TU-91.1008 Basics of marketing

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Preparation for TU-91.1008/2500 Basics of marketing[edit]

The purpose of this page is to list all relevant information for the marketing exam of TKK. Ideally, one would only have to read/memorize this page in order to pass the exam.

Old exam definitions[edit]

Define the following basic marketing concepts briefly and elaborate on the terms with an example. We are not looking for a textbook definition, show that you understand the concept and what it means for the business.

These definitions are all taken from old exams.

Concept: Definition: Example:
Value proposition

In short: Value proposition is the whole cluster of benefits the company promises to deliver.

The value proposition is the set of benefits or values a company promises to deliver its customers to satisfy their needs. Value propositions help companies to differentiate themselves from others in the marketplace, and establish an unique position in the minds of the customers. At best, the value proposition should answer the following questions: How do you make life better or easier for someone? What problems do you help them solve? Why should someone do business with you and not somebody else?

The value proposition of a digital agency could be to increase its customers revenuew and market share, and to enhance the experience of their customers's customers.
Macro enviromental forces
  • Demographic forces
    • Age structure
    • Increased immigration and movement of labor
  • Economic forces
    • Changes in consumer behavior or the economy in general
  • Natural forces
    • Environmental sustainability, increased pollution, governmental regulation, shortages in raw materials
  • Technological forces
    • Development is not linear, new technological developments can kill entire markets
  • Political forces
    • Legislation regarding advertising, products standards, patents,
  • Cultural forces
    • The forces impacting the perceptions, values, beliefs, and preferences of individuals and groups.
    • individuality, authenticity, environmentalism, social awareness
Targeting Evaluating the attractivness of each market segment and then selecting the best segments as target markets. This way, sellers can develop the right product for each target market and adjust their pricing, distribution channels and advertising accordingly. For example, an airline can target business class customers separately by introducing business class seats.
Special charasteristics of business markets
  • Fewer but larger buyers.
  • More geographically concentrated.
  • Business buyer demand is derived from final consumer demand.
  • Demand in many business markets fluctates more, and more quickly.
  • More complex buying process (more people involved).
  • More professional purchasing effort.
For example: Intel
  • Business markets for Intel's chips are fewer in number, but the buyers purchase considerably more than buyers in consumer markets.
  • More geographically concentrated (most clone manufacturers in China/Taiwan)
  • Demand for Intel's chips fluctate more, and more quickly than in consumer markets.
SWOT analysis
  • Strengths, Weaknesses, Opportunities, Threats
  • The SWOT analysis is a method used for analyzing the factors influencing a business project or new venture
  • It is a way of uncovering and recognizing the external as well as the internal factors that may play a part in the success or failure of a project
Customer equity
  • The value of the consumer relationships that the brand creates.
  • Extending loyal customer lifetime value.
Positioning Arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the mind of the target customers. For example, BMW is seen as more pricy and of higher quality by the consumers.
The marketing mix The marketing mix is the set of controllable tactical marketing tools that the firm blends to produce the response it wants in the target market. The marketing mix includes everything the firm can do to influence the demand for its product.
  • Product
    • Product means the totality of goods and services that the company offers to the target market.
  • Price
    • The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product.
  • Place
    • Place indcludes the company activities that make the product available to target customers.
  • Promotion
    • Promotion represents all of the communications that a marketer may use in the marketplace.
  • Product
    • A service, experience or physical product.
  • Price
    • The business may increase or decrease the price of product if other stores have the same product.
  • Place
    • Internet store
  • Promotion
    • Advertising, personal selling, sales promotion
Marketing system Marketing involves serving a market of end customers in the face of competitors. The company and competitors send their products and messages directly to consumers or throught marketing intermediaries to the end customer. All of the actors in the marketing system are affected by environmental forces - demographic, economic, physical, technological, political, cultural. Each party in the system adds value to the next level. Thus a company's success depends not only on its own actions, but also on how well the entire value chain serves the needs of final consumers. IKEA, the Swedish furniture retailer, cannot fulfil its promise of low prices unless its suppliers provide merchandise at low costs. Neither can Toyota deliver high quality to car buyers unless its dealers provide outstanding quality.
Different ways to estimate market potential

Market potential means the upper limit to market demand whereby increased marketing expenditures would not be expected to stimulate further demand.

The 3 ways are:

  • Bottom-down
    • Basic idea: all purchases * average price = market potential
    • Challenge: How to estimate total number of purchases and average price?
  • Top-down
    • Basic idea: Start with some larger market and eliminate irrelevant shares, piece by piece.
  • Cost-savings
    • Based on the idea of how much does your product or solution reduce the cost of the customer.
  • Bottom-down
    • Data from marketing research
    • Expert assessment
    • Test marketing and simulations
  • Top-down
    • Total market (e.g. money spent on leisure time)
    • Cost-savings (expenditure on public health service)
    • Turnover of a competitor
    • Scaling based on another market (in another country)
    • Data from other products or industries
    • Expert assessment
  • Cost-savings
    • Assumption: A product (in market X) makes a process 7% more efficient.
    • The market size for X is 7,9 billion. With a 7% saving, the market potential is 500 million.
Product, service and experience Define the concepts and explain how they differ for the customer:
  • Products tend to be physical in nature and when sold to the customer, the ownership of the product is transferred to the customer.
    • Many sellers tend to make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products. They forget that the product is only a tool to solve the customer's problem.
  • Services are activities or benefits offered for sale that tend to be non-material and do not result in ownership of anything.
  • Customers want offers that deliver an experience.
  • Products can be for example consumer products, mobile phones and cars.
  • Services can be for example banking or home repair services.
  • Experiences can be for example a day in DisneyWorld, a bungee jump or a ride in a Porsche.
Triple bottom line, TBL or 3BL Triple bottom line also known as "people, planet, profit" or "the three pillars". In practical terms, triple bottom line accounting means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance.

"People" (human capital) pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business and does not exploit or endanger them. "Planet" (natural capital) refers to sustainable environmental practices. "Profit" is the real and whole economic impact the organization has on its economic environment, not just traditional corporate accounting profit.

  • "People": Fair trade. Farmer get fairer share of the total profit.
  • "Planet": TBL companies avoid i.e. overfishing.
  • "Profit": In fair trade you must also consider the total benefits to the society, where the banana grower lives, when he get more money and for example send his/her kids to school.
Objective-and-task method in setting promotion budgets The objective-and-task method calls upon marketers to develop promotion budgets by defining specific objectives, determining the tasks that must be performed to achieve these objectives, and estimating the costs of performing these tasks. The sum of these costs is the proposed promotion budget.

Example of steps to use the method:

  • Establish the market share goal
  • Determine the percentage of the market that should be reached by advertising
  • Determine the percentage of aware prospects that should be persuaded to try the brand
  • Determine the number of advertising impressions per 1 percent trial rate
  • Determine the number of gross rating points that would have to be purchased
  • Determine the necessary advertising budget on the basis of the average cost of buying a gross rating point
Dissonance reducing buying power

Other useful definitions[edit]

Other useful definitions mentioned in the lecture slides of Spring 2009.

Concept: Definition:
Marketing
  • Establishing and developing customer relationships
    • Customer relationships = Only source of cash flow
  • The goal of marketing is to attract new customers by promising superior value, and to keep current customers by delivering satisfaction.
The marketing process
  1. Understand the marketplace, and customer needs and wants
  2. Design a customer-driven marketing strategy
  3. Construct an integrated marketing program that delivers superior value
  4. Build profitable relationships and create customer delight
  5. Capture value from customers to create profits and customer equity
Cash flow drivers There are five commandments to being a useful marketer, i.e. making money through customer management:
  1. Sell more
    • New customers, upselling, and cross-selling
  2. Make sure the current cash flows don't reduce or die
  3. Change the cost/revenue ratio
  4. Bring cash flows home faster
  5. Balance cash flow volatility
    • This will reduce risk
Marketing myopia The mistake of paying more attention to the specific product/service a company offers than to the benefits & experiences provided by these products/services.
Marketing strategy The marketing logic by which the business unit hopes to achieve its marketing objetives.
Market segmentation The division of a market into distinct groups of buyers who have distinct needs, characteristics, or behaviour and who might require separate products or marketing mixes.
Mass marketing Using almost the same product, promotion and distribution to the same customer.
Differentiated marketing Also known as segment marketing. Adapting a company's offering so that they more closly match the needs of one or more segments.
Niche marketing Choosing one or more segments in which a large share is attempted. Segments often with little competition.
Micromarketing Tailoring of offering and marketing programs to serve individual customers. Mostly in project-based business.
Sales channels
  • Resources, strengths, capabilities of your own company
  • The product
  • Buyer's lenses
  • Channel alternatives available
PEST-analysis
  • Stands for Political, Economic, Socio-Cultural, and Technological
  • Can be used as a way to predict future shifts
Microenvironment
  • The Company
    • Areas inside the company influence the way in which marketing strategy can be implemented
  • Suppliers
    • Vital part in delivering customer promise; therefore, treated often like partners
  • Marketing intermediaries
    • Financial intermediaries provide the funds
    • Resellers sell the final products to consumers
    • Physical distribution agencies get the things to shops
    • Marketing services agencies help with promotion and targeting issues, usually advertising and media agencies
  • Customers
    • Consumer, reseller, business, government, international
  • Competitors
    • Firms providing products that are perceived by customers as being potential/reasonable substitutes
  • Publics
    • Types of publics: financial, media, governmental, citizenaction, local, general, internal
    • The stakeholders of the company
Four C's One of the different approaches to the marketing mix than the four P's. Philip Kotler prefers the four C's as a more customer or marketing oriented than the seller and sales oriented four P's.
  • Product = Customer Benefits
  • Price = Cost to Customer
  • Place = Convenience
  • Promotion = Communications
The Buying Decision Process: The Five Stage Model
  • Problem recognition
    • The buyer recognizes a problem or need
  • Information search
    • An aroused customer will be inclined to search fore more information
  • Evaluation of alternatives
    • The consumer makes a final value judgement through comparing alternatives
  • Purchase decision
    • The consumer may form an intention to buy the most preferred brand
  • Post purchase behavior
    • It is common for customers to experience concerns after making a purchase decision. The customer, having bought a product, may feel that an alternative would have been preferable.

Old Exam Essays[edit]

The following questions have all been taken from old exams.

Question: List the four different categories for marketing performance metrics and give examples of how they could be used in business. What are the pro's and con's of each metric's category?[edit]

Marketing metrics is the set of measures that helps firms to quantify, compare, and interpret their marketing performance. Different metrics provide information about different types of marketing impact.

TYPE: EXAMPLES: TARGET PRO'S CON'S
Customer metrics Brand image, customer satisfaction and loyality Marketing assets Focus on long-term competitive advantage, customer perspective Financial value hard to define
Market metrics Sales volume, financial share, relative price, penetration rate Market position / impact Relative to competitors's, easy to measure Narrow perspective
Financial metrics Sales values, gross margins, profit, ROI Financial position / impact Easy to monitor and understand, corporate language Backward looking, short-term focus
SHV metrics NPW, IRR, ROI Shareholder value impact Long-term focus, future oriented, corporate language Hard to measure (assumptions, estimations)

Question: What is systems (or solutions) selling? Why should companies provide systems or solutions? Give practical examples how companies could use it in their business model.[edit]

  • From product-oriented to customer-oriented business models.
    • Companies are more than happy to tailor a combination of their products and services.
    • Integrate solutions, combine products and services from the company and third parties.
  • Customers want a relationship where the partner understands their needs and tailors and integrates a solution.
  • From selling manufactured goods to integrate solutions and maintenance of systems.
  • Practical example: Internet access -> Security -> PC and software leasing -> PC support
  • Philosophy of selling more to (existing) clients = more value capture = going downstream in a value chain.

Question: Define Marketing Management. What specific activities can be associated with the different stages? Illustrate the activities though an example of a company case.[edit]

Marketing management is the art and science of choosing target markets and building profitable relationships with them. The basic process in Marketing Management consists of

  • Analysis
    • E.g. SWOT analysis (Internal: Strengths, Weaknesses; External: Opportunities, Threats)
  • Planning
    • Specific strategies and goals for target markets
    • Positioning in the minds of the customers, differentiating against the competition, use of marketing mix tools (4P), marketing expenditure levels, channels, message
  • Implementing
    • Blends people, organizational structure, decision and reward systems, and company culture into a cohesive action plan that supports its strategies
  • Controlling
    • Operational – did we meet the budget
    • Strategic – did we match our opportunities
    • Customer acquisition, retention, and lifetime value; customer satisfaction, market share, turnover, brand awareness and preference

Question: Briefly explain the components of the marketing mix. How are things different if you are in the service business? What other critique have marketing practitioners and academics given towards the marketing mix concept?[edit]

The marketing mix is the set of controllable tactical marketing tools that the firm blends to produce the response it wants in the target market. The marketing mix includes everything the firm can do to influence the demand for its product.

  • Product
    • Product means the totality of goods and services that the company offers to the target market.
    • Selection, quality, design, features, brand, packaging, services
  • Price
    • The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product.
    • The business may increase or decrease the price of product if other stores have the same product.
    • List price, discounts, payment terms
  • Place
    • Place indcludes the company activities that make the product available to target customers.
    • It can include any physical store as well as virtual stores on the Internet.
    • Channels, warehousing, distribution, logistics
  • Promotion
    • Promotion represents all of the communications that a marketer may use in the marketplace.
    • Advertising, personal selling, sales promotion, relationship management

Kotler's additional 3 P's

  • People
  • Process
  • Physical evidence

Special characteristics of services

    • Intagibility
      • Cannot be felt or touched
      • Difficult to explain with marketing communications
    • Inseparability
      • Delivery/production simultaneous with consumption
    • Heterogenity
      • Numerous people involved
    • Perishability
      • Cannot be stored

*Critique

    • It might not suit for fragmented markets.
    • It does not explain how time changes things.
    • Focuses more on the seller's view of the market, not the customer's.

Question: Describe the components and the nature of the promotion mix (or marketing communications mix) in marketing communications. How and why should a company integrate their marketing communications?[edit]

The promotion mix is the specific blend of advertising, public relations, personal selling, and direct-marketing tools that the company uses to persuasively communicate customer value and build customer relationships

  • Advertising
    • Advertising is any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor
    • Broadcast (TV & Radio), Print, Internet, Outdoor
  • Sales promotion
    • Sales promotion is the short-term incentives to encourage the purchase or sale of a product or service
    • B2C: Discounts, Coupons, Displays, Demonstrations
    • B2B: Discounts, Demonstrations at fairs, package deals
    • Attract consumer attention and offer strong incentives to purchase.
    • Can be used to dramatize product offers and to boost sagging sales
  • Public relations
    • Public relations involves building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events
    • Press releases, Sponsorships, Special events, Web pages
  • Personal selling
    • Personal selling is the personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships
    • Sales presentations, Trade shows, Incentive programs
  • Direct marketing
    • Direct marketing involves making direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships—by using direct mail, telephone, direct-response television, e-mail, and the Internet to communicate directly with specific consumers

Integrated marketing communications:

  • Customers don’t distinguish between message sources the way marketers do.
  • Companies often fail to integrate their various communications channels.
    • E.g. advertisements say one thing, while promotion sends a different signal, or the behavior of the company is inconsistent
  • Audit the pockets of communication spending throughout the organization
  • Identify all customer touch points for the company and its brands
  • Team up in communications planning

Question: Describe the concepts of segmentation, targeting, and positioning. Which tasks and actions can be associated with each stage? How can they be used to create competitive advantage?[edit]

  • Segmentation
    • First identify the segmentation variables and then segment the market. Then develop (customer) profiles of resulting segments.
  • Targeting
    • First evaluate the attractivness of each identified segment. Then select the most attractive segments for targeting.
    • This way, sellers can develop the right product for each target market and adjust their pricing, distribution channels and advertising accordingly.
    • All segments cannot be effectively served, one should target marketing efforts to a segment or segments.
    • Unfilled gaps can be filled.
  • Positioning
    • Positioning is the act of desiging the company's offering and image to occupy a distinctive place in the mind of the target market.
    • First identify possible positioning concepts for each target segment (using 4Ps). Then select, developt and communicate the chosen positioning concepts.

Question: Companies operate in a complex networked environment. Define the players in a marketing system. What are the roles and activities of different organizations in this system? Put yourself in the position of the company in this system. How do these players relate to you and have an impact on your business?[edit]

Answer

Question: Describe the stages of the marketing research process. Explain what is important or critical in each step.[edit]

Marketing research is the systematic design, collection, analysis and reporting of data relevant to a specific marketing situation facing an organization.

  1. Defining the problem and research objectives.
    • Distinquish what is a problem and what is a symptom of a problem.
    • Three types of objectives of a marketing research:
      1. Exploratory research
        • Used to better define a problem or scout opportunities.
        • In-depth interviews and discussions groups are commonly used.
      2. Descriptive research
        • Used to assess a situation in the marketplace, i.e. potential for a specific product or consumer attitudes.
        • Methods include personal interviews and surveys.
      3. Causal research
        • Used for testing cause and effect relationships.
        • Typicall through estimation.
  2. Developing the research plan for collecting information.
    • Research plan outlines sources of existing data and spells out the specific research approaches, contact methods, sampling plans, and instruments that researchers will use to gather data.
    • Written proposal includes
      • Management problem
      • Research objectives
      • Information need
      • How the results will help management decisions
      • Budget
    • Three research approaches
      1. Observational research
        • Observe subjects in relevant situations, i.e. shopping.
        • Combine observations with interviews = ethnography.
      2. Survey research
        • Gather data by asking people about their preferences, attitudes, etc.
      3. Experimental research
        • Give groups different treatments and then check for differences.
  3. Implement research plan
    • Collect, analyze and process the data.
    • E.g. mail the questionaries, hold the interviews ..
  4. Interpret and report the results
    • Try to avoid bias when interpreting.
    • Just because results fail to confirm original hypotheses, does not mean the research results are useless.
    • Communicate the results

Question: Define Corporate Strategic Marketing. Explain how marketing could be used on arenas outside of the traditional product or service markets.[edit]

  • Corporate Strategic Marketing (CSM)
  • Marketing the corporation in various competitive (corporate) markets
  • Emphasizing relationship management and network participation
  • Companies operate in various markets in addition to the traditional product or service markets
    • Try to identify which other markets you are actually in
    • How do they affect your to profitability, growth, and shareholder value
  • Creating and capturing demand (from products to buzz around firm)
  • Access to capital and increasing demand for stock
  • Support from gov’t regulation, policy, and subsidy
  • Int’l expansion
  • Enviromental/corporate social responsibility image
  • Developing capabilities and human capital
  • Dev’t of new products/services/businesses

Question: Define the Buying Center? How can it be used to plan and implement selling activities?[edit]

The buying center is the decision-making unit of a buying organization. The buying center includes all members of the organization who play any of seven roles in the purchase decision process.

  • 1. Initiators. Those who request that something be purchased. They may be users or others in the organization.
  • 2. Users. Those who will use the product or service. In many cases, the users initiate the buying proposal and help define the product requirements.
  • 3. Influencers. People who influence the buying decision. They often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important influencers.
  • 4. Deciders. People who decide on product requirements or on suppliers.
  • 5. Approvers. People who authorize the proposed actions of deciders or buyers.
  • 6. Buyers. People who have formal authority to select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating. In more complex purchases, the buyers might include high-level managers.
  • 7. Gatekeepers. People who have the power to prevent sellers or information from reaching members of the buying center. For example, purchasing agents, receptionists, and telephone operators may prevent salespersons from contacting users or deciders.

Same person can occupy many roles and many people can have same role. The buying center may include people outside the target customer organization, such as government officials. A purchasing manager, for example, often occupies the roles of buyer, influencer, and gatekeeper simultaneously.

Each member of buying center have different decision criterias. I.e. engineer may be mostly considers about the actual performance of the product and users may give most weight to ease of use. It's also important to understand that in the end it's individuals, not the organizations who makes the decisions. Organizations only legitimate the buying decisions. So, in this sense, industrial buying decisions are both "rational" and "emotional".

Targeting buying center business marketers have to figure out:

  • Who are the major decision participants?
  • What decisions do they influence?
  • What is their level of influence?
  • What evaluation criteria do they use?

It's not likely to know these all, but every bit of information counts. Small sellers have to concentrate to the key buying influencers. Larger seller can go for multilevel in-depth selling to reach as more participants.

Question: What are the four main types on buying behavior in B2C marketing? What are the main marketing actions managers should focus on in each category to find success in business?[edit]

  • High involvement & Significant differences between brands (Complex buying behavior):
    • example: Houses, kitchen renovation
    • Sale is one-time, hit rate is the most important measure
    • Support evaluation and pre-sale learning
    • Salespersonel and selling activities are key.
  • Low involvement & Significant differences between brands (Variety-seeking buying behavior):
    • example: Retail food stuff (with differences)
    • Adding buying triggers.
    • Free samples, special deals
  • High involvement & Few differences between brands (Dissonance-reducing buying behavior):
    • example: Consumer electronics, top-line sport equipment
    • Decision making is difficult both pre- and post-purchase
  • Low involvement & Few differences between brands (Habitual buying behavior):
    • example: Foodstuffs (without differences), personal care products
    • Brand familiarity & promotion with convenience is key
    • Price/sales promotion

Potential exam essay questions[edit]

The following questions have not been in any previous exams. The contents of the questions should be taken from the lecture slides of Spring 2009.


4 marketing concept

Answer

Question:[edit]

Answer