Through _____, marketers ascertain the need for new goods and services.

Customer-Driven Marketing

Chapter 11

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©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

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Learning Objectives

11-1 Define marketing and describe the exchange process.

11-2 Specify the functions of marketing.

11-3 Explain the marketing concept and its implications for developing marketing strategies.

11-4 Examine the development of a marketing strategy, including market segmentation and marketing mix.

11-5 Investigate how marketers conduct marketing research and study buying behavior.

11-6 Summarize the environmental forces that influence marketing decisions.

11-7 Assess a company’s marketing plans and propose a solution for resolving its problem.

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Nature of Marketing 1

Marketing

A group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas

Marketing activities create value

Important part of a firm’s overall strategy

Marketing is not…

Manipulating consumers to get them to buy products they don’t want

Just advertising and selling

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A vital part of any business undertaking, marketing is a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas. These activities create value by allowing individuals and organizations to obtain what they need and want. Marketing is an important part of a firm’s overall strategy. Other functional areas of the business—such as operations, finance, and all areas of management—must be coordinated with marketing decisions.

It is important to note what marketing is not: It is not manipulating consumers to get them to buy products they do not want. It is not just advertising and selling; it is a systematic approach to satisfying consumers.

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Nature of Marketing 2

The Exchange Relationship

Each participant must be willing to give up “something of value” to receive the “something” held by the other

The tangible product itself may not be as important as the image of the benefits associated with the product

Capability gained from using a product

Image evoked by it

Brand name

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At the heart of all business is the exchange, the act of giving up one thing (money, credit, labor, goods) in return for something else (goods, services, or ideas). Businesses exchange their goods, services, or ideas for money or credit supplied by customers in a voluntary exchange relationship. For an exchange to occur, certain conditions are required. Buyers and sellers must be able to communicate about the “something of value” available to each. An exchange does not necessarily take place just because buyers and sellers have something of value to exchange. Each participant must be willing to give up his or her respective “something of value” to receive the “something” held by the other.

When you think of marketing products, you may think of tangible things—cars, smartphones, or books, for example. What most consumers want, however, is a way to get a job done, solve a problem, or gain some enjoyment. Therefore, the tangible product itself may not be as important as the image or the benefits associated with the product. This intangible “something of value” may be capability gained from using a product or the image evoked by it, or even the brand name.

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Figure 11.1 The Exchange Process: Giving Up One Thing in Return for Another

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Exchange Relationships

Companies find that communicating with customers through social media sites can enhance customer relationships and create value for their brands.

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Nature of Marketing 3

Functions of Marketing

Buying

Selling

Transporting

Storing

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Marketing focuses on a complex set of activities that must be performed to accomplish objectives and generate exchanges. These activities include buying, selling, transporting, storing, grading, financing, marketing research, and risk taking.

Buying. Everyone who shops for products (consumers, stores, businesses, governments) decides whether and what to buy. A marketer must understand buyers’ needs and desires to determine what products to make available.

Selling. The exchange process is expedited through selling. Marketers usually view selling as a persuasive activity that is accomplished through promotion (advertising, personal selling, sales promotion, publicity, and packaging).

Transporting. Transporting is the process of moving products from the seller to the buyer. Marketers focus on transportation costs and services.

Storing. Like transporting, storing is part of the physical distribution of products and includes warehousing goods.

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Nature of Marketing 4

Functions of Marketing continued

Grading

Financing

Marketing research

Risk taking

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Marketing focuses on a complex set of activities that must be performed to accomplish objectives and generate exchanges. These activities include buying, selling, transporting, storing, grading, financing, marketing research, and risk taking.

Grading. Grading refers to standardizing products by dividing them into subgroups and displaying and labeling them so that consumers clearly understand their nature and quality. Many products, such as meat, steel, and fruit, are graded according to a set of standards that often are established by the state or federal government.

Financing. For many products, especially large items such as automobiles, refrigerators, and new homes, the marketer arranges credit to expedite the purchase.

Marketing Research. Through research, marketers ascertain the need for new goods and services. By gathering information regularly, marketers can detect new trends and changes in consumer tastes.

Risk Taking. Risk is the chance of loss associated with marketing decisions. Developing a new product creates a chance of loss if consumers do not like it enough to buy it.

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Nature of Marketing 5

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Value is an important element of managing long-term customer relationships and implementing the marking concept. We view value as a customer’s subjective assessment of benefits relative to costs in determining the worth of a product (customer value = customer benefits − customer costs).

Customer benefits include anything a buyer receives in an exchange. Hotels and motels, for example, basically provide a room with a bed and bathroom, but each firm provides a different level of service, amenities, and atmosphere to satisfy its guests.

Customer costs include anything a buyer must give up to obtain the benefits the product provides. The most obvious cost is the monetary price of the product, but nonmonetary costs can be equally important in a customer’s determination of value. Two nonmonetary costs are the time and effort customers expend to find and purchase desired products.

In developing marketing activities, it is important to recognize that customers receive benefits based on their experiences.

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Nature of Marketing 6

The Marketing Concept

Idea that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its own goals

Businesses must:

Find out what consumers desire

Develop the good, service, or idea to satisfy that want

Get the product to the customer

Continually alter, adapt, and add products to keep pace with changing customer demands

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A basic philosophy that guides all marketing activities is the marketing concept, the idea that an organization should try to satisfy customers’ needs through coordinated activities that also allow it to achieve its own goals.

According to the marketing concept, a business must find out what consumers desire and then develop the good, service, or idea that fulfills their needs or wants. The business must then get the product to the customer. In addition, the business must continually alter, adapt, and develop products to keep pace with changing consumer needs and wants.

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Nature of Marketing 7

The Marketing Concept continued

Determining customer needs is difficult

While customer satisfaction is the goal, businesses must achieve their own objectives

To implement the marketing concept, a business must:

Have good information about what consumers want

Adopt a customer orientation

Coordinate its efforts throughout the entire organization

Make the customer’s perception of value the focus

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Trying to determine customers’ true needs is increasingly difficult because no one fully understands what motivates people to buy things. Although customer satisfaction is the goal of the marketing concept, a business must also achieve its own objectives, such as boosting productivity, reducing costs, or achieving a percentage of a specific market.

To implement the marketing concept, a firm must have good information about what consumers want, adopt a consumer orientation, and coordinate its efforts throughout the entire organization; otherwise, it may be awash with goods, services, and ideas that consumers do not want or need. Successfully implementing the marketing concept requires that a business view the customer’s perception of value as the ultimate measure of work performance and improving value, and the rate at which this is done, as the measure of success.

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POLLING QUESTION

Marketing is not just advertising and promotion. Marketing also includes product/service design, establishing pricing strategies, and _____.

Selling

Distribution/Place

Innovation

Manufacturing

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Answer: B. Distribution/Place

It is important for students to understand that marketing is not just advertising and sales promotions. Marketing is about developing the product /service, creating a pricing strategy, determining the distribution process, and store placement.

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The Marketing Concept

Drones provide an example of a product that is based on advanced technology but is finding many uses from being a toy or recreational product to commercial uses. The marketing concept is based on the philosophy that consumers purchase the satisfaction and value they derive from a product not the product itself.

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Nature of Marketing 8

Evolution of the Marketing Concept

The production orientation

Second half of 19th century

Industrial Revolution

Manufacturing efficiency

The sales orientation

Early 20th century

Supply exceeds demand

A need to “sell” products

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Our society and economic system have changed over time, and marketing has become more important as markets have become more competitive.

The Production Orientation. During the second half of the 19th century, the Industrial Revolution was well under way in the United States. New technologies, such as electricity, railroads, internal combustion engines, and mass-production techniques, made it possible to manufacture goods with ever increasing efficiency. Together with new management ideas and ways of using labor, products poured into the marketplace, where demand for manufactured goods was strong.

The Sales Orientation. By the early part of the 20th century, supply caught up with and then exceeded demand, and businesspeople began to realize they would have to “sell” products to buyers. During the first half of the 20th century, businesspeople viewed sales as the primary means of increasing profits in what has become known as a sales orientation.

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Nature of Marketing 9

Evolution of the Marketing Concept continued

The market orientation

Began in the 1950s

Requires organizations to:

Gather information about customers’ needs

Share the information throughout the firm

Use the information to build long-term relationships with customers

Customer relationship management

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By the 1950s, some businesspeople began to recognize that even efficient production and extensive promotion did not guarantee sales. These businesses, and many others since, found that they must first determine what customers want and then produce it, rather than making the products first and then trying to persuade customers that they need them.

A market orientation requires organizations to gather information about customer needs, share that information throughout the entire firm, and use it to help build long-term relationships with customers.

Although it might be easy to dismiss customer relationship management as time-consuming and expensive, this mistake could destroy a company. Customer relationship management (CRM) is important in a market orientation because it can result in loyal and profitable customers. Without loyal customers, businesses would not survive; therefore, achieving the full profit potential of each customer relationship should be the goal of every marketing strategy.

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Developing a Marketing Strategy 1

Marketing strategy

A plan of action for developing, pricing, distributing, and promoting products that meet the needs of specific customers

Selecting a Target Market

Market

Target market

Business-to-business (B2B) marketing

Business-to-consumer (B2C) marketing

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To implement the marketing concept and customer relationship management, a business needs to develop and maintain a marketing strategy, a plan of action for developing, pricing, distributing, and promoting products that meet the needs of specific customers. This definition has two major components: selecting a target market and developing an appropriate marketing mix to satisfy that target market.

A market is a group of people who have a need, purchasing power, and the desire and authority to spend money on goods, services, and ideas. A target market is a more specific group of consumers on whose needs and wants a company focuses its marketing efforts. Target markets can be further segmented into business markets and consumer markets.

Business-to-business marketing (B2B) involves marketing products to customers who will use the product for resale, direct use in daily operations, or direct use in making other products. Most people, however, tend to think of business-to-consumer marketing (B2C), or marketing directly to the end consumer. Sometimes products are used by both types of markets. For example, Glo Skin Beauty sells its cosmetics and skin care products wholesale to salons and spas as well as to consumers directly via its website.

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Developing a Marketing Strategy 2

Total-market approach

Firm try to appeal to everyone and assumes all buyers have similar needs and wants

Also referred to as mass marketing

Market segmentation

Dividing the total market into groups that have relatively similar product needs

Market segment

A collection of individuals, groups, or organizations who share one or more characteristics and thus have relatively similar product needs and desires

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Some firms use a total-market approach, in which they try to appeal to everyone and assume that all buyers have similar needs and wants. Sellers of salt, sugar, and many agricultural products use a total-market approach because everyone is a potential consumer of these products. This approach is also referred to as mass marketing. Most firms, though, use market segmentation and divide the total market into groups of people. A market segment is a collection of individuals, groups, or organizations who share one or more characteristics and thus have relatively similar product needs and desires.

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Developing a Marketing Strategy 3

Market Segmentation Approaches

Concentration approach

Company develops one marketing strategy for a single market segment

Allows a firm to specialize

Multisegment approach

Marketing efforts are aimed at two or more segments with a marketing strategy for each

Niche marketing

Narrow market segment with unique needs

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In the concentration approach, a company develops one marketing strategy for a single market segment. The concentration approach allows a firm to specialize, focusing all its efforts on the one market segment.

In the multisegment approach, the marketer aims its marketing efforts at two or more segments, developing a marketing strategy for each. Many firms use a multisegment approach that includes different advertising messages for different segments.

Niche marketing is a narrow market segment focus when efforts are on one small, well-defined group that has a unique, specific set of needs.

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Figure 11.2 Target Market Strategies

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Developing a Marketing Strategy 4

Requirements for a successful concentration or multisegment marketing approach include:

Consumers’ needs for the product must be heterogeneous.

The segments must be identifiable and divisible.

The total market must be divided in a way that allows estimated sales potential, cost, and profits of the segments to be compared.

At least one segment must have enough profit potential to justify developing and maintaining a special marketing strategy.

The firm must be able to reach the chosen market segment with a particular market strategy.

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For a firm to successfully use a concentration or multisegment approach to market segmentation, several requirements must be met:

1. Consumers’ needs for the product must be heterogeneous.

2. The segments must be identifiable and divisible.

3. The total market must be divided in a way that allows estimated sales potential, cost, and profits of the segments to be compared.

4. At least one segment must have enough profit potential to justify developing and maintaining a special marketing strategy.

5. The firm must be able to reach the chosen market segment with a particular market strategy.

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Developing a Marketing Strategy 5

Bases for Segmenting Markets

Demographic

Geographic

Psychographic

Behavioristic

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Companies segment markets on the basis of several variables:

1. Demographic—age, sex, race, ethnicity, income, education, occupation, family size, religion, social class. These characteristics are often closely related to customers’ product needs and purchasing behavior, and they can be readily measured. For example, deodorants are often segmented by sex: Secret and Soft n’ Dri for women; Old Spice and Mennen for men.

2. Geographic—climate, terrain, natural resources, population density, subcultural values. These influence consumer needs and product usage. Climate, for example, influences consumer purchases of clothing, automobiles, heating and air conditioning equipment, and leisure activity equipment.

3. Psychographic—personality characteristics, motives, lifestyles. Soft-drink marketers provide their products in several types of packaging, including two-liter bottles and cases of cans, to satisfy different lifestyles and motives.

4. Behavioristic—some characteristic of the consumer’s behavior toward the product. These characteristics commonly involve some aspect of product use. Benefit segmentation is also a type of behavioristic segmentation. For instance, low-fat, low-carb food.

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POLLING QUESTION

Alberta, head of Einstein University’s marketing department, was asked to determine the best way to segment the market to encourage the brightest young minds of America to apply for acceptance. In your opinion, on which segment should she focus?

Demographic

Geographic

Psychographic

Behavioristic

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Student answers will vary. Students should discuss the benefits to all four of the segmentation methods. What most students will realize is that, if possible, it is beneficial to use more than one segmentation method. Students should consider the following points.

A. Demographic

It is easy to research.

B. Geographic

It is easier to establish a reputation with the local community.

C. Psychographic

It will allow the University to focus on prospective students who are like-minded in their goals.

D. Behavioristic

The University can focus on students who are looking for similar benefits from attending college.

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Developing a Marketing Strategy 6

Developing a Marketing Mix

The marketing mix refers to four marketing activities

Product

Price

Distribution

Promotion

Firm tries to control these activities to achieve specific goals

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The second step in developing a marketing strategy is to create and maintain a satisfying marketing mix. The marketing mix refers to four marketing activities— product, price, distribution, and promotion—that the firm can control to achieve specific goals within a dynamic marketing environment.

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Figure 11.3 The Marketing Mix: Product, Price, Promotion, and Distribution

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Developing a Marketing Strategy 7

Product

A complex mix of tangible and intangible attributes that provide satisfaction and benefits

Good – A physical entity you can touch (a car, computer, or adopted kitten)

Service – The application of human and mechanical efforts to people or objects to provide intangible benefits to customers (air travel, dry cleaning, or haircuts)

Idea – Can be a concept, philosophy, image, or issue (attorney advice or political parties)

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A product—whether a good, a service, an idea, or some combination—is a complex mix of tangible and intangible attributes that provide satisfaction and benefits. A good is a physical entity you can touch. A service is the application of human and mechanical efforts to people or objects to provide intangible benefits to customers. include concepts, philosophies, images, and issues.

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Developing a Marketing Strategy 8

Price

A value placed on an object exchanged between a buyer and a seller

The buyer exchanges purchasing power—income, credit, wealth—for the satisfaction of utility associated with a product

Key element of the marketing mix because it relates directly to the generation of revenue and profits

Can be changed quickly to stimulate demand or respond to competitors’ actions

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Almost anything can be assessed by a price, a value placed on an object exchanged between a buyer and a seller. Although the seller usually establishes the price, it may be negotiated between the buyer and the seller. The buyer usually exchanges purchasing power—income, credit, wealth—for the satisfaction or utility associated with a product.

Marketers view price as much more than a way of assessing value, however. It is a key element of the marketing mix because it relates directly to the generation of revenue and profits. Prices can also be changed quickly to stimulate demand or respond to competitors’ actions.

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Developing a Marketing Strategy 9

Distribution

Making products available to customers in the quantities desired

Sometimes referred to as “place”

Intermediaries—usually wholesalers and retailers—perform many of the activities required to move products efficiently from producers to consumers or industrial buyers

Transporting, warehousing, materials handling, inventory control, packaging, and communication

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Distribution (sometimes referred to as “place” because it helps to remember the marketing mix as the “4 Ps”) is making products available to customers in the quantities desired. Intermediaries, usually wholesalers and retailers, perform many of the activities required to move products efficiently from producers to consumers or industrial buyers. These activities involve transporting, warehousing, materials handling, and inventory control, as well as packaging and communication.

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POLLING QUESTION

Of the 4 P’s of Marketing, students often overlook the relevance of Distribution (Place). What is the most likely reason for this?

It’s not as important as product, price, and promotion strategies.

Distribution strategies are determined by the Federal Board on Distribution (FBOD).

The functions of distribution occur behind the scenes.

Students skim the textbook and then search answers on the Internet for their homework assignments.

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Answer: C. The functions of distribution occur behind the scenes.

Students should consider that when a consumer goes to a Walmart store to purchase items, there is an expectation that the shelves will be stocked and that the items they need will be there. Students, like most consumers, do not often consider how the goods make it to the store.

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Developing a Marketing Strategy 10

Promotion

Persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals, groups, and organizations to accept goods, services, and ideas

Includes advertising, personal selling, publicity, and sales promotion

Digital advertising on websites and social media sites are growing

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Promotion is a persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals, groups, and organizations to accept goods, services, and ideas. Promotion includes advertising, personal selling, publicity, and sales promotion. The aim of promotion is to communicate directly or indirectly with individuals, groups, and organizations to facilitate exchanges.

While traditional advertising media such as television, radio, newspapers, and magazines remain important, digital advertising on websites and social media sites is growing.

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Marketing Research and Information Systems 1

Marketing research

A systematic, objective process of getting information about potential customers to guide marketing decisions

Inside the organization

Continuous flow of information on prices, sales, and expenses

Outside the organization

Data available through public and private reports, census statistics, digital media sources, etc.

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Before marketers can develop a marketing mix, they must collect in-depth, up-to-date information about customer needs. Marketing research is a systematic, objective process of getting information about potential customers to guide marketing decisions. Such information might include data about the age, income, ethnicity, gender, and educational level of people in the target market, their preferences for product features, their attitudes toward competitors’ products, and the frequency with which they use the product.

A marketing information system is a framework for accessing information about customers from sources both inside and outside the organization. Inside the organization, there is a continuous flow of information about prices, sales, and expenses. Outside the organization, data are readily available through private or public reports and census statistics, as well as from many other sources.

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Marketing Research and Information Systems 2

Marketing research continued

Primary data

Observed, recorded, or collected directly from respondents

“Mystery shoppers,” surveys, and focus groups

Ethnographic or observational research

Secondary data

Compiled inside or outside an organization for some purpose other than changing the current situation

Compiled by the U.S. Census Bureau and other government agencies, databases created by marketing research firms, as well as sales and other internal reports

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Two types of data are usually available to decision makers. Primary data are observed, recorded, or collected directly from respondents. Many companies use “mystery shoppers” to visit their retail establishments and report on whether the stores were adhering to the companies’ standards of service. Companies also use surveys and focus groups to gauge customer opinion. Some methods for marketing research use passive observation of consumer behavior and open-ended questioning techniques. Called ethnographic or observational research, the approach can help marketers determine what consumers really think about their products and how different ethnic or demographic groups react to them.

Secondary data are compiled inside or outside the organization for some purpose other than changing the current situation. Marketers typically use information compiled by the U.S. census bureau and other government agencies, databases created by marketing research firms, as well as sales and other internal reports, to gain information about customers.

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Marketing Research and Information Systems 3

Online Marketing Research

Marketing research of the future

Virtual testing

Digital and social media sites

Online surveys

Marketing analytics

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The marketing of products and collecting of data about buying behavior—information on what people actually buy and how they buy it—represents marketing research of the future. New information technologies are changing the way businesses learn about their customers and market their products. Interactive multimedia research, or virtual testing, combines sight, sound, and animation to facilitate the testing of concepts as well as packaging and design features for consumer products.

Marketing research can use digital media and social networking sites to gather useful information for marketing decisions. Sites such as Twitter, Facebook, and LinkedIn can be good substitutes for focus groups. Online surveys can serve as an alternative to mail, telephone, or personal interviews. Social networks are a great way to obtain information from consumers who are willing to share their experiences about products and companies.

Online surveys are becoming an important part of marketing research. Traditionally, the process of conducting surveys online involved sending questionnaires to respondents either through e-mail or through a website. However, digital communication has increased the ability of marketers to conduct polls on blogs and social networking sites.

Finally, marketing analytics uses data that has been collected to measure, interpret, and evaluate marketing decisions. This emerging area uses advanced software that can track, store, and analyze data. Marketing analytics is becoming an increasingly important part of a company’s marketing activities that are integrated into daily decision making.

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