Business: Marketing concepts: Chapter 2

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Products and Services 

People satisfy their needs and wants with products. A product is anything that can be offered to a market to satisfy a need or want. Usually, the word product suggests a physical object, such as a car, a television set, or a bar of soap. However, the concept of the product is not limited to physical objects - anything capable of satisfying a need can be called a product.

 

In addition to tangible goods, products include services, which are activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. Examples are banking, airline, hotel, and household appliance repair services. Broadly defined, products also include other entities such as persons, places, organizations, activities, and ideas. Consumers decide which entertainers to watch on television, which political party to vote for, which places to visit on holiday, which organizations to support through contributions, and which ideas to adopt. Thus the term product covers physical goods, services, and a variety of other vehicles that can satisfy consumers' needs and wants.

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If at times the term product does not seem to fit, we could substitute other terms such as satisfier, resource, or offer. Many sellers make the mistake of paying more attention to the physical products they offer than to the benefits produced by these products. They see themselves as selling a product rather than providing a solution to a need. The importance of physical goods lies not so much in owning them as in the benefits they provide. We don't buy food to look at, but because it satisfies our hunger. We don't buy a microwave to admire, but because it cooks our food. A manufacturer of drill bits may think that the customer needs a drill bit, but what the customer really needs is a hole. These sellers may suffer from 'marketing myopia'.4 They are so taken with their products that they focus only on existing wants and lose sight of underlying customer needs. They forget that a physical product is only a tool to solve a consumer problem. These sellers have trouble if a new product comes along that serves the need better or less expensively. The customer with the same need will -want the new product.

Product

Anything that van be offered to a market for attention, use, or consumption that might satisfy a want or need. It includes physical objects, services, persons, places, organizations, and ideas.

Service

Any activity or benefit that one party can offer to another which is essentially intangible and does not result in ownership of anything

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Value, Satisfaction and Quality

Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose among these many products? Consumers make buying choices based on their perceptions of the value that various products and senders deliver. The guiding concept is customer value. Customer value is the difference between the values the customer gains from owning and using a product and the costs of obtaining the product.

 

For example, Federal Express customers gain a number of benefits. The most obvious is fast and reliable package delivery;'. However, when using Federal Express, customers may also receive some status and image values. Using Federal Express usually makes both the package sender and the receiver feel more important. When deciding whether to send a package via Federal Express, customers will weigh these and other values against the money, effort, and psychic costs of using the service. Moreover, they will compare the value of using Federal Express against the value of using other shippers-UPS, DHL, the postal service - and select the one that gives them the greatest delivered value. Customers often do not judge product values and costs accurately or objectively. They act on perceived value. Customers perceive the firm to provide faster, more reliable delivery and are hence prepared to pay the higher prices that

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Federal Express charges. Customer satisfaction depends on -A product's perceived performance in delivering value relative to a buyer's expectations. If the product's performance falls short of the customer's expectations, the buyer is dissatisfied. If performance matches expectations, the buyer is satisfied. If performance exceeds expectations, the buyer is delighted. Outstanding marketing companies go out of their way to keep their customers satisfied. Satisfied customers make repeat purchases, and they tell others about their good experiences with the product. The key is to match customer expectations with company performance. Smart companies aim to delight customers by promising only what they can deliver, then delivering more than they promise.5 Customer satisfaction is closely linked to quality. In recent years, many companies have adopted total quality management (TQM) programmers, designed constantly to improve the quality of their products, services, and marketing processes.

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Quality has a direct impact on product performance, and hence on customer satisfaction. In the narrowest sense, quality can be defined as 'freedom from defects'. But most customer-centered companies go beyond this narrow definition of quality. Instead, they define quality in terms of customer satisfaction.

 

For example, Motorola, a company that pioneered total quality efforts in the United States, stresses that 'Quality has to do something for the customer ... Our definition of a defect is "if the customer doesn't like it. it's a defect".' Customer-focused definitions of quality suggest that a company has achieved total quality only when its products or services meet or exceed customer expectations. Thus, the fundamental aim of today's total quality movement has become total customer satisfaction. Quality begins with customer needs and ends with customer satisfaction. Today, consumer behaviorists have gone far beyond narrow economic assumptions about how consumers form value judgments and make product choices. We will look at modern theories of consumer-choice behavior in Chapter 7. In Chapter 11, we will examine more fully customer satisfaction, value, and quality.

Customer value

The consumer's assessment of the product's overall capacity to satisfy his or her n<xds.

Customer satisfaction 

The extent to -which a product's perceived performance matches a buyer's expectations. If the product's performance falls shore, of expectations, the buyer is dissatisfied. If performance matches or exceeds expectations the buyer is satisfied or delighted.

Total quality management (TQM)

Programmers designed to constantly improve the quality of products, services and marketing processes

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Exchange, Transactions and Relationships

Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is the act of obtaining a desired object from someone by offering something in return. Exchange is only one of many ways people can obtain the desired object. For example, hungry people can find food by hunting, fishing, or gathering fruit. They could beg for food or take food from someone else. Finally, they could offer money, another good or service in return for food. As a means of satisfying needs, the exchange has much in its favor. People do not have to prey on others or depend on donations. Nor must they possess the skills to produce every necessity for themselves. They can concentrate on making things they are good at making and trade them for needed items made by others. Thus exchange allows a society to produce much more than it would with any alternative system. Exchange is the core concept of marketing. For an exchange to take place, several conditions must be satisfied.

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Of course, at least two parties must participate and each must have something of value to offer the other. Each party must also want to deal with the other party and each must be free to accept or reject the other's offer. Finally, each party must be able to communicate and deliver. These conditions simply make exchange possible.

 

Whether exchange actually takes place depends on the parties coming to an agreement. If they agree, we must conclude that the act of exchange has left both of them better off or, at least, not worse off. After all, each was free to reject or accept the offer. In this sense, exchange creates value just as production creates value. It gives people more consumption choices or possibilities. Whereas exchange is the core concept of marketing, a transaction is marketing's unit of measurement. A transaction consists of the trading of values between two parties. In a transaction, we must be able to say that one party gives X to another party and gets a Fin return. For example, you pay a retailer £300 for a television set or the hotel £90 a night for a room. This is a classic monetary transaction, but not all transactions involve money. In a barter transaction, you might trade your old refrigerator in return for a neighbor's second-hand television set

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A barter transaction can also involve services as well as goods: for example when a lawyer writes a will for a doctor in return for a medical examination (sec Marketing Highlight 1.1). A transaction involves at least two things of value, conditions that are agreed upon, a time of the agreement, and a place of agreement. In the broadest sense, the market tries to bring about a response to some offer. The response may tie more than simply 'buying' or 'trading' goods and services. A political candidate, for instance, wants a response called 'votes', a church wants 'membership', and a social-action group wants "idea acceptance'. Marketing consists of actions taken to obtain the desired response from a target audience towards some product, service, idea, or other objects. Transaction marketing is part of the larger idea of relationship marketing. Smart marketers work at building long-term relationships with valued customers, distributors, dealers, and suppliers. They build strong economic and social tics by promising and consistently delivering high-quality products, good service, and fair prices.

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Increasingly, marketing is shifting from trying to maximize the profit on each individual transaction to maximizing mutually beneficial relationships with consumers and other parties. In fact, ultimately, a company wants to build a unique company asset called ^.marketing network, A marketing network consists of the company and all of its supporting stakeholders: customers, employees, suppliers, distributors, retailers, ad agencies, and others with whom it has built a mutually profitable business relationships.

 

Increasingly, competition is not between companies but rather between whole networks, with the prize going to the company that has built the best network. The operating principle is simple: build a good network of relationships with key stakeholders, and profits will follow/' Chapter 11 will explore relationship marketing and its role in creating and maintaining customer satisfaction.

Exchange

The act of obtaining a desired object from someone by offering something in return.

Transaction

A erode between I parties that involves at least two things of value, agreed-upon conditions, a time of agreement and a place of agreement.

Relationship marketing

The process of recreating, maintaining and enhancing strong, value-laden relationships with customers and other stakeholders.

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Markets

The concept of exchange leads to the concept of a market. A market is the set of actual and potential buyers of a product. These buyers share a particular need or want that can be satisfied through the exchange. Thus, the size of a market depends on the number of people who exhibit the need, have resources to engage in exchange, and are willing to offer these resources in exchange for what they want. Originally the term market stood for the place where buyers and sellers gathered to exchange their goods, such as a village square. Economists use the term to refer to a collection of buyers and sellers who transact in a particular product class, as in the housing market or the grain market. Marketers, however, see the sellers as constituting an industry and the buyers as constituting a market. The relationship between the industry and the market is shown in Figure 1.2. The sellers and the buyers are connected by four flows. The sellers send products, services, and communications to the market; in return, they receive money and information.

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The inner loop shows an exchange of money for goods; the outer loop shows an exchange of information. Modern economics operate on the principle of division of labor, where each person specializes in producing something receives payment, and buys needed things with this money. Thus, modern economies abound in markets. Producers go to resource markets (raw material markets, labor markets, money markets), buy resources, turn them into goods and services, and sell them to intermediaries, who sell them to consumers.

 

The consumers sell their labor, for which they receive income to pay for the goods and services they buy. The government is another market that plays several roles. It buys goods from the resource, producer, and intermediary markets; it pays them; it taxes these markets (including consumer markets); and it returns needed public services. Thus each nation's economy and the whole world economy consist of complex interacting sets of markets that are linked through exchange processes. In advanced societies, markets need not be physical locations where buyers and sellers interact. With modern communications and transportation, a merchant can easily advertise a product on a late evening television program, take orders from thousands of customers over the phone, and mail the goods to the buyers on the following day without having had any physical contact with them. Businesspeople use the term markets to cover various groupings of customers.

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They talk about need markets (such as health seekers); product markets (such as teens or the baby boomers); and geographic markets (such as western Europe or the United States). Or they extend the concept to cover noncustomer groupings. For example, a labor market consists of people who offer their work in return for wages or products. Various institutions, such as employment agencies and job-counseling firms, will grow up around a labor market to help it function better. The money market is another important market that emerges to meet the needs of people so that they can borrow, lend, save and protect money. The donor market has emerged to meet the financial needs of non-profit organizations.

Market

 The sec of all actual arid potential buyers of a product or service.

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