MoM Complete Summary

EFM Academy Summary: Essentials of contemporary management, Gareth R. Jones, Jennifer M.
George / Marketing Real People, Real Choices, Solomon / Marshall / Stuart
Essentials of Contemporary Management
Chapter 1
The Management Process Today
What is Management?
Management is the planning, organizing, leading and controlling of human and other resources
to achieve organizational goals efficiently and effectively
Achieving high performance: a mangers goal

-
Organizational performance is a measure of how efficiently and effectively managers

use resources to satisfy customers and achieve organizational goals.
Efficiency is a measure of how well or how productively resources are used to achieve
goals;
o Organizations are efficient when the amount of input resources or the amount of
time needed to produce a given output of goods or services is minimized
Effectiveness is a measure of the appropriateness of the goals that managers have selected
for the organization to pursue and of the degree to which the organization achieves its
goals
o Organizations are effective when appropriate goals are chosen and achieved
High effectiveness
Low effectiveness
Low efficiency
A product that the
customer want, but
that is too expensive
for them to buy
A low-quality
product that
customers do not
want
High efficiency
A product that
customers want at a
quality and price that
they can afford
A high-quality
product that
customers do not
want
Managerial Functions
are planning, organizing, leading and controlling
how well managers perform these functions determines how efficient and effective their
organizations are
Planning
is a process that managers use to identify and select appropriate goals and course of action
Three steps in the planning process are:
1. deciding which goals the organization will pursue
2. deciding what courses of action to adopt to attain these goals
3. deciding how to allocate organizational resources to attain those goals
Author: Kathrin Khler

The outcome of planning is a strategy, a cluster of decisions concerning what organizational

goals to pursue, what actions to take, and how to use resources to achieve goals
Organizing
is a process used to establish a structure of working relationships that allows to interact and
cooperates to achieve organizational goals
The outcome of organizing is the creation of an organizational structure, a formal system of
task and reporting relationships that coordinates and motivates members so that they work
together to achieve organizational goals
determines how an organizations resources can be best used to create goods and services
Leading
is articulating a clear vision for organizational members to follow and energizing and
enabling organizational members so that they understand the part they play in achieving
organizational goals
Leadership depends on the use of power, influence, vision, persuasion, and communication
skills to coordinate the behaviours of individuals and groups so that their activities and efforts
are in harmony and to encourage employees to perform at a high level.
Controlling
is evaluating how well an organization is achieving its goals and take action to maintain or
improve performance
Types of Managers
Organizations employ three types of managers: first-line managers, middle managers, and top
managers
grouped into departments (or functions)
A department (e.g. manufacturing, accounting..) is a group of people who work together and
possess similar skills or use the same kind of knowledge, tools or techniques to perform their
jobs
Levels of management
First-line managers (or supervisors)

o Responsible for the daily supervision of the nonmanagerial employees who
perform many of the specific activities necessary to produce goods and services
o Work in all departments or functions
Middle managers
o Supervising first-line managers
o Responsible for finding the best way to organize human and other resources to
achieve organizational goals

o Help first-line managers and nonmanagerial employees to find better ways to use
resources to reduce costs or improve customer service
o Makes decisions about the production of products and service
Top managers
o Responsible for the performance of all departments ( cross-departmental
responsibility)
o Establish organizational goals
o Decide how different departments should interact
o Monitors performance of middle managers
Chief executive officer (CEO) is a companys most senior and important manager, the
one whom all other top managers report
Creates a smoothly functioning top-management team, a group composed of the
CEO, the COO, and the department heads most responsible for helping achieve
Chief operating officer (COO) is often used to refer to the top manager who is being
groomed to take over as CEO
together are responsible for developing good working relationships among the top
managers of various departments
The lower that managers positions are in the hierarchy, the more time the managers spend
leading and controlling first-line managers or nonmanagerial employees
Recent changes in managerial hierarchies

Tasks and responsibilities of managers at different levels have been changing dramatically in
recent years
global competition
advances in new information technology (IT) and e-commerce
Restructuring and Outsourcing
Restructuring involves the use of information technology to downsize an organization or
to shrink its operations by eliminating jobs of large numbers of top, middle, or first-line
mangers and nonmanagerial employees
Outsourcing involves contracting with another company, usually in a low-cost country
abroad, to have it perform an activity the organization previously performed itself
o Promotes efficiency by reducing costs and by allowing an organization o make
better use of its remaining resource
Empowerment and self-managed teams
two steps to reduce costs and improve quality:
empowerment of a companys workforces by using powerful new software programs to
expand employees knowledge, task, and responsibilities
creation of self-managed teams groups of employees given responsibility for
supervising their own activities and for monitoring the quality of the goods and services
they provide

o teams input results of their activities in computers, so middle managers have

immediate access to what is happening
o first-line managers act as coaches or mentors, provide advice and guidance, and
help teams find new ways to perform their tasks more efficiently
IT and Managerial Roles and Skills

A managerial role is a set of specific task that managers are expected to perform because of
their position in an organization
Managerial roles identified by Mintzberg

Henry Mintzberg reduced to 10 roles the thousands of specific tasks that managers need to
perform as they plan, organize, lead and control organizational resources
grouped the ten roles into three broad categories: decisional, informational, and
interpersonal
Decisional
Entrepreneur
Disturbance Handler
Resource Allocater
Negotiator
Informational
Monitor
Disseminator
Spokesperson
Interpersonal
Figurehead
Leader
Liaison
developing innovative goods and services or

expanding markets
dealing with both internal and external crises
of the organization
sets budgets
works with other organizations to establish
agreements
evaluates managers and takes corrective action
informs workers about changes in the internal
and external environment
informs the local community about the
organizations activities
explains the organizations goals to employees
provides an example for employees to follow
coordinates the work of managers in different
departments
Being a manager
Being a manager often involves acting emotionally and relying on gut feelings.
Quick, immediate reactions to situations rather than deliberate thought and reflection are an
important aspect of managerial action
Managerial skills
Conceptual skills are demonstrated in the ability to analyze and diagnose a situation and to
distinguish between cause and effect

Human skills include the ability to understand, alter, lead, and control the behavior of other
individuals and groups.
The ability to communicate, to coordinate, and to motivate people and to mold individuals into
a cohesive team, distinguishes effective from ineffective managers
Technical skills are the job-specific knowledge and techniques required to perform an
organizational role
-
effective managers need all three kinds of skills

the term competencies is often used to refer to the specific set of skills, abilities, and
experiences that gives one manager the ability to perform at a higher level than other
managers
Challenges for Management in a Global Environment

Four main challenges stand out for managers in todays world:
Building a competitive advantage, maintaining ethical standards, managing a diverse
workforce, and utilizing new information systems and technologies.
Building a competitive advantage
Increasing efficiency -- reducing the resources needed to produce goods

Increasing quality -- total quality management (TQM)
Increasing speed, flexibility, and innovation
Increasing responsiveness to customers -- employees need to be trained to be responsive
to customer needs
Maintaining ethical and socially responsible standards

Avoiding bribes and other unethical behaviour
Managing a diverse workforce

Treating employees in a fair and equitable manner that does not discriminate based on age,
gender, race, religion, sexual preference, or income level.

Chapter 2
Values, Attitudes, Emotions and Culture: The Manager as
a Person
Enduring Characteristics: Personality traits
Personality traits: Enduring tendencies to feel, think, and act in certain ways
The Big Five personality traits

Effectiveness is determined by a complex interaction between the characteristics of managers
(including personality traits) and the nature of the job and the organization they are working in.
(1) Extraversion is the tendency to experience positive emotions and moods and feel good
about oneself and the rest of the world
+ (extroverts) sociable, affectionate, outgoing and friendly
(introverts) less inclined toward social interactions, less positive outlook
(2) Negative affectivity is the tendency to experience negative emotions and moods, feel
distressed, and be critical of oneself and others
+ Feel angry and dissatisfied and complain about their own and others lack of
progress
Not tend to experience many negative emotions, moos, and are less pessimistic
and critical of themselves and others
(3) Agreeableness is the tendency to get along well with other people
+ Likeable, tend to be affectionate, and care about other people
Distrustful of others, unsympathetic, uncooperative, and even at times
antagonistic
(4) Conscientiousness is the tendency to be careful, scrupulous, and preserving
+ Organized and self-disciplined
Lack direction and self-discipline
(5) Openness to experience is the tendency to be original, have broad interest, be open to a
wide range of stimuli, be daring, and take risks
+ Likely to take risks, be innovative in planning and decision making
Less prone to take risks, more conservative in planning and decision making
Other personality traits that affect managerial behavior
Locus of control
Belief in how much control people have over what happens to people and
around them
Internal locus of control is the tendency to locate responsibility for ones fate
within oneself
External locus of control is the tendency to locate responsibility for ones
fate in outside forces and to believe that ones behaviour has little impact on
outcomes

Self-esteem
Is the degree to which individuals feel good about themselves and their
capabilities
Needs for achievement, affiliation and power
Need for achievement is the extent to which individuals have strong desire to
perform challenging tasks well and to meet personal standards for excellence
Need for affiliation is the extent to which individuals are concerned about
establishing and maintaining good interpersonal relations, being liked, and
having the people around them get along with each other
Need for power is the extend to which individuals desire control or influencing
others
Values, Attitudes, and Moods and Emotions

capture how managers experience their jobs as individuals
-
values describe what managers are trying to achieve through work and how they think
they should behave
attitudes capture their thoughts and feelings about their specific jobs and organizations
moods and emotions encompass how managers actually feel when they are managing
Values: terminal and instrumental

A terminal value is a personal conviction about lifelong goals or objectives
often lead to the formation of norms, informal rules of conduct
An instrumental value is personal conviction about desired moods of conduct or ways
of behaving
Attitudes
collection of feelings and beliefs
job satisfaction is the collection of feelings and beliefs that managers have about their
current job
+ like their jobs, are being fairly treated, believe their jobs have many desirable
features and characteristics
satisfied managers be more likely to got to the extra mile for their organization
or perform organizational citizenship behaviours (OCBs), behaviours that are
not required of organizational members but that contribute to and are necessary
for organizational efficiency, effectiveness, and gaining a competitive advantage
organizational commitment is the collection of feelings and beliefs that managers
have about their organization as a whole
+ believe in what their organizations are doing, are proud of what these organizations
stand for, and feel high degree of loyalty towards their organization
Moods and emotions

affect the behavior of managers and all members of an organization

-
A mood is a feeling or state of mind

Emotions are more intense feelings than moods, often directly linked to whatever
caused the moods, and are more short-lifed
Emotional Intelligence
is the ability to understand and manage ones own moods and emotions and the moods and
emotions of other people
Organizational Culture
comprises the shared set of beliefs, expectations, values, norms, and work routines that
influence how members of an organization relate to one another and work together to achieve
Managers and organizational cultures
managers play a particularly important part in influencing organizational culture

founders also play an important role
Benjamin Schneider developed a model that helps to explain the role that founders
personal characteristics play in determining organizational culture
attraction-selection-attrition (ASA) framework, explains how personality may
influence organizational culture
The role of values and norms in organizational culture

Values of the founder
- founders of an organization can have profound and long-lasting effects on
organizational culture
- founders set the scene for the way cultural values and norms develop because their own
values guide the building of the company
- subordinates imitate the style of the founder and transmit their values and norms to their
subordinates
Socialization
Over time, organizational members learn from each other which values are important in an
organization and the norms that specify appropriate and inappropriate behaviours
Organizational socialization is the process by which newcomers learn an organizations values
and norms and acquire the work behaviours necessary to perform
Ceremonies and rites
formal events that recognize incidents of importance to the organization as a whole and to
specific employees

Most common rites that organizations use to transmit cultural norms and values to their
members are:
- rites of passage determines how individuals enter, advance within, or leave the
organization
- rites of integration build and reinforce common bonds among organizational members
- rites of enhancement let organizations publicly recognize and reward employees
contributions and thus strengthen their commitment to organizational values
- stories and languages
stories about organizational heroes and villains and their actions provide
important clues about values and norms
characteristic slang or jargon that people use to frame and describe events
provides important clues about values and norms
Culture and managerial action

Culture influences the way managers perform their four main functions:
1)
2)
3)
4)
planning
organizing
leading
controlling

Chapter 5
Decision Making: Learning, Creativity, and Innovation
The Nature of Managerial Decision Making

Decision making is the process by which managers respond to the opportunities and threats
that confront them by analyzing the options and making determinations, or decisions, about
specific organizational goals and courses of action
-
Decision making in response to opportunities occurs when managers search for ways to
improve organizational performance to benefit customers, employees, and other
stakeholder groups
Decision making in response to threats occurs when events inside or outside the
organization are adversely affecting organizational performance and managers are
searching for ways to increase performance
Programmed and nonprogrammed decision making
Programmed decision making is a routine, virtually automatic process

decisions that have been made so many times in the past that managers have developed
rules or guidelines to be applied when certain situations inevitably occur
managers do not need to repeatedly make new judgements about what should be done
Nonprogrammed decision making is required for nonroutine decisions
made in response to unusual or novel opportunities and threats
occurs when there are no ready-made decision rules
situation is unexpected or uncertain
make decisions by
intuition, feelings, beliefs, and hunches that come readily to mind, require little
effort and information gathering, and result in on-the-spot decisions
reasoned judgement, decisions that take time and effort to make and result from
careful information gathering, generation of alternatives, and evaluation of
alternatives
The classical model

is prescriptive, which means that it specifies how decisions should be made
-
condition to use the classical model is that once managers recognize the need to make a
decision, they should be able to generate a complete list of alternatives and
consequences and make the best choice
assumes that managers have access to all the information they need to make the
optimum decision, which is the most appropriate decision possible in light of what they
believe to be the most desirable future consequences for the organization
The administrative model by March and Simon

10

is an approach to decision making that explains why decision making is inherently uncertain
and risky and why managers usually make satisfactory rather than optimum decisions
Bounded rationality
human decision-making capabilities are bounded by peoples cognitive
limitations that is, limitations in their ability to interpret, process, and act on
information
describes the situation in which the number of alternatives a manager must
identify is so great and the amount of information so vast that it is difficult for
the manager to even come close to evaluating is all before making decisions
Incomplete information
information is incomplete because the full range of decision-making alternatives is unknowable
risk and uncertainty

risk is present when managers know the possible outcomes of a particular course
of action and can assign probabilities to them
when uncertainty exists, the probabilities of alternative outcomes cannot be
determined and future outcomes are unknown
ambiguity
ambiguous information is information that can be interpreted in multiple and
often conflicting ways
time constraints and information costs
managers have neither the time nor the money to search for all possible
alternative solutions and evaluate all the potential consequences of them
Satisficing
exploring a limited sample of all potential alternatives
Steps in the Decision-Making Process

1) Recognize the need for a decision
2) Generate alternatives
3) Evaluate alternatives
(1) Legality
(2) Ethicalness
(3) Economic feasibility
(4) Practically
4) Choose among alternatives
5) Implement the chosen alternative
6) Learn from feedback
(1) Compare what actually happened to what was expected to happen as a result of
the decision
(2) Explore why any expectations for the decision were not met
(3) Derive guidelines that will help in future decision making
Group Decision Making

Group decision making is superior to individual decision making in several respects
-
choices of alternatives are less likely to fall victim to the biases and errors
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able to draw on the combined skills, competencies, and accumulated knowledge of

group members and thereby improve ability to generate feasible alternatives and make
good decisions
allows to process more information and to correct one anothers errors
probability that the decision will be implemented successfully increases
groups often take longer than individuals to make decisions
The perils of groupthink

Groupthink is a pattern of faulty and biased decision making that occurs in groups whose
members strive for agreement among themselves at the expense of accurately assessing
information relevant to a decision
-
embark on a course of action without developing appropriate criteria to evaluate

alternatives
pressures for agreement and harmony within a group have the unintended effect of
discouraging individuals from raising issues that run counter to majority opinion
Devils advocacy
is a critical analysis of a preferred alternative to ascertain its strengths and weaknesses
before it is implemented
The devils advocate critiques and challenges the way the group evaluated alternatives and
chose one over the others
Diversity among decision makers

Bringing together managers of both genders from various ethnic, national, and functional
backgrounds broadens the range of life experiences and opinions that group members can draw
on as they generate, assess, and choose among alternatives
Organizational Learning and Creativity

-
organizational learning is the process through which managers seek to improve

employees desire and ability to understand and manage the organization and its task
environment so that employees can make decisions that continuously raise organizational
effectiveness
a learning organization is one in which managers do everything possible to maximize the
potential for organizational learning to take place
at the heart of organizational learning is creativity, the ability of a decision maker to
discover original and novel ideas that lead to feasible alternative courses of action
when new and useful ideas are implemented in an organization, innovation takes place
Creating a learning organization

1. develop personal mastery
2. build complex, challenging mental models
3. promote team learning
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4. build shared vision

5. encourage system thinking
Promoting individual creativity

People must be given the opportunity and freedom to generate new ideas
Creativity results when employees have an opportunity to experiment, to take risks, and to
make mistakes and learn from them
Promoting group creativity

To encourage creativity at the group level, organizations can make use of group problemsolving techniques that promote creative ideas and innovative solutions
Brainstorming is a group problem-solving technique in which mangers meet face-to-face

to generate and debate a wide variety of alternatives from which to make a decision;
main reason for loss of productivity in brainstorming appears to be production blocking,
which occurs because group members cannot always simultaneously make sense of all the
alternatives being generated, think up additional alternatives, and remember what they were
thinking
Nominal group technique is often used to avoid production blocking;
provides a more structured way of generating alternatives in writing and gives each
manager more time and opportunity to come up with potential solutions
Delphi technique is a decision making technique in which group members do not meet
face-to-face but respond in writing to questions posed by the group leader
13

Chapter 6
Planning, Strategy, and Competitive Advantage
The Nature of the Planning Process

Planning is a process that managers use to identify and select appropriate goals and courses of
action for an organization.
-
Organizational plan results from planning process and details goals of the organization
and specifies how managers intend to attain these goals
Cluster of decisions and actions to achieve the goals is strategy
Planning is goal-making and strategy-making process
Planning is three step activity:
1. Determining the organizations mission and goals
Mission statement (=broad declaration of an organizations overriding
purpose
Intended to identify an organizations products and customers and
to distinguish organization from competitors
2. Formulating strategy
analyzing the current situation, then develop strategies to attain goals
and mission
3. Implementing strategy
decision how to allocate resources and responsibilities required
Levels of Planning
division a business unit that has its own set of managers and functions or departments and
competes in a distinct industry
1. Corporate level -- top management
- corporate-level plan -- top managements decisions pertaining to the
organizations mission, overall strategy and structure
- corporate- level strategy -- a plan that indicates in which industries and national
markets an organization intends to compete
2. Business (division) level -- business units that compete in an industry
- business-level plan -- divisional managers decisions pertaining to divisions
long-term goals, overall strategy and structure
- business-level strategy -- a plan that indicates how a division intends to compete
against rivals in an industry
3. Department (functional) level -- manufacturing, R&D, marketing, etc.
- functional-level plan -- functional managers decisions pertaining to the goals
that they propose to pursue to help the division attain its business-level goals
14

functional-level strategy -- a plan that indicates how a function intends to

archive its goals.
Who plans?
Corporate level top management
Business level divisional managers
Department level department managers
Time horizons of plans

Long-term plan -- five or more years
Intermediate plan -- one to five years
Short-term plan -- up to one year
Rolling plan (updated every yearchanging environment) -- extends over five years or
more
Standing plans and single-use plans
standing plans used in situations in which programmed decision making is

appropriate
o policy general guide to action
o rule formal, written guide to action
o standard operating procedures written instruction describing the exact series
of actions that should be followed
single-use plans developed to handle nonprogrammed decision making in unusual

situations
o programs integrated sets of plans for achieving certain goals
o projects specific action plans created to complete various aspects of a program
Why planning is important

1. gets managers to participate in decision making about appropriate goals and strategies
2. gives the organization a sense of direction and purpose
3. helps coordinating managers of different functions and divisions to ensure that all pull
in the same direction
4. can be used to control managers performance
Scenario planning
The generation of multiple forecasts of future conditions followed by an analysis of how
to respond effectively to each of those conditions; also called contingency planning
15

Determining the Organizations Mission and goals

is the first step of the planning process
Defining the business

1. Who are our customers?
2. What customer needs are we satisfying?
3. How are we satisfying customer needs?
Establishing major goals

Once the business is defined, managers must establish a set of primary goals to which the
organization is committed.
Although goals should be challenging, they should be realistic.
Moreover, the time period in which a goal is expected to be achieved should be stated
Formulating strategy
analyzing the current situation and then develop strategies to accomplish a mission and
achieve goals
SWOT analysis
= planning exercise to identify the organizations
- internal strengths (S)
- internal weaknesses (W)
- external opportunities (O)
- external threats (T)
The five forces model
by Michael Porter
helps managers isolate particular forces in the external environment that are potential threats
The level of rivalry among organizations in an industry

o The more that companies compete against one another for customers, the lower
is the level of industry profits
The potential for entry into an industry
o The easier it is for companies to enter an industry, the more likely it is for
industry prices and therefore industry profits to be low
The power of suppliers
o If there are only a few suppliers of an important input, then suppliers can drive
up the prices of that input, and expensive inputs result in lower profits for the
producer
16

The power of customers

o If only a few large customers are available to buy an industrys output, they can
bargain to drive down the price of that output
producers make lower profit
The threat of substitute products
o
Companies that produce a product with a known substitute cannot demand high
prices for their products
keeps their profits low
Formulating Corporate-level Strategies

are plans of action concerning which industries and countries an organization should invest
its resources in to achieve its mission and goals
(1) concentrating on a single business
Focusing on one single business or industry
(2) diversification
Related diversification
entering a new business in order to create a competitive advantage in one of the
organizations existing businesses
Unrelated diversification
entering a new industry that are not related to the organizations current businesses
(3) internal expansion
global strategy
sell the same standardized product in each national market in which it competes and use
same basic marketing approach
multidomestic strategy
customize products and marketing strategies to specific national conditions
choosing a way to expand internationally
there are four basic ways to operate in the global environment
o importing and exporting
o licensing and franchising
licensing = company (licenser= allows foreign organization (licensee) to take charge
of both manufacturing and distributing one or more of its product in the licensees
country in return for a negotiated fee
franchising = selling to a foreign organization the rights to use a brand name and
operating know-how in return for a lump-sup payment and share of the profits
o strategic alliances
an agreement in which managers share their organizations resources and know how
with a foreign company, and the two organizations share the rewards and the risks
of starting a new venture
o wholly owned foreign subsidiaries
17

investigation in establishing production operations in a foreign country independent

of any local direct involvement
(4) vertical integration

... is the corporate-level strategy through which an organization becomes involved in
producing its own inputs (backward vertical integration) or distributing and selling its own
outputs (forward vertical integration)
Formulating Business-Level Strategies

by Michael Porter
There are two basic ways of increasing the value of an organizations products:
differentiating the product to add value or lowering the costs of value creation
Low cost strategy

Focusing the energy of all the organizations departments or functions on driving the
organizations costs down below the costs of its rivals to gain a competitive advantage
Differentiation strategy
Focusing all the energies of the organizations departments or functions on distinguishing the
organizations products from those of competitors on one or more important dimensions (e.g.
product design, quality )
Focused low-cost and focused differentiation strategies

Focused low-cost strategy
- serving only one or a few segments of the overall market and aim to make their
organizations the lowest-cost company serving that segment
Focused differentiation strategy
- serving just one or a few segments of the market and aim to make their organization the
most differentiated company serving that segment
Formulating Functional-Level Strategies

Functional-level strategy is a plan of action to improve the ability of an organizations functions
to create value.
There are two ways in which functions can add value to an organizations products:
1. Functional managers can lower the costs of creating value so that an organization can
attract customers by keeping its prices lower than its competitors prices
2. Functional managers can add value to a product by finding ways to differentiate it from
the products of other companies
Planning and Implementing Strategy
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After identifying appropriate strategies, managers have to put those strategies into action:
1.
2.
3.
4.
5.
Allocating responsibility for implementation of plans

Preparing detailed actions plans that specify how strategy will be implemented
Establishing a timetable for implementing the plans
Allocating resources needed to implement the plans
Holding individuals and groups responsible for achieving the goals of the plan
Chapter 9
Motivation
The Nature of Motivation

Motivation may be defined as psychological forces that determine the direction of a persons
behaviour (=many possible behaviours that a person could engage in) in an organization, a
persons level of effort, and a persons level of persistence (= whether people keep trying or
give up) in the face of obstacles
Intrinsically motivated behaviour -- the motivation comes from doing the work for its
own sake
Extrinsically motivated behaviour -- the behaviour is based on the rewards (social or
material), not from the behaviour itself
People can be either intrinsically or extrinsically motivated or both.

Outcome is anything a person gets from a job or oranization.
Input is anything a person contributes to his/her job or organization.
Expectancy Theory
Expectancy theory (Vroom) assumes that workers believe that high effort will lead to high
performance and that high performance will lead to desired outcomes.
Expectancy -- the degree to which effort will result in a certain level of performance
Instrumentality -- the degree to which a certain level of performance will lead to desired
outcomes
Valence -- the desirability of each outcome to the worker
Bringing it all together the theory assumes that high motivation results from high expectancy,
high instrumentality, and high valence
Need theories
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A need is a requirement for survival and well-being.

Maslows Hierarchy of Needs
All people try to satisfy five basic needs:
- physiological needs food, water, shelter
- safety needs security, stability, safe environment
- belongingness needs social interaction, friendship, love
- esteem needs to feel good about oneself, to be respected etc
- self-actualization.needs to realize ones full potential
(lowest-level)
(highest level)
The lowest level of unsatisfied needs motivates behaviour; once this level of needs is satisfied,
a person tries to satisfy the needs at the next level.
Only one level of needs is motivational at a time.
Herzbergs Motivator-Hygiene Theory
Motivator needs -- related to the nature of the work itself (challenge, autonomy, responsibility,
growth and development, a sense of accomplishment)
Hygiene needs -- related to the context in which the work is performed (working conditions,
pay, job security, relationships with co-workers, type of supervision)
For motivation/high job satisfaction motivator needs must be met.
McClellands Needs for Achievement, Affiliation and Power
need for achievement - personal standards for excellence
need for affiliation - concern for good interpersonal relationships
need for power - the desire to control/influence others
Equity Theory
Equity theory concentrates on peoples perceptions of the fairness of their work outcomes
relative to their work inputs.
Equity -- exists when a person perceives that his outcome/input ratio is equal to that of a
referent
Inequity -- a lack of fairness exists when a persons outcome/input ratio is perceived as not
equal to that of a referent
Underpayment inequity -- a persons outcome/input ratio is perceived as less than that of a
referent
Overpayment inequity -- a persons outcome/input ratio is perceived as greater than that of a
referent
Ways to restore equity: reduce ones working hours, change ones perception of his own or the
referents inputs or outcomes
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Motivation is highest when as many people as possible in an organization perceive that they are
being equitably treated their outcomes and inputs are in balance.
Goal-Setting Theory
Goal-setting theory focuses on identifying the types of goals that are most effective in
producing high levels of motivation and performance and explaining why goals have these
effects.
To stimulate high motivation and performance, goals must be specific and difficult.
Specific goals are often quantitative (e.g. serve 150 customers per day);
difficult goals are hard but not impossible to attain.
People often develop action plans (strategies, timetables, schedules) to reach them.
Learning Theories
Learning is a relatively permanent change in knowledge or behaviour as the result of practice or
experience.
Operant conditioning theory (B.F. Skinner)
People learn to do behaviours that lead to desired consequences or learn not to do behaviours
that lead to undesirable consequences. (All behaviour is controlled/determined by its
consequences)
Positive reinforcement is giving people outcomes they desire when they perform
organizationally functional behaviour. (pos. Verstrkung)
Negative reinforcement is eliminating or removing undesired outcomes when people perform
organizationally functional behaviours. (neg. Verstrkung)
Identify the right behaviours for reinforcement: choose behaviours over which subordinates
have control and which contribute to organizational effectiveness
Extinction is to eliminate whatever is reinforcing negative behaviours.
Punishment is administering a negative consequence when an undesirable behaviour is
performed
Social learning theory
Motivation results from rewards and punishments and also from the individuals thoughts and
beliefs.
Vicarious learning is becoming motivated by watching another person perform a behaviour and
being positively reinforced for doing so
Self-reinforcement are desirable outcomes that people give to themselves for good performance.
Self-efficacy is the individuals belief about his ability to perform a behaviour successfully.
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Pay and Motivation

Merit pay plan is a compensation plan that bases pay on performance.
Basing Merit Pay on Individual, Group or Organizational Performance
Salary increase or Bonus?
In comparison to salary increases bonuses tend to have more motivational impact for at least
three reasons:
- the absolute level of the salary is based largely on factors unrelated to current
performance
- a current salary increase may be affected by other factors in addition to performance,
such as cost of living increases etc
- because organizations rarely reduce salaries, salary levels tend to vary less than
performance levels do
Bonus levels can be reduced when an organizations performance lags
and they can be linked directly to performance and vary from year to year and employee to
employee
employee stock option is a financial instrument that entitles the bearer to buy shares of an
organizations stock at a certain price during a certain period of time or under certain
conditions.
Examples of merit pay plans
- Piece-rate pay -pay is based on the number of units produced by each worker
- Commission pay -pay is based on a percentage of sales (e.g. real estate brokers)
- Scanlon Plan - cost-savings accomplished are shared with the workers
22

Marketing Real People, Real Choices
Chapter 1
Welcome to the World of Marketing: Creating and
Delivering Value
The Value of Marketing
Marketing is an organizational function and a set of process for creating, communicating and
delivering value to customers and for managing customer relationships in ways that benefit the
organization and its stakeholders
Marketing Is About Meeting Needs
Stakeholders are buyers, sellers, investors in a company, community residents, and even
citizens of the nations where goods and services are made or sold in other words, any person
or organization that has a stake in the outcomes
A Consumer is the ultimate user of a good or service.
The Marketing Concept is a management orientation that focuses on identifying and satisfying
consumer needs to ensure the organizations long-term profitability.
Need: The recognition of any difference between a consumers actual state and some ideal or
desired state.
the specific way a need is satisfied depends on an individuals history, learning experiences,
and cultural environment.
Want: The desire to satisfy needs in specific ways that are culturally and socially influenced.
Demand: Customers desire for products coupled with the resources to obtain them.
23

Benefit: The outcome sought by a customer that motivates buying behavior that satisfies a
need or want.
A market consist of all the consumers who share a common need that can be satisfied by a
specific product and who have the resources, willingness, and authority to make the purchase
Marketing Is About Creating Utility
Utility refers to the sum of the benefits we receive from using a product or service.
-
Form utility: transforming raw materials into finished products

Place utility: making products available where customers want them
Time utility: storing products until they are needed
Possession utility: allowing the consumer to own, use, and enjoy the product
Marketing Is About Exchange Relationships

Exchange occurs when something is obtained for something else in return
at least two people/organizations are involved, each must have sth the other wants
What Can Be Marketed?

Popular culture consists of the music, movies, sports, books, celebrities, and other forms of
entertainment that the mass market consumes
Marketing messages often communicate myths, stories containing symbolic elements that
express the shared emotions and ideas of a culture
A product is a tangible (sichtbar) good, service, idea, or some combination of these that
satisfies consumer or business customer needs through the exchange process; a bundle of
attributes including features, functions, benefits, and uses.
Consumer Goods and Services
Consumer goods are the tangible products that individual consumers purchase for personal or
family use.
Services are intangible products that we pay for and use but never own.
The consumer is looking to obtain some underlying value, such as convenience, security,
or status, from a marketing exchange.
Business-to-Business Goods and Services
Business-to-business marketing is the marketing of goods from one organization to another
Goods bought by individuals or organizations for further processing or for use in doing
business are called industrial goods
E-commerce is the buying or selling of goods and services electronically, usually over the
internet.
Not-for-Profit Marketing
24

Not-for-profit organizations: Organizations with charitable, educational, community, and

other public service goals that buy goods and services to support their functions and to attract
and serve their members.
Many not-for-profit organizations like museums, zoos, and even churches practice the
marketing concept.
The Marketing of Value

Value refers to the benefits a customer receives from buying a product or service.
The value proposition is a marketplace offering that fairly and accurately sums up the value
that will realize if he or she purchases the product or service.
Value from the Customers Perspective
Value of a product to a customer often goes beyond its function
Relationship between product and customer results in a successful value proposition
Value from the Sellers Perspective
Calculating the value of a customer

lifetime value of a customer show how much profit companies expect to make
from a particular customer, including each and every purchase she will make
from them now and in the future;
to calculate lifetime values, companies estimate the amount the person will
spend and then subtract what it will cost the company to maintain this
relationship
Providing value to stakeholders by creating a competitive advantage
a firm has a competitive advantage when it is able to outperform the
competition, providing customers with a benefit the competitor cannot
to gain a competitive advantage:
1) identify the companys distinctive competency, their capability that is
superior to that of its competition
2) turn distinctive competency into a differential benefit, that sets a
product apart from competitors products by providing something unique
that customers want
effective product benefits must be both different from the competition and be
wanted by customers
Adding value through the value chain
A value chain refers to a series of activities involved in designing, producing,
marketing, delivering, and supporting any product; each link in the chain has the
potential to add or remove value from the product the customer eventually buys
The main activities of value chain members include the following:
bringing in materials to make the product (inbound logistics)
converting the materials into the final product (operations)
shipping out the final product (outbound logistics)
marketing the final product (marketing and sales)
25

servicing the product/customer (service)
Marketing as a Process
Marketing Planning
is a big part of the marketing process
The marketing plan is a document that describes the marketing environment, outlines the
marketing objectives and strategy, and identifies who will be responsible for carrying out each
part of the marketing strategy
A mass market consist of all possible customers in a market regardless of the differences in
their specific needs and wants
marketing planning becomes a matter of developing a basic product and a single strategy
for reaching everyone
A market segment is a distinct group of customers within a larger market who are similar to
one another in some way and whose needs differ from other customers in the larger market.
the chosen market segment becomes the firms target market on which it focuses its
marketing plan and toward which it directs its marketing efforts
a products market position is how the target market perceives the product in
comparison to competitors brands
Marketings Tools: The Marketing Mix
In determining the best way to present a good or service for consumers consideration,
marketers have many decisions to make, so they need many tools.
The marketers strategic toolbox is called the marketing mix, which consists of the tools that
are used to create a desired response among a set of predefined consumers.
The elements of the marketing mix work hand in hand. They are also called the 4 Ps:
Product (includes the design and packaging of a good, as well as its physical features and
any associated services, such as free delivery)
Price is the assignment of value or the amount the consumer must exchange to receive the
offering.
Promotion includes all the activities marketers undertake to inform consumers about their
products and to encourage potential customers to buy these products
Place refers to the availability of the product to the customer at the desired time and
location.
When Did Marketing Begin? The Evolution of a Concept

The production era
26

Production Orientation, which works best in sellers market when demand is greater
than supply because it focuses on the most efficient ways to produce and distribute
products
The selling era
Selling Orientation means that management views marketing as a sales function, or a
way to move products out of warehouses to reduce inventory.
The Consumer Era
Consumer Orientation: A management philosophy that focuses on ways to satisfy the
customers needs and wants.
Total Quality management (TQM): A management effort to involve all employees from
the assembly line onward in continuous product quality improvement.
The New Era
New era orientation means building long-term bonds with customers rather than
merely selling them stuff today
Customer-Relationship Management (CRM), which involves systematically tracking
consumers preferences and behaviors over time in order to tailor the value proposition
as closely as possible to each individuals unique wants and needs
Focusing on accountability - measuring how much value is created by marketing
activities
Chapter 2
Strategic Planning and the Marketing Environment: The

Advantage is Undeniable
Business Planning: Seeing the Big Picture

Business Planning is an ongoing process of making decisions that guide the firm both in the
short term and for the long haul (Strecke)
- identifies and builds on a firms strengths
- helps managers at all levels make informed decisions in a changing business
environment
- means that an organization develops objectives before it takes action
A business plan includes the decisions that guide the entire organization or its business unit
A marketing plan is a document that describes the marketing environment, outlines the
marketing objectives and strategies, and identifies how the strategies will be implemented,
monitored, and controlled.
The Three Levels of Business Planning

Planning occurs at three levels: strategic, functional and operational.
27

Strategic Planning is the managerial decision process that matches the firms resources
and capabilities to its market opportunities for long-term growth.
define the firms purpose and specify what the firm hopes to achieve in the next
few years
Functional Planning gets its name because it is accomplished by the various functional
areas of the firm, such as marketing, finance, and human resources
decision process that concentrates on developing detailed plans for strategies and
tactics fort short term that support an organizations long-term strategic plan
Operational Planning focuses on the day-to-day execution of the functional plans and
includes detailed annual, semiannual, or quarterly plans
Strategic planning
Who does it?
Top level corporate

management
What they do? 1. define the mission
2. evaluate the internal
and external
environment
3. set organizational or
SBU objectives
4. establish the business
portfolio
5. develop growth
strategies
Functional planning
Operational
planning
Top functional-level
Supervisory
management
managers
1. perform a situation 1. develop action
analysis
plans to
2. set marketing
implement the
objectives
marketing plan
3. develop marketing
2. use marketing
strategies
metrics to monitor
4. implement
how the plan is
marketing strategies
working
5. monitor and control
strategies
Strategic Planning: Driving a Firms Success

Because relying on one product can be risky, companies become multi-product with selfcontained divisions organized around products or brands
Strategic business units individual units representing different areas of business within a
firm that are each different enough to have their own mission, business objectives,
resources, managers, and competitors
Step1: Define the mission
A mission statement is a formal document that describes the organizations overall goal
and what it hopes to achieve in terms of its customers, products, and resources
Step2: Evaluate the Internal and External Environment
internal environment means all the controllable elements inside a firm that influence
how well the firm operates
can identify a firms strengths and weaknesses
external environment consists of elements outside the firm that my affect it either
positively or negatively
can identify a firms opportunities and threats
includes consumers, government regulations, competitors, the overall economy,
and trends in popular culture
Managers often summarize the results of a situation analysis into a format called SWOT
analysis
28

Step3: Set Organizational or SBU goals

Organizational objectives are a direct outgrowth of the mission statement and broadly
identify what the firm hopes to accomplish within the general time frame of the firms
long-range business plan.
If the firm is large enough to have separate SBUs, each SBU will have its own
objectives that are relevant to its operations.
Step4: Establish the Business Portfolio
make decisions about how to best allocate resources across the SBUs to ensure growths
for the total organization
each SBU has its own focus within the firms overall strategic plan, and each has its
own target market and strategies for reaching its objectives
each SBU has its own profit center is responsible for its own costs, revenues, and
profits
the range of different businesses that a large firm operates is called business portfolio
a diversified business portfolio reduces the firms dependence on one product line or
one group of customers
to assess the potential of a firms business portfolio, management uses portfolio
analysis ( helps to decide which SBUs should receive more or less of the firms
resources, and which of them are most consistent with the firms overall mission)
BCG growth-market share mix is one model to assist management in the portfolio
analysis process (developed by the Boston Consulting Group)
focuses on determining the potential of a firms existing successful SBUs to
generate cash that the firm can then use to invest in other businesses
Stars
have dominant market share in high-growth market
stars generate large revenues, but also require large amounts of funding to keep
up with production and promotion demand
Cash Cows
have a dominant market share in low-growth market
not much opportunities for new companies, competitors dont often enter a
market
29

firms usually milk cash cows of their profits to fund the growth of other SBUs
Question Marks
(problem children) SBUs with low market shares in fast-growth markets
Firm has failed to compete successfully
Dogs
small share of a slow-growth market
businesses that offer specialized products in limited markets that are not likely to
grow quickly
Step5: Develop Growth Strategies
Marketer use the product-market growth matrix to analyze different growth strategies
Market penetration strategies seek to increase sales of existing products to existing
markets
Market development strategies introduce existing products to new markets
Product development strategies create growth by selling new products in existing
markets
Diversification strategies emphasize new products to new markets to achieve growth
Strategic planning includes developing the mission statement, assessing the internal and
external environment (SWOT), setting objectives, establishing the business portfolio,
and developing growth strategies.
Functional Planning: From Strategic Planning to Marketing Planning

Strategic plan does not provide details about how to reach the objectives that have been set.
Thus, marketers must develop functional plans (i.e., marketing plans).
The Four Ps of the marketing mix remind us that success firms must have viable products at
prices consumers are willing to pay, the means to get the products to the place consumers want
to buy, and a way to promote the products to the right consumers.
Steps in marketing planning are quite similar to those of strategic planning:
Step1: Perform a Situation Analysis
conduct an analysis of the marketing environment SWOT analysis
Step2: Set Marketing Objectives
develop specific marketing objectives
more specific to the firms brands, sizes, product features, and other marketing mixrelated elements
business objectives guide the entire firms operations, while marketing objectives
state what the marketing function must accomplish if the firm is ultimately to
achieve its overall objectives
Step3: Developing Marketing Strategies
make marketing strategies make decisions about what activities they must accomplish
to achieve the marketing objectives
deciding which markets to target and actually developing the marketing mix strategies
(4 P's)
Selecting a target market
30

The target market is the market segment selected because of the firms belief
that its offerings are most suited to winning those customers
Firm assesses the potential demand and decides it has the distinctive
competencies that will create a competitive advantage in the marketplace among
target consumers
Developing market mix strategies identify how marketing will accomplish its
objectives in the firms target markets
Product strategies
Pricing strategies
Promotion strategies
Distribution strategies
Step4: Implement Marketing Strategies

Once a plan is developed, its time to get to work and make it successful
Step5: Monitor and Control Marketing Strategies
Marketers must have some mean to determine whether they are meeting their marketing
objectives
Control this process entails measuring actual performance, comparing this
performance to the established marketing objectives, and then making adjustments
to the strategies or objectives on the basis of this analysis
Operational Planning: Day-to-Day Execution of Marketing Plans

Operational plans focus on the day-to-day execution of the marketing plan
cover a shorter period of time than either strategic plans or marketing plans
include detailed directions for the specific activities to be carried out, who will be
responsible for them, and timelines for accomplishing the task
Analyzing the Environment

INTERNAL ENVIRONMENT
much of the internal environment of a firm is related to its corporate culture
corporate culture is made up of the values, norms, and beliefs that influence the
behavior of everyone in the organization
if firm is totally focuses on economic profit management attitudes will be profit
centered
EXTERNAL ENVIRONMENT
The Economic Environment
state of the economy in which a firm does business is vital to the success of its
marketing plans
the overall pattern of changes or fluctuations of an economy is called the business cycle
all economies go through cycles of prosperity (Erfolg, Wohlstand), recession
(Konjunkturrckgang), and recovery (Besserung)
31

a severe recession is a depression, a period in which prices fall but there is little
demand because few people have money to spend and many are out of work
inflation occurs when prices and cost of living rise while money loses its purchasing
power because the cost of goods escalates;
dollar incomes may increase, but real income what the dollar will buy decreases
because goods and services cost more
business cycle is important because it effects customer purchasing behavior
The Competitive Environment
Analyzing the market and competition

Before developing strategies, a firm hast to know who its competitors are and what
they are doing
Many firms use competitive intelligence (CI) activities, a process of gathering and
analyzing publicly available information about rivals
Successful CI means learning all about a competitors new products, its
manufacturing, or the management styles of its executives
firm uses information to develop superior marketing strategies
Competition in the microenvironment
means the product alternatives from which members of a target market may choose
we can think of these choices at three different levels:
i. at a broad level, many marketers compete for consumers discretionary
income: the amount of money people have left after paying for
necessities such as housing, utilities, food, and clothing
understanding all the alternatives consumers consider for their
discretionary income
nd
ii. 2 type of choice is production competition, in which competitors
offering different products attempt to satisfy the same consumers needs
and wants
iii. 3rd type of choice is brand competition, in which competitors offering
similar goods or services vie for consumers dollars
Competition in the macroenvironment
marketers need to understand the big picture the overall structure of their industry
four different structures describe different amounts of competition
i. a monopoly exists when one seller, the only supplier of a particular
product, is able to control the price, quality and supply of that product
ii. in a oligopoly, there are a relatively small number of sellers, each holding
a substantial market share, in a market with many buyers
iii. in monopolistic competition, there are many sellers who compare for
buyers in a market; each firm offers a slightly different product, and each
has a small share of the market
iv. perfect competition exists when there are many small sellers, each
offering basically the same good or service;
in such industries, no single firm has a significant impact on quality,
price or supply
The Technical Environment
technology is an investment firm cannot not afford to make

32

it provides many firms with important competitive advantages

changes in technology can dramatically transform an industry
The Legal Environment
refers to the local, state, national, and global laws and regulations that affect businesses
legal and regulatory controls can be prime motivators for many business decisions
The Sociocultural Environment
include the characteristics of the society, the people who live in that society, and the
culture that reflects the values and beliefs of the society
first step to understand the characteristics of a society is to look at its demographics
statistics that measure observable aspects of a population, such as size, age, gender,
ethnic group, income, education, occupation, and family structure
understanding consumers attitudes, beliefs, and ways of doing things in different part
of the country or world is especially important to firms when developing marketing
strategy
these differences in values often explain why marketing efforts that are a big hit in
one country can flop in another
To summarize, business planning, a key element of a firms success, occurs in several

different stages.
Strategic Planning takes place at both the corporate and the SBU level in large firms and in
a single stage in smaller businesses.
Marketing planning, one of the functional planning areas, comes next.
Operational planning ensures proper implementation and control of the marketing plan.
Chapter 3
Think Globally / Act Ethically
Welcome to the New Era of Marketing
Many manager consider social profit, which is the net benefit both the firm and society
receive from a firms ethical practices and socially responsible behavior
New Era firms create both economic and social profit through commitment to ethical
business behavior, social responsibility, and quality
Doing It Right: Ethical Behavior in the Marketplace
ethics are rules of conduct how most people in a culture judge what is right and what
is wrong
Business ethics are basic values that guide a firms behavior
33

These values govern decisions managers make about what goes into their products, how
they are advertised and sold, and how they are disposed of
Because each culture has its own set of values, beliefs, and customs, ethical business
behavior varies in different parts of the world
Bribery (Bestechung) occurs when someone voluntarily offers payment to get an illegal
advantage
Extortion (Erpressung) occurs when payment is extracted under duress by someone in
authority
Many firms develop their own codes of ethics written standards of behavior to which
everyone in the organization must subscribe
The High Costs of Unethical Marketplace Behavior
Unethical practices hurt the firm both financially and in terms of a firms reputation
Consumerism: Fighting Back
Consumerism is the social movement directed toward protecting consumers from harmful
business practices
In 1961, President John F. Kennedy outlined what became known as the Consumer Bill of
Rights:
The right to be safe: products should not be dangerous when used as intended
The right to be informed: businesses should provide consumers with adequate
information to make intelligent product choices
The right to be heard: consumers should have the means to complain or express their
displeasure in order to obtain redress or retribution from companies
The right to choose freely: consumers should be able to choose from a variety of
products
Ethics in the Marketing Mix

Marketing managers are responsible for determining the most ethical way to price, package,
promote, and distribute their offerings to reach profit and market-share objectives
Making a product safe

Pricing the product fairly
Promoting the product ethically
Corrective advertising, messages that clarify or qualify previous claims
Puffery claims of superiority that neither sponsors nor critics of the ads can
prove are true or false
Making the product available to consumers ethically
Slotting allowance - a fee paid in exchange for agreeing to place the
manufacturers products on the retailers valuable shelf space
Doing It Right: A Focus on Social Responsibility

34

The 2nd part of social profit ist social responsibility, a management philosophy in which
organizations engage in activities that have a positive effect on society and promote the public
good
These activities include promoting environmental stewardship (Verwaltung), engaging in
cause marketing, and promoting cultural diversity
Serving the Environment
New Era firms assume a position of environmental stewardship when they make socially
responsible business decisions that also protect the environment.
Many firms preserve the environment by following a strategy called green marketing, which
describes efforts to choose packages, product design, and other aspects of the marketing mix
that are earth friendly but sill profitable.
Serving Society: Cause Marketing
Cause marketing is a strategy of joining forces with a not-for-profit organization to tackle a
social problem
Today New Era firms make a long-term commitment to tackle a social problem, such as
illiteracy or child abuse
Serving the Community: Promoting Cultural Diversity
Cultural diversity is a management practice that actively seeks to include people of different
sexes, races, ethnic groups, and religions in an organizations employees, customers, suppliers,
and distribution channel partners
Playing on a Global Stage

The successful global business needs to set its sights on diverse markets around the world, but
it needs to act locally by being willing to adapt business practices to uniqueconditions in other
parts of the globe.
World Trade
refers to the flow of goods and services among different countries the value of all the
exports and imports of the worlds nations
understanding the big picture of who does business with whom is important to
marketers when they devise global strategies
counter trade is a type of trade in which goods are paid for with items instead of with
cash
easiest way to enter the global marketplace is by exporting
35

firms that export generally use the same marketing strategies wherever they do business
born-global firms are companies that deliberately try to sell their products in multiple
countries from the moment they are created rather than taking usual path of developing
business in their local market and then slowly expanding into other countries
first step in deciding whether and how to go global is to examine some basic market
conditions: domestic demand, the market potential abroad, and a firms ability to have a
competitive advantage in foreign markets
firms need to capitalize on their home countrys assets and avoid competing in areas in
which they are at a disadvantage
Borders, Roadblocks, and Communities

Protected Trade
in some cases, a government adopts a policy of protectionism in which it enforces rules
on foreign firms designed to give home companies an advantage
many government set import quotas on foreign goods to reduce competition for their
domestic industries;
quotas are limitations on the amount of a product allowed to enter or leave the country;
they can make goods more expensive
an embargo is an extreme quota that prohibits specified goods completely
governments also use tariffs, or taxes on imported goods, to give domestic competitors an
advantage in the market place by making foreign competitors goods more expensive
established after world war II, the General Agreement on Tariffs and Trade (GATT)
did a lot to reduce the problems that protectionism creates
this regulatory group is now know as the World Trade Organization (WTO)
through a series of trade negotiations (rounds) that set standards for how much countries
are allowed to favor their goods and services, the WTO has become a global referee for
trade
Economic Communities
groups of countries may also band together to promote trade among themselves and make
it easier for member nations to compete elsewhere
these economic communities coordinate trade policies and ease restrictions on the
flow of products and capital across their borders
the economic community in Europe is the European Union (EU)
the North American Free Trade Agreement (NAFTA) is the worlds largest economic
community
The Global Marketing Environment

Companies that enter foreign markets need to consider how and whether to adapt local
conditions in a country or region
The Economic Environment
Indicators of economic health
36

Most commonly used measure of economic health of a country is the gross domestic
product (GDP), the total dollar value of goods and services a country produces within
its borders in a year
A similar but less frequently used measure is the gross national product (GNP), which
measures the value of all goods and services produced by a countrys individuals or
organizations, whether located within the countrys border or not
Marketers also need to consider whether they can conduct business as usual in another
country
The economic infrastructure is the quality of a countrys distribution, financial,
and communication systems
Level of economic development
Economics look past simple facts such as growth in GDP to decide which level of
development a country is in
A less developed country is a country at the lowest stage of economic development
In most cases, its economic base is agricultural
A countrys standard of living is an indicator of the average quality and quantity of
goods and services consumed by the country
A developing country is a country shifting its emphasis from agriculture to industry,
standards of living, education, and the use of technology rise
A developed country boasts sophisticated marketing systems, strong private enterprise,
and bountiful market potential for many goods and services;
such countries are economically advanced
The Political an Legal Environment

When entering a market, a firm must carefully weigh political and legal risks
Political issues
A country may impose economic sanctions that prohibit trade with another country, so
access to some markets may be cut off
Internal pressures may prompt the government to take over the operations of foreign
companies doing business within its borders
It is called nationalization when a domestic government reimburses a foreign
company (often not for the full value) for its assets after taking it over
Expropriation is when a domestic government seizes a foreign companys assets (and
that firm is just out of luck)
Regulatory issues
Government and economic communities impose numerous regulations about what
products should be made of, how they should be made, and what can be said about them
Local content rules are a form of protectionism stipulating that a certain proportion of a
product must consist of components supplied by industries in the host country or
economic community
Human rights issue
Some governments and companies are vigilant about denying business opportunities to
countries that mistreat their citizens
The Cultural Environment

A firm needs to understand and adapt to the customs, characteristics, and practices of its
citizens
37

Values
Every society has a set of cultural values, or deeply held beliefs about right and wrong
ways to live, that it imparts to its members
In collectivist cultures (e.g., Venezuela, Greece, Pakistan, Turkey ) people tend to
subordinate their personal goals to those of a stable community
In individualist cultures (e.g., GB, USA, Australia, NL, D ) consumers tend to attach
more importance to personal goals, and people are more likely to change memberchips
when the demands of the group become too costly
Norms and customs
A custom is a norm handed down from the past that controls basic behaviors, such as
division of labor in a household
Mores are customs with a strong moral overtone; they often involve a taboo, or
forbidden behavior, such as incest or cannibalism
Conventions are norms regarding the conduct of everyday life
Language
Language barriers can be big obstacles to marketers breaking into foreign markets
because they affect product labeling and usage instructions, advertising, and personal
selling
Vital to work with local people who understand the subtleties of language to avoid
the confusion that may result
Ethnocentrism
The tendency to prefer products or people of ones own culture over those from other
countries is called ethnocentrism
How Global Should a Global Market Strategy Be?

If a firm decides to expand beyond its home country, it must make important decisions about
how to structure its business ad whether to adapt its product marketing strategy to
accommodate local needs
Company-Level Decisions: Choosing a Market Entry Strategy
Exporting
If a firm chooses to export, it must decide whether it will attempt to sell its products on
its own or rely on intermediaries (Zwischenhndler) to represent it in the target country
These representatives are specialists known as export merchants who understand the
local market and can find buyers and negotiate terms
Contractual agreements
Licensing is an agreement in which one firm (the licenser) gives another firm (the
licensee) the right to produce and market its product in a specific country or region in
return for royalties (Gebhren)
Franchising is a form of licensing that gives the franchisee the right to adapt an entire
way of doing business in the host country
Strategic alliance
Firms seeking an even deeper commitment to a foreign market develop strategic
alliance with one ore more domestic firms in the target country
These relationships often take the form of a joint venture: a new entity owned by two
or more firms is created to allow the partners to pool their resources for common goals
38

Strategic alliances allow companies easy access to new markets, especially because the
partnerships often bring with them preferential treatment in the partners home country
Direct investment
A deeper level of commitment occurs when a firm expands internationally by buying a
business outright in the host country
Direct investment allows a firm to take advantage of a domestic companys political
savvy and market position in the host country
Product-Level Decisions: Choosing a Marketing Mix Strategy

The famous 4 Ps may need to be modified to suit local conditions
Standardization versus Localization
standardization offer the same product in all markets
localization customize the product so that it suits to local conditions
Product Decisions
A straight extension strategy retains the same product for domestic and foreign
markets
A product adaptation strategy recognizes that in many cases people in different
cultures do have a strong and different product preferences
A product invention strategy means a company develops a new product as it
expands to foreign markets
Promotion Decisions
Marketers must decide whether it is necessary to change product promotion a
foreign market
Price Decisions
Coasts associated with transportation, tariffs, differences in currency exchange rates,
and even bribes paid to local officials often make the product more expensive for the
company to make for foreign markets than in its home country
One danger of pricing too high is that competitors will find ways to offer their
products at a lower price, even if it is done illegally
Gray market goods are items manufactured outside a country and then imported
without the consent of the trademark holder
Another unethical and often illegal practice is dumping, in which a company prices
its products lower than they are offered at home often removing excess supply
from home markets and keeping prices up there
Distribution Decision
Chapter 6 Business-to-Business Markets: How And Why

Organizations Buy
Business Markets: Buying and Selling When Stakes Are High
39

Like an end consumer, a business buyer makes decisions but with an important difference:
The purchase may be worth millions of dollar, and both the buyer and the seller have a lot at
stake (maybe even there jobs).
business-to-business marketing is the marketing of goods and services that businesses

and other organizations buy for purposes other than personal consumption
some firms resell these goods and services, so they are part of a channel of distribution
other firms use the goods and services they buy to produce still other goods and services
these business-to-business markets, or organizational markets include
manufacturers, wholesalers, retailers, and a variety of other organizations, such as
hospitals, universities, and government agencies
Characteristics That Make a Difference in Business Markets

Although marketing to business customers does have a lot in common with consumer
marketing, there are differences that make this basic process more complex:
Multiple Buyers
Products must meet the requirements of everyone involved in the companys
purchase decision
Number of Customers
Organizational customers are few and far between compared to end consumers
Size of Purchases
Organizations purchase many products, such as highly sophisticated piece of
manufacturing equipment or computer-based marketing information systems that
can cost a million dollars or more
Geographic Concentration
Many business customers are located in a small geographic area rather than being
spread our across the country
Business-to-Business Demand
Derived Demand is a demand for goods or services that comes either directly or
indirectly from consumers demand
the derived nature of business demand means that marketers must be constantly alert
to changes in consumer trends that ultimately will have an effect on business-tobusiness sales
Inelastic Demand means that is usually does not matter if the price of a business-tobusiness product goes up or down business customers still buy the same quantity
what is being sold is often just one of the many parts or materials that go into
producing the consumer product
sometimes producing a consumer good or service relies on one or a few materials or
component parts; if the price of the part increases, demand may become elastic if
the manufacturer of the consumer good passes the increase on to the consumer
Fluctuating Demand
small changes in consumer demand create large increases or decreases in business
demand
occurs because of products life expectancy (infrequently purchases)
40

one solution for keeping production more constant is to use price reductions to
encourage companies to order products before they actually need them
Joint Demand
occurs when two or more goods are necessary to create a product
Types of Business-to-Business Markets
Producers purchase products for the production of other goods and services that they in
turn sell to make a profit
Resellers buy finished goods for the purpose of reselling, renting, or leasing to other
businesses
Organizations
Government markets make up the largest single business and organizational
market in the US
Not-for-profit institutions are organizations with educational, community, and
other public service goals, such as hospitals, churches, universities, museums, and
charitable and cause-related organizations such as the Red Cross
North American Industry Classification System (NAICS) is used by marketers to
identify their customers
a numerical coding of industries developed by the United States, Canada, and
Mexico
The Nature of Business Buying

The Buying Situation
Straight rebuy is the routine purchase of items that a business-to-business
customer regularly needs
Modified rebuy occurs when a firm wants to shop around for suppliers with better
prices, quality, or delivery items
New-task buy is a first-time purchase
The Professional Buyer focus on economic factors beyond the initial price of the
product, including transportation and delivery charges, accessory products or supplies,
maintenance, and other ongoing costs; they are responsible for selecting quality
products and ensuring their timely delivery
The Buying Center is a group of people in the organization who participate in the
decision-making process
The initiator begins the buying process by first recognizing that the firm needs to
make a purchase
The user is the member of the buying center who actually needs the product
The gatekeeper is the person who controls the flow of information to other
members
The influencer affects the buying decision by dispensing advice or sharing
expertise
The decider is the member who makes the final decision
The buyer is the person who has responsibility for executing the purchase
The Business Buying Decision Process
41

Step1: Problem Recognition

- occurs when someone sees that a purchase can solve a problem
Step2: Information Search
- (for purchases others than straight rebuy) the buying center searches for information
about products and suppliers
- Developing Product Specifications
Product specifications are written documents of the quality, size, weight, color,
features, quantity, training, warranty, service terms, and delivery requirements
for the purchase
- Identifying Potential Suppliers and Obtaining Proposals
Identifying potential suppliers and obtain written or verbal proposals, or bids,
from one or more of them
Step3: Evaluation of Alternatives
- buying center assesses the proposals
Step4: Product and Supplier Selection
- the selection of the best product and supplier to meet the firms needs
a suppliers ability to make on-time deliveries is the critical factor in the
selection process for firms that have adopted an inventory management system
called just in time (JIT)
reduce stock to very low levels or even zero and ensure a constant
inventory through deliveries just when needed
reduces cost of warehousing
single sourcing, in which a buyer and a seller work quite closely, is particularly
important when a firm needs frequent deliveries or specialized products
but reliance on single source means that the firm is at the mercy of
the chosen supplier to deliver the needed goods or service without
interruption
multiple sourcing means buying a product from several different suppliers
suppliers are more likely to remain price competitive
sometimes supplier selection is based on reciprocity, which means that a buyer
and seller agree to be each others customers by saying essentially, Ill buy
from you, and you buy from me.
Outsourcing occurs when firms obtain outside vendors to provide goods or
services that might otherwise be supplied in-house
Another type of buyer-seller partnership is reverse marketing: instead of sellers
trying to identify potential customers and then pitching their products, buyers
try to find suppliers capable of producing specific needed products and then
attempt to sell the idea to the suppliers
Step5: Postpurchase Evaluation
- an organizational buyer assesses whether the performance of the product and the
supplier is living up to expectations
Business-to-Business E-Commerce
Business-to-business (B2B) e-commerce refers to the Internet exchanges between two or more
businesses or organizations
42

Chapter 7
Sharpening the Focus: Target Marketing Strategies and

Customer Relationship Management
Selecting and Entering a Market

Understanding peoples needs is a complex task today because technological and cultural
advances in modern society have created a condition of market fragmentation, which occurs
when peoples diverse interests and backgrounds divide them into numerous different groups
with distinct needs and wants.
Because of this diversity, the same good or service will not appeal to everyone
Marketers must balance the efficiency of mass marketing, serving the same items to
everyone, with the effectiveness of offering each individual exactly what it wants
Mass marketing is the most efficient plan, it costs much less to offer one product to
everyone because that strategy eliminates the need for separate advertising campaigns
and distinctive packages for each item
Instead of trying to sell something to everyone, marketers select a target marketing
strategy in which they divide the total market into different segments based on
customer characteristics, select one or more segments, and develop products to meet the
needs of those specific segments
Step1: Segmentation
Segmentation is the process of dividing a larger market into smaller pieces based on one or
more meaningful, shared characteristics
Segmenting the market is often necessary in both consumer and business-to-business
markets: in each case, marketers have to decide on one or more useful segmentation
variables, that is, dimensions that divide the total market into fairly homogeneous groups,
each with different needs and preferences
Ways to Segment Consumer Markets

Segmenting by demographics
Measurable characteristics such as gender, age, family structure, income, race and
ethnicity, geography and geodemography (combines geography with demography)
Segmenting by psychographics
Psychographic data are useful to understand differences among consumers who may
be statistically similar to one another but whose needs and wants vary
Psychographic segments markets in terms of shared interests, activities, and opinions
Segmenting by behavior
Useful to study what consumer actually do with the product
Behavioral segmentation slices consumers on the basis of how they act toward, feel
about, or use a product
one way to segment based on behavior is to divide the market into users and non-users
of a product and then further segment into groups of heavy, moderate, or light users
many marketers adhere to a rule of thumb called the 80/20 rule: 20 percent of
purchasers account for 80 percent of the products sales
43

another way to segment a market based on behavior is to look at usage occasions, or

when consumers use the product most
Segmenting Business-to-Business Markets
Divide the industrial customers into different parts based on relevant shared characteristics, like
organizational demographics, production technology, whether the customer is a user or nonuser of the product.
Step2: Targeting
Targeting is evaluating the attractiveness of each potential segment and decide which of these
groups to invest resources against to trying to turn them into customers
the customer group(s) selected are the firms target market
Evaluating Market Segments
A good chosen, viable segment should satisfy the following requirements:
1) without real differences in consumer needs, firms might as well use a mass-marketing
strategy
2) marketers must know something about the size and purchasing power of a potential
segment before deciding if it is worth their efforts
3) making sure that the segment is large enough to be profitable now and in the future
4) marketing communications must reach the segment(s)
5) marketer has to adequately serve the needs of the segment(s)
Developing Segment Profiles
Generate a profile of each segment to really understand segment members needs and to look
for business opportunities.
This segment profile is a description of the typical customer in that segment.
A segment profile might, for example, include customer demographics, location, lifestyle
information, and a description of how frequently the customer buys the product.
Choosing a Target Strategy
A basic targeting decision is how finely tuned the target should be
Undifferentiated Marketing
A company selecting an undifferentiated targeting strategy is appealing to a broad
spectrum of people
Differentiated Marketing
A company that chooses a differentiated target strategy develops one or more products
for each of several customer groups with different product needs
Concentrated Marketing
When a firm focuses its efforts on offering one or more products to a single segment, it is
using a concentrated targeting strategy
Customized Marketing
44

A custom marketing strategy is common in industrial contexts in which a manufacturer

often works with one or a few large clients and develops products and services that only
these clients will use
Companies using mass customization focus on modifying a basic good or service to meet
the needs of an individual
Step3: Positioning
Positioning means developing a marketing strategy aimed at influencing how a particular
market segment perceives a good or service in comparison to the competition
Developing a Positioning Strategy
Marketers must devise a marketing mix (4Ps) that will effectively target the segments
members by positioning their products to appeal to that segment
1. analyze the competitors positions in the market place
2. offer a good or service with a competitive advantage to provide a reason why consumers
will perceive the product as better that the competition
over time a firm may find that it needs to change which segments it targets or even redo a
products position to respond to marketplace changes (repositioning)
Bringing a Product to Life: The Brand Personality
Brands are almost like people in that we can often describe them in terms of personality traits.
That is why a positioning strategy often tries to create a brand personality for a good or service
a distinctive image that captures its character and benefits
Part of creating a brand personality is developing an identity for the product that the target
market will prefer over competing brands
One solution is asking customers what characteristics are important and how competing
alternatives would rate on these attributes, too.
Marketers use this information to construct a perceptual map, which is a vivid way to
construct a picture of where products or brands are located in consumers minds
Customer-Relationship-Management: Toward a Segment of One

Customer Relationship Management (CRM) is a philosophy that sees marketing as a process
of building long-term relationships with customers to keep them satisfied and to keep them
coming back.
Four steps of One-to-One Marketing (by Peppers and Rogers)
1. Identify customers and get to know them in as much detail as possible.
2. Differentiate customers in both needs and values to the company
3. Interact with customers and find ways to improve cost efficiency and the effectiveness
of the interaction.
45

4. Customize some aspect of the products or services offered to each customer.

Successful One2One Marketing depends on CRM.
Characteristics of CRM
Share of customers; the percentage of an individual customers purchase of a product

that is a single brand.
Lifetime value of the customers; the potential profit generated by a single customers
purchase of a firms products over the customers lifetime.
Customer equity; the financial value of a customer relationship throughout the lifetime
of the relationship.
46

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