This Document Contains Chapters 11 to 12 CHAPTER 11 Enhancing Union–Management Relations 11.1 A WORD FROM THE AUTHORS Because union–management relations are such a significant part of human resources management, we devote a separate chapter to labor relations. We open the chapter with a review of the history of labor unions in this country, with emphasis on the development of the Knights of Labor, AFL, IWW, and CIO. Then we link the power of organized labor today to current union membership (noting the gradual decline in membership over the past two decades) and to legislation that protects and regulates negotiating procedures. Next, we follow the unionization process step by step and briefly discuss the various reasons for joining a union. We also examine the role of the National Labor Relations Board in the unionization process and how collective bargaining is used to formalize issues in a labor contract. We explore the issues of particular concern to unions and management: forms of pay, magnitude of pay, and pay determinants; working hours; job security and union security; and rights retained by management. Then we identify the major elements in a grievance procedure. Finally, we discuss labor–management negotiating techniques, including strikes, lockouts, mediation, and arbitration. 11.2 TRANSITION GUIDE New in Chapter 11: Enhancing Union–Management Relations • A new Inside Business feature describes the NBA’s most recent lockout. • The Going for Success feature, “Players’ Unions in Big Leagues,” has been deleted. • The Spotlight feature, “Where Are the Union Members?,” has been deleted. • Updated statistics are included in the section “Union Membership.” • A new Social Media feature, “Union Tweeting,” describes how unions use social networking to keep their members informed. • Updated statistics and examples have been included in the “Union–Management Partnerships” section. • A new Ethical Success or Failure? feature, “Should Public-Sector Unions Have Collective Bargaining Rights?,” describes the disagreements associated with collective bargaining power. • Statistics have been updated in the “National Labor Relations Act,” “Fair Labor Standards Act,” and “Labor–Management Relations Act” sections. • A new Going for Success feature, “Arbitration Down Under,” describes how Australia’s Qantas Airways and the union Fair Work Australia are working together to negotiate pay and job security. • A new example about the Chicago police union receiving their pay in the form of perks and benefits has been added to the “Employee Pay” section. • The Ethical Challenges and Successful Solutions feature, “How Much Say Should Unions Have,” has been deleted. • A new example about Goldman Sachs agreeing to a union deal has been added to the section “Management Rights.” • Updated statistics and examples are included in the “Strikes” section. • The Sustaining the Planet feature, “The Sierra Club and Green Jobs,” has been deleted. • Updated statistics have been included in the section “Mediation and Arbitration.” • A new Return to Inside Business about the NBA has been provided at the end of the chapter. • The Building Skills for Career Success section contains a new Social Media Exercise. • The Exploring the Internet feature in Building Skills for Career Success has been deleted. • A revised and updated end-of-part video case about Graeter’s has been included. 11.3 QUICK REFERENCE GUIDE Instructor Resource Location Transition Guide IM, p. 382 Learning Objectives Textbook, p. 302; IM, p. 385 Brief Chapter Outline IM, pp. 385–386 Comprehensive Lecture Outline IM, pp. 386–399 Social Media Union Tweeting Textbook, p. 307 Ethical Success or Failure? Should Public-Sector Unions Have Collective Bargaining Rights? Textbook, p. 310 Going for Success Arbitration Down Under Textbook, p. 315 At Issue: Should the unionized employees of organizations that provide these essential services be permitted the right to strike? IM, p. 398 Inside Business Saving the National Basketball Association’s Season Textbook, p. 303 Return to Inside Business Textbook, p. 321 Questions and Suggested Answers, IM, p. 400 Marginal Key Terms List Textbook, p. 322 Review Questions Textbook, p. 322 Questions and Suggested Answers, IM, pp. 400–402 Discussion Questions Textbook, p. 322 Questions and Suggested Answers, IM, p. 403 Video Case 11.1 (Understanding Labor Unions with the Writers Guild of America) and Questions Textbook, p. 323 Questions and Suggested Answers, IM, pp. 403–404 Case 11.2 (When Nurses and Hospitals Don’t Agree) and Questions Textbook, pp. 323–324 Questions and Suggested Answers, IM, pp. 404–405 Building Skills for Career Success Textbook, pp. 324–325 Suggested Answers, IM, pp. 405–407 IM Quiz I & Quiz II IM, pp. 408–410 Answers, IM, pp. 410–411 Classroom Exercises IM, pp. 411–412 11.4 LEARNING OBJECTIVES After studying this chapter, students should be able to: 1. Explain how and why labor unions came into being. 2. Discuss the sources of unions’ negotiating power and trends in union membership. 3. Identify the main focus of several major pieces of labor–management legislation. 4. Enumerate the steps involved in forming a union and show how the National Labor Relations Board is involved in the process. 5. Describe the basic elements of the collective-bargaining process. 6. Identify the major issues covered in a union–management contract. 7. Explain the primary bargaining tools available to unions and management. 11.5 BRIEF CHAPTER OUTLINE I. The Historical Development of Unions A. Early History 1. Knights of Labor 2. American Federation of Labor 3. Industrial Workers of the World B. Evolution of Contemporary Labor Organizations II. Organized Labor Today A. Union Membership B. Union–Management Partnerships III. Labor–Management Legislation A. Norris–LaGuardia Act B. National Labor Relations Act C. Fair Labor Standards Act D. Labor–Management Relations Act E. Landrum–Griffin Act IV. The Unionization Process A. Why Some Employees Join Unions B. Steps in Forming a Union C. The Role of the NLRB V. Collective Bargaining A. The First Contract B. Later Contracts VI. Union–Management Contract Issues A. Employee Pay 1. Forms of Pay 2. Magnitude of Pay 3. Pay Determinants B. Working Hours C. Security D. Management Rights E. Grievance Procedures 1. Original Grievance 2. Broader Discussion 3. Full-Scale Discussion 4. Arbitration VII. Union and Management Negotiating Tools A. Strikes B. Slowdowns and Boycotts C. Lockouts and Strikebreakers D. Mediation and Arbitration 11.6 COMPREHENSIVE LECTURE OUTLINE A labor union is an organization of workers acting together to negotiate their wages and working conditions with employers. The result of the bargaining process is a labor contract, a written agreement that is in force for a set period of time (usually one to three years). The dealings between labor unions and business management, both in the bargaining process and beyond it, are called union–management relations or, more simply, labor relations. Teaching Tip: Use the “Union Facts Quiz” as an introduction to the chapter. Students can fill out the questions individually or in groups in approximately 10 minutes. I. THE HISTORICAL DEVELOPMENT OF UNIONS. Until the middle of the nineteenth century, there was very little organization of labor in this country. Groups of workers occasionally formed a craft union, an organization of skilled workers in a single craft or trade. A. Early History. In the mid-1800s, improved transportation opened new markets for manufactured goods. New manufacturing methods made it possible to supply those markets, and American industry began to grow. Large-scale production required more and more skilled industrial workers. As the skilled labor force grew, craft unions emerged in more industrialized areas. From these craft unions, three significant labor organizations evolved. (See Figure 11.1). 1. Knights of Labor. The Knights of Labor was formed as a secret society in 1869 by Uriah Stephens. a) One major goal of the Knights was to eliminate the depersonalization of the worker that resulted from mass-production technology. b) Another goal was to improve the moral standards of both employees and society. c) Membership reached approximately 700,000 members by 1886. d) The Knights’ leaders concentrated so intently on social and economic change that they did not recognize the effects of technological change. e) The major reason for the demise of the Knights was the Haymarket riot of 1886. During a rally to pressure employers to reduce the number of hours in the work day, a bomb exploded, killing several police officers and civilians. The Knights were not directly implicated, but they quickly lost public favor. 2. American Federation of Labor. In 1886, several leaders of the Knights joined with independent craft unions to form the American Federation of Labor (AFL). a) Samuel Gompers, one of the AFL’s founders, became its first president. b) The AFL did not seek to change the existing business system, as the Knights had. Instead, its goal was to improve its members’ living standards within that system. c) Another major difference between the Knights and the AFL was in their positions regarding strikes. (1) A strike is a temporary work stoppage by employees, calculated to add force to their demands. (2) The AFL believed that striking was an effective labor weapon; the Knights did not favor the use of strikes. d) The AFL also believed that organized labor should play a major role in politics. 3. Industrial Workers of the World. The Industrial Workers of the World (IWW) was created in 1905 as a radical alternative to the AFL. a) Among its goals was the overthrow of capitalism. b) This radical stance prevented the IWW from gaining a large foothold. B. Evolution of Contemporary Labor Organizations. Between 1900 and 1920, the AFL continued to be the major force in organized labor. By 1920, its membership included 75 percent of all those who had joined unions. 1. Some unions within the AFL recognized the need to organize unskilled and semiskilled workers, and they began with the automotive and steel industries. 2. The unions they formed were industrial unions, organizations of both skilled and unskilled workers in a single industry. 3. Workers in the rubber, mining, newspaper, and communications industries were also organized into unions. Eventually, these unions left the AFL and formed the Congress of Industrial Organizations (CIO). 4. In the late 1930s, there was a major upswing in membership in the AFL, CIO, and independent unions. a) Strong union leadership, the development of new negotiating tactics, and favorable legislation combined to increase total union membership to 9 million in 1940. b) The CIO began to rival the AFL in size and influence. The AFL and CIO often clashed over which had the right to organize and represent particular groups of employees. 5. Since World War II, the labor scene has gone through a number of changes. a) During and after the war years, there was a downturn in public opinion regarding unions. b) Perhaps the most significant occurrence was the merger of the AFL and the CIO on December 5, 1955. The new organization, the AFL–CIO, had a combined membership of about 16 million workers. II. ORGANIZED LABOR TODAY. The power of unions to negotiate effectively with management comes from two sources. The first source is the unions’ membership. The second source is the group of laws that guarantee unions the right to negotiate and to regulate the negotiating process. A. Union Membership. At present, union members account for a relatively small portion of the American workforce. Approximately 11.8 percent of the nation’s workers belong to unions. Union membership is concentrated in a few industries and job categories, within which unions wield considerable power. 1. The AFL–CIO is still the largest union organization in this country with approximately 12 million members. 2. One of the largest union organizations not associated with the AFL–CIO is the Teamsters Union. The Teamsters were originally part of the AFL–CIO, but in 1957 they were expelled for corrupt and illegal practices. Current membership is approximately 1.4 million workers. 3. The United Steelworkers (USW) and the United Auto Workers (UAW) are two of the largest industrial unions. a) The USW membership has risen to over 1 million workers and is dominant in paper and forestry products, steel, aluminum, tire and rubber, mining, glass, chemicals, petroleum, and other basic resource industries. b) The UAW represents employees in the automobile industry and was originally part of the AFL–CIO, but it left the parent union—of its own accord—in 1968. Current membership in the UAW is about 376,000. The UAW rejoined the AFL–CIO in 1981. 4. The proportion of union members, relative to the size of the nation’s workforce, has declined over the last 30 years. (See Figure 11.1.) To a great extent, this decline in membership is the result of changing trends in business. a) Heavily unionized industries have either been decreasing in size or have not been growing as fast as nonunionized industries. b) Many firms have moved from the heavily unionized Northeast and Great Lakes regions to the less unionized southeast and southwest regions. c) The largest growth in employment is occurring in the service industries, and these industries are typically not unionized. d) Some U.S. companies have moved their manufacturing operations to other countries where less unionized labor is employed. 5. A recent study on union participation rates found a negative correlation between union participation and wage inequality. a) When unions were strong, they were able to exert a powerful influence over maintaining high wages. 6. The study found that the largest factor contributing to union decline has been the growth of jobs outside of traditionally unionized industries such as manufacturing and construction. a) It also found that, even in unionized industries, managers have increasingly grown opposed to union activity. B. Union-Management Partnerships. Through most of the 20th century, unions and management have been adversaries, but increasingly they are working together. They have come to realize that cooperation results in the kind of high–performance workplace and empowered workforce necessary to succeed in today’s highly competitive markets. 1. Union–management partnerships can be initiated by union leaders, employees, or management. a) Long-range strategic partnerships focus on sharing power for a whole range of workplace and business issues. They sometimes begin as limited ones and develop over time. b) Limited partnerships center on accomplishing one specific task or project. 2. Although strategic union–management partnerships vary, most of them have several characteristics: a) Strategic partnerships focus on developing cooperative relationships between unions and management instead of arguing over contractual rights. b) Partners work toward mutual gain, in which the organization becomes more competitive, employees are better off, and unions are stronger as a result of the partnership. c) Strategic partners engage in joint decision making on a broad array of issues including performance expectations, organizational structure, strategic alliances, new technology, pay and benefits, employee security and involvement, union–management roles, product development, and education and training. 3. Good labor–management relations can help deal with new and difficult labor issues as they develop, such as rising health care costs. a) The average union worker pays about 17 percent of his or her health care premiums compared with a non-union worker’s contribution of about 33 percent. b) Strong union–management partnerships will play a vital role in resolving health care issues. 4. Benefits of partnerships for management include lower costs, increased revenue, improved product quality, and greater customer satisfaction. 5. Potential benefits for workers include increased response to their needs, more decision-making opportunities, less supervision, more responsibility, and increased job security. 6. Potential benefits for unions include increased credibility and strength and increased membership. 7. Ford Motor Company has signed a union–management partnership agreement with the UAW. a) The partnership was created to increase the number of jobs and make Ford more competitive. It should result in better communication and improvement in quality performance. III. LABOR–MANAGEMENT LEGISLATION. Early efforts to organize labor were opposed by business and government. Gradually, the government began to correct this imbalance through the legislative process. A. Norris–LaGuardia Act. The first major piece of legislation to secure rights for unions, the Norris–LaGuardia Act of 1932, made it difficult for businesses to obtain court orders that banned strikes, picketing, or union membership drives. 1. Previously, courts had issued such orders readily as a means of curbing these activities. B. National Labor Relations Act. The National Labor Relations Act, also known as the Wagner Act, was passed by Congress in 1935. It established procedures by which employees decide whether they want to be represented by a union. 1. If workers choose to be represented, the law requires management to negotiate with union representatives. 2. The law forbids certain unfair labor practices on the part of management, such as firing or punishing workers because they were pro-union. 3. This act established the National Labor Relations Board (NLRB) to enforce the provisions of the law. The NLRB is concerned with: a) Overseeing the elections in which employees decide whether to be represented by a union. b) Investigating complaints lodged by unions or employees. C. Fair Labor Standards Act. In 1938, Congress enacted the Fair Labor Standards Act. One major provision permits the federal government to set a minimum wage. The act also requires that employees be paid at overtime rates for work in excess of 40 hours a week. Finally, it prohibits the use of child labor. D. Labor–Management Relations Act. The Labor–Management Relations Act, also known as the Taft–Hartley Act, was enacted by Congress in 1947 over President Harry Truman’s veto. 1. The objective of the Taft–Hartley Act is to provide a balance between union power and management authority. 2. The act specifies unfair labor practices that unions are forbidden to use, including: a) Refusal to bargain with management in good faith b) Charging excessive membership dues c) Harassing nonunion workers d) Using various means of coercion against employers 3. The act also gives management more rights during union organizing campaigns. 4. The act gives the U.S. president the power to obtain a temporary injunction to prevent or stop a strike that endangers the national health and safety. An injunction is a court order requiring a person or group either to perform some act or to refrain from performing some act. 5. The act authorizes states to enact laws to allow employees to work in a unionized firm without joining the union. Currently, 22 states (many in the south) have passed such legislation, called right-to-work laws. E. Landrum–Griffin Act. In the 1950s, Senate investigations and hearings exposed labor racketeering in unions and cases of bribery, extortion, and embezzlement among union leaders. Public pressure for reform resulted in the 1959 Landrum–Griffin Act. 1. The law was designed to regulate the internal functioning of labor unions. a) It requires unions to file annual reports with the U.S. Department of Labor regarding finances, elections, and various decisions made by union officers. b) The act also gives each union member the right to seek, nominate, and vote for each elected position in his or her union. c) It provides safeguards governing union funds and requires management and unions to report the lending of management funds to union officers, union members, or local unions. IV. THE UNIONIZATION PROCESS A. Why Some Employees Join Unions. Employees have a variety of reasons for wishing to start or join a union. 1. In many industries, union membership is so prevalent that new employees may feel compelled to join. 2. Another commonly cited reason is to combat alienation. Some employees who perform dull, repetitive jobs may perceive themselves as merely parts of a machine. 3. Another common reason is the perception that union membership increases job security. Unions actually have only limited ability to guarantee members’ jobs, but they can help increase job security by using seniority rules. 4. Employees may also join a union because of dissatisfaction with one or more elements of their jobs. 5. Some people join unions because of their personal background. 6. In some situations, employees must join a union to keep their jobs. a) Many unions try to require that all new employees join the union after a specified probationary period. b) Under the Taft–Hartley Act, states may pass right-to-work laws prohibiting this practice. B. Steps in Forming a Union. There are a number of steps involved in forming a union. (See Figure 11.2.) 1. Step 1 is the organizing campaign. The union may send organizers to the firm to stir interest, or employees themselves may decide they want a union and contact the union for organizing assistance. a) The organizing campaign can be quite emotional and may lead to conflict between employees and management. Teaching Tip: Use the role play “Confronting Union Possibilities” here. This activity can take up to 30 minutes. 2. At some point during the organizing campaign, employees are asked to sign authorization cards to indicate—in writing—their support for the union. (See Figure 11.3.) 3. If at least 30 percent of the eligible employees sign authorization cards, the organizers generally request that the firm recognize the union as the employees’ bargaining representative. Usually, the firm rejects this request, and a formal election is held to decide whether to have a union. a) The election usually involves secret ballots and is conducted by the NLRB. b) The outcome of the election is determined by a simple majority of eligible employees who choose to vote. 4. If the union obtains a majority in the election, it becomes the official bargaining agent for its members and the final step, NLRB certification, takes place. The union may immediately begin the process of negotiating a labor contract. 5. If the union is voted down, the NLRB will not allow another election for one year. 6. Several factors can complicate the unionization process. a) The bargaining unit, the specific group of employees the union is to represent, must be defined. b) Another issue is jurisdiction, the right of a particular union to organize particular workers. When jurisdictions overlap or are unclear, employees may decide who will represent them. C. The Role of the NLRB. Generally, the NLRB is responsible for overseeing the organizing campaign, conducting the election (if one is warranted), and certifying the results. 1. If either the employer or the union uses underhanded techniques or distorts the truth, the NLRB can stop the questionable behavior, postpone the election, or set aside the results of an election. 2. The NLRB usually conducts the election within 45 days after the organizers submit the required number of signed authorization cards. 3. Certification of the election involves counting the votes and considering challenges to the election. a) After the election results are announced, management and union organizers have five days in which to challenge the election. b) The basis for a challenge might be improper conduct prior to the election or participation by an ineligible voter. c) After considering any challenges, the NLRB passes final judgment on the election results. Teaching Tip: One of the most recent legal challenges to an employer’s use of information gleaned from social media sites comes out of the National Labor Relations Board, Region 34 (NLRB). On October 27, 2010, the NLRB issued a complaint against American Medical Response of Connecticut, Inc. (AMR), alleging that this ambulance service unlawfully terminated an employee after she posted disparaging remarks about her supervisor on Facebook. Ask your students how they feel about the use of social networking relative to the workplace. V. COLLECTIVE BARGAINING. Collective bargaining is the process of negotiating a labor contract with management. A. The First Contract. To prepare for its first contract session with management, the negotiating committee decides on its position on the various contract issues and determines the issues most important to the union’s members. Then, the union informs management that it is ready to begin negotiations. 1. Negotiations are sometimes held on company premises, but it is more common for the parties to meet away from the workplace. 2. The union is typically represented by the negotiating committee and one or more officials from the regional or national union office. 3. The firm is normally represented by managers from the industrial-relations, operations, human resources, and legal departments. 4. The union normally presents its contract demands first. Management then responds to the union’s demands, often with a counterproposal. 5. Each side clearly tries to “get its own way” as much as possible, but each also recognizes the need for compromise. If an agreement cannot be reached, the union may strike. 6. The final step in collective bargaining is ratification, approval of the contract by a vote of the union membership. B. Later Contracts. A labor contract may cover a period of one to three years or more, but every contract has an expiration date. 1. As the date approaches, both management and the union begin to prepare for new contract negotiations. The process may be much thornier than the first negotiation. a) The union and the firm have “lived with each other” for several years and issues may have arisen that each side sees as being of critical importance. b) Each side has also learned from earlier negotiations; each party may take a harder line on certain issues and be less willing to compromise. 2. The contract deadline also produces tension. As the expiration date of the existing contract draws near, each side feels pressure to reach an agreement. 3. At some point during negotiations, union leaders are likely to take a strike vote that reveals whether union members are willing to strike if the new contract is not negotiated before the old one expires. a) In almost all cases, the vote supports a strike, and the threat of a strike may add to pressure mounting on both sides. Teaching Tip: Use the “Negotiation Application” exercise here. This exercise will take the entire class period. VI. UNION–MANAGEMENT CONTRACT ISSUES. Many diverse issues are negotiated by unions and management and are made a part of their labor contract. A. Employee Pay. An area of bargaining that is central to union–management relations is employee pay. 1. Forms of Pay. The primary form of pay is direct compensation—the wage or salary and benefits that an employee receives in exchange for his or her contribution to the organization. a) Because the range of benefits and their costs have escalated, this element of pay has become increasingly important and complex. b) Health, life, disability, and dental insurance are important benefits that unions try to obtain for their members. c) Deferred compensation, in the form of pension or retirement programs, is also a common focal point. d) Other benefits commonly dealt with in the bargaining process include paid vacation time, holidays, and liberal sick-leave policies. 2. Magnitude of Pay. Of considerable importance is the magnitude, or amount, of pay employees will receive as both direct and indirect compensation. a) The union attempts to ensure that pay is equitable with that received by other employees, both locally and nationally, in the same or similar industries. b) The union also attempts to include in the contract clauses that provide pay increases over the life of the agreement, such as a cost-of-living clause. This clause ties periodic pay increases to increases in the cost of living, as defined by various economic statistics or indicators. c) The magnitude of pay is also affected by the organization’s ability to pay. If the firm has posted large profits, the union may expect large pay increases. If the firm has not been profitable, the union may agree to smaller pay hikes or even a pay freeze. d) Bargaining with regard to magnitude also revolves around employee benefits. Unions seek a wide range of benefits, entirely or largely paid for by the firm. Management may be willing to offer the benefits package but may want its employees to bear most of the cost. 3. Pay Determinants. Negotiators also address the question of how individual pay will be determined. a) Management wants to tie wages to each employee’s productivity. b) Unions feel that this arrangement can create unnecessary competition among employees. They generally argue that employees should be paid—at least in part—according to seniority. Seniority is the length of time an employee has worked for the organization. c) Determinants regarding benefits are also negotiated. For example, management may want to provide profit-sharing benefits only to employees who have worked for the firm for a specified number of years; the union may want benefits provided to all employees. B. Working Hours. Of special interest relative to working hours is overtime. Federal law defines overtime as time worked in excess of 40 hours in one week. It specifies that overtime pay must be at least one and one-half times the normal hourly wage. 1. Unions may attempt to negotiate overtime rates for all hours worked beyond eight hours in a single day and attempt to obtain higher overtime rates for weekend or holiday work. 2. Still another issue is an upper limit to overtime, beyond which employees can refuse to work. 3. In firms with two or more work shifts, workers on less desirable shifts are paid a premium for their time. Both the premium amount and the manner in which workers are chosen for (or choose) particular shifts are negotiable issues. Teaching Tip: Consider using the “So You Think Collective Bargaining Is Easy?” exercise here. C. Security. Security covers the job security of the individual workers and the security of the union as the bargaining representative of the firm’s employees. 1. Job security is protection against the loss of employment. In the typical labor contract, job security is based on seniority. 2. Union security is protection of the union’s position as the employees’ bargaining agent. Unions strive for as much security as possible, but management sees this as an erosion of its control. a) The greater the ratio of union employees to non-union employees, the more secure the union is, so unions attempt to establish various union-membership conditions. b) The most restrictive is the closed shop, in which workers must join the union before they are hired. This condition was outlawed by the Taft–Hartley Act. c) In the union shop, new employees must join the union after a specified probationary period. d) In the agency shop, employees can choose not to join the union but must pay dues to the union anyway. e) In the maintenance shop, an employee who joins the union must remain a union member for as long as he or she is employed by the firm. Teaching Tip: As of 2012, twenty-two states have right-to-work laws, which allow employees to decide for themselves whether or not they wish to join or financially support a union without concern for job loss. Consider using the “Right-to-Work Debate” group exercise here. Students watch two brief videos (one in favor of the legislation and one opposed to the legislation) and they are then asked if they support or oppose the legislation. D. Management Rights. Of particular interest to the firm are those rights and privileges to be retained by management. 1. The firm wants as much control as possible over whom it hires, how work is scheduled, and how discipline is handled; the union wants some control over these and all other matters affecting its members. 2. Some unions are making progress toward their goal of playing a more direct role in corporate governance. 3. For example, Goldman Sachs’ CEO agreed to a union deal with the American Federation of State, County and Municipal Employees (AFSCME) that creates independent oversight of the firm and its board but allows the CEO to retain much of his previous power. E. Grievance Procedures. A grievance procedure is a formally established course of action for resolving employee complaints against management. (See Figure 11.4.) 1. Original Grievance. The process begins with an employee who believes that he or she has been treated unfairly, in violation of the labor contract. a) The employee then explains his or her grievance to the shop steward, an employee who is elected by union members to serve as their representative. b) The employee and the steward then discuss the grievance with the employee’s immediate supervisor. c) Both the grievance and the supervisor’s response are put in writing. 2. Broader Discussion. In most cases, the problem is resolved during the initial discussion with the supervisor. If it is not, a second discussion is held that includes the original parties, a representative from the union’s grievance committee, and the firm’s industrial-relations representative. A record of the meeting is kept. 3. Full-Scale Discussion. If the grievance is still not resolved, a full-scale discussion is arranged. This discussion includes everyone involved in the broadened discussion, as well as all remaining members of the union’s grievance committee and another high-level manager. 4. Arbitration. The final step in almost all grievance procedures is arbitration, in which a neutral third party hears the grievance and renders a binding decision. a) Each side presents its case and can cross-examine witnesses. b) The arbitrator will also review written documentation of all previous steps in the grievance procedure. c) Both sides may then give summary arguments and/or present briefs. d) Based on the evidence, the arbitrator decides if the labor contract has been violated and proposes a remedy; he cannot make any decision that would add to, detract from, or modify the terms of the contract. e) If it can be proved that the arbitrator exceeded the scope of their authority, either party may appeal the decision to the courts. VII. UNION AND MANAGEMENT NEGOTIATING TOOLS A. Strikes. Unions strike only in a very few instances, and it is almost always after an existing labor contract has expired. 1. The major objective of a strike is to put financial pressure on the company to encourage management to meet union demands. 2. When union members go out on strike, it is usually because negotiations seem to be stalled. 3. A strike is a work stoppage; employees do not report for work. 4. Striking workers may also engage in picketing, marching in front of their place of employment with signs informing the public that a strike is in progress. Picketing is used in the hope that: a) The public will be sympathetic to the strikers and will not patronize the firm. b) No striking employees of the firm will honor the picket line and not report to work. c) Members of other unions will not cross the picket line. 5. Strikes are expensive to both the firm and the strikers. a) The firm loses business and earnings during the strike. b) Striking workers lose the wages they would have earned if they had been at their jobs. c) Larger unions put a portion of members’ dues into a strike fund that is used to provide financial support for striking union members. 6. Workers may go out on a wildcat strike, a strike that has not been approved by the union. a) In these cases, union leaders will typically work with management to convince the strikers to return to work. B. Slowdowns and Boycotts. Most labor contracts prohibit strikes during the life of the contract. However, workers can strike while the contract is in force if members believe management has violated its terms. 1. Workers may engage in a slowdown, a technique whereby workers report to their jobs but work at a pace slower than normal. 2. A boycott is a refusal to do business with a particular firm. Unions bring this strategy to bear by urging members and sympathizers not to purchase the products of a firm with which they are having a dispute. Teaching Tip: Use the “To Strike or Not to Strike!” group exercise here. It will take approximately 10 to 15 minutes and can be followed up with discussion. a) A primary boycott is aimed at the employer directly involved in the dispute. b) A secondary boycott is aimed at a firm doing business with the employer and is prohibited by the Taft–Hartley Act. C. Lockouts and Strikebreakers 1. Management’s most potent weapon is the lockout. In a lockout, the firm refuses to allow employees to enter the workplace. a) Lockouts are rarely used because they are expensive for both the firm and its employees. 2. Management may also attempt to hire strikebreakers—nonunion employees who perform the jobs of striking union members. D. Mediation and Arbitration. More productive techniques increasingly being used to settle labor disputes include mediation and arbitration. 1. These techniques may come into play before a labor contract expires or after some other strategy, such as a strike, has proved ineffective. 2. Mediation is the use of a neutral third party to assist management and the union during their negotiations. a) The mediator listens to both sides, trying to find common ground for agreement and facilitate communication and keep the negotiations moving. b) The mediator’s goal is to get the two sides to settle their differences at the bargaining table. 3. The arbitration step is a formal hearing, as in the final step in a grievance procedure. a) Arbitration may be used in contract negotiations (perhaps after mediation attempts) when the two sides cannot agree on one or more issues. b) The arbitrator hears the formal positions of both parties on outstanding, unresolved issues and makes a decision on the possible resolution of the issues. c) If both sides have agreed in advance that the arbitration will be binding, they must accept the arbitrator’s decision. CHAPTER 12 Building Customer Relationships Through Effective Marketing 12.1 A WORD FROM THE AUTHORS This chapter introduces marketing as a process that facilitates exchanges of goods, services, and ideas among individuals and organizations. To form utility (included in our discussion of production in Chapter 8), we now add place, time, and possession utility—direct creations of the marketing process. We also trace the evolution of the marketing concept and outline the steps in its implementation. Following a description of market classifications, we explore the development of marketing strategies. The marketing mix is covered briefly in this section; the four elements of the marketing mix (product, price, distribution, and promotion) are covered in greater detail in Chapters 13, 14, and 15. We explain how the marketing environment affects strategic market planning. We then examine the major components of a marketing plan. We consider several tools for effective marketing planning, including market measurements, sales forecasts, marketing information systems, marketing research, and information technologies. Finally, we focus on an analysis of buying behavior. 12.2 TRANSITION GUIDE New in Chapter 12: Building Customer Relationships Through Effective Marketing • A new Inside Business feature describes how Nespresso sells single-serve coffee to a competitive market. • A new example about how Sparks and Honey is using the Internet as a form of marketing has been added to the section “Managing Customer Relationships.” • A new Ethical Success or Failure? feature, “The Customer Is Always Right—or Not,” describes customers who are always dissatisfied. • A new example about how Captain D’s revamped its marketing concept has been added to the section “The Marketing Concept.” • The Sustaining the Planet feature, “California’s Recycle Store,” has been deleted. • A new example about high-end clothing designers targeting multiple markets has been added to the section “Target Market Selection and Evaluation.” • The Ethical Challenges & Successful Solutions feature, “Limits to Online Privacy?,” has been deleted. • A new example and updated statistics have been added to the section “Market Segmentation Approach.” • New examples have been added to the section “Creating a Marketing Mix.” • A new Social Media feature, “Online Videos Add Vitality to Marketing Mix,” describes how online videos add vitality to the marketing mix. • A new example about Wendy’s revamping its marketing plan has been added to the “Developing a Marketing Plan” section. • A new example about IBM using sales forecasting has been added to the section “Market Measurement and Sales Forecasting.” • The Spotlight feature, “When You Are 12–17 Years Old, What Is a Necessity?,” has been deleted. • The Career Success feature, “Marketing Yourself via Webcam,” has been deleted. • New examples have been added to the section “Marketing Research.” • Updated statistics have been added to the section “Consumer Buying Behavior.” • A new Going for Success feature, “Using Neuroscience for Marketing Research,” describes how companies are using neuroscience to understand consumer behavior. • A new example about Experian partnering with Fed bid has been added to the section “Business Buying Behavior.” • A new Return to Inside Business about Nespresso has been provided at the end of the chapter. • A new Video Case 12.1, “Raleigh Wheels Out Steel Bicycle Marketing,” has been added. • The Building Skills for Career Success section contains a new Social Media Exercise. • The Exploring the Internet feature in Building Skills for Career Success has been deleted. 12.3 QUICK REFERENCE GUIDE Instructor Resource Location Transition Guide IM, pp. 426–427 Learning Objectives Textbook, p. 330; IM, p. 429 Brief Chapter Outline IM, pp. 429–430 Comprehensive Lecture Outline IM, pp. 430–440 At Issue: Should companies be banned from target marketing fast food to children? IM, p. 434 Ethical Success or Failure? The Customer Is Always Right—Or Not Textbook, p. 333 Social Media Online Videos Add Vitality to Marketing Mix Textbook, p. 342 Going for Success Using Neuroscience for Marketing Research Textbook, p. 346 Inside Business At $62 a Pound, Single-Serve Coffee Is Hot! Textbook, p. 331 Return to Inside Business Textbook, p. 350 Questions and Suggested Answers, IM, p. 441 Marginal Key Terms List Textbook, p. 352 Review Questions Textbook, p. 352 Questions and Suggested Answers, IM, pp. 441–444 Discussion Questions Textbook, p. 352 Questions and Suggested Answers, IM, pp. 444–445 Video Case 12.1 (Raleigh Wheels Out Steel Bicycle Marketing) and Questions Textbook, pp. 352–353 Questions and Suggested Answers, IM, p. 445 Case 12.2 (PepsiCo Tailors Tastes to Tantalize Tastebuds of Target Markets) and Questions Textbook, pp. 353–354 Questions and Suggested Answers, IM, p. 446 Building Skills for Career Success Textbook, pp. 354–355 Suggested Answers, IM, pp. 446–448 IM Quiz I & Quiz II IM, pp. 449–451 Answers, IM, pp. 451–452 Classroom Exercises IM, pp. 452–454 12.4 LEARNING OBJECTIVES After studying this chapter, students should be able to: 1. Understand the meaning of marketing and the importance of management of customer relationships. 2. Explain how marketing adds value by creating several forms of utility. 3. Trace the development of the marketing concept and understand how it is implemented. 4. Understand what markets are and how they are classified. 5. Identify the four elements of the marketing mix and be aware of their importance in developing a marketing strategy. 6. Explain how the marketing environment affects strategic market planning. 7. Understand the major components of a marketing plan. 8. Describe how market measurement and sales forecasting are used. 9. Distinguish between a marketing information system and marketing research. 10. Identify the major steps in the consumer buying decision process and the sets of factors that may influence this process. 12.5 BRIEF CHAPTER OUTLINE VIII. Managing Customer Relationships II. Utility: The Value Added by Marketing IXI. The Marketing Concept A. Evolution of the Marketing Concept B. Implementing the Marketing Concept IV. Markets and Their Classification V. Developing Marketing Strategies A. Target Market Selection and Evaluation 1. Undifferentiated Approach 2. Market Segmentation Approach B. Creating a Marketing Mix VI. Marketing Strategy and the Marketing Environment VII. Developing a Marketing Plan VIII. Market Measurement and Sales Forecasting IX. Marketing Information A. Marketing Information Systems B. Marketing Research C. Using Technology to Gather and Analyze Marketing Information X. Types of Buying Behavior A. Consumer Buying Behavior B. Business Buying Behavior 12.6 COMPREHENSIVE LECTURE OUTLINE Marketing encompasses a diverse set of decisions and activities performed by individuals and by both business and nonbusiness organizations. The American Marketing Association defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” The marketing process involves eight major functions and numerous related activities. (See Table 12.1.) I. MANAGING CUSTOMER RELATIONSHIPS. The term relationship marketing refers to “marketing decisions and activities focused on achieving long-term, satisfying relationships with customers.” Relationship marketing continually deepens the buyer’s trust, which, as the customer’s loyalty grows, increases a company’s understanding of the customer’s needs and desires. By responding to these needs and wants, the marketer can increase the value it provides. Eventually, this interaction becomes a solid relationship that allows for cooperation and mutual trust. Customer relationship management (CRM) is the process of using information about customers to create marketing strategies that develop and sustain desirable customer relationships. Managing customer relationships requires identifying patterns of buying behavior and using this information to focus on the most promising and profitable customers. Companies must be sensitive to customers’ requirements and desires and establish communication to build customers’ trust and loyalty. This involves determining how much the customer will spend over his or her lifetime. The customer lifetime value is a measure of a customer’s worth (sales minus costs) to a business during one’s lifetime. There are intangible benefits to retaining lifetime-value customers, such as their ability to provide feedback to a company and referring new customers of similar value. In general, when marketers focus on customers chosen for their lifetime value, they earn higher profits in future periods than when they focus on customers selected for other reasons. Because the loss of a potential lifetime customer can result in lower profits, managing customer relationships has become a major focus of marketers. II. UTILITY: THE VALUE ADDED BY MARKETING. Utility is the ability of a good or service to satisfy a human need. There are four kinds of utility. (See Figure 12.1.) The first is form utility. Form utility is created by converting production inputs into finished products. The three kinds of utility that are directly created by marketing are place, time, and possession utility. Place utility is created by making a product available at a location where customers wish to purchase it. Time utility is created by making a product available when customers wish to purchase it. Possession utility is created by transferring title (or ownership) of a product to the buyer. Along with the title to its product, the seller transfers the right to use that product to satisfy a need. Teaching Tip: Ask students to comment on their experiences with each type of utility. For place utility, ask them if they have ever passed up a restaurant, coffee shop, or other establishment because all the parking spots were full or it was too much of a hassle to get there. Follow up with the other utilities. Place, time, and possession utility have real value in terms of both money and convenience. This value is created and added to goods and services through a wide variety of marketing activities. Overall, these marketing activities account for about half of every dollar spent by consumers. Place, time, and possession utility are only the most fundamental application of marketing activities; in recent years, these have been influenced by a broad business philosophy known as the marketing concept. Teaching Tip: Ask students if they can think of any circumstances under which organizations should not satisfy consumers’ needs. For example, should people be encouraged to smoke, eat high-fat foods, or use items, however desirable, that pollute the environment? III. THE MARKETING CONCEPT. The marketing concept is a business philosophy that a firm should provide goods and services that satisfy customers’ needs through a coordinated set of attributes that allows the firm to achieve its objectives. Initially, the firm must communicate with potential customers to assess their product needs. Then it must develop a good or service to satisfy those needs. Finally, it must continue to seek ways to provide customer satisfaction. Providing customer satisfaction is a major element of the marketing concept. A. Evolution of the Marketing Concept 1. From the start of the Industrial Revolution until the early 20th century, business had a strong production orientation, in which emphasis was placed on increased output and production efficiency. a) Consumer demand for manufactured products was so great that manufacturers could almost bank on selling everything they produced. b) Marketing was limited to taking orders and distributing finished goods. 2. In the 1920s, production caught up with and began to exceed demand. Now producers had to direct effort toward selling goods, rather than just producing goods that consumers readily bought. a) This new sales orientation was characterized by increased advertising, enlarged sales forces, and, occasionally, high-pressure selling techniques. b) Manufacturers produced the goods they expected consumers to want, and marketing consisted primarily of promoting products through personal selling and advertising. 3. During the early 1950s, businesspeople started to realize that even enormous advertising expenditures and proven sales techniques were not enough. a) Marketers realized that the best approach was to adopt a customer orientation—in other words, they had to first determine what customers need and then develop goods to fill those particular needs. (See Table 12.2.) b) All functional areas—research and development, production, finance, human resources and, of course, marketing—are viewed as playing a role in providing customer satisfaction. B. Implementing the Marketing Concept 1. To implement the marketing concept, a firm must first obtain information about its present and potential customers. a) The firm must determine not only what customers’ needs are but also how well those needs are being satisfied by products currently on the market. b) It must ascertain how its products might be improved and what opinions customers have of the firm and its marketing efforts. 2. The firm must then use this information to pinpoint the specific needs and potential customers toward which it will direct its marketing activities and resources. 3. Next, the firm must mobilize its marketing resources to: a) provide a product that will satisfy its customers. b) price the product at a level that is acceptable to buyers and that will yield profit. c) promote the product so that potential customers will be aware of its existence and its ability to satisfy their needs. d) ensure that the product is distributed so that it is available to customers where and when needed. Teaching Tip: Ask students what product or products they have recently purchased that best satisfied a need. This could be a cell phone, computer, or something as small as a pen or pencil. Follow up with a discussion of the remaining elements of the marketing mix. 4. Finally, the firm must again obtain marketing information—this time regarding the effectiveness of its efforts. a) The firm must be ready to modify any or all of its marketing activities based on information about its customers and competitors. IV. MARKETS AND THEIR CLASSIFICATION. A market is a group of individuals and/or organizations who have needs for products in a given category and have the ability, willingness, and authority to purchase such products. Markets are broadly classified as consumer or business-to-business markets. Consumer markets consist of purchasers and/or household members who intend to consume or benefit from the purchased products and who do not buy products to make a profit. Business-to-business markets, also called industrial markets, are grouped broadly into producer, reseller, governmental, and institutional categories. • Producer markets consist of individuals and business organizations that buy certain products to use in the manufacture of other products. • Reseller markets consist of intermediaries such as wholesalers and retailers that buy finished products and sell them for a profit. • Governmental markets consist of federal, state, county, and local governments. They buy goods and services to maintain internal operations and to provide citizens with products such as highways or education. • Institutional markets include churches, not-for-profit private schools and hospitals, civic clubs, fraternities and sororities, charitable organizations, and foundations. V. DEVELOPING MARKETING STRATEGIES. A marketing strategy is a plan that will enable an organization to make the best use of its resources and advantages to meet its objectives. A marketing strategy consists of two elements: (1) the selection and analysis of a target market, and (2) the creation and maintenance of an appropriate marketing mix, a combination of product, price, distribution, and promotion developed to satisfy a particular target market. A. Target Market Selection and Evaluation. A target market is a group of individuals, organizations, or both, for which a firm develops and maintains a marketing mix suitable for the specific needs and preferences of that group. In selecting a target market, marketing managers examine potential markets for their possible effects on the firm’s sales, costs, and profits. They attempt to determine whether the organization has the resources to meet the needs of the target market and whether satisfying these needs is consistent with the firm’s overall objectives. They also analyze the strengths and weaknesses of competitors already marketing to people in this target market. Marketing managers may define a target market as a sizeable number of people or a relatively small group. Teaching Tip: Use the “Who’s Your Segment?” group exercise here. This exercise takes 10 to 15 minutes. 1. Undifferentiated Approach. When a company designs a single marketing mix and directs it at the entire market for a particular product, it is using an undifferentiated approach. (See Figure 12.2.) a) This approach assumes that individual customers for a specific kind of product have similar needs, so the organization can satisfy most customers with a single marketing mix. b) This single marketing mix consists of one type of product with little or no variation, one price, one promotional program aimed at everyone, and one distribution system to reach all customers in the total market. c) Products that can be marketed successfully with the undifferentiated approach include staple food items, such as sugar, salt, and certain kinds of farm produce. d) An undifferentiated approach is useful only in a limited number of situations because buyers have different needs for most product categories. 2. Market Segmentation Approach. A market segment is a group of individuals or organizations, within a market, that share one or more common characteristics. The process of dividing a market into segments is called market segmentation. There are two types of market segmentation approaches: concentrated and differentiated. (See Figure 12.2.) a) When an organization uses a concentrated market segment, a single marketing mix is directed at a single market segment. b) If differentiated market segmentation is used, multiple marketing mixes are focused on multiple market segments. c) Marketers used a wide variety of segmentation bases. Bases most commonly applied to consumer markets are shown in Table 12.3. B. Creating a Marketing Mix. A business controls four important elements of marketing that are combined to reach its target market: the product itself, the price of the product, the means chosen for its distribution and the promotion of the product. When combined, these four elements form a marketing mix. (See Figure 12.3.) 1. A firm can vary its marketing mix by changing any one or more of these ingredients. Thus, a firm may use one marketing mix to reach one target market and a second, somewhat different, marketing mix to reach another target market. 2. The product ingredient of the marketing mix includes decisions about the product’s design, brand name, packaging, warranties, and the like. 3. The pricing ingredient is concerned with both base prices and discounts of various kinds. 4. The distribution ingredient involves not only transportation and storage but also the selection of intermediaries, how many levels of intermediaries, and whether the product should be distributed widely or restricted to a few specialized outlets in each area. 5. The promotion ingredient focuses on providing information to target markets. The major forms of promotion include advertising, personal selling, sales promotion, and public relations. 6. The ingredients of the marketing mix are controllable elements that the firm can vary to suit its organizational goals, marketing goals, and target markets. Teaching Tip: The five products in the “Describe the Market!” exercise can be used to generate a list of marketing mix elements as well. For example, how should the gourmet cat food be priced, where should it be sold, and how should it be promoted? VI. Marketing Strategy and the Marketing Environment. The marketing mix consists of elements that the firm controls and uses to reach its target market. The firm’s marketing activities are also affected by a number of external—and generally uncontrollable—forces. These forces influence decisions about marketing-mix ingredients. As Figure 12.3 illustrates, six types of forces make up the external marketing environment. A. Economic forces—the effects of economic conditions on customers’ ability and willingness to buy. B. Sociocultural forces—influences in a society and its culture that result in changes in attitudes, beliefs, norms, customs, and lifestyles. C. Political forces—influences that arise through the actions of elected and appointed officials. D. Competitive forces—the actions of competitors, who are in the process of implementing their own marketing plans. E. Legal and regulatory forces—laws that protect consumers and competition and government regulations that affect marketing. F. Technological forces—technological changes that can create new marketing opportunities and can cause products to become obsolete almost overnight. VII. DEVELOPING A MARKETING PLAN. A marketing plan is a written document that specifies the resources, objectives, marketing strategy, and implementation and control efforts an organization can use in marketing a specific product or product group. Marketing plans vary with respect to the time period involved. Short-range plans cover one year or less, medium-range plans cover one to five years, and long-range plans cover periods of more than five years. Developing a clear, well-written marketing plan and updating it frequently is important for several reasons: • It is used for communication among the firm’s employees. • It covers the assignment of responsibilities, tasks, and schedules for implementation. • It specifies how resources are to be allocated to achieve marketing objectives. • It helps marketing managers monitor and evaluate the performance of the marketing strategy. The major components of a marketing plan are shown in Table 12.4. VIII. MARKET MEASUREMENT AND SALES FORECASTING. Measuring the sales potential for specific types of market segments helps an organization make some important decisions, such as the feasibility of entering new segments. The organization can also decide how best to allocate its marketing resources and activities among market segments in which it is already active. All such measurements and estimates should identify the relevant time frame. As with marketing plans, short-range estimates are for less than one year, medium-range estimates are for one to five years, and long-range estimates are for more than five years. The estimates should also define the geographic boundaries of the forecast. Finally, analysts should indicate whether their estimates are for a specific product item, a product line, or an entire product category. A sales forecast is an estimate of the amount of a product that the organization expects to sell during a certain period of time, based on a specified level of marketing effort. Managers rely on sales forecasts when they purchase raw materials, schedule production, secure financial resources, etc. Because the accuracy of a sales forecast is so important, organizations often use several sales forecasting methods, including executive judgments, surveys of buyers or sales personnel, time series analyses, correlation analyses, and market tests. The specific methods used depend on the cost involved, type of product, characteristics of the market, time span of the forecast, purposes for which the forecast is used, stability of historical sales data, availability of the required information, and expertise of forecasters. A number of companies also utilize sales forecasting software to help with predictions. IX. MARKETING INFORMATION. A wealth of marketing information is obtainable. There are two general ways to obtain it: through a marketing information system and through marketing research. A. Marketing Information Systems. A marketing information system is a framework for managing marketing information that is gathered continually from internal and external sources. 1. Most systems are computer based because of the amount of data the system must accept, store, sort, and retrieve. 2. Continual collection of data is essential if the system is to incorporate the most up-to-date information. 3. Data from internal sources include sales figures, product and marketing costs, inventory levels, and activities of the sales force. 4. Data from external sources relate to the firm’s suppliers, intermediaries, and customers; competitors’ marketing activities; and economic conditions. 5. Both the information outputs and their form depend on the requirements of the personnel in the firm. B. Marketing Research. Marketing research is the process of systematically gathering, recording, and analyzing data concerning a particular marketing problem. 1. Marketing research is used in specific situations to obtain information that is not otherwise available to decision makers. 2. A six-step procedure for conducting marketing research is given in Table 12.5. C. Using Technology to Gather and Analyze Marketing Information. Technology is making information for marketing decisions increasingly accessible. Firms can track the purchase behavior of customers and better determine what they want. All of this changes the nature of marketing. 1. Integration of telecommunications with computing technology has provided marketers access to accurate and timely information about customers, competitors, industry forecasts, and business trends. 2. A database is a collection of information arranged for easy access and retrieval. a) Many marketers use commercial databases such as LEXIS-NEXIS to obtain useful information for marketing decisions. b) The Internet has made available a great deal of information that used to be obtainable only from companies specializing in producing commercial databases, but sometimes firms need to access these databases. c) Information provided by a single firm on household demographics, purchases, television viewing behavior, and responses to promotions is called “single-source data.” 3. Online information services offer subscribers access to e mail, Web sites, files for downloading, news, databases, and research materials. 4. The Internet has evolved as a powerful communication medium, linking customers and companies around the world via computer networks with e mail, forums, Web pages, and more. 5. Table 12.6 contains a variety of sources of secondary information, which is existing information that has been gathered by other organizations including government sources, trade associations, general publications, news sources, and corporate information. Many of these sources are available through Web sites. 6. Many companies have begun using various social media outlets to solicit feedback from customers on the company’s existing or upcoming products. However, a risk of being involved in social media is exposing your company to unwanted or negative information from the general public. Nevertheless, these comments need to be regarded as useful and viable information. Customer complaints, if handled correctly, can be an invaluable source of data. Teaching Tip: Use the “Neuromarketing” group exercise here. This exercise takes 10 to 15 minutes. X. TYPES OF BUYING BEHAVIOR. Buying behavior may be defined as the decisions and actions of people involved in buying and using products. Consumer buying behavior refers to the purchasing of products for personal or household use, not for business purposes. Business buying behavior is the purchasing of products by producers, resellers, governmental units, and institutions. A. Consumer Buying Behavior. Consumers’ buying behaviors differ when they buy different types of products. 1. The buyer uses limited decision making for purchases made occasionally or when more information is needed about an unknown product in a well-known product category. 2. When buying an unfamiliar, expensive item or one that is seldom purchased, the consumer engages in extended decision making. 3. Increasingly, consumers are empowered by information found on the Internet that enables them to compare prices and read views before going into a store. 4. A person deciding on a purchase goes through some or all of the steps shown in Figure 12.4. a) First, the consumer acknowledges that a problem exists, such as the lack of a product or service that is desired or needed. b) Then the buyer looks for information—brand names, product characteristics, warranties, and other features. c) The buyer then weighs the various alternatives and finally makes a choice and acquires the item. d) In the after-purchase stage, the consumer evaluates the suitability of the product, and this will affect future purchases. 5. The buying process is influenced by situational factors (physical surroundings, social surroundings, time, purchase reason, and buyer’s mood and condition), psychological factors (perception, motives, learning, attitudes, and personality), and social factors (family, roles, peer groups, social class, culture, and subculture). Teaching Tip: Ask students to compare which products cause them to spend significant amounts of time and energy before they purchase them and which ones they purchase quickly without any thought. 6. Consumer buying behavior is also affected by ability to buy or buying power, which is largely determined by income. However, not all income is available for spending. Marketers consider income in three different ways: a) Personal income is the income an individual receives from all sources less the Social Security taxes the individual must pay. Teaching Tip: Use the “Consumer Buying Decision Process” group exercise here. This exercise asks students to examine their buying decision process in terms of enrolling in college. b) Disposable income is personal income less all additional personal taxes. These taxes include income, estate, gift, and property taxes levied by local, state, and federal governments. c) Discretionary income is disposable income less savings and expenditures on food, clothing, and housing. Discretionary income is of particular interest to marketers because consumers have the most choice in spending it. B. Business Buying Behavior. Business buyers consider a product’s quality, its price, and the service provided by suppliers. 1. Business buyers are usually better informed than consumers about products and generally buy in larger quantities. 2. A committee or group of people, rather than single individuals, often decides on purchases. 3. Business buying occurs through description, inspection, sampling, or negotiation. Instructor Manual for Business William M. Pride, Robert J. Hughes, Jack R. Kapoor 9781133595854, 9780538478083, 9781285095158, 9781285555485, 9781133936671, 9781305037083
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