketing jobs are found in all types of
tion of marketing activities is the most businesses. The primary purpose of some
important or only job responsibility. The businesses, such as advertising agencies
people who are employed in marketing are and retail stores, is to complete marketing
responsible for research and product plan- activities. They are responsible for one or
S ning, advertising and selling, distribution more of the marketing mix elements or
N
644
644 CHAPTER 23 • Planning Your Future in Marketing
CH 23-B4491_RP_REV3.indd 644 12/6/07 7:17:52 PM

biotechnology. If you want to work
Wo r k i n g i n Te a m s in science, research, publishing, or
education, you can find numerous
Have one team member name a type of busi- opportunities to combine those in-
ness that exists in your community. Then, have terests with your marketing skills.
other team members, in turn, identify a mar-
keting job that they believe is needed by that
business. Continue until no more jobs can be
Marketing Jobs Improve
identified. Then, have the next team member the Economy
name another type of business and continue Consider what our lives would be
the process. like without people employed in
marketing jobs. Without marketing
researchers, our views would not be
heard in business as new products
marketing functions. Most of the jobs in
are planned. Fresh fruits and vegetables
those businesses are marketing jobs.
would not be available year-round in the
Other businesses have a non-marketing
local supermarket without people in distri-
activity as their primary purpose. Those
bution to ship those products from other
businesses include manufacturers and
states and countries. We could not use
service providers as well as government
newspapers, magazines, television, or the
agencies, schools, public utilities, and many
Internet to gather information about the
other types of organizations. Even in those
products we want to buy if people did not
businesses, however, many people are
work in advertising and promotion.
employed to complete marketing activities
Marketers who work with us when we
that are an important part of the business’s
make hotel or rental car reservations or re-
regular operations.
schedule a flight on an airline help to ensure
Even people who are not directly
that we enjoy business travel or vacations.
employed in marketing jobs often need to
Customer service personnel solve problems
understand marketing and use marketing
with a product that we have just purchased,
skills as a part of their work. Physicians and
realtors help us rent an apartment or pur-
dentists often operate practices by them-
chase a home, buyers for retail stores get the
selves or in partnership with other profes-
latest fashions for us, and automobile sales-
sionals. Owners of small businesses—from
people locate and arrange financing for the
daycare centers to catering or landscaping
car we have always wanted to own.
businesses—need to be able to plan, pro-
mote, price, and distribute their prod-
ucts and services in order for the enter-
prises to be successful. Marketing is an
important part of almost every business
and many jobs. You will find an under-
standing of marketing useful to you as
you choose and prepare for a career.
Marketing is a part of every indus-
try. Therefore, you can combine your
interest in that industry with your mar-
keting background for a choice of jobs.

Important marketing jobs are found in
the airline industry, the military,
entertainment, healthcare, agriculture,
and construction. Marketers are
an essential part of the newest S
industries, including e-commerce and What kinds of marketing jobs are found in the education industry? N
645
23-1 • Benefits of a Marketing Career 645
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Get the Message
New Media Redefines innovative ways. They have changed the way
Advertising Roles an advertising agency works, requiring their
creative department to think outside the
Traditional advertising media—television,
box of traditional advertising. In addition to
print, outdoor, and radio—are saturated.
creating print and television ads, they have
There are so many advertising messages
created web sites, competitions, events,
bombarding consumers every day that
stunts, and even video games. At ad agen-
advertisers must look for new ways to
cies like Crispin Porter + Bogusky, traditional
reach customers. This drive to find new and
roles are becoming less defined, and every-
innovative ways to reach consumers has
one is being asked to think creatively to help
changed the way marketers and advertisers
the clients.
must work. Where once copywriters and
art directors at an ad agency might spend Think Critically
their entire careers specializing in print and
1. Why is it important for advertisers to be
television, they now must be able to think of
able to think beyond traditional media?
online and guerilla tactics.
Crispin Porter + Bogusky, the advertis- 2. If you were in charge of staffing at an
ing agency for Burger King, has done a very advertising agency, what characteristics
good job of reaching consumers in new and would you look for in a new hire?
Marketing personnel are involved in other companies to be used in their busi-

many of our daily activities as we purchase nesses or resold to consumers.
products, enjoy restaurants and entertain- Each of those companies is involved
ment, and use the services of businesses in marketing and employs many people to
and other organizations. We notice, and complete the marketing activities needed
often are not very happy, when marketing to satisfy its business customers. The same
activities are not performed well. Mar- types of jobs described earlier that are
keting activities performed effectively by performed to meet consumers’ needs are
business people who are concerned about also completed in business-to-business
customer satisfaction save us time and marketing.
money and make our lives more enjoyable. While you may not be aware of those
There are thousands of marketing jobs jobs, if they are not performed well, you
that most of us know little about because would not be able to purchase your morn-
we do not come into contact with the ing cereal or lunchtime sandwich. Automo-
people performing that work. Those jobs biles, microwave ovens, and shopping malls
are in business-to-business marketing. would not be built. And the computers and
Many businesses provide products and paper needed to print your favorite book or
services to other businesses rather than to magazine would not get to the publisher.
consumers. Farmers sell the products they We are more familiar with the market-
grow to food processors. Steel and plastic ing jobs in our own town or city and even
producers develop materials used by the in our own country. But marketing occurs
auto industry, appliance manufacturers, worldwide to meet the needs of people in
construction firms, and many other types every country and to support international
S of businesses. Transportation companies trade. Locate the names of the countries
N move the products of one company to in which the products you use daily are
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produced and you will realize the marketing is providing more and more
importance of marketing worldwide. career opportunities.
Those products would not be available
to you and U.S. companies would not be Checkpoint
able to sell their products in other coun-
tries without the daily work of millions Why are marketing jobs important to busi-
of people in marketing. International nesses that have non-marketing activities
as their primary purpose?
Why Choose a Marketing Career?

his may be your first experience
T studying marketing. You may not

have understood marketing very well
before beginning this class and may not
have been aware of the variety of market-
ing career opportunities. It is not unusual
for people to end up in marketing careers
without careful planning or without being
aware of the benefits of those careers.
Understanding marketing will allow you
to select a career that is exciting, challeng-
ing, and rewarding. You can also plan the
education you will need and the types of
work experiences that will help you pre-
pare for the career of your choice.
Benefits of Working in
Marketing
You have choices of many different jobs
and careers. A job is any full- or part-time
work in a specific position of employ-
ment. Most people hold many jobs during What is the difference between a job and a career?
their working lives. Many jobs, especially
the first ones, are often taken with little With careful planning and prepara-
thought of the future. Instead they are se- tion, including continuing your education,
lected to meet the immediate needs of the you will find many career choices open to
worker. On the other hand, a career is a you. Those choices will likely be more in
chosen area of work, usually made up of a line with your interests and abilities, and
progression of jobs, that provides personal you will be more informed of the advan-
and professional satisfaction. While you tages and disadvantages of each career
may have more than one career in your area. Marketing offers many diverse jobs
lifetime, the choice of careers is usually and career choices that fit a variety of
made more carefully based on individual individual needs, interests, and lifestyles.
interests, abilities, and preparation. People While you may ultimately choose to work
who move from job to job without a great in a career area other than marketing, you
deal of thought, considering only their im- should still be aware of the many benefits
mediate needs, often are not particularly of working in marketing as you make job S
happy or satisfied with their work. and career choices. N
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Many Choices Marketing jobs exist industry is not doing well economically,
in every industry and within most com- marketing jobs are likely available in
panies. Marketing jobs are found at the industries that are experiencing better
lowest and highest levels of a company economic conditions.
and are available for people with varied
amounts of education and experience. No Entry-Level to CEO
matter what your interests, job oppor- Most people will change jobs many times
tunities in marketing are available that during their lifetime. Marketing skills are
match those interests. useful in a number of jobs. Entry-level
Interesting Work Marketing is usu- jobs in marketing usually lead to advanced
ally not boring. Marketers work with jobs with greater responsibility and higher
customers and people from other busi- salaries. A clerk in a store can become
nesses as well as with people in their own a department manager, store manager,
company. Most marketing jobs involve and regional manager. Survey specialists
creativity and decision making. Mar- working in marketing research can be-
keters are involved in planning, commu- come product and brand managers. A sales
nicating, evaluating, and problem solving. associate can progress to salesperson, sales
As companies develop new products and manager, and vice-president of sales and
services or identify new market oppor- marketing. A recent study of the largest
tunities, marketers will be involved from businesses in the United States found that
the beginning. people who started in marketing are often
chosen to lead the entire company as the
Financially Rewarding Some begin- chief executive officer, or CEO.
ning marketing jobs will pay no more No matter if you choose marketing
than minimum wage. Yet employees in or some other career, careful career plan-
those jobs who prove to their employer ning is important. Career planning is an
that they understand business operations ongoing process involving self assessment,
and have a customer-service attitude are career exploration, and decision making
promoted quickly to higher-paying jobs leading to a satisfying career decision. You
with more responsibility. Marketing
jobs are among the highest-paid
positions in most companies.
Because effective marketing results
in higher profits for a company,
effective marketers are often
compensated with commissions,
bonuses, or profit sharing to
increase the salaries they earn.
Stable Employment As the
economy changes, people may find
that job opportunities change as
well. People worry that they will
lose their jobs when the economy

is poor. Because marketing activi-
ties are so important to most busi-
nesses, marketing employees are
often the last to be dismissed and
the first to be rehired. Marketing
S skills are useful in many types of Why do marketing skills lead to more stable
N businesses and industries. If one employment?
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will need to identify the knowledge and their work, provide career advice, and even
skills required for the career you select, the serve as mentors to those who are begin-
educational preparation needed, and the ning their careers. Career centers and
jobs you will likely hold as you progress counselors are also valuable resources for
through your career. Lack of appropriate planning.
preparation is often cited as the reason You are now familiar with marketing
why a person is not considered when a and the many career opportunities avail-
position is filled in an organization. able in marketing. You can decide if you
There are a number of important re- want to consider a career in marketing and
sources available to help you plan a career then identify the career planning activities
in marketing. Libraries and the Internet you will need to complete to prepare for
provide many career planning resources the career of your choice.
and references. Business organizations and
many individual businesses provide mate-
rials that describe career opportunities and Checkpoint
the preparation necessary for each career.
People with experience in the careers that What are the main benefits of working in
interest you are often willing to discuss marketing?

Determine the best answer. 5. Visual Art Work with other students to
1. Between and of all jobs in create a bulletin board or other display for
the United States are marketing jobs. your classroom that illustrates the range of
marketing jobs that exist in your community.
2. Which of the following is an example of a
Illustrate jobs that are located in marketing
non-marketing business?
and non-marketing businesses and in
a. a retailer
business-to-business marketing.
b. a farmer or rancher
c. an advertising agency 6. Writing Write a 300-word essay on “The
d. a wholesaler Importance of Career Planning.” The essay
should define career planning and explain
3. A transportation company moving the prod-
the career planning process, the benefits of
ucts of one company to other companies for
planning, and what may happen to people
use in their businesses is an example of
who do not develop and follow a career plan.
a. business-to-consumer marketing
b. direct marketing Connect to
c. manufacturing
7. You have been asked to speak to an eighth-
d. business-to-business marketing
grade careers class about marketing careers.
4. True or False: A chosen area of work, usually Prepare a five-minute speech that describes
made up of a progression of jobs, that pro- the variety of marketing careers and the
vides personal and professional satisfaction is reasons that students might be interested
a marketing job. in marketing jobs. Give your speech to your
teacher (judge). S
N
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23-2 Employment Levels in Marketing
GOALS KEY TERMS
• Identify the five employment levels for marketing jobs. career area, p. 650
• Describe the skills needed to progress through the career path, p. 651
marketing employment levels. career plan, p. 651
Do you like working as a team or are you more comfortable taking individual respon-
sibility for your work? Do you believe you would like to lead and manage a work
group? Do you have a vision of yourself in the future being the top executive of a large
company or an entrepreneur who has started a successful business from scratch?
In the past, a measure of business success was starting at the bottom of a com-
pany and moving as high as possible into management. Today, career progression is
more likely to mean changing jobs from one company to another, from one career
area to another, and attempting to balance personal, family, and professional goals
at the same time.
Make a list of five factors that you believe will be important to you as you plan
your future. Identify how you believe the jobs you hold will relate to the factors you
have identified.
Progressing through Marketing Jobs

any people have an idea of their finance, information management, and
M ideal job. However, the job in which

you will spend the most time in
your career will not be your first or second
production.
job. Each of us will hold many jobs before

we find the job we really want. Some
people will never achieve the job of their
dreams because they do not develop and
follow a career plan.
Completing Career Planning

Planning for a marketing career involves
a number of choices. A way to increase

your chances for a successful career is to
complete career planning. Planning for a
career in business is made up of several
components. First you identify a career
area. A career area is the type of business
S or the business function in which you plan How can career planning help you climb the
N to work. Examples include marketing, “career ladder”?
650
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The next step is to consider a career
path in the career area. A career path
is a series of related jobs with increasing Executive/Owner
knowledge and skill requirements and
greater amounts of responsibility. The
third step is to compare your current aca- Supervisor/ Manager
demic preparation and experience with the
jobs in the career path and then to prepare
a career plan. A career plan identifies the Specialist
progression of jobs in your career path,
your plans for education, training, and
experience to meet the requirements for Career
those jobs, and a time schedule for accom-
plishing the plan.
It may seem like an almost impossible Entry (prerequisite)
task to develop a realistic career plan when
the business world is changing so much. FIGURE 23-1
There will likely be jobs available ten years The five levels of marketing employment.
from now that do not exist today. The
knowledge and skills needed to be success- experience. They are often held by indi-
ful in a job will likely be quite different in viduals who are still enrolled in high
a few years. school or who have only a high school
A career plan cannot be totally accu- diploma. You can often obtain an entry-
rate and will probably change several times level marketing job with no previous
in the future. However, without a plan you experience. Entry-level jobs usually pay
will likely not pay attention to important an hourly wage, often beginning at the
changes and will seldom be prepared to minimum wage. Examples of entry-level
pursue promotions, advancements, and job jobs in marketing are clerk, cashier, stock
changes. People who complete career plan- person, and delivery person.
ning are more likely to have jobs they like Quite often, people who hold entry-
and are better prepared to perform them level positions do not view the job as
than those who do not have a career plan. the first step in a career path. They just
want part- or full-time employment to
earn money. They may move from job to
Employment Levels in job with no specific plans for the future.
Marketing Career planning helps people select entry-
Employment opportunities in marketing level jobs that will be interesting, use
are available to people with a range of existing knowledge and skills, and help
education levels, work experience, and prepare them for career advancement.
interests. To help with career planning, Entry-level jobs are referred to as pre-
those opportunities are organized within requisite jobs because most employers ex-
five levels. The levels of marketing pect people to have developed prerequisite
employment are entry (prerequisite), work skills in these beginning jobs before
career, specialist, supervisor/manager, considering them for career employment.
and executive/owner. Those five levels
are illustrated in Figure 23-1. Career-Level Marketing Career-
level positions are more complex than
Entry-Level Marketing People entry-level jobs. People in career-level
employed in entry-level marketing jobs positions have more control over their
perform routine activities with limited work, have a variety of tasks to complete
authority and responsibility. Entry-level that require specific knowledge and skill S
jobs require limited education and to perform well, and usually are involved N
651
23-2 • Employment Levels in Marketing 651
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knowledge of a particular area of business
operations. They will generally have spe-
cial training and considerable experience
in one particular area of marketing or a
Because marketing consists of a wide variety type of marketing activity required by the
of activities, a career in marketing can lead you business in which they work. They will
down any number of paths. Access usually have a four-year college degree or
school.cengage.com/marketing/marketing and even a graduate degree or advanced train-
click on the link for Chapter 23. Read the article ing in their area of work.
“Is a Career in Marketing Right for You?” Then Marketing specialists are often con-
answer the following questions: What are the sidered the most skilled and expert people
four major career paths in advertising? What in their part of the business. Examples of
kind of personality types are good matches marketing specialists include brand and
for jobs in public relations? Based on the product managers, advertising account
article, tell which marketing jobs best match executives, lead sales representatives, mar-
your interests, aptitudes, and personality. keting research specialists, and buyers.
Explain your answer. Marketing specialists will usually
continue to work in the specific area of
school.cengage.com/marketing/marketing marketing and be promoted to advanced
positions. They may be hired by other
companies because of their specialized
marketing expertise.
in problem solving and decision mak-
ing. As people develop experience and Supervisor/Manager-Level
are successful in career-level marketing Marketing People who work for some
positions, they may be given some limited time in a business and have held career-
supervisory responsibilities over a few level or specialist positions may want to
entry-level employees or may be selected move into management. They will usually
for leadership positions in work teams. begin as a supervisor or assistant man-
To qualify for career-level jobs, a ager with responsibility for a few people
person will need a year or two of success- in a specific area of the business. Supervi-
ful experience in the company or a similar sors usually devote only a portion of their
business. In lieu of or in addition to that work time to management responsibili-
experience, a person may need to complete ties. They spend additional time complet-
education beyond high school and obtain a ing the work of their department. If they
two-year or four-year degree. like the responsibility of managing others
People in career-level positions usually and do it well, they will likely be moved
view the work as more than a job to earn to higher levels of management and will
money. They work in an area of general be responsible for a broader set of man-
interest and in a job they believe will lead agement activities that consume most, if
to career advancement. Businesses hire not all, of their work time.
people for career-level positions in market- Supervisors and managers need to have
ing who demonstrate understanding of an understanding of and usually some
marketing principles and business opera- experience working in the area for which
tions and who have an enthusiasm for they have management responsibilities.
developing skills in the area of work that They must also have effective communi-
will contribute to the business’s success. cations, human relations, and leadership
skills. People promoted to the position of
Specialist-Level Marketing Mar- supervisor or manager usually have several
S keting specialists perform very specific years of experience in the company. How-
N work in a business that requires advanced ever, some people are hired as supervisors
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or managers with less experience but with marketing. They are responsible for all of
specific education or training in manage- the major marketing plans and decisions
ment. Companies often have management made and the implementation of the plans.
training programs to help employees learn They spend most of their time gathering
to be effective managers. and reviewing information, planning, and
Supervisors and managers are needed evaluating marketing effectiveness to make
in all areas of marketing. Examples include sure it is contributing to the profitability of
sales manager, inventory manager, cus- the business.
tomer service manager, marketing infor- Executives will have spent many years
mation systems manager, and many others. in the business, often working in many dif-
ferent marketing jobs. They often will have
Executive/Owner-Level a graduate degree in business. Business
Marketing The people with the great- owners do not always have as much experi-
est amount of authority and responsibility ence or education. They do have a strong
for marketing are executives and business desire to start their own business. Today,
owners. Executives hold the top market- many owners without academic prepara-
ing positions in a company, such as vice- tion in business and marketing and several
president of marketing or president of years of business experience will find it dif-
international marketing operations. ficult to develop a business that continues
Business owners are responsible for the to grow and make a profit.
entire operation of their companies,
including marketing.
Marketing executives and business Checkpoint
owners need to have a thorough under-
standing of business principles and pro- What are the five levels of employment in
cedures, management, and all areas of marketing?
Skills for Marketing Success

arketing today is becoming very
M complex. It involves many special-

ized but related activities. The peo-
ple asked to complete marketing activities
Foundational Skills
Marketing is necessary for business
success. But marketing skills alone are
not enough for a successful business
in companies must be more knowledgeable career. Marketing personnel need to de-
than ever before. In the past, people could velop foundational skills including
learn to perform marketing on the job, but
that is seldom possible today.
To prepare for a marketing career, you
need to understand the skills that will be Fa s t FAC T S
required for the job that you want. Market-
ing jobs demand two types of fundamental The U.S. Department of Labor, Bureau of
knowledge. First, you will need founda- Labor Statistics predicts employment of
tional skills that are useful in all business marketing professionals is expected to
careers. Second, you will need to develop increase 18 to 26 percent through 2014.
an understanding of the basic functions An even higher rate of growth is
of marketing. You will then be prepared projected for marketing jobs in the
to develop skills in the specialized area of scientific and professional services. S
marketing in which you want to work. N
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Digital Digest
Work Outside the Office While some experts warned that allow-
Telecommuting is a work arrangement ing employees to work outside the office
in which an employee works outside could lead to a decrease in productivity, a
the office, sometimes with flexible sense of alienation, and a detachment from
hours. Telecommuting, or “working the company, studies suggest that ex-
from home” became more popular in actly the opposite is true. A well-managed
the late 1990s when advances in work-from-home program can actually help
Internet and mobile technology gave employees manage their time better,
employees access to clients, coworkers, make them feel that they have a more
and information regardless of their honest relationship with their company,
location. and increase overall job satisfaction.
Some sales and marketing jobs Think Critically
allow employees to work outside the
1. What types of jobs would be better
office as long as they continue to handle
suited for working from home?
their responsibilities and meet their job’s
requirements. This arrangement helps 2. Could you ever imagine a company
employees juggle work and family life, gives with no physical building—just
them a sense of freedom, and sparks their employees working from home? Why
creativity. or why not?
an understanding of business principles, Interpersonal and Basic Work

interpersonal and basic work skills, and Skills Marketers interact with other
academic preparation. people. They work with people on their
marketing team and with their managers.
Business Principles In companies They often communicate with customers
that apply the marketing concept, mar- to provide information and solve prob-
keters work closely with people in other lems, and they are involved regularly with
parts of the business such as accountants, other people inside and outside of the
production personnel, engineers, and company. Interpersonal skills including
information management specialists. communications, teamwork, human rela-
Understanding the fundamental princi- tions, decision making, and problem solv-
ples of business allows people from across ing are all important in developing and
the company to communicate and work maintaining effective work relationships.
effectively together. Important business Businesses need employees who under-
foundations on which marketing is based stand and practice basic work skills. Those
are economics, finance and accounting, skills include promptness, courtesy, moti-
law, technology, business operations, and vation, self-discipline, honesty, and ethics.
management. Marketers do not have to Employees who complete work accurately
be experts in those areas, but they need to and on time, use resources wisely, and
understand basic operations, use busi- work to contribute to the success of the
ness information and reports, and make business will be recognized and rewarded
S marketing decisions that support the with opportunities for advancement.
N business’s strategy and plans.
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Academic Preparation People who analysis. They must be both objective and
choose careers in marketing know that creative as well as effective team mem-
they need strong academic preparation. bers. They will prepare written reports to
Today, most career positions in mar- support their recommendations and dis-
keting require education beyond high cuss the ideas with company executives
school. Marketers need to have effective who make the final decisions.
mathematics, writing, speaking, and
listening skills. Preparation in science, Product and Service
psychology, and technology are helpful in Management Product/service man-
many areas of marketing. Because of the agement is responsible for planning
diverse society in which marketers work new products and services and making
and the growth of international business, improvements to existing products. It
the study of foreign languages and other requires an understanding of consumer
cultures is also important. needs and attitudes as well as competitors’
products and services. Marketers involved
with this function make sure that prod-
Marketing Functions ucts are safe and easy-to-use and are
Building on their business foundational perceived as a value by the target market.
skills, marketers add other skills in one
or more of the marketing functions to Pricing Marketers that specialize in the
prepare for a career. Some marketing pricing function are ultimately responsi-
jobs are very specialized and are a part of ble for the profitability of a product. They
one of the nine marketing functions. For need to analyze supply and demand and
example, a person involved in marketing set a price that will result in the sale of
research is responsible for one aspect of the company’s products at a profit. They
marketing-information management. A plan pricing policies and determine how
person who designs and constructs win- the price will be communicated to the
dow displays in a retail mall is performing customer. If markdowns are needed, they
a specialized promotion activity. In other will determine the amount of the mark-
jobs, the employee must be skilled in sev- down and when it will be offered.
eral marketing functions. Brand managers
for a consumer products manufacturing
company need to understand all of the
marketing functions. A buyer for a whole-
saler or retailer will use skills in finance,
pricing, and product management.
Every marketer needs a general under-
standing of marketing and must be famil-
iar with marketing terms and concepts. In
addition, each person will need to develop
specialized skills in one or more of the
marketing functions.
Market Planning People who work in
market planning help identify and under-

stand the markets a company wants to
serve. They gather and analyze economic,
consumer, and competitive information
and recommend appropriate marketing
strategies that will be effective in each
market. People who work in market plan- What kinds of tasks might you perform if you had a job S
ning need expertise in data collection and in market planning? N
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Promotion Communication and
promotion need to be carefully planned
in order to make customers aware of
the company’s products and services
and provide them with the necessary
information so that they will make a
purchase. Follow-up should be part
of the plan to ensure customers are
satisfied with the product. There are
many skills used in planning promo-
tion, including writing, editing, design,
graphics, media, and technology.
Selling When more personal and

direct communications are needed to
encourage customers to buy, selling is

used. A salesperson often has the most
direct contact with customers, so he
or she is considered the representative
of the company. Salespeople must be
able to build and maintain success-
ful relationships with their customers.
They need skills in oral and written What kind of skills contribute to the success of a
communications, time management, salesperson?
human relations, planning, and bud-
geting. Today, technology skills are
very important because salespeople use questions. Marketing researchers select
computers, projectors, PDAs, cell phones, a sample of consumers to survey. Prod-
and the Internet in their work. uct managers analyze the daily sales of a
brand in an important market.
Distribution Distribution is a very People involved in marketing informa-
complex marketing activity. Many mar- tion need math, statistics, and computer
keting jobs are a part of distribution, and skills, an understanding of research proce-
distribution specialists need a number of dures, and the ability to manage and ana-
skills. People who plan distribution need lyze large amounts of data. They also need
to know where customers are located and communication skills in order to provide
where they prefer to purchase the prod- reports to other people responsible for de-
ucts or services. Channels of distribution cisions that use the information collected.
must be planned including building rela-
tionships with other companies involved Financing Financial planning is an
in the channel. Procedures for order pro- important marketing responsibility.
cessing, inventory management, packag- Budgets must be prepared, and adequate
ing, shipping, and customer service need financial resources must be identified to
to be developed. pay for the company’s marketing activi-
ties. If customers want or need to pur-
Marketing-Information chase on credit, credit plans and policies
Management Marketing is scientific will need to be developed. Some products
and relies on data. Marketers need to will be leased rather than sold, so finan-
be able to instantly obtain and review cial specialists will work with customers
S information. Telemarketers need prod- to explain the lease terms and complete
N uct information to answer customer the necessary paperwork.
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Risk Management An increasingly risks. Insurance companies work with
important career area in business is risk their business clients to identify costly
management. Businesses face a variety of risks and develop operating procedures
risks, many of which are a part of market- to reduce them. Security personnel work
ing activities. Risk management person- in all types of businesses to reduce losses
nel work to provide security for products, from theft, burglary, shoplift ing, and
personnel, and customers and to reduce other types of crimes.
the risk associated with marketing deci-
sions and activities. Traditionally, the
major risk management activities have Checkpoint
been providing insurance for companies
so that they can anticipate and manage What are the two types of fundamental
the cost of possible losses from insurable knowledge needed for marketing success?

Determine the best answer. 5. Research Search the employment adver-
1. A series of related jobs with increasing knowl- tisements in a recent issue of a large news-
edge and skill requirements and greater paper from your state. Identify one market-
amounts of responsibility is a ing job opportunity that you believe fits each
a. career area of the five levels of employment. Identify
b. career plan the level and the job title and write a two- or
c. career path three-sentence description of the job duties
d. career choice and qualifications that illustrate why it fits
the employment level you selected.
2. The marketing employment level in which
employees perform very specific work that 6. Career Planning Prepare a table in which
requires advanced knowledge of a particular you list all of the classes you have completed
area of business operations is in high school and those you intend to
a. entry level complete prior to graduation. For each class,
b. career level list one or more ways it contributes to the
c. specialist level knowledge and skills needed for success in a
d. executive/owner level marketing career.
3. Which of the following is not one of the areas Connect to
of foundational skills needed by marketing
7. Form a marketing research team to study
personnel?
career choices. Survey 25 people and ask
a. business principles
them about the primary activity of their
b. interpersonal and basic work skills
employer and get a brief description of their
c. academic preparation
job. Analyze the responses and determine
d. all are important foundational skills
(1) if their employer is a marketing or non-
4. True or False: In the past, people could learn marketing business, (2) if their job is a mar-
how to perform marketing on the job, but keting or non-marketing job, (3) the employ-
that is seldom possible today. ment level of their job, and (4) the primary
marketing function performed by those with
marketing jobs. Prepare charts or graphs and
a written summary to report your findings.
Present your report to your teacher (judge). S
N
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23-3 Marketing Education and Career Paths
GOALS KEY TERMS
• Describe the importance of marketing education. Marketing Education program, p. 659
• Identify non-management and management career DECA, p. 659
paths in marketing.
Some people have a career goal of becoming a manager in a business. Others would
prefer not to manage other people but to spend all of their time on marketing
activities. Companies need effective managers, but they also need people who are
experienced and skilled in particular areas of business operations.
In the past, many companies identified the people who were the best per-
formers in each area of the business and made them the managers. Managers were
often paid more than other employees. Today, many businesses are providing
advanced career opportunities with higher pay for people who do not want to be
managers but who are skilled in a particular marketing specialty or function.
List the advantages and disadvantages of selecting the best employees to
become managers and paying managers more than other employees. What are
reasons why a business might want to let superior employees continue to work in
the areas where they are skilled rather than making them managers? Would you
ultimately want to be a business manager, or would you prefer to work in a non-
management area? Discuss your preference and reasons with other students.
The Benefits of Marketing Education

ow do you prepare for a market-
H ing career? When is the best time to

begin career planning? Preparing for
a career in marketing will require both
education and experience. It is never too
early to start that preparation even if you
are unsure if you want a career in market-
ing. Marketing skills are useful in many
jobs. An understanding of marketing prin-
ciples and the marketing skills you have

will make you a valued employee in most
businesses and organizations.
You have already begun your prepa-
ration for a marketing career with this
course and others you have completed in
S high school. It is likely that you and many What are the benefits of marketing education?
N of your classmates have held entry-level
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Virtual Marketing
The Internet Changes the over 35,000 resumes every day. That’s a lot
Job Search for employers to sort through, and it is an
enormous amount of competition for the
Because of its potential to connect people
people seeking a job. While job seekers can
quickly, the Internet has had a major impact
now easily apply for jobs all over the coun-
on the way people look for jobs and the
try, they also have to compete with people
way companies search for new employees.
from all over the country. In the end, it still
The Web has hundreds of sites for linking
comes down to the skills of the person seek-
employers with prospective candidates and
ing employment, the needs of the employer,
thousands of resources by which people can
and how well the two overlap.
research companies and job openings.
The vastness of the Internet can help or Think Critically
hinder those seeking a job. Job boards on
1. What marketing principles might people
web sites like monster.com allow people to
apply when trying to market them-
post their resumes for companies around the
selves to potential employers using the
globe to browse. Whereas job seekers used
Internet?
to have to contact potential employers one
at a time, now they can easily and quickly 2. In addition to those stated above, think of
upload a resume that can be viewed by two positive and two negative aspects of
thousands of employers. using the Internet for a job search.
However, there is also a downside to
this technology. Monster.com alone receives
marketing jobs giving you some experi- Career programs in marketing edu-
ence and an opportunity to understand cation provide the most comprehensive
many of the ideas you are studying. You preparation opportunities for high school
must decide if you want to continue your students considering full-time employment
marketing education and what knowledge in marketing after graduation or for those
and skills you need to develop for the ca- considering additional education after high
reer of your choice. school. A Marketing Education program
incorporates three types of complemen-
What Is Marketing Education? tary learning experiences—introduc-
You can learn about marketing and develop tory and advanced courses in marketing,
marketing skills at almost any point in business work experiences, and a student
your education. Marketing education be- organization called DECA. DECA is an
gins in middle schools with career explora- international association of high school
tion programs, job shadowing experiences, and college students studying marketing,
and introductory business courses. management, and entrepreneurship in
At the high school level, many schools business, finance, hospitality, and market-
offer business and marketing classes as ing sales and service.
electives designed to develop general The classes offer understanding of
knowledge of marketing principles. Spe- marketing principles in an applied aca-
cialized marketing courses may be avail- demic environment. Work experience
able to allow study of topics ranging from gives students the chance to practice and
personal selling and advertising to sports test their marketing skills in a business,
interacting with experienced employees, S
marketing or fashion. N
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managers, and customers. Participation programs that offer an Associate of Ap-
in DECA complements coursework and plied Science (AAS) degree are structured
job experiences by providing student-led in a similar way as high school Marketing
opportunities to build teamwork and Education programs. They include course-
leadership skills, participate in professional work in English, math, natural science,
development experiences such as confer- and social science. Then students can
ences and seminars, and enhance and test choose to complete a general marketing
marketing skills through individual and curriculum or a specialized program such
group competitions. as Hospitality Marketing, Food Marketing,
E-commerce Marketing, Professional Sell-
Beyond High School ing, and Fashion Marketing.
Marketing education opportunities ex- Many two-year career programs offered
pand after high school. Two- and four-year by community colleges include structured
colleges offer marketing degrees as well as part-time or full-time work experiences in
graduate education programs. Today, most marketing jobs and a student organization,
marketers complete additional specialized Delta Epsilon Chi (ΔΕΧ). Many community
training offered by their employers or by colleges now cooperate with high schools to
professional associations to which they offer college-level courses to students while
belong. they are still enrolled in high school. Stu-
dents who complete those courses success-
Community College Programs fully can graduate with both a high school
Community colleges offer business diploma and a number of credits toward a
and marketing courses as a part of an two-year degree at the community college.
academic curriculum through which
students can earn an Associate of Arts College Study You can earn a bac-
degree. The courses and degree will calaureate degree in marketing at most
qualify graduates for a number of career- colleges and universities. Those programs
level positions in marketing. In addition, incorporate study of advanced marketing
the Associate of Arts degree can become a skills that prepare graduates for career-
step toward a bachelor’s degree for stu- level and specialist-level positions in busi-
dents who transfer to a four-year college ness. Popular marketing courses in colleges
or university. today include international marketing,
Community colleges also offer shorter entrepreneurship, e-commerce, sports
certificate programs that provide very marketing, and marketing management.
specialized study of a specific set of mar- Lifelong Learning Marketing educa-
keting skills (selling, inventory manage- tion is a lifelong experience. Companies
ment, small business management) for spend thousands of dollars each year to
immediate employment. Two-year career offer training to improve the skills of
marketing personnel. Marketers
participate in conferences and semi-
Wo r k i n g i n Te a m s nars and read business and mar-
keting magazines to update their
Have each team member identify a two- or four-
knowledge about the best marketing
year college or university he or she is interested
practices. Marketers who want to
in attending. Visit the web site of each institu-
move into executive management
tion and identify the marketing degree pro-
positions will usually complete a
grams offered. List them in a two-column table.
graduate program in business such
List those programs that are based on market-
as a Master of Business Adminis-
ing functions in one column and those based
tration (MBA). Executive educa-
S on marketing industries in the other.
tion programs are offered to the
N
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top marketing managers in companies
to improve their understanding of the Checkpoint
changing economy, to introduce the
What are the three types of learning experi-
latest technology, and to improve
ences in a Marketing Education program?
decision-making abilities.
Choosing a Career Path

he career opportunities in marketing a management career is still desired by
T are so vast that it may be difficult to

choose the career path you will follow.
However, because of the many opportuni-
many people.
In marketing, managers are needed
for each of the major marketing functions.
ties, it is possible to develop a more gen- There will usually be several supervisory
eral career path and make it more specific positions available in every marketing
in the future as you gain experience and department. Most companies have one or
complete further education. One of the more executive-level marketing manage-
decisions that will guide career planning is ment positions at the top of the company.
whether you want to prepare for a manage- Preparing for a management career
ment or non-management career. will require combining the development of
marketing skills and management skills.
Moving into Management Managers usually have several years of
In the past, it was expected that most full-time work experience in career-level
people planning a career would prefer and specialist-level marketing jobs. They
to move into a management position if will then become a manager-trainee or
given the opportunity. Businesses were supervisor. The career path will lead to an
organized as hierarchies with promotions assistant manager position followed by as-
leading to more and more responsibilities signments to a series of management jobs
and ultimately into supervisory and man- with greater and greater responsibilities.
agement positions. While those expecta- To move into senior management posi-
tions have changed in many companies, tions, you will want to gain experience in
several different marketing jobs, learn as
S
How can individuals prepare for a management career? N
661
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much about business operations as pos- every business and industry as well as non-
sible, take on important projects for the business organizations, you have choices
company, and continue to improve your of the types of businesses, locations, and
management skills. working conditions you want for almost
any career path.
Non-Management Marketing A career path is a series of related
Careers jobs with increasing knowledge and skill
requirements and greater amounts of re-
Businesses have changed a great deal in sponsibility. You can select a career path in
the past few years. They have reduced the one of two ways—either by industry or by
number of levels of management and have marketing function.
given individual employees and employee
teams more responsibility and authority. Industry Paths You might decide to
No longer is management viewed as select an industry that interests you and
the only way to be successful in your consider the marketing opportunities in
career. Companies are developing non- that industry. For example, you might be
management career paths and providing interested in automobiles, construction,
rewards and recognition for non- entertainment, or healthcare. After iden-
management employees who offer a spe- tifying the industry, you should identify
cific set of important skills to the business. the entry- and career-level job opportuni-
Companies recognized that an expe- ties and the advanced marketing jobs to
rienced salesperson who enjoys selling which they lead.
might not be happy or effective as a sales
manager. That salesperson should have a Marketing Function Paths On the
career opportunity to be a lead account other hand, you might be interested in a
representative rather than having to be- specific marketing function such as pro-
come a sales manager in order to advance motion, distribution, or financing. In that
in his or her career. A very creative person case, career opportunities will exist in a
who has prepared a number of successful number of specialties and in several indus-
advertising campaigns may be most valu- tries. You can study the types of increas-
able to the company as a senior copywriter ingly responsible jobs you will hold in
rather than as an advertising manager. advertising, sales, inventory, transporta-
If you choose a non-management tion, or credit services. Each area will have
career path, you will be able to specialize one or more career paths you can follow.
in one area of marketing if you prefer. You Examples of career paths related to
will want to get as much experience as pos- marketing functions can be found in the
sible in that area to continue to improve areas of advertising, marketing research,
your skills. You may be able to move from and retailing. An advertising career might
one company to another to find additional begin with an internship in an advertising
opportunities as you gain experience. You agency. Your career could progress to a job
will want to continue your education to in media traffic where you help to place
ensure that you have expertise in the latest ads in selected media and monitor the me-
procedures and technology in the area of dia to ensure the advertisements are run
marketing in which you specialize. You as planned. Advancement in advertising
will be considered the expert in that area might take you through jobs as an account
in your company. executive, account supervisor, and finally
director of advertising.
Career Paths in Marketing A career in marketing research starts
A benefit of a career in marketing is that as an interviewer or data analyst. The next
S you have many choices of career paths. step may be survey planning and design.
N Also, because marketing is a part of almost You can be promoted to a position as a
662
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project director and finally to director of These are only a few examples of com-
marketing research. mon career paths in marketing. Other
A career path with which you may be choices exist within each of the marketing
more familiar is in retailing. Most people functions we have examined as well as in
start as a cashier, stockperson, or sales- the other areas of marketing. You need to
person. By demonstrating initiative, a review the many available career resources
customer service attitude, and effective job and discuss your interests with experi-
skills, you can quickly become an assistant enced marketers to identify the various
manager for a department of the business. career possibilities open to you.
That job progresses to manager, assistant
store manager, and store manager. Beyond
that level, retail careers can progress to
Checkpoint
district and regional management and on What is the difference between manage-
to division vice-president. ment and non-management career paths?

Determine the best answer. 6. Math The most recent data from the U.S.
1. True or False: Preparing for a career in Census Bureau compares average yearly
marketing requires both education and earnings based on the level of education
work experience. completed. Working adults who dropped
out of high school had annual earnings of
2. Which of the following is not one of the types
$18,900. Those who completed high school
of learning experiences that is part of a high
averaged $25,900 a year, and college gradu-
school Marketing Education program?
ates earned an average of $45,400. What is
a. introductory and advanced courses in
the percentage increase in earnings that re-
marketing
sults from earning a high school and college
b. business work experience
degree?
c. DECA
d. all are part of the program 7. Decision Making Prepare a table that com-
pares the advantages and disadvantages of
3. A marketing student organization for com-
management and non-management career
munity college students is .
paths. Use the information in the table to de-
4. True or False: Because many businesses are velop a three-paragraph statement of which
reducing the number of levels of manage- career path you would choose at this time.
ment, there are fewer career choices available
in marketing today. Connect to
5. A marketing career path that offers increas- 8. You are interviewing for a job as a sales-
ingly responsible jobs in a specialty area such person in a new department store opening
as advertising, sales, transportation, or credit in your community. The company wants a
services is a(n) path. person with enough business understanding
a. industry and leadership experience to begin supervis-
b. marketing function ing several part-time salespeople within six
c. management months. Your teacher (judge) will ask you
d. none of the above to describe why you believe you are quali-
fied for the job. Be prepared to convince the
interviewer that you are the best person for S
both the sales and supervisor positions. N
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23-4 Beginning Career Planning
GOALS KEY TERMS
• Describe the steps in preparing a career plan. career portfolio, p. 666
• Discuss how to successfully apply for a job. electronic portfolio (e-portfolio), p. 667
How do you prepare for a career in marketing? In addition to the courses you take in
high school and college, experience is an important part of your preparation. Some
of the experience will be actual work experience in entry- and career-level market-
ing jobs. But there are many other experiences you and your friends have while in
high school that can help to develop skills needed for success in marketing.
Start by making a list of five to eight skills that you believe will be important for
people who want a career in marketing. Examples could be human relations and
communication skills. For each of the skills you have listed, identify experiences you
believe are available in your classes, in student organizations, other extracurricular
activities, and in out-of-school and community activities that can contribute to the
development of the skills. Be very specific in describing the experiences.
Discuss the experiences with other students and decide which of the experi-
ences seem to be the most useful in preparing for a career in marketing.
Choices and Decisions

ight now you may believe that pre- Don’t be too concerned if you have not
R paring for a career in business is like

trying to assemble a jigsaw puzzle.
Hundreds of pieces to the puzzle lay before
made specific career choices at this time.
People change jobs many times during
their lifetime and often move into totally
you, but it is almost impossible to envision different areas of work than they originally
how they fit together. You know that mar- planned. Still, it is important to focus on
keting careers require a combination of the impact that education and the employ-
education and experience. It is difficult to ment choices you make will have on your
decide what types of education and experi- career.
ence you need as well as where and when
to obtain them. Combining Education and
You may know right now that you want Experience
a career in marketing and even may have
decided on the specific job in which you Today, it is less likely that a person will
are most interested. On the other hand, achieve his or her career goal without
you may have decided on a non-marketing planning and preparation. A successful
career, but you can see how an under- business career is more likely for you if you
standing of marketing will benefit you. Or understand the requirements for the job
S you may be undecided on a career and are you want and plan to develop the neces-
N just beginning to consider your choices. sary skills. Career planning becomes a
664 process of determining your interests and
CH 23-B4491_RP_REV3.indd 664 12/6/07 7:28:15 PM

abilities, exploring the requirements for
the job you want, and planning the educa-
tion and experience you need to qualify for
the job. Employers value both education
and experience.
You will need strong academic skills
(reading, writing, mathematics) as well
as knowledge of business and marketing.
The courses you have already completed as
well as the remaining courses you will take
in high school will prepare you for your
career choice. College coursework can add
to your academic and career preparation.
Experience in business is always an
advantage. Employers value experience
because it demonstrates your interest in
business, your motivation, interpersonal
skills, and the ability to apply what you
have learned in your classes. It is relatively
easy to find an entry-level job in marketing
if you are not too concerned about the type
of work. Even though those jobs do not
always pay as much as you would like and Why are entry-level jobs an important part of a
it is difficult to manage a work schedule career plan?
with school and extracurricular activities,
a good work record provides a definite organizations, and volunteering in
advantage when you apply for other jobs. community organizations.
If you have successful entry-level
experience in high school, you may be able Developing a Career Plan
to qualify for more advanced jobs when Planning is an important marketing skill
you seek full-time employment after high that is necessary to obtain the job you
school or for jobs you hold while in college. want. Many people do little planning even
You can add to your work experience for things that are important to them.
by completing internships, working Without a plan, however, you are less likely
on projects and activities in school to achieve your goals. By developing a
career plan, you will not only increase the
chances of obtaining the job you really
want, but you will be practicing an im-
Fa s t FAC T S portant business skill. Employers will be
impressed with the efforts you devote to
A survey of members of the American career planning.
Marketing Association revealed that If you want to develop an effective
financial compensation was less impor- career plan, follow these steps:
tant in determining their job satisfac-
1. Complete an assessment of your cur-
tion than the culture and ethics of the
rent knowledge, skills, and interests.
business for which they worked. Also
Work with teachers, counselors, and
important were their level of responsi-
others to identify tests and other re-
bility on the job, having a job that used
sources that will improve your self-
all of their skills, and receiving profes-
understanding in order to make the
sional recognition for their efforts. S
best matches with possible careers.
N
665
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2. Study marketing careers in depth to them and have them help you make
determine the industries and types of the best matches to achieve your career
marketing jobs available and the work goals.
that is required in the jobs of interest
to you. 5. Prepare a written career plan. The plan
may be general at first, but you can
3. Identify the education and experience make it more specific as you gather
requirements for the marketing careers more information. The plan should
that interest you. Interview employ- identify the career area of interest to
ees and visit businesses to add to your you and possible jobs that make up a
knowledge. Compare the results with career path. You should list the knowl-
your current education and experience edge and skills you will need and the
to determine what you need to qualify choices of education and experience
for jobs in the career area that interests that you have made to assist you with
you. your career development. You may
want to include a timeline that projects
4. Make a list of the knowledge and skills how long it will take to complete the
you will need to develop. Meet with ex- experiences listed.
perienced people (teachers, counselors,
and business people) who are familiar
with education and work opportunities Checkpoint
to gather advice on the possible choices
for additional education and work ex- Why do employers value work experience
perience. Share your career plans with when hiring a new employee?
Obtaining the Job You Want

he importance of career planning will
T become apparent when you apply for

the job you want and are hired because
the employer was impressed with your
preparation and planning. The information
in your career plan will be helpful in com-
pleting applications for jobs or for schools.
Preparing a Career Portfolio

A portfolio is a tool used by artists,
models, and advertising people to visually
demonstrate their abilities and their past
work. You may have been asked to develop
a portfolio for this or other classes that
includes the major projects and activities

you complete during the year.
A career portfolio is an excellent
resource to help you with career planning
and job applications. A career portfolio is
an organized collection of information and
S materials developed to represent you, your How can a career portfolio help you get the job
N preparation, and your accomplishments. you want?
666
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Figure This
Changing Job Market Think Critically
Between 1994 and 2007, the types of jobs 1. What is the increase or decrease in
in the U.S. economy underwent a great deal employment in each category?
of change. The following table shows the 2. What is the percentage increase or
number of employees (in thousands) in three decrease in each category?
job categories. Notice which job types have 3. Why do you believe manufacturing
increased or decreased. employment decreased while
Category 1994 2007 employment in retailing and service busi-
Manufacturing 16,722 14,003 nesses increased during that time?
Retail 13,149 15,401
Service 88,851 115,675
Select and organize items for your review your work. You will add to the
portfolio that you believe provide the best portfolio as you continue your education
evidence of your marketing knowledge and work, so design the portfolio so that
and skills. Those items can include tests, items can easily be added or removed.
reports, and projects completed in classes, The newest type of career portfolio is
summaries of aptitude or interest tests an electronic portfolio or e-portfolio. An
you have taken, projects and activities you electronic portfolio is prepared, main-
completed in a club or organization, and tained, and saved using computer
even work done for a hobby if it demon- technology. Developing your portfolio
strates important business or marketing electronically not only demonstrates your
skills. For example, you may have devel- proficiency with technology but makes it
oped a personal web site on your computer easier to update as well as share your port-
that demonstrates technology skills. You folio with others. Scan copies of printed
may have won an award for a marketing materials you want to include in your port-
research report you prepared and pre- folio but retain the original versions.
sented for a state or national DECA com-
petition. Both the report and the award are Applying for the Job You Want
excellent additions to your portfolio. Once you have prepared your career plan
If you have worked for a business, you and portfolio, you are ready to begin your
may have work reports or performance job search and then apply for the market-
reviews that can be incorporated into your ing job you want.
career portfolio. If you completed a spe-
cial project on the job and your employer Identify Jobs The first step in a job
allows you to have a copy, it should be in- search is to identify available positions.
cluded. Photos of work you have completed Newspapers are one of the best sources
provide interesting evidence of skills. Any for listings of available jobs. They are also
awards or recognition you have received in usually organized by the type of job or
school or on the job should be included as job title.
well. The Internet has become a very
Make sure your portfolio is well orga- important tool for job searches. Most
nized so that you can easily locate items companies maintain a listing of open S
when needed and others can quickly positions on their web sites. There are also N
667
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How has technology changed the way people search and apply for jobs?
specific web sites where companies can list about the company, you will be able to
their job openings. Examples are monster. clearly communicate the benefits you can
com and CareerBuilder.com. Many of the provide as an employee.
web sites allow you to search for jobs by
job category, specific job title, company Complete Application Materials If
name, or geographic location. Many sites you are applying for a job in writing,
let individuals develop and post their you will want to send a cover letter and
resumes online. Some will even match the printed resume. The cover letter makes
resumes to available jobs and send match- a first impression, so be sure it is well
ing resumes to the businesses with job organized, easy to read, and error free.
openings. Other sources of job openings Address it to a specific person if possible.
are career centers in schools, employment In the letter, highlight your strengths and
agencies, and recommendations from emphasize why you want to work for the
family members and friends. company.
Your resume will outline your prepa-
Make a Career Match Your career ration and experience. Using a computer,
plan will help you identify the compa- tailor your general resume to the company
nies and select the jobs that most closely before you send it. The information in your
match your current interests and abilities career portfolio will be useful in complet-
and fit your long-term career goal. From ing your resume and cover letter. Select the
the available jobs, select those for which information that most closely matches the
you are qualified and interested. job requirements.
After you have selected a few jobs, Companies will usually ask you to
gather information about each of the complete a written application. Have a
companies on the list. By learning about written copy of all personal information
the company, you can show the employer with you when you fill out the application
how your skills will specifically benefit the to make sure it is complete and accurate.
company. Businesses want to hire people Print application information carefully to
S who will contribute to their operations. By ensure that it is readable and to show that
N preparing in advance using information you are careful and accurate in your work.
668
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Virtual Job Applications and Resumes

Seeking a job no longer requires “pounding concerns, call the
the pavement.” With the assistance of the Inter- company before
net and a reliable computer, many jobs can be submitting personal
applied for online. information. Also,
If you have an idea of the company where before you submit the
you would like to work, go directly to the com- application, carefully
pany’s web site. Make sure that you are at the review the information
official home page of the business. you have entered to make
Look for a navigation bar tab on the web site sure that all sections of
that refers to employment. Within the employ- the application have
ment section of a web site, you may have the been completed.
option of performing an online job search. Selec- Proofread all
tion criteria might include keyword, location, or information to
department of interest. make sure that it is
Many business web sites provide the oppor- accurate and that
tunity to complete and submit online applica- there are no spelling
tions for all levels of employment. Entry-level jobs errors. Print a copy of
may require only a completed online application the application for your records.
form. Applications for higher-level positions may Merely applying for a job online is not suf-
require the completion of a simplified online ficient. Personal networking is still among the
form and the submission of a resume, a cover let- most effective ways to obtain employment. An
ter, and other written materials as attachments to interested contact inside a company who knows
the application. about your job search efforts can help “pull” your
Customize resumes and cover letters for spe- application through the organization by endors-
cific jobs. Follow the web site’s directions regarding the value of your credentials to the decision
ing how to format the resume for transmission. makers.
Simple formatting is best as complex formats Unless you are told not to do so in the
and the use of colors and unique fonts may not instructions, you should follow up with a phone
transmit correctly. call or e-mail to the appropriate decision maker.
Read all directions and information carefully. Always be polite when communicating with pro-
Most companies have a policy that inaccurate spective employers. Time your follow-up contacts
application information is grounds for dismissal. to show your interest but not to be annoying.
If you are chosen for an interview, you will need
to produce documentation confirming that you Develop Your Skill
are eligible for employment. Personal paperwork Identify a job that you would like to have. Look
may include a driver’s license, a Social Security for online applications for the job at three dif-
card, a birth certificate, or a U.S. passport. Prior to ferent companies. Compare the applications for
submitting your application, make sure that all each of the companies. If possible, print a copy of
information is accurate and that you have your each application and practice completing it.
personal paperwork in order. Work with a teacher or guidance counselor
Always use caution when submitting informa- to review your completed applications. Ask for
tion online. You want to avoid revealing personal advice to improve each application.
information on a non-secure web site. If you have
S
N
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Complete a Successful
Interview If you have not had
a lot of experience with job inter-
views, you may be nervous. Once
again, the careful and thorough
preparation you have completed
will help give you confidence if
you are selected for an interview.
You know a great deal about your-
self and the job for which you are
applying.
It is important to have a profes-
sional appearance in an interview.
You want to wear appropriate busi-
ness apparel that is compatible with
what employees in the business
normally wear at work.
Make sure you are on time for
the interview. If possible, identify

in advance the name of the person
who will interview you so that you
can ask for that person and use his
or her name during the interview.
Unless you are told not to do so,
you can bring selected items from
your portfolio. You will probably be Why is it important for the interviewee to ask questions
given the opportunity to show and during the interview?
describe them during the interview
if you have them. Do not hesitate to refer
The Decision Don’t expect that you
will be offered every job for which you
to examples of your work when answering
apply. Your preparation increases the like-
questions.
lihood that you will be hired if you select
Communicate your interest in a
jobs that are good matches with your
marketing career and how the job fits into
interests and qualifications.
your career goals. Make sure the employer
You will also need to decide if you will
knows you are interested in working for
accept the job if it is offered to you. You
the company and want to do a good job
should use the interview to gather infor-
because of your interests in marketing.
mation to be able to make that decision. If
Demonstrate confidence and profes-
the job is not what you expected or does
sionalism during the interview. Do not be
not fit your career plan, you may choose
afraid to ask questions about the company
to decline an offer. The person making
and the job. In fact, you should prepare
the offer will probably be impressed if you
several questions in advance and be pre-
clearly communicate why you don’t believe
pared to ask them.
the job is the best choice for you. If you de-
When the interview is finished, thank
cide to accept the job, you will do so with
the interviewer for the opportunity. Clar-
the confidence that it is the job that best
ify what will happen after the interview
meets your career plans.
and when you can expect to hear from the
company. Send a personal note of thanks
to the interviewer as soon as possible. Use Checkpoint
S the note to highlight one or two unique
N qualities you can offer. When is it appropriate to decline a job offer?
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What tips would you give to a job applicant to help ensure a successful interview?

Determine the best answer. 5. Research Identify one marketing and one
1. True or False: Work experience in business non-marketing job that interest you. Use
is always an advantage when applying for a career information from your school’s career
marketing job. center or the Internet to identify the important
knowledge, skills, education, and experience
2. The first step in developing an effective
required for each job. Prepare a table for each
career plan is to
job with the headings, “What I Have” and “What
a. complete an assessment of your current
I Need.” In each column of the table, describe
knowledge, skills, and interests
your current qualifications for that job and
b. identify current job openings
what you still need to develop.
c. make a list of the knowledge and skills you
will need to develop 6. Career Planning Form a team with three other
d. write a general career plan students. Prepare two role-plays of job inter-
views. The first role-play should illustrate an
3. A is an organized collection of
ineffective job interview, and the second one
information and materials developed to
should illustrate an effective interview. Present
represent you, your preparation, and your
both role-plays to other teams and have them
accomplishments.
identify what was effective and ineffective.
4. Which of the following statements is not true
about interviewing for a job? Connect to
a. Wear appropriate business apparel that is 7. Use a computer to prepare a professional re-
similar to what the business’s employees sume you could use to apply for a career-level
normally wear. marketing job of your choice. Carefully edit
b. Know and use the name of the person and print your resume. Present a copy of your
who interviews you. resume to your teacher (judge) and explain
c. Bring selected items from your portfolio why you believe it is an effective resume for
and refer to them when answering the job you selected. Be prepared to discuss
questions. your resume and answer questions about the S
d. Always accept the job if it is offered to you. information you included. N
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Now that you have completed the chapter, check identify several benefits of working in
your understanding of the lessons with these ques- marketing?
tions. Record the score that best represents your discuss the benefits of preparing a career plan?
describe the five employment levels for market-
1 = not at all; 3 = somewhat; 5 = very well ing jobs?
If your score is 42–50, you are ready for the assess- explain the importance of understanding busi-
ment activities that follow. If you score 33–41, you ness foundations and marketing functions when
should review the lessons for the items you scored preparing for a marketing career?
1–3. If you score 32 or less, you will want to carefully describe the benefits of participation in a high
reread the lessons and work with a study partner on school Marketing Education program?
the areas you do not understand. explain the difference between management
Can you— and non-management career paths?
explain why marketing is one of the most impor- describe the steps to complete when preparing a
tant functions in business today? career plan?
provide examples of how marketing jobs explain how a career portfolio can be beneficial
improve the economy? in applying for a marketing job and completing a
job interview?

1. The type of business or the business function in 9. An international association of high school and
which you plan to work college students studying marketing, manage-
2. Any full- or part-time work in a specific position ment, and entrepreneurship in business, finance,
of employment hospitality, and marketing sales and service
3. Identifies the progression of jobs in your career 10. An ongoing process involving self assessment,
path, your plans for education, training, and ex- career exploration, and decision making leading
perience to meet the requirements for those jobs, to a satisfying career decision
and a time schedule for accomplishing the plan
4. Career information prepared, maintained, and
saved using computer technology a. career
5. A chosen area of work, usually made up of a b. career area
progression of jobs, that provides personal and c. career path
professional satisfaction d. career plan
6. A series of related jobs with increasing knowl- e. career planning
edge and skill requirements and greater f. career portfolio
amounts of responsibility g. DECA
7. The completion of marketing activities is the h. electronic portfolio (e-portfolio)
most important or only job responsibility i. job
8. An organized collection of information and ma- j. Marketing Education program
S terials developed to represent you, your prepara- k. marketing job
N tion, and your accomplishments
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11. True or False: While there are a large number of 20. True or False: To be success-
marketing jobs available in our economy, they ful, a career path must end
are generally low paying. in a management job.
12. True or False: Companies that have non- 21. True or False: Once you
marketing activities as their primary purpose will have chosen an industry
usually employ some marketing employees. in which to work, it will
13. True or False: If you are interested in a profes- be very difficult to switch to a marketing job in
sional career, such as a physician or dentist, an another industry.
understanding of marketing is useful in your 22. True or False: Career planning is much more im-
work. portant to career success today than it was in the
14. True or False: Two types of businesses that are past.
not involved in marketing are manufacturing 23. True or False: Employers are more likely to hire
and farming. someone with academic experience and work
15. True or False: Marketing jobs are found at the experience than someone with just academic
lowest and highest levels of a company. experience.
16. True or False: Once you have prepared a career 24. True or False: A self-assessment of your knowl-
plan, it should not be changed. edge, skills, and interests is a good starting point
for career planning.
17. True or False: Most entry-level marketing jobs
require at least a high school diploma. 25. True or False: A career plan will not be useful un-
less it is very specific.
18. True or False: The people with the greatest
amount of authority and responsibility for mar- 26. True or False: Whenever possible, you should
keting are executives and business owners. prepare a specific resume for each prospective
employer.
19. True or False: Marketing education is actually a
lifelong experience since you can study market- 27. True or False: Even if a job does not fit your ex-
ing from middle school through graduate school pectations after the interview, you should accept
and beyond. it if it is offered to you.

28. Many marketing occupations are among the jobs Prepare a table that identifies the college, the
employing the most people in the U.S. economy. title of the marketing degree, the total number
Also, marketing careers are normally among the of credits needed to earn the degree, and the
fastest-growing occupations. Use the Internet total number of marketing credits needed to
to locate employment statistics for the United earn the degree. Now determine the combined
States or for your state. Identify jobs you believe total number of credits in the academic subjects
are marketing occupations that are among of communications (English, writing, speech, and
those employing the most people or among literature), mathematics, and science.
the fastest-growing occupations. List the jobs Calculate the percentage of total credits that
and identify those you would be interested in will be marketing courses, the percentage of
for your future career and those that would not credits in the academic subjects, and the per-
interest you. Provide reasons for your decisions. centage of total credits for all other course work.
29. Using your library or the Internet, locate Prepare a pie chart to illustrate your findings.
information on three 2-year or 4-year colleges What conclusions can you draw from the table
that offer degrees in marketing. Study the and chart?
courses you would have to complete to earn 30. Select one of the nine marketing functions that
the degree. interests you as a possible career area. Using S
career resources in your school’s library, career N
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center, or the Internet, identify three jobs that “Companies should select the most skilled em-
would make up a career path in the marketing ployees in each area to become managers.”
function you selected. One of the jobs should be vs.
an entry-level job, one should be a career-level “Companies should recognize and reward their
or specialist-level job, and one should be a most skilled employees but keep them work-
supervisor/manager-level or executive/ ing in the areas where they are the most skilled
owner-level job. Based on your research, rather than promoting them to management.”
prepare a detailed job description for each Each team will be assigned one of the two posi-
job and identify the following: tions for the debate. The team members will work
• the amount of education you believe is together to develop arguments for their position
necessary to obtain the job and against the opposing position. Each team
• the amount and type of work experience that will have five minutes to present the reasons for
you believe would be expected of a person their positions. Then each team will have five
hired for the job minutes to present reasons against the opposite
position or to directly rebut the arguments of the
• an approximate wage or salary you believe the other team.
job would pay At the end of the debate, the entire class should
31. Following the instructions of your teacher, form discuss the effectiveness of the presentations
two teams of students and prepare to debate the on each side of the issue. Then other members
following issue: of the class can present their own views of the
debate topic.

32. You are the manager of a customer service team e-commerce. For each job, identify the market-
for a telephone service provider in your city. ing function or functions that are the focus of
Your customer service representatives respond the work of the employee. Select at least two
to telephoned and e-mailed questions from of the jobs that interest you. Again using the
customers who want to add or change their local Internet, locate two companies that are currently
services or are experiencing problems and are attempting to hire a person for the type of jobs
contacting your business for help. The customer you identified. For each company, print the job
service representatives will have specific training advertisement that identifies the job title, job
so that they know the information about the ser- description, requirements, and any other infor-
vices provided, and they can access a computer mation provided. Write a short statement for
program that will provide suggested answers to each position describing how you believe the
customer problems. If the problem cannot be job would be different if it was part of a business
solved, the representative will schedule an ap- that was not involved in e-commerce.
pointment with a technician who can go to the 34. Begin the development of a career portfolio.
customer’s home to make a repair. Prepare a three-ring binder or some other useful
You will be hiring 15 new customer service rep- means of organizing and maintaining your
resentatives. Based on the information provided, portfolio materials. Identify the categories of
write an advertisement for the position. Include materials that you want to include in your port-
an overview of the position and a description of folio such as class projects, work products, and
the qualifications you would require of job others you believe are important as evidence of
applicants. What procedures would you follow your career preparation. Begin to add items to
and what materials would you require of the portfolio. Prepare a list of the types of items
job applicants in order to select the best you would like to develop and include in your
new employees? portfolio. Use word processing and computer
S 33. Using an Internet browser and search engine, graphics programs to prepare the portfolio
N identify five marketing jobs directly related to materials so that they have a professional look.
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Restaurant and Food
Service Management
The Green Performance Indicators
Lantern Steak
House has
Evaluated
been a successful family-owned restaurant • Explain the nature of positive customer/
for many years. The restaurant is famous for client relations. (Emotional Intelligence)
delicious steaks, pasta, chicken, fish, and a • Demonstrate a customer-service mindset.
large fresh salad and homemade soup bar. (Emotional Intelligence)
Loyal customers come from a 50-mile radius • Explain management’s role
to enjoy the excellent food and service in customer relations.
offered at the Green Lantern Steak House. (Emotional Intelligence)
The Green Lantern Steak House has been
in business for 40 years in a community with • Develop strategies to posi-
a population of 5,000 people. Fireworks is tion the business. (Product/
a new full-service restaurant that has been Service Management)
the first serious source of competition for • Evaluate the customer experience.
Green Lantern since it has been in business. (Product/Service Management)
The Green Lantern Steakhouse has lost ap-
proximately 30 percent of its business since
Fireworks opened.
Fireworks offers delicious sandwiches and
steaks for higher prices. The restaurant also Think Critically
has live musical entertainment on Friday and 1. What factors should the Green Lan-
Saturday nights. tern Steak House emphasize in its
The manager of the Green Lantern has advertising campaign?
asked your team to outline marketing and 2. How can daily specials be used to
customer service strategies to recapture recapture customers?
customers. You will have ten minutes to
3. What is the best means of advertising for
explain your strategies to the manager
the target market?
(judge). During and after your presentation,
PHOTOS: ©DECA INC.
the manager can ask questions about 4. How can competition be good for an exist-
your proposed marketing and customer ing business that has experienced years of
service strategies for sparking new interest success?
in the restaurant.
S
675
23-1 • Benefits of a Marketing
DECACareer
Prep 675
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Glossary
A atmospherics elements of the boycott an organized effort to in-

account executive the key liaison shopping environment that fluence a company by refusing
between the client and the appeal to customers, attract to purchase its products
agency them to a store, and encourage brand a unique name, symbol, or
them to buy design that identifies a prod-
account planner one who talks to
the target markets, conducts attitude a frame of mind devel- uct, service, or company
research, and even travels to oped from a person’s values, brand advertising builds an
see how the target market beliefs, and feelings image for a brand or company
lives, works, and thinks attribute-based good products breakeven point the quantity of
accounting and finance the in which a variety of differ- a product that must be sold for
business function that plans ences exist, and the consumer total revenues to match total
and manages financial re- considers a number of factors costs at a specific price
sources and maintains records to determine the best value brick-and-click businesses com-
and information related to a panies that combine traditional
business’s finances business operations with the
B use of the Internet
accounts receivable sales for B2B business-to-business
which the company has not brick-and-mortar businesses
yet been paid B2C business-to-consumer companies that complete most
advertising any paid form of balance of trade the difference of their business activities by
nonpersonal communication between the amount of a means other than the Internet
that uses mass media to deliver country’s imports and exports broadcast media a signal is sent
a marketer’s message to an balance sheet a description of from a central transmitter to
audience the type and amount of assets, receivers in a geographic area
advertising agency a company liabilities, and capital in a busi- budget a detailed projection of
that specializes in creative ness on a specified date financial performance for a
advertising bartering exchanging products or specific time period, usually
services with others by agree- one year or less
advertising campaign series of
related advertisements with a ing on their values without bundling the practice of combin-
similar look, feel, and theme using money ing several related services for
that centers on a specific pro- basic stock list identifies the one price
duct, service, or brand products a store must have business blogs regularly updated
available to meet the most online journals written by com-
advertising plan a document
important needs of its pany experts
that outlines the activities to
be completed and resources customers business consumers those who
needed to create advertising benefit the advantage provided buy goods and services to pro-
to a customer as a result of the duce and market other goods
analysis the process of summariz-
feature and services or for resale
ing, combining, or comparing
information so that decisions benefit segmentation divides business cycles recurring changes
can be made consumers into groups de- in an economy
approach the first contact with pending on specific values or business markets companies and
the customer when the sales- benefits they expect or require organizations that purchase
person gets the customer’s from the use of a product or products for the operation of a
attention and creates interest service business or the completion of a
in the product bidding several suppliers develop business activity
specific prices at which they business plan a written docu-
art director the person respon-
will meet detailed purchase ment prepared to guide the
sible for how the ad will look
specifications and other criteria development and operation of
assets things a business owns prepared by the buyer a new business
676 Glossary
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business-to-business marketing central market a location where consumer credit credit extended
exchange of products and ser- people bring products to be by a retail business to the final
vices between businesses conveniently exchanged consumer
buying behavior the decision channel captain a company that consumer decision-making
processes and actions of con- takes responsibility to iden- process the process by which
sumers as they buy services tify channel members, assign consumers collect information
and products distribution activities, help and choose among alternatives
buying motives the reasons that members agree on perfor-
consumer markets individuals
people buy mance standards, and facilitate
or socially related groups who
communication among chan-
purchase products for personal
nel members
C consumption
capital the difference between channel members the businesses
consumer perceptions the
the amount of a company’s as- used to provide many of the
images consumers have of
sets and liabilities, or the actual marketing functions during the
competing goods and services
value of the business distribution process
in the marketplace
capital expenses long-term in- channel of distribution all of
consumer price index the change
vestments in land, buildings, or the businesses involved in
in the cost of a specified set of
equipment completing marketing
goods and services over time
activities as products move
career a chosen area of work, usu- from the producer to the consumerism the organized
ally made up of a progression consumer actions of groups of con-
of jobs, that provides personal sumers seeking to increase
and professional satisfaction charter a legal document allowing
a corporation to operate as if it their influence on business
career area the type of business were a person practices
or the business function in controllable risk a risk that can
which you plan to work click-only businesses companies
that complete almost all be reduced or even avoided by
career path a series of related jobs of their business activities actions you take
with increasing knowledge and through the Internet controlled economy an eco-
skill requirements and greater nomic system where the gov-
amounts of responsibility close the step in the sales process
when the customer makes a ernment attempts to own and
career plan identifies the progres- decision to purchase control important resources
sion of jobs in your career path, and to make the decisions
your plans for education, train- closed-ended questions ques- about what will be produced
ing, and experience to meet the tions that offer two or more and consumed
requirements for those jobs, choices as answers
controlling measuring perfor-
and a time schedule for accom- code of ethics a set of standards mance, comparing it with goals
plishing the plan or rules that guide ethical busi- and objectives, and making
career planning an ongoing pro- ness behavior adjustments when necessary
cess involving self-assessment, cold calling a salesperson
copywriter the person who writes
career exploration, and deci- contacts a large number of
the words in the ad
sion making leading to a satis- people who are conveniently
fying career decision located without knowing a corporate advertising advertis-
great deal about each person ing for a company
career portfolio an organized
collection of information and contacted corporation a business owned by
materials developed to repre- communication process the people who purchase stock in
sent you, your preparation, and transfer of a message from a the company
your accomplishments sender to a receiver corrective ads ads that companies
cease-and-desist order a legal consumer behavior the study of are required to run to correct
order to discontinue deceptive consumers and how they make any false impressions left by
advertising decisions deceptive ads
Glossary 677
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creative director one who helps a business in order to operate E
guide the creative process at a level that will meet the e-commerce involves business
and ensures that the creative demand of its customers activities, including the
team’s work conveys the right direct channel the producer exchange of goods, services,
message and is in line with the sells the product to final and information, completed
client’s needs consumers electronically via the internet
creative strategy how a company direct competition competition economic market all of the con-
positions its brand and product in a market with businesses sumers who will purchase a
in its advertising that offer the same type of particular product or service
creativity the ability to use product or service economic resources classified
imaginative skills to find direct demand the quantity of a as natural resources, capital,
unique ways to solve problems product or service needed to equipment, and labor
culture the history, beliefs, cus- meet the needs of the economic risk a risk that is caused
toms, and traditions of a group consumer by the uncertainty of market
direct exporting a company takes forces, economic trends, and
D complete responsibility for politics
DECA an international associa- marketing its product in other economic utility the amount
tion of high school and college countries of satisfaction a consumer
students studying marketing, discounts and allowances re- receives from the consump-
management, and entrepre- ductions in a price given to tion of a particular product or
neurship in business, finance, the customer in exchange for service
hospitality, and marketing performing certain marketing elastic demand market situation
sales and service activities or accepting some- in which a price decrease will
decision a choice among thing other than what would increase total revenue
alternatives normally be expected in the
elasticity of demand describes
decoding the process by which exchange
the relationship between
the receiver interprets the discretionary income the amount changes in a product’s price
transmitted language and of income left after paying and the demand for that
symbols to comprehend the basic living expenses and product
message taxes
electronic portfolio (e-portfolio)
demand a relationship between discretionary purchases non- a career portfolio prepared,
the quantity of a product con- essential purchases that satisfy maintained, and saved using
sumers are willing and able to consumers’ wants computer technology
purchase and the price distribution (place) the locations emergency goods products or
demand curve a graph that and methods used to make the services that are purchased as
illustrates the relationship product available to customers a result of an urgent need
between price and the quan- distribution centers a facility emotional motives the forces
tity demanded used to accumulate products of love, affection, guilt, fear,
demographics the descriptive from several sources and then or passion that compel con-
characteristics of a market such regroup, repackage, and send sumers to buy
as age, gender, race, income, them as quickly as possible to
employee empowerment an
and educational level the locations where they will
approach to customer service
demonstration a personalized be used
that gives employees the au-
presentation of the features of distribution function determin- thority to solve many customer
the product in a way that em- ing the best methods and problems
phasizes the benefits and value procedures to use so that pro- encoding when the sender
to the customer spective customers can locate, converts an idea into a mes-
derived demand the quantity of obtain, and use a business’s sage that the receiver can
a product or service needed by products and services understand
678 Glossary
CH 24-B4491-PB1.indd 678 12/13/07 12:31:16 AM

endorsement an advertisement in FOB pricing identifies the location gross national product (GNP) the
which a satisfied user publicly from which the buyer pays the total value of all goods and
expresses approval of a prod- transportation costs and takes services produced by a coun-
uct or service title to the products purchased try during the year, including
entrepreneur someone who takes focus group a small number of foreign investments
the risk to start a new business people brought together to guarantee a general promise or
entrepreneurship the process of discuss identified elements of assurance of quality
planning, creating, and manag- an issue or problem
ing a new business follow-up making contact with H
the customer after the sale to heterogeneous differences
ethics moral principles or values
ensure satisfaction between services
based on honesty and fairness
foreign investment owning all or human risk a risk that arises
executive summary a short writ-
part of an existing business in because of the potential
ten summary that provides an
another country actions of individuals,
overview of the business con-
groups, or organizations
cept and the important points foreign production a company
in the business plan owns and operates production
facilities in another country I
experiments controlled situa- image a unique, memorable
tions in which all factors are franchising a business relation- quality of a brand
the same except the one being ship in which the developer of
studied a business idea sells others the imports products or services
rights to the business idea and purchased from another
exports products and services country
sold to people in other the use of the business name
countries free economy an economic impulse goods items purchased
system in which resources are on the spur of the moment
external information provides without advance planning
an understanding of factors owned by individuals and deci-
outside of the organization sions are made independently income statement a report on the
with no attempt at govern- amount and source of revenue
ment regulation or control and the amount and type of
F expenses for a specific period
feature a description of a product frequency the number of times a
member of the target audience of time
characteristic
is exposed to the advertising indirect channel includes other
feedback the receiver’s response message businesses between the pro-
to the message ducer and the consumer
final consumers those who buy a G indirect competition occurs
product or service for personal geographic segmentation divid- when a business competes
use ing consumers into markets with other companies offering
financial forecast a numerical based on where they live products that are not in the
prediction of future perfor- green (environmental) mar- same product category but sat-
mance related to revenue and keting marketing activities isfy similar customer needs
expenses designed to satisfy customer indirect exporting the process in
financial statement a detailed needs without negatively im- which marketing businesses
summary of the financial pacting the environment with exporting experience rep-
performance for a business or a gross domestic product resent the exporting company
part of a business (GDP) the total value of goods and arrange for the sale of
fine a monetary penalty imposed and services produced within a products in other countries
on an offending company country during the year industrial economy economy in
flexible pricing policy allows gross margin the difference be- which the primary business
customers to negotiate price tween the cost of the product activity is the manufacturing of
within a price range and the selling price products
Glossary 679
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inelastic demand market situa- companies cooperate in com- management involves develop-
tion in which a price decrease mon business activities ing, implementing, and evalu-
will decrease total revenue just-in-time (JIT) inventory level ating the plans and activities of
inflation when prices increase is kept low and resupplied just a business
faster than the value of goods as it is needed managing getting the work of an
and services organization done through its
input information that goes into L people and resources
the system that is needed for labor intensiveness the amount markdown a reduction from the
decision making of human effort required to original selling price
inseparable the service is pro- deliver a service market the prospective customers
duced and consumed at the law of demand when the price of a business wants to serve and
same time a product is increased, less will the location of those customers
insurable risk a risk that is faced be demanded and when the market analysis identifies a
by a large number of people, price is decreased, more will be business’s strengths and weak-
is pure rather than speculative, demanded nesses and the opportunities
and the amount of the loss can law of supply when the price of and threats it faces
be predicted a product is increased, more market intelligence the process
intangible incapable of being will be produced and when the of gaining competitive market
touched, seen, tasted, heard, price is decreased, less will be information
or felt produced market opportunity an identified
integrated occurs when market- lead time the amount of time market with excellent potential
ing is considered an essential required to place an ad based on careful research
part of the business and is leading the ability to communi- market opportunity analysis
involved in all important busi- cate the direction of the busi- studying and prioritizing mar-
ness decisions ness and to influence others ket segments to locate the best
internal information information to successfully carry out the potential based on demand
developed from activities that needed work and competition
occur within the organization liabilities the amounts a business market position the unique im-
international trade the sale owes age of a product or service in
of products and services to a consumer’s mind relative to
liability a legal responsibility for
people in other countries similar competitive offerings
loss or damage
interpersonal communica- market potential the total
licensed brand a well-known
tion any person-to-person revenue that can be obtained
name or symbol established
exchange from the market segment
by one company and sold for
inventory the assortment of prod- use by another company to market price the point where
ucts maintained by a business promote its products supply and demand for a prod-
inventory shrinkage a loss of uct are equal
lifestyle the way a person lives as
products due to theft, fraud, reflected by material goods, market segmentation the pro-
negligence, or error activities, and relationships cess of dividing a large group
invoice an itemized billing state- of consumers into subgroups
long-range planning analyzing based on specific characteris-
ment with terms of payment information that can affect the
for the order tics and common needs
business over a long period of
time market segments groups of simi-
J lar consumers within a larger
job any full- or part-time work market
in a specific position of M market share the portion of the
employment macroeconomics the study of total market potential that
joint venture business relation- economic behavior and rela- each company expects in rela-
ship in which independent tionships for the entire society tion to its competitors
680 Glossary
CH 24-B4491-PB1.indd 680 12/13/07 12:31:17 AM

marketing the creation and main- through the use of scientific mixed merchandise retailers
tenance of satisfying exchange problem solving businesses that offer products
relationships marketing strategy the way mar- from several different
marketing concept using the keting activities are planned categories
needs of customers as the and coordinated to achieve an model stock list the complete
primary focus during the organization’s goals assortment of products a
planning, production, pricing, markup an amount added to the store would like to offer to
distribution, and promotion of cost of a product to determine customers
a product or service the selling price money system the use of cur-
Marketing Education program mass communication an attempt rency as a recognized medium
a career program that in- to reach a wide audience of exchange
corporates three types of through mass media such as monopolistic competition the
complementary learning radio, television, magazines, type of market in which there
experiences—introductory and and newspapers are many firms competing with
advanced courses in market- mass marketing directs a com- products that are somewhat
ing, business work experiences, pany’s marketing mix at a large different
and a student organization and heterogeneous group of monopoly the type of market in
called DECA consumers which there is only one sup-
marketing effectiveness both media plan a detailed listing of plier offering a unique product
customers and the business where and when ads will run motivation the set of positive or
are satisfied
media planner the person who negative factors that direct
marketing information system develops the media plan individual behavior
(MkIS) an organized method merchandise plan identifies the multinational companies busi-
of collecting, storing, analyz- types, assortments, prices, and nesses that have operations
ing, and retrieving information quantities of products that will throughout the world and that
to improve the effectiveness be stocked by the business for conduct planning for world-
and efficiency of marketing a specific period of time wide markets
decisions
merchandising offering products
marketing job a job in which produced or manufactured by
the completion of marketing others for sale to customers N
activities is the most important natural risk a risk that is caused
message what is being
or only job responsibility by the unpredictability of
communicated
marketing management the pro- nature, such as the weather
message channel the vehicle by
cess of coordinating resources need anything you require to live
which the message travels
to plan and implement an ef- net profit the difference between
ficient marketing strategy microcredit provides small value
loans to people who cannot the selling price and all costs
marketing mix blending of the qualify for traditional bank and operating expenses associ-
four marketing elements loans ated with the product sold
(product, distribution, price, netiquette the informal code of
and promotion) by the microeconomics the study of re-
lationships between individual conduct regarding acceptable
business online behavior
consumers and producers
marketing plan a clear written new product something that is
mission the nature of the business
description of the marketing entirely new or changed in an
or the reasons the business
strategies of a business and the important and noticeable way
exists
way the business will operate
to accomplish each strategy mixed economy an economic noise any distracting information
system in which some goods in the transmission, the mes-
marketing research a proce- sage channel, or the receiver’s
and services are provided by
dure to identify solutions to environment that may inhibit
the government and some by
a specific marketing problem or distract from the message
private enterprise
Glossary 681
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non-business organization has partnership a business that is planning involves analyzing
something other than provid- owned and operated by two information, setting goals, and
ing products and services for a or more people who share in determining how to achieve
profit as its primary focus the decision making and them
non-price competition when profitability of the company policies rules or guidelines to be
businesses decide to empha- partnership agreement a legal used in a company to make
size factors of their marketing document that specifies the consistent decisions
mix other than price responsibilities and financial population all of the people in
non-store retailing involves sell- relationships of business the group that a company is
ing directly to the consumer at partners interested in studying
home rather than requiring the patronage motives the reasons pop-up an advertisement that
consumer to travel to a store to buy based on loyalty opens in a new window when
penetration price a very low a web page is being viewed
O price designed to increase the positioning statement a spe-
observation a way to collect infor- quantity sold of a product by cific description of the unique
mation by recording actions emphasizing the value qualities of the marketing mix
without interacting or commu- performance standard specifies that make it different from the
nicating with the participant the minimum level of ex- competition and satisfying to
oligopoly the type of market pected performance for an the target market
in which a few businesses activity postindustrial economy eco-
offer very similar products or perishable incapable of being nomy that is based on a mix
services stored for use at a future time of business and consumer
one-price policy all customers perpetual inventory system products and services pro-
pay the same price determines the amount of a duced and marketed in the
product on hand by maintain- global marketplace
open-ended questions questions
that allow respondents to ing records on purchases and preapproach gathering pre-
develop their own answers sales liminary information and
without information about personal identity the characteris- preparing a preliminary sales
possible choices tics and character that make a presentation for a customer
operating expenses all costs asso- person unique preindustrial economy economy
ciated with business operations personal selling person-to- that is based on agriculture
person communication with a and raw material develop-
operations the ongoing activities ment through activities such
designed to support the pri- potential customer in an effort
to inform, persuade, or remind as mining, oil production, and
mary function of a business and harvesting timber
keep it operating efficiently the customer to purchase an
organization’s products or price the actual amount cus-
opportunity the possibility for services tomers pay and the methods
success of increasing the value of the
personality an enduring pattern
organizing arranging people, of emotions and behavior that product to the customers
activities, and resources in the define an individual price competition rivalry among
best way to accomplish the businesses on the basis of price
goals of an organization physical distribution (logistics)
the process of efficiently and and value
output the result of analysis that is effectively moving products price lines distinct categories of
given to decision makers and materials through the prices based ondifferences in
distribution channel product quality and features
P physical inventory system deter- price-based goods products that
packing list an itemized listing of mines the amount of product consumers believe are similar
all of the products included in on hand by visually inspecting but have significant price
the shipment and counting the items differences
682 Glossary
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primary data information col- in the marketing mix to satisfy purchase order a form listing the
lected for the first time to solve different needs in a market variety, quantity, and prices of
the problem being studied product usage how frequently products ordered
private enterprise an economic consumers use products purchase specifications detailed
system based on independent and the quantity of product requirements for construction
decisions by businesses and used or performance of a product
consumers with only a limited production the business function purchasing determining the
government role regulating that creates or obtains prod- products and services needed,
those relationships ucts or services for sale identifying the best sources
procedures the steps to be fol- productivity the average output to obtain them, and complet-
lowed for consistent perfor- by workers for a specific period ing the activities necessary to
mance of important activities of time obtain and use them
producer the person that facili- professional liability purchasing power the amount
tates everything that hap- of goods and services that can
insurance provides protection
pens after the client agrees to be purchased with a specific
against claims of negligent or
develop an ad or campaign amount of money
harmful actions by business
product anything offered to a professionals pure competition the type
market by the business to sat- of market in which many
profit motive the use of resources
isfy needs, including physical suppliers offer very similar
toward the greatest profit for
products, services, and ideas products
the producer regulating those
product advertising gives the relationships pure risk a risk that presents the
benefits of a specific product chance of loss but no opportu-
promotion any form of communi-
or service and relies on rational nity for gain
cation used to inform, per-
arguments why a customer
suade, or remind consumers
should buy it
about a company’s products Q
product assortment the com- or services qualifying gathering information
plete set of all products a busi- to determine which people are
promotional mix the combina-
ness offers to its market most likely to buy
tion of advertising, personal
product cost includes the cost selling, public relations, and qualitative research research that
of parts and raw materials (or sales promotion that marketers interprets the why and how of
the price paid to a supplier use to reach a target market people’s opinions
for finished products), labor,
promotional plan the blueprint quantitative research collecting
transportation, insurance, and
for how the elements of the data that can be classified into
an amount for damaged, lost,
promotional mix will work meaningful numerical values
or stolen products
together to deliver a consistent quotas limits on the numbers of
product fulfillment center pro- message
vides some or all of the activi- specific types of products that
ties required to fill customer proprietor a person who has sole foreign companies can sell in
orders ownership of a business the country
product liability insurance pro- proprietorship a business owned
vides protection from claims and managed by one person R
arising from the use of the psychographics people’s interests random sampling a procedure in
company’s products and values which everyone in the popula-
product life cycle identifies the public relations (PR) the effort to tion has an equal chance of
stages a product goes through reach consumers by generat- being selected in a sample
from the time it enters the mar- ing positive publicity rational motives the reasons to
ket until it is no longer sold publicity any nonpaid mention of buy based on facts or logic
product line a group of similar a product, service, company, or reach the total number of people
products with slight variations cause who see an ad
Glossary 683
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receiver the person or persons risk the possibility that a loss can selling price the price charged for
to whom the message is occur as the result of a decision a product or service
directed, or any person who or activity sender the source of the message
understands the message that risk management includes pro- being sent
is sent viding security and safety for service an activity that is intan-
receiving record a completed products, personnel, and cus- gible, exchanged directly
listing of all the merchandise tomers as well as reducing the from producer to consumer,
received in the shipment and risk associated with marketing and consumed at the time of
its condition decisions and activities production
recession a period of time in risk-taking a willingness to risk service quality the degree to
which the economy slows the chance of failure in order to which the service meets
resulting in lower production, be successful customers’ needs and
employment, and income expectations
reciprocal trading a form of bar- S
service retailers businesses
tering in which the products sales promotion an activity or
that have services as their
or services of one company material that offers consumers
primary offering with a
are used as payment for the a direct incentive to buy a
limited number of products
products or services of another product or service
for sale that complement the
company sample a small group selected services
reference group a group of from the population
short-term planning (operational
people or an organization that scarcity the result of unlimited planning) identifies specific
an individual admires, identi- wants and needs combined objectives and activities for
fies with, and wants to be a with limited resources each part of the business for a
part of secondary data information time period of a year or less
relationship marketing focuses already collected for another simulations experiments where
on developing loyal customers purpose that can be used to researchers create the situation
who continue to purchase solve the current problems to be studied
from the business for a long self-concept an individual’s belief
period of time skimming price a very high price
about his or her identity, im- designed to emphasize the
reorder point level of inventory age, and capabilities quality or uniqueness of the
needed to meet the usage self-confident a belief in oneself product
needs of the business until the and one’s own abilities to be
product can be resupplied social responsibility concern
successful
request for proposal (RFP) con- about the consequences of
self-directed work team a group actions on others
tains a specific description of of employees who work
the type of product or service specialization of labor concen-
together toward a common
needed and the criteria that trating effort on one thing or
purpose without the usual
are important to the buyer a few related activities so that
managerial supervision
retailer the final business organi- they can be done well
self-regulation taking personal
zation in an indirect channel specialty goods products that
responsibility for actions
of distribution for consumer have a strong brand loyalty
products self-sufficient not relying on
specialty or limited-line
others for the things you need
revenue the money received to survive retailers businesses that offer
from the sale of products and products from one category of
services selling direct, personal commu- merchandise or closely related
nications with prospective items
rich media a variety of digital customers in order to assess
technologies that provide needs and satisfy those needs speculative risk a risk that pres-
interactive multimedia with appropriate products and ents the chance to gain as well
experiences for users services as the chance to lose
684 Glossary
CH 24-B4491-PB1.indd 684 12/13/07 12:31:19 AM

staffing the activities needed to survey a planned set of questions V
match individuals with the to which individuals or groups value an individual view of the
work to be done of people respond worth of a product or service
standard of living a measure of vendor analysis an objective rat-
the quality of life for a country’s T ing system used by buyers to
citizens target market a clearly defined compare potential suppliers on
staple goods products that are segment of the market to important purchasing criteria
regular, routine purchases which a business wants to
appeal vendors (suppliers) companies
storage the resources used to that offer products for sale to
maintain information, includ- tariffs taxes placed on imported other businesses
ing equipment and proce- products to increase the price
for which they are sold viral marketing a promotional
dures, so that it can be used approach that encourages
when needed test markets specific cities or geo- people to pass along market-
strategic brief a short document graphic areas in which marketing messages though word of
that defines the target market ing experiments are conducted mouth, creating a rapid dis-
and articulates the main mes- total quality management semination of information
sage of the advertising (TQM) establishes specific virtual marketing the comple-
strategy a plan that identifies how quality standards for all tion of marketing activities
a company expects to achieve procedures primarily through the use of
its goals trade credit credit offered by one computer and Internet tech-
subsidy money provided to a business to another business, nologies
business to assist in the devel- often because of the time lag
opment and sale of its products between when a sale is negoti-
ated and when the products W
suggestion selling offering are actually delivered want an unfulfilled desire
additional products and
services after an initial sale in trade shows exhibitions where warehouse a building designed
order to increase customer companies associated with an to store large amounts of raw
satisfaction industry gather to showcase materials or products until they
their products can be used or sold
supply a relationship between
the quantity of a product that trademark the legal protection of warranty a specific written state-
producers are willing and able the words or symbols for use ment of the seller’s responsi-
to provide and the price by a company bilities related to the guarantee
supply chain flow of products, trial close providing the customer wholesale member clubs busi-
resources, and information with the opportunity to buy nesses that offer a variety of
through all of the organiza- during the sales presentation common consumer products
tions involved in producing for sale to selected members
and marketing a company’s U through a warehouse outlet
products uncontrollable risk a risk for wholesalers companies that as-
supply curve a graph that illus- which a person’s actions do not sist with distribution activities
trates the relationship between affect the result between businesses
price and the quantity supplied uninsurable risk a risk for which
surety bond provides insurance it is not possible to predict if a Z
for the failure of a person to loss will occur or the amount of zone pricing different product
perform his or her duties or for the loss or transportation costs set for
losses resulting from employee unsought goods products that specific areas of the seller’s
theft or dishonesty consumers do not want to buy market
Glossary 685
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Index
A Albee, P.F.E., 588 Assortment Borders can be barriers, 42

ABC, 539 Allen, Paul, 586 differences in, 367 Boston Consulting Group, 292
Academic preparation, Allowances, 103, 416–417 product line, 287–288 Bottom line, 563
595–596, 655 See also Discounts AT&T, 58, 405 Boycott, 48
Accenture, 261 Alternatives consumer Atmospherics, 384 Boycott, Charles
Account executive, 454 decision-making process Attitude, 169 Cunningham, 48
Account planner, 454 to evaluate, 165 Attraction of packaging, 288 BP North America, 44
Accounting and finance, 15 determining of, 343 Attribute, 189, 190 Brand, 245, 246, 453
Accounts receivable, 576 Amazon.com, 16, 39, 208, Attribute-based good, 254, advertising, 453–454
Ace Hardware, 376 226, 249, 352, 383 292 character, 453
ACNielsen Co., 125, 131 Ambient advertising, 434 Auctions, online, 63 development, 289–290
Action, 545 American Airlines, 461 Audience, access to, 16 loyalty, 99
planning for, 268–269 American Consumer Opinion Automation, growth of recognition, levels of,
Activity schedule, 268–269 (acop.com), 39 service industry, 309 289
Ad clutter, 465 American Demographics, 131 Available seat miles (ASMs), Brandchannel.com, 246
Added value, 417 American Dental Association, 311 Brazil, 216, 507
Adidas, 195 284 Avaya Communications, 475 Breakeven analysis, 409–410
Adjustability of price, American dream, 587–588 Avon Products, 382, 588 Breakeven point, 171, 409
401–402 American Express, 322 Bribes, 347, 519
Advertising, 103, 433–435 American Honda Motor Co., Brick-and-click businesses,
advantages of, 434 Inc., 101 B 211
American Idol, 434 Bait-and-switch, 405 Brick-and-mortar businesses,
allowance for, 417 Balance of trade, 513
as a game of chance, 464 American International Toy 211, 221
Fair, 353 Balance sheet, 565 British Airways, 307
avoidance of, 454 Bankers, 609
brand, 453–454 American Management B2B (business-to-business),
Association, 131 Barriers, borders can be, 42 87, 217
classified, 229 Bartering, 12–13
consumer-generated, American Marketing marketing, 330
Association (AMA), 9, 665 Basic economic problem, 61 selling, 493–494
573 Basic product, 244, 283–284,
corporate, 453 Code of Ethics, 50 B2C (business-to-consumer),
American Red Cross, 114, 436 284–285 87, 217
disadvantages of, Basic stock list, 353
434–435 Americans with Disabilities Broadcast media, 433
Act of 1990, 49 BBDO New York, 306 Brokers, agents and, 375–376
gauging effectiveness of, Ben and Jerry’s Ice Cream,
467–468 Amtrak, 190 Budget, 563–564
Analysis, 133, 545 587 determining, 457–458
global, 157 Benefit, 489
image, 464 internal, 266–267 developing, 566–567
of the market, 264–267, expectations, 185 Bulletin boards, 217
Internet expenditures of, of competition, 197–198
227–228 443 Bundling, 322
of the situation, 137 of marketing, 38 Bureau of Labor Statistics,
in-theater, 414 of marketing education,
media, 459, 646 Angolan government, Coca- 308, 653
Cola and, 540 658–661 Burger King, 51, 195, 646
online, 228 of planning, 259–261
product, 453 AOL, 16 Business
Apple, 7, 123, 278, 436, 450 of segmentation, brick-and-click, 211
regulating of, 468–469 183–184, 185
two approaches to, Application materials, brick-and-mortar, 211,
completing, 668 of wholesaling, 375 221
452–454 Best Buy, 154
Advertising agency, 454–455 Application service providers click-only, 211, 221
(ASPs), 320 Better Business Bureau, 50 derived demand of, 334
Advertising campaign, 456 Beyonce, 463
Advertising plan, 456 Approach, 493–494 employees of, 609–610
Arbitration, 33 Bidding, 344 environment of, 193
Affection, emotional motives, Billboards enter the com-
161–162 Arm & Hammer, 190 functions of, 14–17, 36
Art director, 455 puter age, 560 global, 510–511
Africa, 2, 385 Billing issues, wireless devices
African-Americans, ethnic- Arthur Nielsen, Sr., 125 Internet and, 211,
Asia, global marketplace, 385 and, 315 217–220
focused media, 461 BJ Wholesale Club, 360
After-sale follow-up, 20 Asian-Americans, ethnic- marketing and, 5, 12–14,
focused media, 461 Black Enterprise, 131 36–37, 93–95, 556–558
Age, 170 Blogs, 221
Agents and brokers, 375–376 Assess and satisfy, 477–478 measuring of satisfac-
Assets, 565 spam as, 622 tion in, 631–632
Agricultural Bank of China, Bloomingdale’s, 360
515 Associate of Applied Science number of, 334
(AAS) degree, 660 Bluetooth technology, 474 other people in, 610
Agriculture, 15 BMC Software, 617
Airplanes, 388–389 Associate of Arts degree, 660 principles of, 654
Associated services, 244–245 BMW, 513 purchase volume of, 334
686 Index
CH 25-B4491-PB1.indd 686 12/13/07 12:31:42 AM

purchasers, types of, expenses, 559 Children’s Advertising Regula- Community relations, career
331–332 goods, 331 tory Unit (CARU), 51 in, 45
purchases, reasons for, Capitalism, 2, 63 Children’s Advertising Review Company
330–331 Captive audience, 414 Unit, 469 changes outside of, 262
risk of, 532–534 Career, 647, 668 Children’s Memorial Hospital mission of, 265
role of small, 590 importance of at Chicago, 34 performance of, 262
service, 112 marketing, 644–647 China, 2, 216, 382, 506, 507, philosophy of, 441
similar purchases of, 334 non-management 508, 522 Competition, 192–193, 538
sponsorships and, 437 marketing, 662 China National Petroleum, all-out or none at all,
starting a, 586–588, Career area, 650 515 72–74
606–607 Career path, 651, 661–663 Chinese market, emerging benefits of, 197–198
See also Retail Career plan, 651, 665–666 of, 249 cable TV and, 58
businesses Career planning, 648 Chinese protest Starbucks at changing markets and,
Business blogs, 229 business coaching, 620 cultural landmark, 535 510
Business coaching, career completing, 650–651 Choices, 122–123, 664–666 direct and indirect,
in, 620 Career portfolio, 666–667 Chrysler, 199 195–196
Business consumers, CareerBuilder.com, 668 Chuck E. Cheese’s goes evaluating service
157–158, 313–314, 343 Career-level marketing, bilingual to target quality, 317–318
Business customer classifica- 651–652 Hispanics, 429 for positioning decisions,
tions, 332–334 Cargill, 3 CIA World Factbook, 520 types of, 194–197
Business cycles, 521 Carrefour, 515 Ciba-Geigy, 515 foreign, 309–310
Business markets, 292–295 Cash discount, 417 Circuit City, 154 handling of, 68–69
characteristics of, Catalog sales, 382 Circulation, 461 information about, 123
334–335 Cause-related marketing, 436 Cisco, 209 intense, 108
coding system unlocks, Cayman Islands Tourism Clarity, questioning with, limited, 108–109
328 Authority, 453 145–146 matching approach to
planning products for, Cease-and-desist order, 469 Classified advertising, 229 determining the
295–296 Celebrity endorsements, 306 Click-only businesses, budget, 457
segmenting of, 185 Cell phones, 214 211, 221 monopolistic, 76–77,
Business Objects, 128, 333 supply curve for, 69 Clorox Company, 436 109–110
Business opportunities, Cendian Corporation, 387 Close, 497 non-price, 196–197, 415
644–645 Census Bureau, 217 Closed-ended questions, 144 price, 196–197
identifying ownership Census of Manufacturers, 130 cnet. com, 39 pure, 72–73, 108
opportunities, Central America, 385 Coca-Cola, 183, 191, 192, 200, regulating of, 405
601–602 Central Europe, political and 430, 453, 515, 540 responding to, 107–110
in marketing, 599–601 legal structure of, 522 Code of ethics, 50 studying the, 602
Business plan, 609, 610–611 Central market, 13–14 Coding system unlocks understanding of, 77–78,
Business product classifica- CEO, entry-level to, 648–649 business markets, 328 490–491
tion system, 293 Channel captain, 371 Cohen, Ben, 587 Competitive environment,
categories of, 331 Channel management, 9 Cold calling, 485 413–415
Business publications, 131 responsibilities, 371–372 Collections, 419 Competitive information
Business skills, 597–598 tools, 372–373 College study, 660 collecting, 202–203
Business-to-business. Channel members, 112 Combs, Sean “Diddy”, 464 types of, 199–202
See B2B Channel of distribution, Comedy, creative formats, Competitive market
Business-to-consumer. 112, 366 464 position, 201
See B2C multiple, 370 Commercial data, 131 Competitive regulation, 469
BusinessWeek, 16, 131, 278 planning and managing, Communication Competitors, 189, 191
Buy.com, 229 369–373 Internet, 217 performance of, 262
Buyer/seller relationship, 335 unplanned, 368 of product information, primary, 266
Buyers too close to suppliers, Channel participants, 489–490 Complaints, 41–44
347 369–370 promotion as, 427–429 Complexity, growth of service
Buying behavior, 163, 239 Channel system, develop- role of in marketing, industry, 309
Buying decision, 336–338 ing and managing of, 429–431 Component parts, 293,
influences on, 168–171 370–373 skills, 595–596 294–295, 331
Buying motives, 161 Charles, Ray, 463 technology, 240 Computer-based MkIS, 132
Buzz marketing, 20, 195 Charter, 605 types of, 431–432 ConAgra Foods, 52
Charts, communicate with, 81 with charts and Conference room, global, 523
Chat rooms, 217 graphs, 81 Conflict, channels of
C Chen, Oyang, 633–636 Communication process, distribution, 371
California Perfume Co., 588
Chevy, 418, 430–431, 465, 573 427 Consumer behavior, 156–158
Canada, 216, 328, 504, 507
Chik-fil-A, 559 Community college Consumer Bill of Rights, 48
Capital, 565
Children, marketing to, 51 programs, 660 Consumer credit, 418
equipment, 293, 295
Index 687
CH 25-B4491-PB1.indd 687 12/13/07 12:31:42 AM

Consumer Credit Protection Control, personal selling procedures, developing Data
Act of 1968, 49 and, 481 of, 418–419 analyzing of, 139
Consumer decision-making Controllable risk, 534 types of, 418 collection of, 138
process, 163–167 Controlled economy, 62 unpaid, 576–577 commercial, 131
mental stages of, 487 Controlling, 623–624, Credit Suisse, 555 household purchasing,
Consumer demand, micro- 635–636 Crispin Porter + Bogusky, 646 191
economics and, 66–68 costs, 570–571 Croemers, 236 marketing-related,
Consumer laws, 49 Convenience goods, 252–254, Cultural differences, 42 566–567
Consumer markets, 291–292, 256, 292 Cultural environment, non-numerical, 139
295–296 Convenience stores, 381 170–171 numerical, 139
Consumer perceptions, 192 Conversation creation, 20 Culture, 170, 521 primary, 138
Consumer price index (CPI), Converse, 62 Currency exchange rates, 566 secondary, 137–138
26, 520 Cookies, 223 Current markets and using scanners to collect
Consumer Product Safety Act Cooperation, channels of strategies, 265 market, 109
of 1972, 49 distribution, 371 Customer club, 129 Database marketing, 61
Consumer Product Safety Cooperative pricing, 381 Customer contact, 314–315 Data-collection procedure,
Commission, 34 Copywriter, 455 Customer management, 483 develop, 137
Consumer protection, 47–49 Cornell University, 166, 340 Customer needs, 538 Davie-Brown Entertainment,
Consumer purchase Corporate advertising, 453 determining, 351–352 306
classifications, Corporation, 605–606 focus on, 95 Davie-Brown Index, (DBI), 306
414–415 Corrective ads, 469 identifying, 99 DECA, 659
Consumer shopping Cost, 460 satisfaction of, 19–20, Decision making, 134–135
experience, 154 better products at 99–100, 351–353 assess, 106
Consumer-generated lower, 37 Customer satisfaction, 37 consumer, 105–107,
advertising, 573 controlling of, 570–571 evaluating service 163–167
Consumerism, 48 improving quality while quality, 317, 318 decide, 106
Consumers cutting, 554 measuring, 630 evaluate, 106
adjusting differences managing marketing, with types of shopping, extensive, 174
between producers 558–560 230 identify, 106
and, 366–368 of marketing, 43 Customer service, limited, 173–174
adventurous and spicy per customer, personal e-businesses expanded marketers’ role in,
segment, 120 selling and, 481 distribution and, 174–175
authentic and mild product, 410 225–226 process, 164
segment, 120 savings for Internet Customer support, career recognize, 106
basic family segment, purchases, 223 in, 172 routine, 173
120 Costco, 360, 377 Customer-relationship types of, 173–175
business, 157–158, County Business Patterns, management (CRM) Decision time, 365
313–314 130 software, 372 Decisions, 62, 105, 670
characteristics of, 521 Coupons, 103, 417 Customers choices and, 664–666
decision making by, Creation, 9 answering questions of, distribution, 200
105–107 Creative, brand, and 495–496 making, 345
festive segment, 120 corporate fit, 460, 462 identifying, 485–486 stages of, 106
final, 157 Creative concept, 465 information about understanding
how they shop, 252–256 Creative development, current and customer, 487–488
individual, 313–314 463–465 prospective, 262 Decline stage of product life
information about production process qualifying prospective, cycle, 250–251
differences of, 122 and, 467 486–487 Decoding, 428
know best, 278 Creative director, 455 records and sales Dee’s Designs, 94
mental stages of, 487 Creative formats, 463 information of, Dell Laboratories, Inc., 37
private enterprise Creative services, career in, 128–129 Delta Epsilon Chi (⌬EX), 660
economy, 64 466 refocusing on, 236 Demand, 64
purchasing by, 343 Creative strategy, 458 responsibility to, 52 elastic and inelastic, 403
say no to Pets.com, 208 Creativity, 593 screen out costly, 563 elasticity of, 75, 402–403
series of decisions for a Credit understanding, 97–100, factors affecting, 67–68
purchase, 106 approval, 418 485–488 intersecting supply
wants and needs of, cards, 576 Customs, 521 and, 70–71
158–159, 239 establishing, 2 Cyber attack, 548 law of, 68
Consumer-to-consumer, 87 interest and, 575–577 marketing helps match
Consumption and produc- marketing supply with, 46
tion, differences in tim- management, 568
D Demand curve, 68
Dairy Foods, 285
ing of, 367–368 offering of, 417–419 analyzing, 68
Dangdang.com, 249
Continuous ad campaign, 459 policies, 418 for a monopoly, 74
Dartnell Corp., 495
688 Index
CH 25-B4491-PB1.indd 688 12/13/07 12:31:43 AM

for monopolistic marketing mix element promotion methods of, Emergency goods, 253–254,
competition, 77 as, 363–364 228 292
for movies, 68 planning for, 112 stages of development, Emotional motives, 161–162
for notebook strategy of, 7 212 Employee empowerment,
computers, 70 Distribution activities, success in, 213–215 27–28
for one company in an importance of, 362–364 E-commerce accommoda- Employees
oligopoly, 76 Distribution centers, 390 tion, 260 empowerment of, 27–28
for one company in pure Distribution channels, need E-commerce businesses, 221 of the business, 609–610
competition, 73 for, 366–369 E-commerce marketing, pre- satisfaction of, 631–632
for the industry in an Distribution decisions, 200 paring for, 230–231 what do they want, 642
oligopoly, 76 making of, 101–102 E-commerce Marketing pro- Employers, world’s largest,
measuring of, 75 Distribution expenses, gram, 660 515
Demographics, 184 577–578 E-Commerce Times, 131 Employment levels in market-
characteristics, 184, 239 Distribution for e-commerce, Economic competition, 74–78 ing, 651–653
information, 129 222–224 Economic concept Employment, marketing core
Demonstrate, 495 problems and solutions distribution as, 363 standards for, 7–9
Department of State, 511 of, 224–226 price as, 402–403 Encoding, 428
Depletion, 372 Distribution function, 363 Economic environment, Endorsement, 321
Derived demand, 292, 334 Distribution of services, international, 517–521 England, Internet users in,
Design strategies for product 322–323 Economic forces, private 508
development, 281 Distribution system, develop- enterprise economy, Enhanced product, 285
Deutsche Post, 515 ment of, 364–365 64–65 Entrepreneur, 587, 593–594
Developing countries, 2 Distributor communication, Economic market, 68 characteristics of,
Development Web sites for, 488 Economic resources, 69 592–593
creative, 463–465 Dodge, 344 Economic risk, 533 inventor and, 595
of marketing in business, Dollar store, 381 Economic role, 590 Entrepreneurship, 587
12–14 Dollar Tree, 408 Economic understanding, characteristics of, 594
stages of e-commerce, Domestic income (GDI), 520 importance of, 60–62 importance of, 590–591
212 Dominique Designs, 124 Economic utility, 79, 402 opportunities in
Differentiating market Domino’s, 277 Economy, 2, 538 marketing, 588
segments, 238–239 Door-to-door selling, 382 condition of, 519–521 preparing for, 594–598
Digital divide, closing of, 213 Dot.com businesses, 211 government what does it take,
Dillard’s, 360 Dramatization, creative controlled, 2 592–594
Dimetapp, 155 formats, 463 industrial, 518–519 Entry-level marketing, 651
Direct and personal, 477 Dun & Bradstreet, 131, 419 marketing jobs improve, Entry-level to CEO, 648–649
Direct channel, 369 645–647 Environment
Direct competition, 195 postindustrial, 519 competitive, 413–415
Direct demand, 291 E preindustrial, 518 cultural and social,
Direct exporting, 512 E*Trade Financial, 417 private enterprise, 63–65 170–171
Direct mail, 169, 433, 459 Ease of use in packaging, 288 world’s largest, 507 external, 266
Direction for organizing, 626 Eastern European nations, 2 Edison, Thomas, 585 international economic,
Disadvantages of personal global marketplace, 385 Edmunds.com, 164 517–521
selling, 480–481 eBay, 16, 63 Education and experience, packaging materials, 289
Disappointing results, E-books, 221 combining, 664–665 Environmental change, 628
364–365 E-businesses, expanded dis- Effective listener, 186 Epinions.com, 39
Discounts, 103, 416, 417 tribution and customer Effectiveness determining Equal Credit Opportunity
Discounts and allowances, service, 225–226 marketing, 629–632 Act, 577
416–417 E-commerce, 87, 210, 598 evaluation of, 628 Equifax, 131
Discover, 535, 576 advantages of, 214 Elastic demand, 403 Equipment-based services,
Discretionary income, 309, disadvantages of, Elasticity of demand, 75, 314
317 214–215 402–403 E-readiness, 218
Discretionary purchases, 123 distribution for, 222–224 Electronic data interchange Ethical decisions equal
Disney, 208, 290, 462 distribution problems (EDI), 372 profits, 629
Disney Cruises, 190 and solutions of, Electronic portfolio, 667 Ethics, 50
Distribution, 6, 23, 100, 111, 24–226 Elements of code of, 50
246–247, 348, 499, 524, expanding world of, marketing mix, risks to, in information gathering,
539–540, 600, 656 210–213 538–543 202–203
channel of, 112 full integration stage, 213 marking concept, 19 in marketing, 51–53
economic concept as, information stage, 212 promotional mix, 440 Ethnic cuisines of consumers,
363 interaction stage, 212 E-mail, 221 120
marketer responsibilities marketing concept spam as, 622 Ethnic restaurants, popularity
in, 50 applied to, 215 E-marketing, career in, 219 of, 120
Index 689
CH 25-B4491-PB1.indd 689 12/13/07 12:31:43 AM

Ethnic-focused media, 461 Fashion Marketing program, Financial statement, 564 Full integration stage of
Ethnicity, 169–170 660 gathering information e-commerce, 213
E-tickets, 221 Faxes, spam as, 622 for, 567 Full-service wholesalers,
European Union (EU), 42, 504, Fear, emotional motives, understanding of, 391 375–376
506, 507 161–162 Financial tools, 566–567 Functions
Evaluating effectiveness, 628 Feature, 489 Financing, 6, 498, 524, of business, 14–17
Evaluation procedures, 269 Feature-benefit comparison, 600–601, 656 of marketing, 6–7
Exchange relationship, 10 489 function, 7
Executive summary, 611 FedBid, 63 in international
Executive/owner-level Federal Communications purchasing, 340–341
G
Gardner, Kelvin, 254
marketing, 653 Commission (FCC), 468 procedures, 2
Gates, Bill, 586
Expected value, 547 Federal Trade Commission Fine, 469
Gateway, 154
Expenses (FTC), 49, 161, 297, 468 Fine-tuning the product,
GDP per capita, 520
associated with the FedEx, 225, 389, 567, 588 243–246
Gender, 169
marketing mix, FedStats.gov, 131 Fleet Advertising, 376
General Electric, 585
577–579 Feedback, 429 Flexibility, personal selling
General Electric Capital, 554
capital, 559 advertising as a game of and, 479
General Motors Corp, 332
distribution, 577–578 chance, 464 Flexible pricing policy, 415
Geographic pricing, 416
inventory, 559 breakeven point, 171 Flickr, 352
Geographic segmentation,
long-term, 558–559 changing job market, FOB pricing, 416
184
of marketing, 92–93 667 Focus group, 145, 454
Germany, 216, 507, 508, 512
operating, 560 Consumer Price Index Focus on customer
Girl Scouts, 382
price, 578 (CPI), 26 needs, 95
Glass ceiling, 584
product, 577 downstream activity Follow-up, 497–498
Global
promotion, 578–579 offers clue to future personal selling and, 480
businesses, 510–511
short-term, 559 sales, 372 Food and Drug Act of 1906,
conference room, 523
Experian, 131 effectiveness of 49
marketplace, 124, 385
Experience and education, promotions, 444 Food Marketing Institute, 248
Global positioning system
combining, 664–665 ethical marketing, 52 Food Marketing program, 660
(GPS) technology, 92
Experiments, 147–149 for sale, 39 Forbes, 131
Global sourcing, career in,
Experion, 419 incremental cost Ford Motor Company, 18,
404
Expertise, exporting of decisions, 337 191, 344, 586
Global travel, representing
marketing, 2 measuring Ford, Henry, 586
your country, 514
Export Assistance Centers, performance, 311 Forecasts, 562–563, 566–567
Gmail, 195
511 measuring the demand Foreign competition, growth
GMC, 344
Export organizations, 377 curve, 75 of service industry,
Goals
Exporting pay-for-performance 309–310
analyzing, 631
indirect or direct, 512 incentives, 480 Foreign Exchange Currency
determining of, 267
of marketing expertise, 2 personal selling and, 479 Converter (FXConverter),
Goals of organization, 314
Exports, 507 reach and frequency, 566
Google, 16, 195, 229, 249,
Extended product, 285–286 228 Foreign investment, 514
278, 508
Extensive decision making, return on investment, Foreign markets, finding the
Government, 333
174 600 right mix for, 521–522
agencies, 113–114
External environment, 266 risks, rewards, expected Foreign production, 513–514
controlled economies, 2
External information, value, 547 Form utility, 80
effect on prices, 405–406
130–131 Rule of 72 makes quick Former Soviet Union, 2, 385,
private enterprise
Eyetracking photography, work of projections, 522
economy, 64
146 630 Formats, creative, 463
regulation, 49, 468
Eye-tracking research, 266 unit sales provide Foundation skills, 653–655
reports, 130–131
another perspective, France, 42, 216, 507
Gramm-Leach-Bliley Financial
575 Franchise agreement, 58
F Final consumers, 157, 343 Franchise restaurants, 277
Modernization Act
of 1999, 49
Face-to-face interviews, 145 Finance Franchisees, 384
Factors affecting demand, Graphs, communicate with, 81
accounting and, 15 Franchiser, 384
67–68 Gray marketing, 113
importance of, 556–557 Franchising, 383–384
Fair Credit Reporting Act, 577 Green (environmental)
Financial analysis, 631 Free economy, 62
Fair Debt Collection Practices marketing, 44, 187
new product, 299–300 Free-enterprise systems, 2
Act, 577 Greenfield, Jerry, 587
Financial forecast, 562 French’s, 542
Fair Packaging and Labeling Gross domestic product
Financial information, Frequency, 228, 460, 461
Act of 1966, 49 (GDP), 520
569–571 Frito-Lay, 573
Family brand, 290 Gross margin, 410
Financial planning, role of FTD (Florists’ Transworld
Farmmore, 254 Gross national product
marketing in, 557–558 Delivery, Inc.), 376
(GNP), 520
690 Index
CH 25-B4491-PB1.indd 690 12/13/07 12:31:44 AM

Gross rating point (GRP), 228 maintaining an, 408 Information needs of the business uses of,
Growth of selling of, 450 market, 518 217–220
product life cycle, value or, 360 Information processing, China develops from
249–250 IMAX theaters, 588 392–393 infancy, 508
service industries, Import organizations, 377 Information search, consumer communicating on, 217
308–310 Imports, 507 decision-making pro- countries with the
the Internet, 216–217 Impulse goods, 253, 292 cess, 164–165 highest number of
Guarantee, 245 Inc, 345 Information services, 131 users in 2007, 216
Guilt, emotional motives, Incentives, 20 Information sources, 202, 489, effect of on television,
161–162 pay-for-performance, 541 200
Gunn, Donald, 461 480 Information stage of expanding of, 383
Gym shoes, price range for, Income, discretionary, 309 e-commerce, 212 gathering information,
410 Income statement, 564–565 Information systems, market- 218
Incremental cost decisions, ing, 131–135 growth of, 216–217
337 Information Web sites, 229 improving operations,
H Independence of marketing, Informational needs, decid- 220
Handling of packaging, 289
91–92 ing on, 124–126 marketing via, 221–222
Hardee’s, 195, 401
India, 216, 508 Input, 132 product distribution
Harm and accountability in
Indirect channel, 369 Inseparable, 311 from, 223–224
unethical behavior,
Indirect competition, 195 Instant messages, spam as, sales tax on, 294
52–53
Indirect exporting, 512 622 using to launch new
Hawk, Tony, 290
Individual characteristics, Insurable risk, 534 products, 102
Heelys, 34
168–170 Insurance, 547–548 Internet Advertising Bureau,
Hershey, 192
Individual consumers, Intangible services with tan- 228
Hertz, 7, 191
313–314 gible elements, 320 Internet changes the job
Heterogeneous, 312
Industrial economy, 518–519 Intangible, 310 search, 659
Hewlett-Packard, 627
Industry paths, 662 Integrated, 92 Internet finding and buying
Hierarchy of needs, 158
Industry performance, 566 Integration of marketing, of products, 222
High Liner Foods, Inc., 438
Inelastic demand, 403 91–92 Internet job services, 478
High school, beyond,
Inflation, 520 Intel, 295 Internet order processing,
660–661
Inform, 429–430 Intense competition, 108 222–223
Hilton Hotel, 515
Information, 122–124 Interaction stage of Internet purchases, cost sav-
Hispanic-American market,
analyzing financial, e-commerce, 212 ing for businesses, 223
429
569–571 Interactive kiosks, 147 Internet users, communicat-
Hispanics, ethnic-focused
categories of, 125–126 Interest, credit and, 575–577 ing with, 227–229
media, 461
collecting competitive, Interests, whose are being Interpersonal and basic work
HMOs (health maintenance
202–203 served, 286 skills, 654
organizations), 398
communicating product, Intermediaries, 323 Interpersonal communica-
Holiday Inn, 195
489–490 Internal analysis, 266–267 tion, 431
Honda, 191
external sources of, Internal information, 128–130 Interview, completing a
Hospitality Marketing pro-
130–131 International successful, 670
gram, 660
gathering of, 138–140, borders, 42 In-theater advertising, 414
Hotels.com, 317
202–203, 218, 263, business, 2, 377 Introduction stage of product
Household purchasing data,
281, 523–524, 567 economic environment, life cycle, 248–249
191
internal sources of, 517–521 Inventor and an entrepre-
Hoyu Co., Ltd., 245
128–130 hospitality, career in, 509 neur, 595
Human risk, 533
performance, 129–130 purchasing, 339–341 Inventory, 347, 349
Hyperion, 139
personal selling and, 478 International Herald Tribune, control, 392–393
Hyundai, 191, 515
plans require, 262 382 expenses, 559
relying on, 107 International marketing records, 349
I sources of marketing, activities, 522, 523–525 shrinkage, 380
IBM, 25, 515, 643 127–131 assistance with, 510–511 Investment of marketing,
Idea development, new prod- types of competitive, International trade, 40, 506 92–93
uct, 298 199–202 changing nature of, 508 Investors, 609
Idea screening, new product, using financial, 569 importance of marketing Invoice, 350
298–299 Information about current in, 512–513 Ireland, data processing for
Ideas developed on the job, and prospective cus- U.S. and, 506–508 U.S., 508
604 tomers, 262 Internet, 210, 214 ISO (International Organiza-
IGA (Independent Grocers Information for planning, advertising, 221, tion for Standardization),
Alliance), 376 625–626 227–228, 411, 434, 343
Image, 21, 245 Information management, 435, 459 Issues, focusing on, 145
advertising, 464 483–484 business on, 211 Italy, 216, 507
Index 691
CH 25-B4491-PB1.indd 691 12/13/07 12:31:44 AM

J Limited decisions making, digital photos speed career paths in, 662–663
Japan, 216, 507, 508 173–174 products to, 134 career-level, 651–652
JBL, 22 Limited service wholesalers, economic, 68 cause-related, 436
J-Borg Apparel, 124 375–376 factors used in causes unneeded
JCPenney, 360 Live chats, 221 segmenting, 239 purchases, 41–43
Job, 647 Living, better standards of, 39 Hispanic-American, 429 changing approach to,
applying for the one you Location identify, 22, 602 24–28
want, 667–670 differences in, 367 recognize differences changing view of, 28–29
boards, 659 of retailers, 381–382 and similarities of, 239 communication role in,
identify, 667–668 Logistics. See Physical research and analyze, 443 429–431
obtaining the one you distribution selecting target, creating the right mix,
want, 666–671 Long-range planning, 621 241–242 100–104
prerequisite, 651 Long-term expenses, type of, 313–314 defined, 9–10
Job growth in U.S., service- 558–559 Market analysis, 264 developing a budget
producing industries, Lost, 459 Market data, using scanners for, 567
309 Love, emotional motives, to collect, 109 effects of on revenue,
Job market, changing, 667 161–162 Market economy, 62 572–577
Job opportunities, Loyalty, 163 Market information, 518 employment levels in,
marketing, 5–6 gathering of, 523–524 651–653
Job Outlook 2007, 38 Market intelligence, 202, 254 entrepreneurship
Job search, Internet changes,
M Market opportunities, 92, opportunities in, 588
Macroeconomics, 66 100, 187 ethics in, 51–53
659 Magazines, advantages and
John Deere, 515 Market planning, 6, 8, 601, 655 exchange relationship
disadvantages of Market position, 189, 201 and, 10
Joint venture, 514–515 advertising, 459
Junk mail, 169, 622 Market potential, 187–188 executive/owner-level,
Maintenance, 9 Market price, 71 653
Just-in-time (JIT), 348 Make or buy, 336 Market research, 2 financially rewarding,
Mall of America, 382 Market segmentation, 648
K Management, 15–16 182–185 financing of, 559–560
Kellogg, 290 channel, 9 Market segments, 99 4 Ps of, 22
Kennedy, John F., 48 customer, 483 differentiating, 238–239 from expense to
Key to success, 618–619 functions and activities identifying and investment, 92–93
Keystone markup, 411 of, 621–624 analyzing, 187–188 from independence to
KFC, 195 improve with a mar- Market share, 188 integration, 91–92
Kickbacks, 347 keting plan, 625–629 Market tests, conducting, from problems to
King, Dr. Stephen, 34 information, 483–484 281–282 opportunities, 92
KitchenAid, 577 marketing, 619 Marketer, 29 gaining control of, 628
Kmart, 360, 381, 400 marketing-information, advertising and, 434 has changed, 90–93
Kohl’s, 360 6, 7, 8, 498, 601 information needed to helps people, 37–38
moving into, 661–662 make effective image of, 8
personal sales, 483–484 decisions, 125 importance of in interna-
L product and service, 6, 7, managing the work of, tional trade, 512–513
L’Oreal, 515 9, 524, 601, 655
Labels, what can we learn 635–637 in product development,
risk, 6–7, 536, 601, 657 product development 281–282
from them, 274 self, 483
Labor intensiveness, 314 and, 292 increases public
Managers as leaders, 627 reap new data, 191 awareness, 44
Labor, specialization of, 13 Managing, 619
Laczi, Tibor, 595 responsibilities of, 50 increasing efficiency,
Manufactures, 111 role in decision making, 368–369
Land-O-Lakes, 376 Manufacturing, production
Law of demand, 68 174–175 international, 40, 522,
business function, 15 Marketing 523–525
Law of supply, 70 Marine Corps, 425
Laws and regulations, 538 benefits of, 38, 647–648 Marketing activities, 2, 4, 14,
Markdown, 103, 412 benefits society, 38–40 331–334
Lead time, 460, 461–462 Market, 22, 238
Leaders, managers as, 627 business and, 5, 12–14, need for, 11–12
access to, 377 36–37, 93–95 not needed, 43–44
Leading, 623, 635 analyzing of, 264–267
Liability, 539, 565 business functions preparing for
central, 13–14 and, 14, 16 e-commerce, 230–231
Liberty Mutual, 533 characteristics of
Licensed brand, 290 business opportunities putting it up front,
business, 334–335 in, 599–601 96–97
Life cycle analysis, 247–251 competition and
Lifelong learning, 660 business-to-business,330 relationship, 27
changing, 510 buzz, 20 role of, 280–281,
Lifestyle, 169 determining potential,
Limited competition, by non-business organi- 557–558
187–188 zations, 113–115 solves problems, 44–46
108–109
692 Index
CH 25-B4491-PB1.indd 692 12/13/07 12:31:45 AM

specialist-level, 652 risks to elements Media and wants of consumers,
studying, 4–6 of, 538–543 ethnic-focused, 461 158–159
supervisor/manager- specifying of, 268 fragmentation of, 142 determining of, 494–495
level, 652–653 Marketing operations, selecting of, 458–462 for distribution channels,
to children, 51 organizing of, 634 Media plan, 454 366–369
typical costs of, 43 Marketing opportunities, Media planner, 455 hierarchy of, 158
using purchase 644–645 Mercedes Benz, 190, 588 identifying of, 342–343
classifications in, Marketing plan, 260, 364, 567 Merchandise plan, 352 planning to satisfy
256–258 improve management Merchandising, 15 customer, 351–353
varied uses of, 111–113 with, 625–629 Message, 428 See also Customer needs
via the Internet, 221–222 outline, 265, 626 Message channel, 428 Neighborhood centers, 382
viral, 352, 599 reducing risk using, 545 Mexico, 328, 504, 507 Nestle S.A., 515
wastes money, 43 Marketing planning, 261–263 Microcredit, 600 Net Bookmark feature
Marketing career, 644–647, handling of risks with, Microeconomics, 66–68 basic product enhance-
647–649, 652 544–546 Microsoft, 278, 586 ments, 285
non-management, 662 Marketing research, 130, 136 Microtel Inns and Suites, 88 brands, 246
Marketing concept, 18–20, career in, 98 Millennium Digital Com- businesses and sponsor-
22–23, 24, 26–27, 27–28, marketer responsibilities merce Act of 1999, 49 ship, 437
96–97, 215 in, 50 Minimum price, 409 closing a sale, 497
Marketing Core Standards, select the participants, Mission, 265 consumers purchasing
7–9 138 Mixed economy, 62 decisions, 164
Marketing costs, 556–558, when to use, 142–143 Mixed merchandise retailers, currency exchange
558–560 Marketing risk, other ways 380 rates, 566
Marketing decisions, 125 of dealing with, Model stock list, 353 employee satisfaction,
Marketing department em- 546–549 Modified purchase, 337–338 631
phasis, 24, 25–26 Marketing strategy, 238, Money system, 13 e-retailer specializing in
Marketing Education pro- 260–261, 267–268, 569 Monopolistic competition, tech products, 225
gram, 7, 658–661 Marketing success, skills for, 74, 76–77, 109–110 international marketing
Marketing effectiveness, 653–657 Monopoly, 73–74, 108 activities, 522
629–632 Marketing systems, 2 Monster.com, 16, 659, 668 marketing career, 652
Marketing employment, Marketing today, understand- Morgan Stanley, 59 netiquette, 597
levels of, 651 ing the differences, Motivation, 160–163 organically grown food,
Marketing experiences, 91 91–93 Motives 69
Marketing expertise, export- Marketing tool, 83, 400–402 buying, 161 pricing objectives, 408
ing of, 2 Marketing-information man- emotional, 161–162 product warnings, 539
Marketing functions, 6–7, agement, 6, 7, 8, 498, patronage, 162–163 religious institutions, 115
280–282, 368, 655–657 601, 656 rational, 162 service standards, 317
adjusting, 524–525 Marketing-oriented business, Movies, demand curve for, 68 socially responsible
paths, 662–663 cold calling and, 486 Multinational companies, action, 51
Marketing in other organiza- Marketing-related data, 515–516 Statistical Abstract of
tions, 28–29 566–567 Musical, creative formats, 463 U.S., 137
Marketing information, MarketWatch, 16 MySimon, 229 staying warm and dry in
sources of, 127–131 Markup, 411–412 MySpace, 352 winter weather, 190
Marketing information sys- Marriott, 430 television ads, 461
tem (MkIS), 131–135, 263 Maslow, Abraham, 158 trade shows, 353
Marketing job, 4, 644 Maslow’s hierarchy of needs,
N word-of-mouth
Nabisco, 237
improve the economy, 158 promotion, 22
NAPA (National Automotive
645–647 Mass communication, 432 world’s largest mall, 382
Parts Association), 376
opportunities, 5–6 Mass marketing, 183 Net profit, 411
NASCAR, 437
progressing through, Master of Business Adminis- NetFlix, 16
National Advertising Review
650–653 tration (MBA), 660 Netiquette, 597
Board, 468
Marketing management, 619 MasterCard, 576 Network regulation, 468
National Advertising Review
Marketing managers, 634 Math skills, 596 New product, 297–298
Council, 468
Marketing mix, 22–23, 100, Maturity stage of product life failure rate for, 280
National Association of Pro-
253, 427, 441, 558 cycle, 250 steps in development
fessional and Executive
adjusting, 524–525 Maximum price, 408–409 of, 298–301
Women, 131
combining parts of, 100 Maya & Miguel, Spanish- New purchase, 337
National Football League, 134
distribution as a, 363–364 language animated Newsgroup posts, spam as,
National League of Cities, 114
expenses associated series, 429 622
National Restaurant Associa-
with, 577–579 McDonald’s, 51, 161, 195–196, Newspapers, advantages and
tion, 120
promotion as part of, 369, 401, 515 disadvantages of adver-
Natural risk, 533
426–427 MCI, 405 tising, 459
Needs, 158
Index 693
CH 25-B4491-PB1.indd 693 12/13/07 12:31:45 AM

NexTag, 229 Operating expenses, 411, 560 People-based services, 314 distribution, 112
NFL, 573 Operating tools, 564–565 Pepperidge Farm, 587 for action, 268–269
Nike, 195, 453, 515 Operational planning, 621 Pepsi Cola, 190, 191, 192, 200, importance of, 608–610
Nissan, 457 Operations, 15 430, 463 information for, 625–626
Noise, 428 Internet improving of, Percentage of sales approach long-range, 621
Non-business organization, 220 to determining the market, 6, 8
113–115 Opportunity, 533 budget, 457 marketing concept
Non-management marketing marketing, 38, 92 Performance affects, 97
careers, 662 Options, 244 improved, 347–348 of promotion, 103–104
Non-numerical data, 139 Order processing, 392 industry, 566 offering the, 100–104
Non-price competition, 196, Order, Internet processing of, information, 129–130 operating tools and,
415 222–223 of competitors, 262 562–565
Nonprofit organizations, 114, Organically grown food, 69 of the company, 262 operational, 621
314, 333–334 Organizations past, 566 process, 456–458
Non-store retailing, 382–383 goals of, 314 service devise unique product/service, 200
Norilsk Nickel, 329 marketing in other, ways to measure, 311 short-term, 621–623
North American Free Trade 28–29 Performance standard, 628 Plans require information,
Agreement (NAFTA), 504 nonprofit, 314, 333–334 evaluating service 262
North American Industry Organizing, 623, 634–635 quality, 317, 318 Policies, 634
Classification System direction for, 626 Perishable, 311–312 Political and legal structure,
(NAICS), 328 marketing operations, Perpetual inventory system, 522
North American Product 634 349 Population, 138
Classification System Osborn, John, 306 Personal benefits, 590–591 Pop-up, 228
(NAPCS), 328 Outdoor advertising, 433 Personal identity, 168 Positioning
Notebook computers advantages and Personal messengers, 217 basis for, 189–191
demand curve for, 70 disadvantages of, 459 Personal sales management, decisions, types of com-
market price for, 71 Outline of a business plan, 483–484 petition for, 194–197
supply curve for, 70 610 Personal selling, 7, 437–438 strategy, selecting of,
NTT Do Co Mo, 275 Output, 134 advantages of, 437, 192–193
Number of businesses, 334 Outsourcing the drive-thru, 478–480 Positioning statement, 268
Numerical data, 139 401 choosing of, 481 Possession utility, 82
Ownership decision, 603–606 disadvantage of, Postindustrial economy, 519
437–438, 479 Postpurchase evaluation,
O process of, 476–478 consumer decision-
Objective and task method of P promotion of services, making process,
determining the budget, P J Madison’s, 181
321 166–167
457 Packaging, 245–246,
when to use, 478–481 Practices, improving of, 49–51
Objectives, setting of, 288–289, 390
Personality, 169 Preapproach, 494
456–457 Packing list, 350
Persuade, 430–431 Preindustrial economy, 518
Observation, 146–147 Panasonic, 515
Persuasion, personal selling Prerequisite jobs, 651
Occupational Outlook Hand- Participant selection in mar-
and, 479 Presentations, 482, 588
book, 477 keting research, 138
Pets.com, 208 Press release, 589
Offering Partners, prospective, 609
PetSmart Inc., 134 Price, 23, 100, 247, 542
develop a unique, 602 Partnership, 605
Physical distribution (logis- adjustability of, 401–402
planning the, 100–104 Partnership agreement, 605
tics), 386–387 as a marketing tool,
Oligopoly, 74–76, 108 Pass-along rate, 461
Physical inventory system, 400–402
Omni Hotels, 211 Passion, emotional motives,
349 as an economic concept,
One-price policy, 415 161–162
Pinpointing promotion, 92 402–403
One-stop convenience, 320 Past performance, 566
Pipelines, 389 calculating selling,
Online advertising, 228 Patronage motives, 162–163
Pitney Bowes, 121 410–412
Online auctions, emergence Pay-for-performance incen-
Place, 22 defined, 401
of, 63 tives, 480
utility, 80 flexibility of, 415–416
Online banking, 221 PDAs, 214
See also Distribution government’s effect on,
Online markets, 16 Penetration price, 414
Plan, planning to, 261–262 405–406
Online music stores, 123 People
Planetfeedback.com, 39 importance of, 401
Online purchasing, 230 at different levels on the
Planned channel of distribu- maximum, 408–409
Online surveys, 145, 221 hierarchy of needs, 159
tion, 368 minimum, 409
Online tracking of shipments, coordinating of
Planning, 621, 633–634 penetration, 414
388 resources and,
approaches to, 124 quality and, 189, 190
Online whiteboards, 217 618–619
benefits of, 259–261 range of, 408–410
Open-ended questions, 144 dealing with rude and
completing career, regulating of, 405
Operating equipment, discourteous, 316
650–651 skimming, 414
293–294, 331 marketing helps, 37–38
694 Index
CH 25-B4491-PB1.indd 694 12/13/07 12:31:46 AM

supply and demand Internet finding and Productivity, 520 Purchases
affect, 402 buying of, 222 Professional liability insur- consumer decision-
Price advertising, 405 marketing of, 300 ance, 548 making process, 166
Price competition, 196 moving of, 387–389 Professional Selling program, evaluating, 345
Price discrimination, 405 new, 38–39, 102, 280, 660 marketing causes
Price expenses, 578 530 Profit motive, 63 unneeded, 41–43
Price lines, 416 obtaining the needed, Profits marketing classifications
Price-based goods, 254–255, 353–355 effect on, 412 for, 256–258
292 physical characteristics ethical decisions equal, negotiating, 344
Price-fixing, 405 of, 277–278 629 processing of, 349–350
Pricing, 6, 9, 498, 524–525, pricing of, 102–103 maximizing of, 407–408 reasons for business,
600, 655 sales of, 573–574 Projections, Rule of 72 makes 330–331
considerations in service management quick work of, 630 similar, 334
international and, 7, 499, 524, Promotion, 6, 9, 23, 100, 247, specifications of 337
purchasing, 340 601, 655 426, 428, 476, 499, 525, types of, 337
defined, 401 supplying, 68–71 542, 599–600, 656 Purchasing, 331, 338–339
marketer understanding, 488–490 as part of the marketing as a marketing activity,
responsibilities in, 50 use of, 246 mix, 426–427 331–334
objectives, 407–408 user of, 189, 190 effective methods of, international, 339–341
products and services, Product advertising, 453 230–231 plan, 352–353
102–103, 321–322 Product assortment, 287–288 efforts, 201 power, 520
strategies, 199, 415–417 Product cost, 410 expenses, 578–579 procedures, 347–348
Primary competitors, 266 Product design, levels of, form of communication, process, 342–345,
Primary data, 138 284–286 427–429 354–355
Print advertising, 433 Product development, 101 marketer responsibilities records, 349–350
Priority placement of sponsor, as a marketing function, in, 50 Pure competition, 72–73, 108
229 280–282 marketing activity of Pure risk, 533
Privacy issues, technology marketer responsibilities retailers, 380
raises, 636 in, 50 materials, 7 Q
Private enterprise, 63 marketing activities in, methods of Qualifying, 486
economy, 63–65, 107 281–282 e-commerce, 228–229 Qualitative research, 468
Problems, 136–138 testing and, 300 of services, 320–321 Quality
marketing solves, 44–46 Product expenses, 577 other types of, 229 a top management
of marketing, 92 Product fulfillment center, 225 planning of, 103–104 responsibility, 616
recognition of, 164 Product knowledge, 488–489 Promotional budget, setting improving while cutting
Procedures, 634 Product liability insurance, of, 444 costs, 554
Processing, production busi- 547 Promotional display, design- of services, 310–312
ness function, 15 Product liability lawsuits, 286 ing of, 442 providing with
Procter & Gamble Company, Product life cycle, 248, 414 Promotional mix, 440–441, differences, 88
102, 332 Product line, 287 444 variation in product
Producer, 111, 332, 455 Product management, 6, 9 Promotional objective, line, 287
adjusting differences marketer responsibilities 440–441, 444 Quantitative research, 468
between consumer in, 50 Promotional plan, 443 Quantity
and, 366–368 Product mix implementing of, 445 differences in, 367
private enterprise components, 286–290 many factors impact, discount, 322, 416
economy, 64 element, 283–284 441 variation in product
Product, 23, 100, 276–278, of retailers, 380–381 Proprietor, 603 line, 287
539 Product planning, 200, 284 Proprietorship, 603–605 Questions
at a lower cost, 37 function, 282 Prosperity, growth of service answering customer,
classification of, 189, 190 Product sales, tracking of, 352 industry, 309 495–496
communicating informa- Product seeding, 20 Psychographics, 184 clarity of survey,
tion of, 489–490 Product usage, 184–185 or lifestyle 145–146
demonstration of, Product warnings, 539 characteristics, 239 Quotas, 522
464–465 Production, 14–15, 467 Public awareness, marketing
features of, 244 differences in timing increases, 44
fine-tuning of, 243–246 of consumption and, Public relations (PR), 434–437 R
for consumer and busi- 367–368 Publicity, 435 Radio
ness markets, 295–296 emphasis, 24–25 Pulsing ad campaign, 459 advantages and dis-
handling and storing of, foreign, 513–514 Purchase order, 349 advantages of
2, 389–390 operations reports and, Purchase volume of business, advertising, 459
Internet distribution of, 129 334 changing face of, 80
223–224 process, 467 Purchasers, 331–332 Railroads, 387
Index 695
CH 25-B4491-PB1.indd 695 12/13/07 12:31:46 AM

Ramada Inn, 195 Retailing S people-based, 314
Random sampling, 138 changing of, 383–385 Safety pricing of, 102–103
Rational motives, 162 non-store, 382–383 of packaging, 288 product associated,
Raw materials, 14, 293, 294, role of, 379–383 security and, 546–547 244–245
331 Return on investment, 600 Sales production business
Reach, 228, 460–461 Revenue, 556 closing, 496–497 function, 15
Rebate, 417 after-sale, 574–575 emphasis on, 24, 25 sales of, 573–574
Receiver, 428 effects of marketing on, feedback for, 39 unique qualities of,
Receiving record, 350 572–577 increasing of, 408 310–312
Recession, 520 increasing of, 569–570 of products and services, Service businesses, 112,
Reciprocal trading, 340 Revenue passenger miles 573–574 332–333
Recognition and special (RPMs), 311 providing support for, Service industries, growth
services, 20 Revenue per available room 498–499 and importance of,
Recycling, 187 (revPAR), 311 Sales information, customer 308–310
Red Cross. See American Red Rewards, 547 records and, 128–129 Service management, 6, 9
Cross Rich media, 228 Sales promotion, 438–439 Service organization classifi-
Reebok, 195 Risk, 532, 547 Sales tax on the Internet, 294 cations, 313–315
Reference group, 171 assuming of, 534, Sam’s Club, 377, 588 Service planning, 200,
Regional shopping centers, 535–536 Sample, 138 319–320
382 avoiding, 534 SAS Institute, Inc., 498 Service quality, 317
Regulation, 577 classification of, 533 Satellite radio companies, 80 Service retailers, 381
Regulatory boards, 468–469 control of, 534 Satisfaction, 9 Services devise unique ways
Relationship marketing, 27 dealing with, 534–536, Scales, tipping of, 161 to measure perfor-
Reliable Auto Service, 544–546, 546–549 Scanners, use of to collect mance, 311
93–94 economic, 533 market data, 109 Sesame Street, 290
Religious institutions, 115 human, 533 Scarcity, 61 7UP, 191
Remind, 431 insuring of, 534, 535 Scientific skills, 596 Sherman Antirust Act of 1890,
Reorder point, 338 natural, 533 Search engine, 229 49
Repeat purchase, 338 pure, 533 Seasonal discount, 417 Ships and boats, 388
Reports reduction of, 548–549, Secondary data, 137–138 Shopping centers, 382
government, 130–131 545 Security and safety, 546–547 Shopping experience, 230,
production and result of, 533–534 Security technology, 224 384–385
operations, 129 retention of, 535 Segmentation Shopping goods, 254,
research, 140 source of, 533 benefits of, 183–184 256–257, 292
Request for proposal (RFP), speculative, 533 categories of, 184 Shopping strips, 382
344 to elements of the geographic, 184 Short-term expenses, 559
Research marketing mix, market, 182–185 Short-term planning,
reports, 140 538–543 Segmenting factors, 239 621–623
results, presenting, 142 transfer of, 534, 535 Segments, 239 Siemens, 515
the market, 443 uncontrollable, 534 identifying and analyz- Simulations, 148–149
Resellers, 332 uninsurable, 534 ing market, 187–188 Sinopec, 515
Resources, 441 Risk management, 6–7, 536, Seiko, 515 Sirius, 80
coordinating of people 601, 657 Self-concept, 169 Sketchers USA, Inc., 288
and, 618–619 Risk of change, 537–538 Self-confident, 593 Skill
economic, 69 Risk-taking, 593 Self-directed work team, 632 for marketing success,
Responsibility to customers, Ritz-Carlton Self-management, 483 653–657
52 Hotels, 88 Self-regulation, 50–51 level of, 315
Results Robinson-Patman Act of Self-sufficient, 12 personal selling and, 481
disappointing, 364–365 1936, 49 Selling, 6, 9, 477, 524, 600, 656 Skimming price, 414
evaluating of, 445 Rockwell Automation, 371 business-to-business, Small Business Administra-
preparing of, 139–140 Rolex Watch USA, 493–494 tion (SBA), 511, 584, 590
presenting research, 142 Inc., 255 retail, 493 SmartWool, 190
Resumes, virtual job applica- Ronald McDonald to retail businesses, Smith, Adam, 63
tions and, 669 Houses, 51 353–354 Smith, Fredrick, 588
Retail businesses, selling to, Roosevelt Field Shopping Selling price, 410–412 Snickers, 431, 454
353–354 Mall, 154 Selling process, steps in, Social action, 51
Retail selling, 493 Routine decision making, 173 492–498 Social environment, 170–171
Retail Trade, 130 Rubik, Erno, 595 Sender, 427, 428 Social media, using of, 352
Retailer, 112, 379 Rudkin, Margaret, 587 Service, 308, 331 Social medium, 352
location of, 381–382 Rule of 72 makes quick work equipment-based, 314 Social responsibility, 47, 48
product mix of, 380–381 of projections, 630 evaluating quality of, Society, marketing benefits,
types of, 380–383 Russia, 216, 507 317–318 38–40
696 Index
CH 25-B4491-PB1.indd 696 12/13/07 12:31:47 AM

Solution, propose a, 140–143 Supplies, 293, 294, 331 Time, personal selling and, U.S. Economic Census report,
Sony, 154, 588 Supply, 64 479, 481 377
Sorpresa, 429 and demand, 70–71, 402 Top line, 563 U.S. Marine Corps, 427
Sources, information, 489 law of, 70 Total quality management U.S. population, demographic
South Africa, 508 with demand, marketing (TQM), 348 characteristics of educa-
South America, 385 helps match, 46 Toy Industry Association, 353 tion and income in, 184
South China Mall, 382 Supply chain, 348 Toyota, 180, 191, 199, 278, U.S. Postal Service, 28, 389, 515
South Korea, 216, 507 Supply chain management, 344, 418, 453, 513 USA Today, 81, 366, 459
Soviet Union. See Former 348 Tracking Use or application, 189, 190
Soviet Union career in, 346 product sales, 352 Use tax, 294
Spain, economy of, 507 (SCM) software, 372 shipments online, 388 Utility, 79–82, 83
Spam, 622 Supply curve, 69 Trade
Specialist-level marketing, 652 analyzing, 69–70 balance of, 513
Specialists, purchasing re- for cell phones, 69 professional associations V
quires, 338–339 for notebook and, 131 Value, 63
Specialization of labor, 13 computers, 70 Trade credit, 418 added, 417
Specialized services, 378 Surety bond, 547 Trade discount, 417 expected, 547
access to, 16 Survey, 144–146 Trade Information Center, 511 image or, 360
Specialty goods, 255, 257, Swathmore, James, 633–636 Trade shows, 202, 353, 354 Vendor analysis, 344
292 SWOT, 264 Trade-in allowance, 103, 417 Vendor catalogs, purchasing
Specialty or limited-line Trademark, 289 through, 354
retailers, 380 T Transaction security, online Vendors (suppliers), 343, 344
Speculative risk, 533 Taco Bell, 195 buying, 224–225 Verizon, 58
Sponsorships, business and, Tangible products, 320 Transfer the risk, 534, 535 Video conferencing: the
437 Target, 360 Transportation, 130 global conference room,
Sports Illustrated, 459 Target market, 100, 241, 441, in international 523
Sprint, 405 557 purchasing, 341 Viral marketing, 352, 599
Staffing, 623, 626–627, 635 defining of, 267–268 methods, 386–389 Virtual communities, 221
Stand-alone stores, 382 identify, 602 systems, 2 Virtual job applications and
Standard Industrial Code selecting of, 241–242, TransUnion, 131 resumes, 669
(SIC), 328 443 Trek, 22 Virtual marketing, 221
Standard of living, 39, 520 Tariffs, 522 Trial close, 496 Virtual product development,
Staple goods, 253, 292 Taxation, 405–406 Trucks, 387–388 career in, 279
Starbucks, Chinese protest Technology, 521–522 Truck-side ads, 376 VISA, 89, 418, 535, 576
location of, 535 increased use of, 384 Truth-in-Lending Act, 577 Volkswagen, 441, 510
Statistical Abstract of U.S., privacy issues raised by Volvo Cars of North America,
137 636 170
Statistics, understanding sales and, 474, 494 U
basic, 141 using of, 596–597 Uncontrollable risk, 534
Stockholders, prospective, Telecommunications Act of Unilever, 435 W
609 1996, 80 Uninsurable risk, 534 Walker, Madam C. J., 586
Storage, 132–133, 389–390 Telemarketing and Consumer Unit pricing, 405 Wall Street Journal, The, 131
Stossel, John, 539 Fraud and Abuse Preven- Unit sales provide another Wal-Mart, 190, 360, 381, 400,
Strategic brief, 458 tions Act of 1994, 49 perspective, 575 515, 567, 588
Strategy, 96, 545 Telephone surveys, 145 United Kingdom, 157, 216, Walton, Sam, 588
develop a creative, 458 Teletubbies, children’s pro- 507 Want, 158–159
distribution, 7 gram produced in U.K., United States, 216, 506–508, Warehouse, 389–390
new product 42 512 Warranty, 245
development, 299 Television advertising, 157, Unpaid credit, 576–577 Waste Management, 35
Strauss, Levi, 587 459 Unsought goods, 255–256, Web site
Subsidy, 522 Test markets, 148 257–258, 292 for distributor
Success, key to, 618–619 Testimonial, creative formats, UPS, 225, 319–320, 361, 389, communication, 488
Suggestion selling, 497 464 567 purchasing through, 354
Sunkist, 376 The Economist, 218 U.S. Bureau of the Census, subscriptions, 16
Super Bowl XXX, 310 The Office, British television 130 Web sponsorship, 228–229
Superstores, 381 comedy, 42 U.S. Department of Com- Webcams, 217
Supervisor/manager-level The Wealth of Nations (Smith), merce, 511, 566 Wendy’s, 195, 401
marketing, 652–653 63 U.S. Department of Labor, 653 Western Europe, global mar-
Supplier qualifications in inter- The Week, 399 U.S. Department of Transpor- ketplace, 385
national purchasing, 340 3M Corp., 278, 515 tation, 416 What-you-can-afford method
Suppliers, buyers too close 3M Graphics, 376 U.S. Department of Treasury, of determining the
to, 347 Time utility, 80 333 budget, 457
Index 697
CH 25-B4491-PB1.indd 697 12/13/07 12:31:47 AM

Wholesale franchises and Wireless devices and billing Working Mother, 631 X
cooperatives, 376 issues, 315 World Book Encyclopedia, 16 Xerox, 554
Wholesale member clubs, 376 Wireless notebook World Cup, 310 XL Capital, 505
Wholesale Trade, 130 computers, 214 World economy, responding XM, 80
Wholesalers, 375 Woods, Tiger, 290 to, 504
changing role of, Woot.com, 225 World Trade Organization
377–378 Word of mouth (WTO), 504 Y
types of, 375–376 power of marketing, 195 World Wide Web, 210, 488 Yahoo!, 16, 212, 229
Wholesaling, 374–377 promotion, 20, 22, 321 World’s largest economies, YouTube, 352
Why do you buy what you Word of Mouth Marketing As- 507
buy, 424 sociation (WOMMA), World’s most popular sport, Z
Wikipedia, 352 20, 22 310 Zone pricing, 416
Winfrey, Oprah, 436 Work outside the office, 654 Worldwide interdependence, Zurich, 531
Winterfresh, 451 Work skills, interpersonal and 506–507
basic, 654
698 Index
CH 25-B4491-PB1.indd 698 12/13/07 12:31:48 AM

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Burrow

Marketing 3e It’s More Than Essential

Other Noteworthy Features of the Third Edition

For your course and learning solutions,

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For your course and learning solutions, visit school.cengage.com

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F IR S T PL ACE Marketing 3e...It’s More Than Essential

SE CON D PL ACE Your Guide to Marketing in the Fast Lane

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DECA PREP Assessment –

S go to school.cengage.com/marketing/marketing and click on Connect to DECA

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Text now includes even more

Newsline describes marketing

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SOS – Skills for Occupational Success is a

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Make Academic Connections at the

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Get the Message

Digital Digest presents different technologies,

Judgment Call exam-

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Product Web Site –

Xtra! Study Tools provide an interactive review of every

Net Bookmark encourages students to

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DECA Prep DECA Prep

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DECA Prep DECA Prep

Chapter 22 Index 686

Take Control with

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Chapter 1 Marketing Management Series Event 33

Chapter 2 Apparel and Accessories Marketing Series Event 57

Chapter 3 Internet Marketing Business Plan Event 87

Chapter 4 Creative Marketing Project Event 119

Chapter 5 Retail Marketing Research Event 153

Chapter 6 Automotive Services Marketing Individual Series Event 179

Chapter 7 Sports and Entertainment Marketing Management

Chapter 10 Learn and Earn Project 305

Chapter 11 Hotel and Lodging Management Individual Series Event 327

Chapter 12 Retail Merchandising Individual Series Event 359

Chapter 13 Quick Serve Restaurant Management Individual Series Event 397

Chapter 14 Hospitality and Recreation Marketing Research Event 423

Chapter 15 Community Service Project 449

Chapter 16 Advertising Campaign Event 473

Chapter 17 Technical Sales Event 503

Chapter 18 Food Marketing Individual Series Event 529

Chapter 19 Business Services Marketing Individual Series Event 553

Chapter 20 Financial Analysis Management Team Decision

Chapter 22 Public Relations Project 641

Chapter 23 Restaurant and Food Service Management Individual

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