chapter 3 economic benefits of marketing. learning objectives students will be able to 1. define the...

Chapter 3

Economic Benefits of Marketing

Learning Objectives

Students will be able to 1.Define the 4 types of

economic utility2.Explain how marketers use

utility to increase customer satisfaction

The Value of Marketing

Marketing bridges the gap between you and the maker or seller of an item. Products are more useful

because you can purchase them when you want.

Marketing makes buying easy for consumers.

Marketing helps to create new and improved products.

Marketing helps lower prices.

Marketing MattersCustomers rarely analyze why they decide to

buy products or services. They unconsciously make buying decisions based on the satisfaction they expect to receive from them.

Businesses therefore try to increase consumers’ satisfaction by making improvements to products and services.

Satisfaction means Utility

People select products and services based on which products and services will give them the most satisfaction for their money.

Watch and Cell Phone!

Marketing Matters

Economists have developed a concept called economic utility and identified

various types of utility to explain why consumers get more or less satisfaction from different products.

For businesses economic utility is important to help them develop better products.

Economic Utility Products that provide great

satisfaction have a high economic utility.

Products that provide little satisfaction have a low economic utility.

Businesses use economic utility to increase the chances that consumers will buy their products or services.

Economic UtilitiesThe 4 primary ways businesses can increase the economic utility of a product or service are:

1. Changes in Form2. Changes in Time3. Changes in Place4. Changes in Possession

Form Utility Changing raw materials or

putting parts together to make them more useful. Making or producing things.

Tree in original state (beauty, prevents soil erosion, produces oxygen)

Tree cut down – usefulness increases. (Lumber to make pencils, paper, furniture, and buildings.) The raw material (wood) becomes part of

finished items that have more value to us than the raw material itself.

Assembling parts into a product. Parts by themselves are useless,

together they add form utility.

Time Utility

Making the product or service available when the customer wants it. Whatever time of the year or time of day. A bank, doctor or dentist

office that stays open in the evening.

IHOP serves breakfast all day.

Place Utility Making a product or service

available where the consumer wants them. Check-cashing outlets and

businesses that provide mailing, photocopying, and printing services are successful if they are located where consumers and businesses that need those services reside. A convenient location for products and services is an important utility for people with busy lives.

Place Utility

How do you know where customers want a product or service?Study consumer shopping habits.Most convenient location for consumers to shop.

Walgreens on every corner!

Possession Utility

Affordability of the product or service. Businesses can’t afford

to cut the price. Credit – allows people

to purchase things for which they do not have enough cash at the time. Pay gradually with

monthly payments.

Possession UtilityExamples:

1. Automobile dealerships lease new cars and trucks.

Leasing = rent

2. Tuxedo rental (Prom)

3. DVD rental

4. Vacation House rental

Finding creative ways to finance, rent, or lease products has become an important business activity today.

Marketing Matters Challenge

Identify a product in this classroom and think about a change that you could make to that product that you believe would increase the satisfaction it provides to its users.

Marketing Functions and Economic Utilities4 E

con

om

ic Utilities

Financing

Risk Management

Selling

Promotion

PricingMarketing

Information

Management

Produ

ct &

Servic

e

Man

agem

ent

Market Planning

Distribution

9 Functions of Marketing

Which Marketing Function would be primarily responsible for the Economic Utility?

Financing

Risk Management

Selling

Promotion

PricingMarketing

Information

Management

Produ

ct &

Servic

e

Man

agem

ent

Market Planning

Distribution

9 Functions of Marketing and Economic Utilities

Place

Possession

Time

Form

What else does Marketing do?

Besides adding value to products, marketing activities also help increase demand for products.

When demand is high, manufacturers can make products in large quantities, which reduces the unit cost of each product.

Lower Prices

High demand – lower pricesFixed costs (building

rent) remain the same whether the company produces 10 units or 10,000

Larger quantity – less fixed costs per unit – lower price for product

Quantity Fixed Cost Produced Per Unit 10,000 $2.00

200,000 .10

Marketing Increases Competition

As a product becomes popular, more competitors enter the marketplace. In order to be competitive, marketers find ways to lower their prices. VCR

Original cost $600.00. Now $30.00.

Cell Phone Original Cost $3,000. Now $149.00

Marketing also generates New and Improved Products As competition increases,

new and improved products enter the marketplace. Businesses want to better

satisfy customers’ wants and needs.Larger variety of goods

and services for consumers.

Personal Computer – Smaller, more powerful and less expensive.

New and Improved Products Detergents demonstrate

the change in consumer preference and competition in that market. Powder – Liquid

Measuring top.Easy to use containers.

Tablets

Marketing Adds ValueHow else can your product be used?Multiple uses means increased value which leads to increased customer satisfaction.

Baking SodaA derivative of trona, a naturally occurring mineral mined in Wyoming.

1846 sold in 1 lb. bags as a baking ingredient

Marketing Adds Value 1970 and today used as a multipurpose household cleaner, an antacid, a deodorizer for the refrigerator/freezer, and a baking ingredient.

Baking soda can be found in:Laundry detergentToothpasteShampooScope MouthwashOdor Eaters Foot powderDeodorant

No clinical proof that baking soda actually makes anything cleaner!

Baking Soda – A matter of ethics

Since there is no clinical proof that baking soda makes anything cleaner, is it ethical for the companies to suggest that it does?

Marketers should not make claims that cannot be substantiated. This particular claim however, reflects how people feel when they use the product, not scientific fact.

What other products do you know can be used for multiple uses?

Marketing adds cost to the product.

Marketing costs represent approximately 50% of the selling price of an item.

1. Is marketing worth the additional cost?

Place

Time

Possession

Information

Selling

Promotion

PricingPurchasing

Marketing-Information Management

Product/

Service Planning

Distribution

Assignment: Work in a group to create a marketing wheel for a product of your choosing. This could be a new product, or a change to an existing product.

Financing

Risk Management

Selling

Promotion

PricingMarketing

Information

Management

Produ

ct &

Servic

e

Man

agem

ent

Market Planning

DistributionPlace

Possession

Time

Form

Place

Time

Possession

Information

Selling

Promotion

PricingPurchasing

Marketing-Information Management

Product/

Service Planning

Distribution

Product: Back Pack

Financing

Risk Management

Selling

Promotion

PricingMarketing

Information

Management

Produ

ct &

Servic

e

Man

agem

ent

Market Planning

Distribution

Target large college campuses then diffuse into high schools.

Every

backp

ack co

mes w

ith a

free bin

der.

$35.00 middle of competition

Survey students and find out what they want in a backpack.

Truc

ks

On cam

pus,

parents buying

school supplies.

Direct m

arket.

Small business

loan. Nee

d m

ore

pock

ets,

leat

her b

otto

m a

nd

othe

r co

mpa

rtmen

ts.

Stu

den

ts i

n

sch

oo

l in

nee

d o

f a

bet

ter,

eas

ier

to u

se b

ackp

ack

Place

Time

Possession

Information

Selling

Promotion

PricingPurchasing

Marketing-Information Management

Product/

Service Planning

Distribution

Product: Back Pack

Financing

Risk Management

Selling

Promotion

PricingMarketing

Information

Management

Produ

ct &

Servic

e

Man

agem

ent

Market Planning

DistributionPlace

Possession

Time

Form

Form

Place

Possession

Time

Product: Back Pack

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