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This text was adapted by The Saylor Foundation under a Creative

Commons Attribution-NonCommercial-ShareAlike 3.0 License without

attribution as requested by the work’s original creator or licensee.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Chapter 6

Marketing Basics

Max and Mina’s Homemade Ice Cream and Ices

 

Source: Used with permission from Max and Mina’s Ice Cream.

Growing up in the 1970s, Bruce and Mark Becker loved ice cream. Their Grandpa Max used to

create all different kinds of ice cream for Grandma Mina and the boys to try. Grandpa was an

organic chemist and loved to create some interesting flavors. Years later, after Grandpa Max

passed away, Bruce was cleaning out his grandpa’s house and discovered his secret book of

recipes.

And so it began.

In the 1980s, Bruce started on his journey and traveled throughout Europe and the United

States doing gourmet ice cream research. With all the new information gathered and the

treasure trove of Grandpa Max’s secret recipes, Bruce and Mark opened Max and Mina’s Ice

Cream in 1997 in a shopping center next to Shimon’s Pizza Falafel Dairy Restaurant in Flushing,

Queens, New York. They test marketed their recipes directly to the public. The public loved it—

and so did the local restaurants and party planners.

Max and Mina’s Ice Cream revolutionized America’s favorite dessert with daring ingredients and

bold innovation. Their unique ability to intrigue and challenge old notions of mundane flavors

draws unbelievable attention at home in New York and around the globe. The most distant

customer of note was from Australia, someone who insisted on going to Max and Mina’s right off

the plane at Kennedy Airport.

 

 

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The Beckers make their ice cream products with at least 16 percent butterfat, putting them into

the gourmet category. All their ice creams are kosher, but some products adhere to even stricter

dairy guidelines. The shop itself features an array of posters, a display of Wacky Packages

bubblegum stickers, candy wrappers, a Jerry Garcia etching, and old-fashioned signs.

A visit to Max and Mina’s will be an unusual ice cream experience (seeNote 6.2 “Video Clip 6.1”).

If you dare to take the plunge, why not try unforgettable flavors like beer, lox, babka, corn-on-

the-cob, ketchup, garlic, or merlot—just to mention a few? There are also many of the more

traditional flavors that you know and love. There is a rotating menu of one thousand flavors, but

only about forty ice cream flavors and eight to ten sorbets are available at any one time. Bruce

and Mark constantly encourage their patrons to be vocal in brainstorming new flavors,

especially flavors that compliment events. Turkey ice cream, anyone? Have an idea? Stop by and

give Max and Mina’s a try. [1]

 

[1] “About Us,” Max and Mina’s Ice Cream, accessed December 2,

2011,www.maxandminasicecream.com/about.html; Miriam Hill, “1000 Flavors and a Little

Romance,” Philadelphia Inquirer, accessed December 2,

2011,www.maxandminasicecream.com/images/articles/4.jpg; John Hyland, “Lox in a Cone: Sliced Thin

It’s Not,” New York Times, August 16, 2000, accessed December 2,

2011, www.maxandminasicecream.com/images/articles/1.jpg.

 

 

 

 

 

6.1 What Marketing Is All About

L E A R N I N G O B J E C T I V E S

1. Define marketing.

 

 

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2. Explain why marketing is so important to small business.

3. Explain the marketing concept, the societal marketing concept,

and the holistic marketing concept.

4. Define customer value and discuss the role of marketing and

delivering it.

5. Explain market segmentation, target market, marketing mix,

differentiation, positioning, marketing environment, marketing

management, and marketing strategy.

Because the purpose of business is to create a customer, the business enterprise has two—and

only two—basic functions: marketing and innovation. Marketing and innovation produce

results; all the rest are costs. Marketing is the distinguishing, unique function of the

business. [1]

 

Peter Drucker

Marketing is defined by the American Marketing Association as “the activity, set of institutions,

and processes for creating, communicating, and exchanging offerings that have value for

customers, clients, partners, and society at large.” [2]

Putting this formality aside, marketing is

about delivering value and benefits: creating products and services that will meet the needs and

wants of customers (perhaps even delighting them) at a price they are willing to pay and in

places where they are willing to buy them. Marketing is also about promotional activities such as

advertising and sales that let customers know about the goods and services that are available for

purchase. Successful marketing generates revenue that pays for all other company operations.

Without marketing, no business can last very long. It is that important and that simple—and it

applies to small business.

Marketing is applicable to goods, services, events, experiences, people, places, properties,

organizations, businesses, ideas, and information. [3]

 

There are several concepts that are basic to an understanding of marketing: the marketing

concept, customer value, the marketing mix, segmentation, target market, the marketing

environment, marketing management, and marketing strategy.

The Marketing Concept…and Beyond

 

 

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The marketing concept has guided marketing practice since the mid-1950s. [4]

The concept holds

that the focus of all company operations should be meeting the customer’s needs and wants in

ways that distinguish a company from its competition. However, company efforts should be

integrated and coordinated in such a way to meet organizational objectives and achieve

profitability. Perhaps not surprisingly, successful implementation of the marketing concept has

been shown to lead to superior company performance. [5]

“The marketing concept recognizes

that there is no reason why customers should buy one organization’s offerings unless it is in

some way better at serving the customers’ wants and needs than those offered by competing

organizations. Customers have higher expectations and more choices than ever before. This

means that marketers have to listen more closely than ever before.” [6]

 

Sam Walton, the founder of Walmart, put it best when he said, “There is only one boss: the

customer. And he can fire everybody in the company, from the chairman on down, simply by

spending his money somewhere else.” [7]

Small businesses are particularly suited to abiding by

the marketing concept because they are more nimble and closer to the customer than are large

companies. Changes can be made more quickly in response to customer wants and needs.

The societal marketing concept emerged in the 1980s and 1990s, adding to the traditional

marketing concept. It assumes that a “company will have an advantage over competitors if it

applies the marketing concept in a manner that maximizes society’s well-being” [8]

and requires

companies to balance customer satisfaction, company profits, and the long-term welfare of

society. Although the expectation of ethical and responsible behavior is implicit in the marketing

concept, the societal marketing concept makes these expectations explicit.

Small business is in a very strong position in keeping with the societal marketing concept.

Although small businesses do not have the financial resources to create or support large

philanthropic causes, they do have the ability to help protect the environment

through green business practicessuch as reducing consumption and waste, reusing what they

have, and recycling everything they can. Small businesses also have a strong record of

supporting local causes. They sponsor local sports teams, donate to fund-raising events with

food and goods or services, and post flyers for promoting local events. The ways of contributing

are virtually limitless.

 

 

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Video Link 6.1

Do Well While Doing Good

Small business sustainability practices.

www.startupnation.com/podcasts/episodes/9564/creating-sustainable-business-practices.htm

The holistic marketing concept is a further iteration of the marketing concept and is thought to

be more in keeping with the trends and forces that are defining the twenty-first century. Today’s

marketers recognize that they must have a complete, comprehensive, and cohesive approach

that goes beyond the traditional applications of the marketing concept. [9]

A company’s “sales

and revenues are inextricably tied to the quality of each of its products, services, and modes of

delivery and to its image and reputation among its constituencies. [The company] markets itself

through everything it does, its substance as well as its style. It is that all-encompassing package

that the organization then sells.” [10]

What we see in the holistic marketing concept is the

traditional marketing concept on steroids. Small businesses are natural for the holistic

marketing concept because the bureaucracy of large corporations does not burden them. The

size of small businesses makes it possible, perhaps imperative, to have fluid and well-integrated

operations.

 

Customer Value

The definition of marketing specifically includes the notion that offerings must have value to

customers, clients, partners, and society at large. This necessarily implies an understanding of

what customer value is.Customer value is discussed at length in Chapter 2 “Your Business Idea:

The Quest for Value”, but we can define it simply as the difference between perceived benefits

and perceived costs. Such a simple definition can be misleading, however, because the creation

of customer value will always be a challenge—most notably because a company must know its

customers extremely well to offer them what they need and want. This is complicated because

customers could be seeking functional value (a product or a service performs a utilitarian

purpose), social value (a sense of relationship with other groups through images or

symbols), emotional value (the ability to evoke an emotional or an affective

response), epistemic value(offering novelty or fun), or conditional value (derived from a

 

 

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particular context or a sociocultural setting, such as shared holidays)—or some combination of

these types of value. (See Chapter 2 “Your Business Idea: The Quest for Value” for a detailed

discussion of the types of value.)

Marketing plays a key role in creating and delivering value to a customer. Customer value can be

offered in a myriad of ways. In addition to superlative ice cream, for example, the local ice cream

shop can offer a frequent purchase card that allows for a free ice cream cone after the purchase

of fifteen ice cream products at the regular price. Your favorite website can offer free shipping

for Christmas purchases and/or pay for returns. Zappos.com offers free shipping both ways for

its shoes. The key is for a company to know its consumers so well that it can provide the value

that will be of interest to them.

Market Segmentation

The purpose of segmenting a market is to focus the marketing and sales efforts of a business on

those prospects who are most likely to purchase the company’s product(s) or service(s), thereby

helping the company (if done properly) earn the greatest return on those marketing and sales

expenditures. [11]

Market segmentation maintains two very important things: (1) there

are relatively homogeneous subgroups (no subgroup will ever be exactly alike) of the total

population that will behave the same way in the marketplace, and (2) these subgroups will

behave differently from each other. Market segmentation is particularly important for small

businesses because they do not have the resources to serve large aggregate markets or maintain

a wide range of different products for varied markets.

The marketplace can be segmented along a multitude of dimensions, and there are distinct

differences between consumer and business markets. Some examples of those dimensions are

presented in Table 6.1 “Market Segmentation”.

LifeLock, a small business that offers identity theft protection services, practices customer type

segmentation by separating its market into business and individual consumer segments.

Table 6.1 Market Segmentation

Consumer Segmentation Examples Business Segmentation Examples

Geographic Segmentation Demographic Segmentation

 

 

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Consumer Segmentation Examples Business Segmentation Examples

 Region (e.g., Northeast or Southwest)

 City or metro size (small, medium, or

large)

 Density (urban, suburban, or rural)

 Climate (northern or southern)

 The industry or industries to be served

 The company sizes to be served (revenue,

number of employees, and number of locations)

Demographic Segmentation

 Age

 Family size

 Family life cycle (e.g., single or

married without kids)

 Gender

 Income

 Occupation

 Education

 Religion

 Race/ethnicity

 Generation

 Nationality

 Social class

Operating Variables

 The customer technologies to be focused on

 The users that should be served (heavy, light,

medium, or nonusers)

 Whether customers needing many or few

services should be served

Psychographic Segmentation

 Personality

 Lifestyle

 Behavioral occasions (regular or

special occasion)

 Values

Purchasing Approaches: Which to Choose?

 Highly centralized versus decentralized

purchasing

 Engineering dominated, financially dominated,

and so forth

 Companies with whom a strong relationship

 

 

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Consumer Segmentation Examples Business Segmentation Examples

exists or the most desirable companies

 Companies that prefer leasing, service contracts,

systems purchases, or sealed bidding

 Companies seeking quality, service, and price

Behavioral Segmentation

 Benefits of the product (e.g.,

toothpaste with tartar control)

 User status (nonuser, regular user, or

first-time user)

 Usage rate (light user, medium user,

or heavy user)

 Loyalty status (none, medium, or

absolute)

 Attitude toward the product (e.g.,

enthusiastic or hostile)

Situational Factors: Which to Choose?

 Companies that need quick and sudden delivery

or service

 Certain application of the product instead of all

applications

 Large or small orders or something in-between

Personal Characteristics: Which to

Choose?

 Companies with similar people and

values

 Risk-taking or risk-aversive

customers

 Companies that show high loyalty to

their suppliers

Other Characteristics

 Status in industry (technology or revenue leader)

 Need for customization (specialized computer

systems)

Source: Adapted from “Market Segmentation,” Business Resource Software, Inc., accessed

December 2, 2011,http://www.businessplans.org/segment.html; adapted from Philip Kotler and

 

 

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Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice Hall,

2009), 214, 227.

Market segmentation requires some marketing research. The marketing research process is

discussed in Section 6.3 “Marketing Research”.

Target Market

Market segmentation should always precede the selection of atarget market. A target market is

one or more segments (e.g., income or income + gender + occupation) that have been chosen as

the focus for business operations. The selection of a target market is important to any small

business because it enables the business to be more precise with its marketing efforts, thereby

being more cost-effective. This will increase the chances for success. The idea behind a target

market is that it will be the best match for a company’s products and services. This, in turn, will

help maximize the efficiency and effectiveness of a company’s marketing efforts:

It is not feasible to go after all customers, because customers have different wants,

needs and tastes. Some customers want to be style leaders. They will always buy

certain styles and usually pay a high price for them. Other customers are bargain

hunters. They try to find the lowest price. Obviously, a company would have

difficulty targeting both of these market segments simultaneously with one type of

product. For example, a company with premium products would not appeal to

bargain shoppers…

Hypothetically, a certain new radio station may discover that their music appeals

more to 34–54-year-old women who earn over $50,000 per year. The station would

then target these women in their marketing efforts. [12]

 

Target markets can be further divided into niche markets. A niche marketis a small, more

narrowly defined market that is not being served well or at all by mainstream product or service

marketers. People are looking for something specific, so target markets can present special

opportunities for small businesses. They fill needs and wants that would not be of interest to

larger companies. Niche products would include such things as wigs for dogs, clubs for left-

handed golfers, losing weight with apple cider vinegar,paint that transforms any smooth surface

 

 

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into a high performance dry-erase writing surface, and 3D printers. These niche products are

provided by small businesses. Niche ideas can come from anywhere.

Marketing Mix

Marketing mix is easily one of the most well-known marketing terms. More commonly known as

“the four Ps,” the traditional marketing mix refers to the combination of product, price,

promotion, and place (distribution). Each component is controlled by the company, but they are

all affected by factors both internal and external to the company. Additionally, each element of

the marketing mix is impacted by decisions made for the other elements. What this means is

that an alteration of one element in the marketing mix will likely alter the other elements as

well. They are inextricably interrelated. No matter the size of the business or organization, there

will always be a marketing mix. The marketing mix is discussed in more detail in Chapter 7

“Marketing Strategy”. A brief overview is presented here.

Figure 6.1 The Marketing Mix

 

Product

 

 

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Product refers to tangible, physical products as well as to intangible services. Examples of

product decisions include design and styling, sizes, variety, packaging, warranties and

guarantees, ingredients, quality, safety, brand name and image, brand logo, and support

services. In the case of a services business, product decisions also include the design and

delivery of the service, with delivery including such things as congeniality, promptness, and

efficiency. Without the product, nothing else happens. Product also includes a company’s

website.

 

Price

Price is what it will cost for someone to buy the product. Although the exchange of money is

what we traditionally consider as price, time and convenience should also be considered.

Examples of pricing decisions include pricing strategy selection

(e.g., channel pricing andcustomer segment pricing), retail versus wholesale pricing, credit

terms, discounts, and the means of making online payments. Channel pricing occurs when

different prices are charged depending on where the customer purchases the product. A paper

manufacturer may charge different prices for paper purchased by businesses, school bookstores,

and local stationery stores. Customer segment pricing refers to charging different prices for

different groups. A local museum may charge students and senior citizens less for admission. [13]

 

Promotion

Having the best product in the world is not worth much if people do not know about it. This is

the role of promotion—getting the word out. Examples of promotional activities include

advertising (including on the Internet), sales promotion (e.g., coupons, sweepstakes, and 2-for-1

sales), personal sales, public relations, trade shows, webinars, videos on company websites and

YouTube, publicity, social media such as Facebook and Twitter, and the company website

itself. Word-of-mouth communication, where people talk to each other about their experiences

with goods and services, is the most powerful promotion of all because the people who talk

about products and services do not have any commercial interest.

Place

 

 

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Place is another word for distribution. The objective is to have products and services available

where customers want them when they want them. Examples of decisions made for place

include inventory, transportation arrangements, channel decisions (e.g., making the product

available to customers in retail stores only), order processing, warehousing, and whether the

product will be available on a very limited (few retailers or wholesalers) or extensive (many

retailers or wholesalers) basis. A company’s website is also part of the distribution domain. Two Marketing Mixes

No matter what the business or organization, there will be a marketing mix. The business owner

may not think about it in these specific terms, but it is there nonetheless. Here is an example of

how the marketing mix can be configured for a local Italian restaurant (consumer market).

 Product. Extensive selection of pizza, hot and cold sub sandwiches, pasta and meat dinners,

salads, soft drinks and wine, homemade ice cream and bakery products; the best service in town;

and free delivery.

 Price. Moderate; the same price is charged to all customer segments.

 Promotion. Ads on local radio stations, websites, and local newspaper; flyers posted around

town; coupons in ValPak booklets that are mailed to the local area; a sponsor of the local little

league teams; ads and coupons in the high school newspaper; and a Facebook presence.

 Place. One restaurant is located conveniently near the center of town with plenty of off-street

parking. It is open until 10:00 p.m. on weekdays and 11:30 p.m. on Fridays and Saturdays. There

is a drive-through for takeout orders, and they have a special arrangement with a local parochial

school to provide pizza for lunch one day per week.

Here is an example of how the marketing mix could be configured for a green cleaning services

business (business market).

 Product. Wide range of cleaning services for businesses and organizations. Services can be

weekly or biweekly, and they can be scheduled during the day, evening, weekends, or some

combination thereof. Only green cleaning products and processes are used.

 Price. Moderate to high depending on the services requested. Some price discounting is offered

for long-term contracts.

 

 

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 Promotion. Ads on local radio stations, website with video presentation, business cards that are

left in the offices of local businesses and medical offices, local newspaper advertising, Facebook

and Twitter presence, trade show attendance (under consideration but very expensive), and direct

mail marketing (when an offer, announcement, reminder, or other item is sent to an existing or

prospective customer).

 Place. Services are provided at the client’s business site. The cleaning staff is radio dispatched.

The Marketing Environment

The marketing environment includes all the factors that affect a small business.

The internal marketing environment refers to the company: its existing products and strategies;

culture; strengths and weaknesses; internal resources; capabilities with respect to marketing,

manufacturing, and distribution; and relationships with stakeholders (e.g., owners, employees,

intermediaries, and suppliers). This environment is controllable by management, and it will

present both threats and opportunities.

The external marketing environment must be understood by the business if it hopes to plan

intelligently for the future. This environment, not controllable by management, consists of the

following components:

 Social factors. For example, cultural and subcultural values, attitudes, beliefs, norms, customs,

and lifestyles.

 Demographics. For example, population growth, age, gender, ethnicity, race, education, and

marital status.

 Economic environment. For example, income distribution, buying power and willingness to

spend, economic conditions, trading blocs, and the availability of natural resources.

 Political and legal factors. For example, regulatory environment, regulatory agencies, and

self-regulation.

 Technology. For example, the nature and rate of technological change.

 Competition. For example, existing firms, potential competitors, bargaining power of buyers

and suppliers, and substitutes. [14]

 

 Ethics. For example, appropriate corporate and employee behavior.

 

 

 

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Figure 6.2 The Marketing Environment

 

Small businesses are particularly vulnerable to changes in the external marketing environment

because they do not have multiple product and service offerings and/or financial resources to

insulate them. However, this vulnerability is offset to some degree by small businesses being in a

strong position to make quick adjustments to their strategies if the need arises. Small businesses

are also ideally suited to take advantage of opportunities in a changing external environment

because they are more nimble than large corporations that can get bogged down in the lethargy

and inertia of their bureaucracies.

Marketing Strategy versus Marketing Management

The difference between marketing strategy and marketing management is an important

one. Marketing strategy involves selecting one or more target markets, deciding how to

differentiate and position the product or the service, and creating and maintaining a marketing

mix that will hopefully prove successful with the selected target market(s)—all within the

 

 

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context of marketing objectives. Differentiation involves a company’s efforts to set its product or

service apart from the competition. Positioning “entails placing the brand [whether store,

product, or service] in the consumer’s mind in relation to other competing products, based on

product traits and benefits that are relevant to the consumer.” [15]

Segmentation, target market,

differentiation, and positioning are discussed in greater detail inChapter 7 “Marketing Strategy”. Video Link 6.2

Custom Suit Business Gets Makeover

A change in marketing strategy: the name of the business.

money.cnn.com/video/smallbusiness/2010/10/21/sbiz_turnaround_balani.cnnmoney Video Link 6.3

Sock Business Comes Home

A change in marketing strategy: the product.

money.cnn.com/video/smallbusiness/2010/11/17/sbiz_turnaround_darn_tough_vermont.smb

Marketing management, by contrast, involves the day-to-day tactical decisions, resource

allocations (funds and people), and carrying out of tasks that implement the marketing strategy.

It is the responsibility of marketing management to focus on quality and develop the marketing

plan, which is discussed in Chapter 8 “The Marketing Plan”.

K E Y T A K E A WA Y S

 Marketing is a distinguishing, unique function of a business.

 Marketing is about delivering value and benefits, creating

products and services that will meet the needs and wants of

customers (perhaps even delighting them) at a price they are

willing to pay and in places where they are willing to buy them.

It is also about promotion, getting the word out that the

product or the service exists.

 The marketing concept has guided business practice since the

1950s.

 

 

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 Customer value is the difference between perceived benefits

and perceived costs. There are different types of customer

value: functional, social, epistemic, emotional, and conditional.

 Marketing plays a key role is delivering value to the customer.

 Market segmentation, target market, niche market, marketing

mix, marketing environment, marketing management, and

marketing strategy are key marketing concepts.

 The marketing mix, also known as the four Ps, consists of

product, price, promotion, and place.

E X E R C I S E

1. Select two different kinds of local small businesses. Ask the

owners how they segment the market, who they target, and

how they define their marketing mix. Compare the answers

that you get. Do you notice any similarities?

[1] Jack Trout, “Peter Drucker on Marketing,” Forbes, July 3, 2006, accessed January 19,

2012, www.forbes.com/2006/06/30/jack-trout-on-marketing-cx_jt_0703drucker .html.

[2] “AMA Definition of Marketing,” American Marketing Association, December 17, 2007, accessed

December 1,

2011,www.marketingpower.com/Community/ARC/Pages/Additional/Definition/default.aspx.

[3] Adapted from Philip Kotler and Kevin Lane Keller, Marketing Management(Upper Saddle River, NJ:

Pearson Prentice Hall, 2009), 6–7.

[4] Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson

Prentice Hall, 2009), 19.

[5] Rohit Deshpande and John U. Farley, “Measuring Market Orientation: Generalization and

Synthesis,” Journal of Market-Focused Management 2 (1998): 213–32; Ajay K. Kohli and Bernard J.

Jaworski, “Market Orientation: The Construct, Research Propositions, and Managerial

Implications,” Journal of Marketing 54 (1990): 1–18; and John C. Narver and Stanley F. Slater, “The Effect

of a Market Orientation on Business Profitability,” Journal of Marketing 54 (1990): 20–35—all as cited in

 

 

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Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson Prentice

Hall, 2009), 19.

[6] Charles W. Lamb, Joseph F. Hair, and Carl McDaniel, Essentials of Marketing(Mason, OH: South-

Western, 2004), 8.

[7] “You Don’t Say?,” Sales and Marketing Management, October 1994, 111–12.

[8] Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog

Publishing, 2007), 12.

[9] Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson

Prentice Hall, 2009), 19.

[10] Charles S. Mack, “Holistic Marketing,” Association Management, February 1, 1999, accessed

January 19, 2012,www.asaecenter.org/Resources/AMMagArticleDetail.cfm?ItemNumber=880.

[11] Center for Business Planning, “Market Segmentation,” Business Resource Software, Inc., accessed

December 1, 2011, www.businessplans.org/segment.html.

[12] Rick Suttle, “Define Market Segmentation & Targeting,” Chron.com, accessed December 1,

2011, smallbusiness.chron.com/define-market-segmentation-targeting-3253 .html.

[13] Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson

Prentice Hall, 2009), 401.

[14] Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ: Pearson

Prentice Hall, 2009), 294–95.

[15] Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason, OH: Atomic Dog

Publishing, 2007), 170.

 

 

6.2 The Customer

L E A R N I N G O B J E C T I V E S

1. Explain the difference between a customer and a consumer.

 

 

19

2. Understand the relationship between the customer/consumer

and the marketing mix.

3. Define the two types of customer markets.

4. Understand the factors that contribute to consumer behavior.

5. Describe the B2C and B2B buying processes.

6. Understand the differences between B2C and B2B buying

behavior.

7. Define customer experience and explain its role in small

business marketing.

8. Explain the importance of customer loyalty to small business.

It is very important in marketing to distinguish between the customer and the consumer.

The customer, the person or the business that actually buys a product or a service, will

determine whether a business succeeds or fails. It is that simple. It does not matter one iota if a

business thinks its product or service is the greatest thing since sliced bread if no one wants to

buy it. This is why customers play such a central role in marketing, with everything revolving

around their needs, wants, and desires. We see the customer focus in the marketing concept,

and we see it in the marketing mix.

 

 

 

 

 

 

 

Figure 6.3 The Customer and the Marketing Mix

 

 

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The marketing mix should follow the determination of customer needs, wants, and desires.

However, there are instances in which a product is created before the target market is selected

and before the rest of the marketing mix is designed. One well-known example is Ivory Soap.

This product was created by accident. Air was allowed to work its way into the white soap

mixture that was being cooked. The result was Ivory Soap, a new and extraordinarily successful

product for Procter & Gamble. [1]

Most companies do not have this kind of luck, though, so a

more deliberate approach to understanding the customer is critical to designing the right

marketing mix.

The consumer is the person or the company that uses or consumes a product. For example, the

customer of a dry cleaning service is the person who drops off clothes, picks them up, and pays

for the service. The consumer is the person who wears the clothes. Another example is a food

service that caters business events. The person who orders lunch on behalf of the company is the

customer. The people who eat the lunch are the consumers. The person who selects the catering

service could be either or both. It is common for the customer and the consumer to be the same

person, but this should not be assumed for all instances. The challenge is deciding whether to

market to the customer or the consumer—or perhaps both.

 

Customer Markets

 

 

21

There are two major types of customer markets: business-to-business (B2B) customers

andindividual consumers or end users (business-to-consumer [B2C]). B2B customers are

organizations such as corporations; small businesses; government agencies; wholesalers;

retailers; and nonprofit organizations, such as hospitals, universities, and museums. In terms of

dollar volume, the B2B market is where the action is. More dollars and products change hands

in sales to business buyers than to individual consumers or end users. [2]

The B2B market offers

many opportunities for the small business. Examples of B2B products include office supplies

and furniture, machinery, ingredients for food preparation, telephone and cell phone service,

and delivery services such as FedEx or UPS.

The B2C market consists of people who buy for themselves, their households, friends,

coworkers, or other non-business-related purposes. Examples of B2C products include cars,

houses, clothing, food, telephone and cell phone service, cable television service, and medical

services. Opportunities in this market are plentiful for small businesses. A walk down Main

Street and a visit to the Internet are testaments to this fact.

Understanding the Customer

The better a small business understands its customers, the better off it will be. It is not easy, and

it takes time, but knowing who the customers are, where they come from, what they like and

dislike, and what makes them tick will be of immeasurable value in designing a successful

marketing mix. Being intuitive can and does work…but not for everyone and not all the time. A

more systematic and thorough approach to understanding the customer makes much more

sense. The problem is that many if not most small businesses probably do not take the time to

do what it takes to understand their customers. This is an important part of the reason why so

many small businesses fail.

Consumer Behavior

Consumer behavior—“how individuals, groups, and organizations select, buy, use, and dispose

of goods, services, ideas, or experiences to satisfy their needs and wants” [3]

—is the result of a

complex interplay of factors, none of which a small business can control. These factors can be

grouped into four categories: personal factors, social factors,psychological or individual factors,

 

 

22

and situational factors. It is important that small-business owners and managers learn what

these factors are.

 Personal factors. Age, gender, race, ethnicity, occupation, income, and life-cycle stage (where

an individual is with respect to passage through the different phases of life, e.g., single, married

without children, empty nester, and widow or widower). For example, a 14-year-old girl will have

different purchasing habits compared to a 40-year-old married career woman.

 Social factors. Culture, subculture, social class, family, andreference groups (any and all groups

that have a direct [face-to-face] or indirect influence on a person’s attitudes and behavior, e.g.,

family, friends, neighbors, professional groups [including online groups such as LinkedIn],

coworkers, and social media such as Facebook and Twitter). [4]

For example, it is common for us to

use the same brands of products that we grew up with, and friends (especially when we are

younger) have a strong influence on what and where we buy. This reflects the powerful influence

that family has on consumer behavior.

 Psychological or individual factors. Motivation, perception (how each person sees, hears,

touches, and smells and then interprets the world around him or her), learning, attitudes,

personality, and self-concept (how we see ourselves and how we would like others to see us).

When shopping for a car, the “thud” sound of a door is perceived as high quality whereas a “tinny”

sound is not.

 Situational factors. The reason for purchase, the time we have available to shop and buy, our

mood (a person in a good mood will shop and buy differently compared to a person in a bad

mood), and theshopping environment (e.g., loud or soft music, cluttered or neat merchandise

displays, lighting quality, and friendly or rude help). A shopper might buy a higher quality box of

candy as a gift for her best friend than she would buy for herself. A rude sales clerk might result in

a shopper walking away without making a purchase.

These factors all work together to influence a five-stage buying-decision process (Table 6.2 “Five

Stages of the Consumer Buying Process”), the specific workings of which are unique to each

individual. This is a generalized process. Not all consumers will go through each stage for every

purchase, and some stages may take more time and effort than others depending on the type of

purchase decision that is involved. [5]

Knowing and understanding the consumer decision

 

 

23

process provides a small business with better tools for designing and implementing its

marketing mix.

Table 6.2 Five Stages of the Consumer Buying Process

Stage Description Example

1.

Problem

recognition Buyer recognizes a problem or need.

Joanne’s laptop just crashed, but she thinks it can

be fixed. She needs it quickly.

2.

Information

search

Buyer searches for extensive or limited

information depending on the

requirements of the situation. The

sources may be personal (e.g., family or

friends), commercial (e.g., advertising

or websites), public (e.g., mass media

or consumer rating organizations), or

experiential (e.g., handling or

examining the product).

Joanne is very knowledgeable about computers,

but she cannot fix them. She needs to find out

about the computer repair options in her area. She

asks friends for recommendations, checks out the

yellow pages, does a Google search, draws on her

own experience, and asks her husband.

3.

Evaluation of

alternatives

Buyer compares different brands,

services, and retailers. There is no

universal process that everyone uses.

Joanne knows that computer repair services are

available at the nearby Circuit Place and

Computer City stores. Unfortunately, she has had

bad experiences at both. Her husband, David,

recently took his laptop to a small computer

repair shop in town that has been in business for

less than a year. He was very pleased. Joanne

checks out their website and is impressed by the

very positive reviews. None of her friends could

recommend anyone.

4.

Purchase

decision Buyer makes a choice.

Joanne decides to take her computer to the small

repair shop in town.

5.

Postpurchase

behavior

How the buyer feels about the purchase

and what he or she does or does not do

after the purchase.

Joanne’s laptop was fixed quickly, and the cost

was very reasonable. She feels very good about

the experience, so she posts a glowing review on

the company’s website, recommends the shop to

everyone she knows, and plans to go back should

the need arise. Had she been unhappy with her

experience, she would have posted a negative

review on the company’s website, told everyone

she knows not to go there, and refuse to go there

again. It is this latter scenario that should be

every small business’s nightmare.

 

 

24

Source: Philip Kotler and Kevin Lane Keller, Marketing Management (Upper Saddle River, NJ:

Pearson Prentice Hall, 2009), 168; Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of

Marketing (Mason, OH: Atomic Dog Publishing, 2007), 112–17. Video Link 6.4

California’s Bargain Wine Boom

Consumers are shifting to less expensive wines from small winemakers.

www.time.com/time/video/player/0,32068,101527510001_1997358,00.html

Business Buying Behavior

Understanding how businesses make their purchasing decisions is critical to small businesses

that market to the business sector. Purchases by a business are more complicated than

purchases by someone making a personal purchase (B2C). B2B purchases vary according to

dollar amount, the people involved in the decision process, and the amount of time needed to

make the decision, [6]

and they involve “a much more complex web of interactions between

prospects and vendors in which the actual transaction represents only a small part of the entire

purchase process.” [7]

 

The individual or the group that makes the B2B buying decisions is referred to as

the buying center. The buying center consists of “all those individuals and groups who

participate in the purchasing decision-making process, who share some common goals and the

risks arising from the decision.” [8]

The buying center in a small business could be as small as one

person versus the twenty or more people in the buying center of a large corporation. Regardless

of the size of the buying center, however, there are seven distinct roles: initiator, gatekeeper,

user, purchaser or buyer, decider, approver, and influencer. [9]

One person could play multiple

roles, there could be multiple people in a single role, and the roles could change over time and

across different purchase situations.

1. Initiator. The person who requests that something be purchased.

2. Gatekeeper. The person responsible for the flow of information to the buying center. This could

be the secretary or the receptionist that screens calls and prevents salespeople from accessing

users or deciders. By having control over information, the gatekeeper has a major impact on the

purchasing process.

 

 

25

3. User. The person in a company who uses a product or takes advantage of a service.

4. Purchaser or buyer. The person who makes the actual purchase.

5. Decider. The person who decides on product requirements, suppliers, or both.

6. Approver. The person who authorizes the proposed actions of the decider or the buyer.

7. Influencer. The person who influences the buying decision but does not necessarily use the

product or the service. The influencer may assist in the preparation of product or service

specifications, provide vendor ideas, and suggest criteria for evaluating vendors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 6.4 The B2B Buying Process

 

 

26

 

Source: Adapted from Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of

Marketing (Mason, OH: Atomic Dog Publishing, 2007), 148–55.

The B2B purchasing process for any small business will be some variation of the process

described in Figure 6.4 “The B2B Buying Process”. The specifics of the process will depend on

 

 

27

the nature of product, the simplicity of the decision to be made, and the number of people

involved. Clearly the purchasing process for a single-person business will be much simpler than

for a multiproduct business of 400 employees.

The Customer Experience

Customer experience is one of the great frontiers for innovation. [10]

 

Jeneanne Rae

Customer experience refers to a customer’s entire interaction with a company or an

organization. The experience will range from positive to negative, and it begins when any

potential customer has contact with any aspect of a business’s persona—the company’s

marketing, all representations of the total brand, and what others say about the experience of

working with the business. [11]

 

Customer Experience in the B2C Market

Customers will experience multiple touch points (i.e., all the communication, human, and

physical interactions that customers experience during their relationship life cycle with a small

business) [12]

during their visit. In a retail situation, a customer will experience the store design

and layout; the merchandise that is carried and how it is displayed; the colors, sounds, and

scents in the store; the cleanliness of the store; the lighting; the music; the helpfulness of the

staff; and the prices. In a business situation, a customer will experience the design and layout of

the reception and office areas, the colors chosen for carpeting and furniture, the friendliness and

helpfulness of the reception staff, and the demeanor of the person or people to be seen. The

experience also occurs when a customer communicates with a company via telephone; e-mail;

the company website; and Facebook, Twitter, or other social media. The Role of Store Design in Customer Experience

Store design plays a very important role in a customer’s experience. Check out the following

three examples of small business store redesigns that have contributed to increased profitability:

1. Fine Wine & Good Spirits, Philadelphia

www.retailcustomerexperience.com/slideshow.php?ssn=273

2. The Diamond Cellar, Dublin, Ohio

www.retailcustomerexperience.com/slideshow.php?ssn=145

 

 

28

3. Roche Bros. Supermarkets

www.retailcustomerexperience.com/slideshow.php?ssn=261

Good customer experiences “from the perspective of the customer…are useful (deliver value),

usable (make it easy to find and engage with the value), and enjoyable (emotionally engaging so

that people want to use them).” [13]

A customer experience can be a one-time occurrence with a

particular company, but experiences are more likely to happen across many time frames. [14]

The

experience begins at the point of need awareness and ends at need extinction. [15]

 

Video Link 6.5

Exploring Consumer Behavior Online and Offline

Consumers are willing to pay more for products they can touch. “Touching” is an important part

of the customer experience.

videos.smallbusinessnewz.com/2010/09/16/exploring-consumer-behavior-online-and-offline

B2C customer experiences also involve emotional connections. When small businesses make

emotional connections with customers and prospects, there is a much greater chance to forge

bonds that will lead to repeat and referral business. When a business does not make those

emotional connections, a customer may go elsewhere or may work with the business for the

moment—but never come back and not refer other customers or clients to the business. [16]

 

Many businesses may not appreciate that 50 percent of a customer’s experience is about how a

customer feels. Emotions can drive or destroy value. [17]

“Customers will gladly pay more for an

experience that is not only functional but emotionally rewarding. Companies skilled at

unlocking emotional issues and building products and services around them can widen their

profit margins…Great customer experiences are full of surprising ‘wow’ moments.” [18]

 

Small businesses should learn and think about how to market a great B2C customer experience,

not just a product or a service. [19]

Design an experience that is emotionally engaging by mapping

the customer’s journey [20]

—and then think of ways to please, perhaps even delight, the customer

along that journey. A history of sustained positive customer experiences will increase the

chances that a business will be chosen over its competition. [21]

 

Meaningful, memorable, fun, unusual and unexpected experiences influence the way

customers perceive you in general and feel about you in particular. These little

 

 

29

details are so easy to overlook, so tempting to brush off as unimportant. But add a

number of seemingly minor details together, and you end up with something of far

more value than you would without them.

It’s the little details that keep a customer coming back over and over, it’s the little

details that cause a customer to rationalize paying more because she feels she is

getting more, it’s the little details that keep people talking about you and

recommending everyone they know to you.

Anyone can do the big things right; it’s the little things that differentiate one business

from another and that influence customers to choose one over the other. Often,

small-business owners cut out the little details when times get tough, and this is a big

mistake. [22]

 

There is, however, no one-size-fits-all design for customer experience in the B2C market. Small

businesses vary in terms of the size, industry, and nature of the business, so customer

experience planning and design will necessarily differ in accordance with these factors. The

customer experience for a 1-person business will be very different from an experience with a

400-employee company.

Customer Experience in the B2B Market

Talk to customer experience executives in a B2B environment about emotional engagement

and you will see their eyes roll. Ask them if they would consider designing retail stores with

customized smell and music to reinforce the customer experience and you will most likely be

ushered out of their offices. Mention the iPod or MySpace experience and you will likely face a

torrent of sighs and frowns. [23]

 

Lior Arussy

Creating customer relationships in the B2B environment is radically different from the B2C

environment because customers face different challenges, resources, and suppliers. [24]

In the

B2B world, there will almost always be “multiple people across multiple functions who play

major roles in evaluating, selecting, managing, paying for and using the products and services

their company buys…So, unlike the B2C company, if you are a B2B supplier there will be a host

of individual ‘customers’ in engineering, purchasing, quality, manufacturing, etc. with different

 

 

30

needs and expectations whose individual experiences you must address to make any given

sale.” [25]

This is offset, however, by the fact that a B2B company probably has a substantially

smaller number of potential customers in a given target market, so it is often possible to actually

get to know them personally. Smart B2B firms can tailor their products or services specifically to

deliver the experiences wanted by people they know directly. [26]

 

Despite the challenges, customer experience is relevant in the B2B environment. However,

because “the buy decision-making processes in most companies are typically fully structured

and quantitative criteria-based…the explicitly emotional experience laden sales pitch that drives

consumer buying is not a fit in the B2B world.” [27]

The products that often represent B2B

business’s sole value proposition are rarely emotionally engaging or visually appealing. Think

bolts, wires, copy paper, shredding machines, bread for a restaurant, and machinery. How

engaging can these items be?

There are touch points in B2B processes [28]

before and after the sale (e.g., information gathering,

website visits and inquiries, delivery of spare parts, service calls on machinery and office

equipment, and telephone interactions) that can be identified and improved. However, the

inherent differences between B2B and B2C environments must be clearly understood so that the

B2C customer experience models do not become the paradigm for B2B customer experience

designs. As is the case in the B2C market, there is no universal approach to customer experience

in the B2B market. Small B2B companies also vary in terms of the products and the services

offered and the size, industry, and nature of the business, so customer experience planning and

design will necessarily differ in accordance with these factors.

The greatest challenge in delighting B2B customers is adding unique and differentiating value

that solves customer problems. When defining the customer experience, recognize that this

value should extend to the entire customer and business life cycle—presale engagement, the

sales process, and postsale interactions. Experiences at every stage of the customer life cycle

should be customized to each individual customer. [29]

 

Video Link 6.6

Customer Experience Differentiation

Customer experience in the B2C and B2B environments.

 

 

31

www.clearaction.biz/differentiation.html

Customer Loyalty