Marketing Summary
Week 1 (1, 2, 3, 4, 20 till pg. 601)
1. Defining Marketing for the 21st Century
Marketing is 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.Marketing management is the art and science of choosing
target markets and getting, keeping, and growing customers through
creating, delivering, and communicating superior customer
value.
Note: A marketer is someone who seeks a response, a purchase, a
vote, a donation from another party, called the prospect.
There are 8 demand states that are possible:1) Negative demand -
Consumers dislike the product and may even pay to avoid it.2)
Nonexistent demand - Consumers may be unaware of or uninterested in
the product.3) Latent demand - Consumers may share a strong need
that cannot be satisfied by an existing product. 4) Declining
demand - Consumers begin to buy the product less frequently or not
at all.5) Irregular demand - Consumer purchases vary on seasonal,
monthly, weekly, daily, or even hourly basis.6) Full demand -
Consumers are adequately buying all products put into the
marketplace.7) Overfall demand - More consumers would like to buy
the product than can be satisfied.8) Unwholesome demand - Consumers
may be attracted to products that have undesirable social
consequences. In all of the above marketers need to determine a
plan of action to shift demand to a more desired state.
Marketplace is physical, such as a store you shop in.
Marketspace is digital, as when you shop on the Internet.
Metamarket describe a cluster of complementary products and
services closely related in the minds of consumers, but spread
across a diverse set of industries. (Ex. Automobile metamarket
where there are cars, insurances, websites, mechanics etc.).
There are five types of needs for customers:1) Stated needs the
customer wants an expensive car2) Real needs the customer wants a
car whose operating cost, not initial price, is low.3) Unstated
needs the customer expects good service from the dealer4) Delight
needs the customer would like the dealer to include an onboard GPS
navigation system.5) Secret needs the customer wants friends to see
him or her as a savvy consumer.Offerings & Brands: Value
proposition is a set of benefits that satisfy the needs that are
addressed by the companies towards the customers. (ex. Apple is
telling me that I might need a more HD screen and I need it).
In the new marketing environment societal forces have created
new marketing behaviors, opportunities, and challenges: Network
information technology Globalization Deregulation (less laws in
order for more competition) Privatization (increases efficiency)
Heightened competition Industry convergence Retail transformation
Disintermediation (eBay, Yahoo etc. have created disintermediation
in the delivery of products services) Consumer buying power
Consumer information Consumer participation Consumer resistance
(less brand loyalty)
Marketing Management Philosophies The Production Concept
consumers prefer products that are widely available and
inexpensive. >> production and distribution efficiency is
important The Product Concept consumers prefer products offering
the most quality, performance, or innovative features. >>
continuous product improvement is important The Selling Concept
consumers and businesses, if left alone, wont buy enough of the
organizations product. >> transactions, not relations focus
The Marketing Concept the key to achieving organizational goals is
being more effective than competitors in creating, delivering, and
communicating superior customer value to your target markets.
>> customer focus, understanding needs and wants is important
The Holistic Marketing Concept everything matters in marketing
>> requires a broad. Integrated perspective.
Relationship marketing it aims to build mutually satisfying
long-term relationships with customers, employees, marketing
partners, and members of the financial community in order to earn
and retain their business. >> Marketing network is the
ultimate relationship where the relationships between the
organization the key constituents is mint.Internal Marketing is an
element of holistic marketing, and its task is to ensure that
everyone in the organization embraces appropriate marketing
principles.
2. Developing Marketing Strategies and Plans
The Value Chain
The firms success also depends on how well the company
coordinates departmental activities to conduct core business
processes. These processes include: The market-sensing process. All
the activities in gathering and acting upon information about the
market The new-offering realization process. All the activities in
researching, developing and launching new high quality offerings
quickly and with budget. The customer acquisitions process. All the
activities in building deeper understanding, relationships, and
offerings to individual customers The fulfillment management
process. All the activities in receiving and approving orders,
shipping the goods on time, and collecting payment.
A core competency has three characteristics: (1) it is a source
of competitive advantage and makes a significant contribution to
perceived customer benefits. (2) it has applications in a wide
variety of markets. (3) it is difficult for competitors to
imitate
Corporate and Division Strategic Planning
The four planning activities that all companies take are:1)
Defining the corporate missionOrganization develop mission
statements to share with managers, employees, and customers. A
clear, thoughtful mission statement provides a shared sense of
purpose, direction, and opportunity. Ex. Googles mission >>
To organize the worlds information and make it universally
accessible and useful.2) Establishing strategic business unitsA
business can define itself in terms of three dimensions: customer
groups, customer needs, and technology. A strategic business unit
has thee characteristics: (1) it is a single business, or a
collection of related businesses, that can be planned separately
from the rest of the company (2) it has its own set of competitors
(3) it has a manager responsible for strategic planning and profit
performance, who controls most of the factors affecting profit.
3) Assigning resources to each strategic business unitThe
GE/McKinsey Matrix classifies each strategic business unit by the
extent of its competitive advantage and the attractiveness of its
industry. The BCG's Growth-Share Matrix uses relative market share
and annual rate of market growth as criteria to make investment
decisions (dogs, cash cows, question mark and stars)4) Assess
growth opportunitiesIntensive growth where the first course of
action is to review the opportunities for existing businesses.
Integrative growth where a business can increase sales and profits
through backward, forward, or horizontal integration within its
industry. Diversification growth where the goal is to add
attractive, unrelated businesses.
Scenario analysis - it develops plausible representations of a
firm's possible future using assumptions about forces driving the
market and different uncertainties.
Business Unit Strategic PlanningEach business needs to have a
business mission.
1) SWOT Analysis: External Environment (Opportunity &
Threat)There are two main sources of market opportunities: (1) to
offer something that is in short supply (2) supply an existing
product or service in a new superior way
Above is an example applicable for the TV lighting equipment, of
what the opportunities and threats are externally.
1) SWOT Analysis: Internal Environment (Strengths &
Weaknesses)Each business needs to evaluate its internal strengths
and weaknesses.
2) Goal formulation - Once a company has performed a SWOT
analysis it then needs to develop specific goals.Most business
units pursue a mix of objectives, including profitability, sales
growth, market share improvement etc. The business unit sets these
objectives and then manages by objectives (MBO) >> four
criteria need to be met in order for the MBO to work: They must be
arranged hierarchically, from most to least important. Objectives
should be quantitative whenever possible. Goals should be realistic
Objectives must be consistent
3) Strategy FormulationGoals indicate what a business unit wants
to achieve; strategy is a game plan for getting there.
Michael Porter has proposed three generic strategies that
provide a good starting point for strategic thinking: Overall cost
leadership Differentiation Focus >> focus on narrow segments
and pursues either cost or differentiation leadership
Many strategic alliances take the form of marketing alliances.
These fall into four major categories (examples on pg. 73): Product
or service alliances - One company licenses another to produce its
product, or two companies jointly market their complementary
products or a new product. Promotional alliances - One company
agrees to carry a promotion for another company's product or
service. Logistics alliances - One company offers logistical
services (the way you coordinate products from one place to
another) for another company's product. Pricing collaborations -
One or more companies join in a special pricing collaboration.
4) Program Formulation & Implementation5) Feedback &
Control
Product PlanningA marketing plan is a written document that
summarizes what the marketer has learned about the marketplace and
indicates how the firm plans to reach the marketing objective.
Planning is a continuous process to respond to rapidly changing
market conditions.
A marketing plan usually contains the following sections:
Executive summary and table of contents Situation analysis
Marketing strategy Financial projections Implementation
controls
3. Collecting Information & Forecasting DemandComponents of
a Modern Marketing Information SystemA marketing information system
(MIS) consists of people, equipment, and procedures to gather,
sort, analyze, evaluate, and distribute needed, timely, and
accurate information to marketing decision makers.
a) Internal RecordsTo spot important and potential problems,
marketing managers rely on internal reports of order, sales,
prices, costs, inventory levels, receivables, and payables The
Order-to-Payment Cycle: orders are sent to the firm, sales
departments prepare invoices etc., items can then be shipped Sales
Information Systems - Marketing managers need timely and accurate
reports on current sales. Databases, Data Warehousing and Data
Mining - mining is when analysts find fresh insights in customer
trends, neglected customer segments etc.
b) Marketing IntelligenceA marketing intelligence system is a
set of procedures and sources that managers use to obtain everyday
information about developments in the marketing environment. There
are five main ways marketers can research competitors' product
strengths and weaknesses online:1) Independent customer goods and
service review forums2) Distributor or sales agent feedback sites3)
Combo sites offering customer reviews and expert opinions4)
Customer complaint sites5) Public blogs
c) Analyzing the MicroenvironmentFad: products which are
unpredictable, short-lived, and without social, economic, and
political significanceTrend: product which has a direction or
sequence of events with momentum and durabilityMegatrend: a large
social, economic, political, and technological change that is slow
to form and once in place, influences us for years to come or even
decades
Cohorts - groups of individuals born during the same time period
who travel trough life together.
Consumerist movement organized citizens and government to
strengthen the rights and powers of buyers in relationship to
sellers.
Forecasting & Demand Measurement
There are many productive ways to break down the market:
Potential market is the set of consumers with a sufficient level of
interest in a market offer. They need to have enough income and
access to the product. Available market is the set of consumers who
have interest, income, and access to a particular offer. For some
products (alcohol) there are restrictions so there is qualified
available market the set of consumers who have interest, income,
access, and qualifications for the market offer. Target market is
the part of the qualified available market the company decides to
pursue. Penetrated market is the set of consumers who are buying
the companys product.A Vocabulary for Demand Measurement Marker
demand for a product is the total volume that would be bought by a
defined customer group in a defined geographical area in a defined
time period in a defined marketing environment under a defined
marketing program. Market-penetration index >> A low index
indicates substantial growth potential for all the firms. A high
index suggests it will be expensive to attract the few remaining
prospects. Share-penetration index >> If this index is low,
the company can greatly expand its share. A firm should calculate
the share-penetration increases from removing each factor, to see
which investments produce the greatest improvement.
Product-penetration percentage >> the percentage of ownership
or use of a product or service in a population. Companies assume
that the lower the product-penetration percentage, the higher the
market potential, although this also assumes everyone will
eventually be in the market for every product. Market-buildup
method >> identifying all the potential buyers in each market
and estimating their potential purchases.
4. Conducting Marketing ResearchMarketing insights provide
diagnostic information about how and why we observe certain effects
in the marketplace, and what that means to marketers.
Marketing research firms fall into three categories:-
Syndicated-service research firms These firms gather consumer and
trade information, which they sell for a fee. - Custom marketing
research firms These firms are hired to carry out specific
projects. They design the study and report the findings.-
Specialty-line marketing research firms These firms provide
specialized research services. The best example is the
field-service firm, which sells field-interviewing services to
other firms.
The Marketing Research Process
Step 1: Define the Problem & the Research ObjectivesThe
problem needs to be specific so that only useful information can be
collected. Some research is exploratory, some research is
descriptive, and some research is causal (its purpose is to test a
cause and effect relationship).
Step 2: Develop the Research PlanSecondary or primary data
(questionnaires) can be collected. Observational Research Approach:
Researchers can gather fresh data by observing the relevant actors
and settings unobtrusively as they shop or consume products.
Ethnographic research is a particular observational research
approach that uses concepts and tools from anthropology and other
social science disciplines to provide deep understanding. Focus
Group Research Approach: gathering of 6 to 10 people carefully
selected by researchers based on certain demographic,
psychographic, or other similarities. Survey Research Approach
Behavioral Research Approach: Customers leave traces of their
purchasing behavior in store scanning data, catalog purchases, and
customer databases. Marketers can learn much by analyzing
statements they offer to market researchers. Experimental Research
Approach: This is the most scientifically valid research type.
Qualitative Research Approach: word association (ask subjects what
words come to mind when they hear the brands name), projective
techniques (give people an incomplete stimulus and ask people to
complete it), visualization (requires people to create a collage
from magazine photos or drawings to depict their perceptions),
brand personification (ask subjects what kind of person they think
of when the brand is mentioned, laddering (a series of increasingly
specific why questions)
After deciding on the research approach and instruments, the
marketing researcher must design a sampling plan. This calls for
three decisions: Sampling unit: Whom should we survey? Sample size:
How many people should we survey? Sampling procedure: How should we
choose the respondents?
Step 3: Collect the InformationStep 4: Analyze the
InformationStep 5: Present the FindingsStep 6: Make the
Decision
Measuring Marketing ProductivityMarketing metrics the set of
measures that helps them quantify, compare, and interpret their
marketing performance.
As input to the marketing dashboard, companies should include
two key market-based scorecards that reflect performance and
provide possible early warning signals: Customer-performance
scorecard which records how well the company is doing year after
year on customer-based measures Stakeholder-performance scorecard,
which tracks the satisfaction of various constituencies who have a
critical interest in and impact on the companys performance:
employees, suppliers, banks, distributors, retailers, and
stockholders.
20. Introducing New Market Offerings (till. Pg. 601)
Interacting with the following can generate new ideas: Customers
(surveys, brand community, brainstorm sessions etc.) Employees
(monetary, allow off time, holiday etc.) Scientists, engineers,
channel members, top management (open innovation, crowdsourcing
ideas) Study competitors
Week 2 (5, 8, 12, 13)
5. Creating Long-term Loyalty Relationships
Marketers must connect with customers informing, engaging, and
maybe even energizing them in the process of marketing.
Building Customer Value, Satisfaction, and LoyaltyCustomers
expect firms to listen and respond to their satisfactions.
Customer-perceived value (CPV) it is the difference between the
prospective customers evaluation of all the benefits and all the
costs of an offering and the perceived alternatives.Total customer
benefit is the perceived monetary bundle of product, services,
personnel, and image benefits customers expectTotal customer cost
is the perceived bundle of costs customers expect to incur
including monetary, time, energy and psychological costs.
Value proposition consists of the whole cluster of benefits the
company promises to deliver.Value delivery system includes all the
experiences the customer will have on the way to obtaining using
the offering.
Satisfaction can be measured through periodic surveys, customer
loss rate (contact those who have stopped buying), and hire mystery
shoppers (pose as potential buyers and report on strong and weak
points experienced in buying the products).
Note: recruiting new customers is more costly than keeping
current one
PCV analysis:Step 1: identify major attributes/benefits that
customers value Step 2: customers asked to rate/rank importance of
these benefitsStep 3: map companys and competitors performanceStep
4: repeat this analysis regularlyThe higher the CPV, the more
likely the customer will be satisfied.
To recover an unhappy customer the next procedures can be taken:
Set up a 24-7 hotline (phone, email or fax), to receive and act on
customer complaints. Contact the complaining customer as quickly as
possible. Accept responsibility for the customers disappointment;
dont blame the customer. Use customer service people who are
empathic. Resolve the complaint swiftly and to the customers
satisfaction.
Maximizing Customer Lifetime ValueCustomer profitability
analysis (CPA) is best conducted with the tools of an accounting
technique called activity-based costing (ABC). ABC tries to
identify the real costs associated with serving each
customer.Customer lifetime value (CLV) describes the net present
value of the stream of future profits expected over the customers
lifetime purchases.
Cultivating Customer RelationshipsCustomer relationship
management (CRM) is the process of carefully managing detailed
information about individual customers and all customer touch
points to maximize loyalty. This can be done through: personalizing
marketing (Nike ID), customer reviews and recommendations,
frequency programs (buy 5 get 1 free), club membership, and
customer empowerment.
Defection (customer churn) is the loss of customers/clients.In
order to reduce defection rate, the company must:- Define and
measure retention rate (renewal rate is a good measure)-
Distinguish the causes of customer attrition and identify those
that can be managed better.- Compare the lost customers lifetime
value to the costs of reducing the defection rate.
Customer Databases & Database MarketingCustomer database is
an organized collection of comprehensive information about
individual customers or prospects. Database marketing is the
process of building, maintaining, and using customer databases and
other databases (products, suppliers, resellers) to contact and
build customer relationships.Databases can be used in 5 ways:1) To
identify prospects 2) To decide which customers should receive a
particular offer3) To deepen customer loyalty4) To reactivate
customer purchases5) To avoid serious customer mistakes (ex. banks
need to use a specific information about a specific person)
8. Identifying Market Segments & Targets
Market Segmentation1. Geographic Segmentation 2. Demographic
Segmentationa) Age and Life-Cycle stages are important. Life Stage
defines a persons major concern, such as going through a divorce,
buying a new home etc. Gender is also important as well as
income.
b) Generation is another important factor which demographic
segmentation can be based upon. Millennial (Gen Y) are born between
1979 & 1994. They can be reached through: Online buzz Student
ambassadors (firms getting involved in university research etc.)
Unconventional sports Cool events Computer games Videos Street
teams (groups handing out t-shirts, tags at teen targeted
events)Baby boomers are born between 1946 and 1964.Silent
generation >> born between 1925 and 1945.
c) Race and CultureThis also includes lesbian, gay, bi, and
trans people.
3. Psychographic SegmentationPsychographics is the science of
using psychology and demographics to better understand
consumers.
The four groups with higher resources are: Innovators
Successful, sophisticated active people with high self-esteem.
Purchases often reflect cultivated tastes for relative upscale,
niche-oriented products and services. Thinkers Mature, satisfied,
and reflective people motivated by ideals and value order,
knowledge. They seek durability, functionality, and value in
products. Achievers Successful, goal oriented people who focus on
career and family. Prefer premium products that demonstrate success
to their peers. Experiencers Young, enthusiastic, impulsive people
who seek variety and excitement. They spend a comparatively high
proportion of on income on fashion, entertainment, and
socializing.
The four groups with lower resources are: Believers
Conservative, conventional, and traditional people with concrete
beliefs. They prefer familiar brands. Strivers Trendy and fun
loving people who are resource-constrained. They favor stylish
products that emulate the purchases of those with greater material
wealth. Makers Practical, down to earth, self-sufficient people who
like to work with their hands. They seek US-made products with a
practical or functional purpose. Survivors Elderly, passive people
concerned about change and loyal to their favorite brands.
4. Behavioral SegmentationIn behavioral segmentation, marketers
divide buyers into groups on the basis of their knowledge of,
attitude toward, use of, or response to a product.
Categories: Enthusiast Image Seeker (pay more to make sure they
get the better) Savvy Shoppers (Cheap people) Traditionalist
Satisfied Slippers (they buy what they kept buying, whatever)
Overwhelmed (find these products confusing)
Marketers usually envision four groups based on brand loyalty
status: Hard-core loyals Split loyals (loyal to 2 or 3 brands)
Shifting loyals Switchers
Market TargetingTo be useful, market segments must rate
favorably on five key criteria: Measurable size, purchasing power,
and characteristics Substantial large and profitable enough to
serve. Accessible the segments can be effectively reached and
served. Differentiable the segments are conceptually
distinguishable and respond differently to different marketing-mix
elements and programs. Actionable Effective programs can be
formulated for attracting and serving the segments.Supersegment is
a set of segments sharing some exploitable similarity.
12. Setting Product Strategy
Product Characteristics & ClassificationsEach level below
adds more customer value, and the five constitute a customer-vale
hierarchy: Core benefit: the service or benefit the customer is
really buying Basic product: must turn the benefit into an actual
product Expected product: a set of attributes and conditions buyers
normally expect when they purchase this product. Augmented product:
it exceeds the customer expectations Potential product: encompasses
all the possible augmentations and transformations the product or
offering might undergo in the future.
Products fall into three groups according to durability and
tangibility:1) Nondurable goods are tangible goods normally
consumed in one or a few uses. Strategy is to make them available
in many locations, charge only a small markup, and advertise
heavily to induce trial and build preference.2) Durable goods are
tangible goods that normally survive uses. Normally require more
personal selling and service, command a higher margin, and require
more seller guarantees. 3) Services are intangible, inseparable,
variable, and perishable products that normally require more
quality control, supplier credibility, and adaptivity.
Product & Services Differentiation Durability Reliability
Reparability Style Ordering Ease Delivery Installation Customer
Training Customer Consulting Maintenance & Repair
Product & Brand RelationshipsA product system is a group of
diverse but related items that function in a compatible manner.
The product hierarchy stretches from basic needs to particular
items that satisfy those needs. We can identify six levels of the
product hierarchy:1) Need family The core need that underlies the
existence of a product family2) Product family All the product
classes that can satisfy a core need with reasonable
effectiveness.3) Product class A group of products within the
product family recognized as having a certain functional coherence,
also known as product category.4) Product line A group of products
within a product class that are closely related because they
perform a similar function.5) Product type A group of items within
a product line that share one of several possible forms of the
product.6) Item A group of items within a product line that share
on of several possible forms of the product. (ex. term life
insurance)
Line stretching >> lengthening the product line beyond the
current range. Down-Market Stretch: A company positioned in the
middle market may want to introduce a lower-priced line. (This can
be done by using parent brand name, sub-brand, different brand)
Up-Market Stretch: companies may wish to center the high end of the
market to achieve more growth, realize higher margins, or simply
position themselves as full-line manufacturers. Two-Way Stretch:
Companies serving the middle market might stretch their line in
both directions.
Product mix pricing the firm searches for a set of prices that
maximizes profits on the total mix.Two-part pricing consisting of a
fixed fee plus a variable usage fee.
Co-branding two or more well-known brands are combined into a
joint product or marketed together in some fashion.Ingredient
branding creates brand equity for materials, components, or parts
that are necessarily contained within other branded products. (ex.
Dolby noise reduction technology, GORE-TEX water-resistant fibers
etc.).
Packaging, Labeling, Warranties, and GuaranteesVarious factors
contribute to the growing use of packaging as a marketing tool:
Self-service many stores are self-serving so packages need to
describe the products features, create consumer confidence Consumer
affluence Rising affluence means consumers are willing to pay a
little more for the convenience, appearance, dependability, and
prestige of better packages. Company and brand image Packages
contribute to instant recognition of the company or brand.
Innovation opportunity Unique or innovative packaging such as
resalable spouts can bring big benefits to consumers and profits to
producers.
13. Designing & Managing ServicesThe Nature of ServicesA
service is any act or performance one party can offer to another
that is essentially intangible and does not result in the ownership
of anything.
The service component can be minor or a major part of the total
offering. We distinguish five categories of offerings:1. Pure
tangible good2. Tangible good with accompanying services 3. Hybrid
an offering like a restaurant meal, of equal parts goods and
services.4. Major service with accompanying minor goods and
services like air travel, with additional services or supporting
goods5. Pure service
The next four distinctive service characteristics greatly affect
the design of marketing programs:1. Intangibility suppose a bank
wants to position itself as the fast: bank. It could make this
positioning strategy tangible through place, people. Equipment,
communication material, symbols, and price.2. Inseparability
services are produced and consumed simultaneously, unlike tangible
products (first made, distributed, sold, then consumed).3.
Variability services are highly variable from good to bad. To
increase quality control firms can: invest in good hiring and
training procedures, standardize the service-performance process
through the organization, and monitor customer satisfaction.4.
Perishability demand and supple can be variable. To produce a
better demand: Differential pricing Nonpeak demand McDonalds pusher
breakfast service, hotels promote minivacation weekends.
Complementary services Reservation servicesTo produce a better
supply Part-time employees can serve peak demand Peak-time
efficiency Increased customer participation Shared services
Facilitates for future expansion (ex. a theme park buys terrain
around)
Achieving Excellence in Services MarketingMarketing excellence
with services requires excellence in three broad areas: External
marketing describes the normal work of preparing, pricing,
distributing, and promoting the service to customers. Internal
marketing describes training and motivating employees to serve
customers well. Interactive marketing describes the employees skill
in serving the client.
Managing Service QualityThe service quality model highlights the
main requirements for delivering high service quality. It
identifies five gaps that cause unsuccessful delivery:1. Gap
between consumer expectation and management perception2. Gap
between management perception and service-quality specification
(managers might correctly perceive customers wants but not set a
performance standard.3. Gap between service-quality specifications
and service delivery4. Gap between service delivery and external
communications (the ads need to transmit something
representative)5. Gap between perceived service and expected
service (this gap occurs when the consumer misperceives the service
quality)
Managing Product-Support ServicesCustomers have had three
specific worries about product service: They worry about
reliability and failure frequency They worry about downtime (the
sellers ability to fix the machine quickly or at least provide a
loaner) They worry about out-of-pocket costs
Life-cycle cost is the products purchase cost plus the
discounted cost of maintenance and repair less the discounted
salvage value.
Week 3 (14, 15, 16, 22)
14. Developing Pricing Strategies & Programs
Understanding PricingFor some years now, the Internet has been
changing how buyers and sellers interact. Here is a short list of
how the Internet allows sellers to discriminate between buyers, and
buyers to discriminate between sellers.Buyers can: Get instant
price comparisons from thousands of vendors Name their price and
have it met Get products freeSellers can: Monitor customer behavior
and tailor offers to individuals Give certain customers access to
special pricesBuyers and sellers can: Negotiate prices in online
auctions and exchanges or even in person
Companies do their pricing in a variety of ways. In small
companies, the boss often sets prices. In large companies, division
and product line managers do. Even here top management sets general
pricing objectives and policies and often approves lower
managements proposals.
Consumers use reference prices, which is comparing an observed
price to an internal reference price they remember or an external
frame of reference such as a posted regular retail price.When
information about true quality is available, prices becomes a less
significant indicator of quality. When this information is not
available, price acts as a signal of quality.
Customers see an item prices at 299 as being in the 200 rather
than the 300 range; they tend to process their prices left-to-right
rather than by rounding.
Setting the Price
Step 1: Selecting the Pricing ObjectiveThe company first decides
where it wants to position its market offering. Five major
objectives are: survival, maximum current profit, maximum market
share, maximum market skimming (products start at high prices and
slowly drop over time, this is due to companies unveiling new
technologies), and product-quality leadership.
Step 2: Determining DemandMost companies attempt to measure
their demand curves using several different methods. Surveys Price
experiments Statistical analysis
Step 3: Estimating CostsThere are: fixed costs (overhead),
variable costs, total costs, and average costs.The experience
curve/learning curve decline the average cost with accumulated
production experience.
Target costing is a system under which a company plans in
advance for the price points, product costs, and margins that it
wants to achieve for a new product.
Step 4: Analyzing Competitors Costs, Prices, and Offers
Step 5: Selecting a Pricing Method Markup pricing (adding a
standard markup to the products cost)Unit cost/(1-desired return on
sales) Target-Return Pricing (the firm determines the price that
yields its target rate of return on investment; public utilities
often use this method) Perceived-value Pricing (perceived value is
made up of a host of inputs, such as the buyers image of the
product performance, the channel deliverables, the warranty
quality, customer support, and softer attributes such as the
suppliers reputation, trustworthiness, and esteem Value Pricing
(charging customers a fairly low price for a high-quality offering)
Going-rate pricing (the firm bases its price largely on competitors
prices- in oligopolistic companies such as steel, paper, or
fertilizer, all firms normally charge the same price) Auction-Type
Pricing
Step 6: Selecting the Final Price
Adapting the PriceCompanies usually do not set a single price
but rather develop a pricing structure that reflects variations in
geographical demand and costs, market-segment requirements,
purchase timing, order levels, delivery frequency, guarantees,
service contracts, and other factors.
Many buyers want to offer other items in payment, a practice
known as countertrade. Countertrade can take several forms: Barter
(the buyer and the seller directly exchange goods, with no money
and no third party involved) Compensation deal (the seller receives
some percentage of the payment in cash and the rest in products)
Buyback arrangement (the seller sells a plant, equipment, or
technology to another country and agrees to accept as partial
payment products manufactured with the supplied equipment) Offset
(the seller receives full payment in cash but agrees to spend a
substantial amount of the money in that country within a stated
time period)
Companies can use several pricing techniques to stimulate early
purchase: loss-leader pricing (drop the price on well known brands
to stimulate additional store traffic) Special event pricing
Special customer pricing Cash rebats Low-interest financing Longer
payment terms Warranties and service contracts Psychological
discounting
Initiating and Responding to Price ChangesA price-cutting
strategy can lead to other possible traps: Low-quality
trap-consumers assume quality is low Fragile-market-share trap-a
low price buys market share but not market loyalty Shallow-pockets
trap-higher priced competitors match the lower prices but have
longer staying power because of deeper cash reserves. Price-war
trap-Competitors respond by lowering their prices even more
triggering a price war
15. Designing & Managing Integrated Marketing Channels
Marketing Channels and Value NetworksA marketing channel system
is the particular set of marketing channels a firm employs, and
decisions about it are among the most critical ones management
faces.
Push strategy uses the manufacturers sales force, trade
promotion money, or other means to induce intermediaries to carry,
promote, and sell the product to end users. This is applicable when
there is low brand loyalty.Pull strategy the manufacturer uses
advertising, promotion and other forms of communication to persuade
consumers to demand the product from intermediaries, thus inducing
the intermediaries to order it. This is applicable when there is
high brand loyalty.
Hybrid channels or multichannel marketing occurs when a single
firm uses two or more marketing channels to reach customer
segments.
The Role of Marketing ChannelsStorage and movement, title, and
communications constitute a forward flow of activity from the
company to the customer; other functions such as ordering and
payment constitute a backward flow from customers to the
company.
A zero-channel (direct marketing channel) consists of a
manufacturer selling directly to the final customer.
consumer marketing channels
Channel-Design DecisionsChannels produce five service outputs:
Lot Size-The number of units the channel permits a typical customer
to purchase on one occasion Waiting and delivery time-The average
time customers wait for receipt of goods. Spatial convenience-The
degree to which the marketing channel makes it easy for customers
to purchase the product. Product variety-the assortment provided by
the marketing channel. Service backup-Add-on services provided by
the channel.
Exclusive distribution means severely limiting the number of
intermediaries.Selective distribution relies on only some of the
intermediaries willing to carry a particular product.Intensive
distribution places the goods or services in as many outlets as
possible.
Channel power is the ability to alter channel members behavior
so they take actions they would not have taken otherwise.
Manufacturers can draw on the following types of power to elicit
cooperation: Coercive power a manufacturer threatens to withdraw a
resource or terminate a relationship if intermediaries fail to
cooperate. Reward power the manufacturer offers intermediaries an
extra benefit for performing specific acts or functions. Legitimate
power the manufacturer requests a behavior that is warranted under
the contract. Expert power The manufacturer has special knowledge
the intermediaries value. Referent power The manufacturer is so
highly respected that intermediaries are proud to be associated
with it.
Channel Integration and SystemsA conventional marketing channel
consists of an independent producer, whole seller(s), and
retailer(s). Each is a separate business seeking to maximize its
own profits, even if this goal reduces profit for the system as a
whole.
A vertical marketing system (VMS), by contrast, includes the
producer, wholesaler(s), and retailer(s) acting as a unified
system.
Horizontal marketing system, in which two or more unrelated
companies put together resources or program to exploit an emerging
marketing opportunity.
An integrated marketing channel system is one in which the
strategies and tactics of selling through one channel reflect the
strategies and tactics of selling through one or more other
channels.
Conflict, Cooperation, and Competition Channel coordination
occurs when channel members are brought together to advance the
goals of the channel.
Types of channel conflicts: Horizontal channel conflict occurs
between channel members at the same level. Vertical channel
conflict occurs between different levels of the channel.
Multichannel conflict exists when the manufacturer has established
two or more channels that sell to the same market.
Causes of Chanel conflict: Goal incompatibility Unclear goals
and rights Differences in perception Intermediaries dependence on
the manufacturer
Channel conflicts can be managed through: Strategic
Justification Dual compensation Superordinate goals channel members
can come to an agreement on the fundamental or superordinate goal
they are jointly seeking Employee exchange Joint memberships
Co-option effort by one organization to win the support of the
leaders of another by including them in advisory councils, boards
of directors, and the like. Diplomacy, mediation, and arbitration
Legal recourse file a lawsuit this is last resource that should be
used
E-commerce uses a Web site to transact or facilitate the sale of
products and services online.M-Commerce uses Web sites through
telephones.
Pure-click firms that had launched a website without any
previous existence as a firmBrick-and-click existing companies that
have added an online site for information or e-commerce
16. Managing Retailing, Wholesaling, and Logistics
RetailingRetailing includes all the activities in selling goods
or services directly to final consumers for personal, nonbusiness
use.
Store retailers position themselves as offering one of four
levels of service:1. Self-service2. Self-selection customers find
their own goods, although they can ask for assistance3. Limited
service these retailers carry more shopping goods and services such
as credit and merchandise-return privileges. Customers need more
information and assistance4. Full serviceNonstore retailing falls
in four major categories:1. Direct selling door-to-door or at home
sales parties2. Direct marketing it includes telemarketing,
television direct-response marketing, and electronic shopping.3.
Automatic vending offers a variety of merchandise, including
impulse goods such as soft drinks, coffee, candy, newspapers,
magazines, and other products such as hotdogs. 4. Buying service
store less retailer serving a specific clientele
Stores are using direct product profitability (DPP) to measure a
products handling costs (receiving, moving to storage, paperwork,
selecting, checking, loading, and space cost) from the time it
reaches the warehouse until a customer buys it in the retail
store.
Retailers must decide on the service mix to offer customers:
Prepurchase services include accepting telephone and mail orders,
advertising, window and interior display, fitting rooms, shopping
hours, fashion shows, and trade-ins. Postpurchase services include
shipping and delivery, gift-wrapping, adjustments and returns,
alterations and tailoring, installations, and engraving. Ancillary
services include general information, check cashing, parking,
restaurants, repairs, interior decorating, credit, rest rooms, and
baby-attendant service.
WholesalingWholesaling includes all the activities in selling
goods or services to those who buy for resale or business use.
In general, wholesalers are more efficient in performing one or
more of the following functions:Selling and promoting, buying and
assortment building, bulk breaking, warehousing, transportation,
financing, risk bearing, market information, and management
services and counseling.Market LogisticsSupply chain management
(SCM) starts before physical distribution and means strategically
procuring the right inputs, converting them efficiently into
finished products, and dispatching them to the final
destination.
Market logistics includes planning the infrastructure to meet
demand, then implementing and controlling the physical flows of
materials and final goods from points of origin to points of use,
to meet customer requirements at a profit.
Each possible market-logistics system will lead to the following
cost:
M + T + FW + VW + SM total market-logistics cost of proposed
systemT total freight cost of proposed systemFW total fixed
warehouse cost of proposed systemVW total variable warehouse costs
of proposed systemS total cost of lost sales due to average
delivery delay under proposed system
22. Managing a Holistic Marketing Organization for the Long
Run
Internal MarketingInternal marketing requires that everyone in
the organization accept the concepts and goals of marketing and
engage in choosing, providing, and communicating customer
value.
Many companies realize theyre not yet really market and customer
driven they are product and sales driven. Transforming into a true
market-driven company requires: Developing a company wide passion
for customers Organizing around customer segments instead of
products Understanding customers through qualitative and
quantitative research
Socially Responsible MarketingMarketing needs to be socially
responsible. This can be done by having: Legal behavior Ethical
behavior Social responsibility behavior Sustainability the ability
to meet humanitys needs without harming future generations
A successful cause-marketing program can improve social welfare,
create differentiated brand positioning, build strong consumer
bonds Specifically, from a branding point of view, cause marketing
can (1) build brand awareness, (2) enhance brand image, (3)
establish brand credibility, (4) evoke brand feelings, (5) create a
sense of brand community, and (6) elicit brand engagement.
Social marketing by non-profit or government organizations
furthers a cause, such as say no to drugs or exercise more and eat
better.
A marketing audit is a comprehensive, systematic, independent,
and periodic examination of a companys or business units marketing
environment, objectives, strategies, and activities, with a view to
determining problem areas and opportunities and recommending a plan
of action to improve the companys marketing performance. Market
audits four characteristics:1. Comprehensive the marketing audit
covers all the major marketing activities of a business, not just a
few trouble spots as in a functional audit.2. Systematic 3.
Independent4. Periodic
Week 5 (9, 10, 11)
9. Creating Brand EquityBranding is endowing products and
services with the power of a brand.Brand equity is added value
endowed on products and services. It may be reflected in the way
consumers think, feel, and act with respect to the brand, as well
as in the prices, market share, and profitability the brand
commands.
Customer-based brand equity is thus the differential effect
brand knowledge has on consumer response to the marketing of that
brand.
According to BrandAsset Valuator, there are four key components
of brand equity: Energized differentiation measures the degree to
which a brand is seen as different from others, and its perceived
momentum and leadership. Relevance Esteem Knowledge how aware and
familiar consumers are with the brand.
Creating significant brand equity requires reaching the top of
the brand pyramid.
Brand salience is how often and how easily customers think of
the brand under various purchase or consumption situations.Brand
resonance describes the relationship customers have with the brand
and the extent to which they feel theyre in sync with it.
Building Brand EquityThere are three main sets of brand equity
drivers: The initial choices for the brand elements or identities
making up the brand The product and service and all accompanying
marketing activities and supporting marketing programs Other
associations indirectly transferred to the brand by linking it to
some other entity (a person, place, or thing)Brand elements are
devices, which can be trademarked, that identify and differentiate
the brand.
There are six criteria for choosing brand elements: memorable,
meaningful, likable, transferable, adaptable, and protectable.
Internal branding consists of activities and processes that help
inform and inspire employees about brands. When employees care
about and believe in the brand, theyre motivated to work harder and
feel greater loyalty to the firm. Some important principles for
internal branding are: Choose the right moment Link internal and
external marketing Bring the brand alive for employees
Measuring Brand EquityThe brand value chain is a structured
approach to assessing the sources and outcomes of brand equity and
the way marketing activities create brand value.
Devising a Branding StrategyA firms branding strategy (brand
architecture) reflects the number and nature of both common and
distinctive brand elements. Deciding how to brand new products is
especially critical. A firm has three main choices:1. It can
develop new brand elements for the new product2. It can apply some
of its existing brand elements3. It can use a combination of new
and existing brand elements
A company can choose one of the three brand names: Individual or
separate family brand names Corporate umbrella or company brand
name Sub-brand name (Kelloggs corn flakes, Kelloggs rice)
Brand dilution occurs when consumers no longer associate a brand
with a specific or highly similar set of products and start
thinking less of the brand.
10. Crafting the Brand PositioningDeveloping and Establishing a
Brand PositioningThe competitive frame of reference defines which
other brands a brand competes with and therefore which brands
should be the focus of competitive analysis.Points-of-difference
(PODs) are attributes or benefits that consumers strongly associate
with a brand, positively evaluate, and believe they could not find
to the same extent with a competitive brand.Points-of-parity (POPs)
on the other hand, are attribute or benefit associations that are
not necessarily unique to the brand but may in fact be shared with
other brands. For example, Starbucks could define very distinct
sets of competitors, suggesting different possible POPs and PODs as
a result:- Quick-serve restaurants and convenience shops (McDonalds
and Dunkin Donuts)- Supermarket brands for home consumption
(Folgers and NESCAFE)- Local cafesA brand mantra is an articulation
of the heart and soul of the brand and is closely related to other
branding concepts like brand essence and core brand promise. Here
are three key criteria for a brand mantra:- Communicate- Simplify-
InspireDifferentiation StrategiesThese are a few market offering
with which companies can differentiate themselves: Employee
differentiation Channel differentiation Image differentiation
Services differentiationIn general, the firm should monitor three
variables when analyzing potential threats posed by competitors:
Share of market Share of mind if the company is on the consumers
mind Share of heartFor small businesses the specific branding
guidelines can be applied: Creatively conduct low-cost marketing
research Focus on building one or two strong brands based on one or
two key associations Employ a well-integrated set of brand elements
Create buzz and a loyal brand community Leverage as many secondary
associations as possible
11. Competitive DynamicsCompetitive Strategies for Market
Leaders
Companies need to practice uncertainty management. Proactive
firms: Are ready to take risks and make investments Have a vision
of the future and of investing in it Have the capabilities to
innovate Are flexible and no bureaucratic Have many managers who
think proactively
Speed of response can make an important difference to profit. A
dominant firm can use the six defense strategies summarized below:
Position Defense occupying the most desirable market space in
consumers minds, making the brand almost impregnable Flank Defense
the market leader should erect outposts to protect a weak front or
support a possible counterattack. Preemptive Defense A more
aggressive maneuver is to attack first, perhaps guerrilla action
across the market hitting on competitor here, another there and
keeping everyone off balance. Counteroffensive Defense In a
counteroffensive, the market leader can meet the attacker frontally
and hit its flank, or launch a princer movement so it will have to
pull back to defend itself. Mobile Defense In a mobile defense, the
leader stretches its domain over new territories through market
broadening and market diversification. Contraction Defense
Sometimes large companies can no longer defend all their territory.
They give up weaker markets and reassign resources to stronger
ones.
Other Competitive StrategiesA market challenger must first
define its strategic objective, usually to increase market share.
The challenger must decide whom to attack: It can attack the market
leader high risk but high payoff It can attack firms its own size
that are not doing the job and are underfinanced It can attack
small local and regional firmsGiven clear opponents and objectives,
what attack options are available? We can distinguish five: Frontal
Attack the attacker matches its opponents product, advertising,
price, and distribution. Flank Attack identifying shifts that are
causing gaps to develop, then rushing to fill the gaps.
Encirclement Attack capture a wide slice of territory by launching
a grand offensive on several fronts. Bypass Attack bypassing the
enemy altogether to attack easier markets instead offers three
lines of approach: diversifying into unrelated products,
diversifying into new geographical markets, and leapfrogging into
new technologies. Guerrilla Attacks guerrilla attacks consist of
small, intermittent attacks, conventional and unconventional, to
harass the opponent and eventually secure permanent footholds.
The follower must define a growth path, but one that does not
invite competitive retaliation. We distinguish four broad
strategies: Counterfeiter Cloner emulates the leaders products,
name, and packaging, with slight variations. Imitator copies some
things from the leader but differentiate on packaging, advertising,
pricing, or location. The leader doesnt mind as long as the
imitator doesnt attack aggressively. Adapter takes the leaders
products and adapts or improves them.
Product Life-Cycle Marketing StrategiesTo say a product has a
life cycle is to assert four things: Products have a limited life
Product sales pass through distinct stages, each posing different
challenges, opportunities, and problems to the seller. Profits rise
and fall at different stages of the product life cycle. Products
require different marketing, financial, manufacturing, purchasing,
and human resource strategies in each life-cycle stage.
Week 6 (17, 18, 19)
17. Designing and Managing Integrated Marketing
Communications
The Role of Marketing CommunicationsMarketing communications are
the means by which firms attempt to inform, persuade, and remind
consumers-directly or indirectly, about the products and brands
they sell.
The marketing communication mix consists of eight major modes of
communication: Advertising Sales promotion Events and experiences
Public relations and publicity Direct marketing Interactive
marketing Word-of-mouth marketing Personal selling
Developing Effective CommunicationsThere are eight steps in
developing effective communications:1) Identify Target Audience
potential buyers of the companys products, current users, deciders,
or influencers, and individuals, groups2) Determine Objectives
Category Need Brand Awareness Brand Attitude Brand Purchase
Intention3) Design CommunicationsAn informational appeal elaborates
on product or service attributes or expressed, as well as on its
content.A transformational appeal elaborates on a
nonproduct-related benefit or image.
4) Select ChannelsPersonal communications channels let two or
more persons communicate face-to-face or person-to-audience through
a phone, surface mail, or e-mail.
5) Establish Budget6) Decide on Media Mix7) Measure Results8)
Manage integrated Marketing Communications
Deciding on the Marketing Communications MixEach communication
tool has its own unique characteristics and costs: Advertising:
pervasiveness, amplified expressiveness, control. Sales Promotion:
ability to be attention-getting, incentive, invitation Public
Relations & Publicity: High credibility, ability to reach
hard-to-find buyer, dramatization. Events & Experiences:
relevant, engaging, implicit Direct & Interactive Marketing:
customized, up-to-date, interactive Word-of-mouth marketing:
influential, personal, timely Personal Selling: personal
interaction, cultivation, response
An Effectively trained company sales force can make four
important contributions: Increase stock position Build enthusiasm
Conduct missionary selling Manage key accounts
18. Managing Mass CommunicationsDeveloping and Managing an
Advertising Program
An advertising objective is a specific communications task and
achievement level to be accomplished with a specific audience in a
specific period of time.
Here are five specific factors to consider when setting the
advertising budget: Stage in the product life cycle Market share
and consumer base Competition and clutter Advertising frequency
Product substitutability
Deciding on Media and Measuring EffectivenessMedia selection is
finding the most cost-effective media to deliver the desired number
and type of exposures to the target audience.
The effect of exposures on audience awareness depends on the
exposures reach, frequency, and impact.
When launching a new product, the advertiser must choose among:
Continuity means exposure appear evenly throughout a given period.
Concentration calls for spending all the advertising dollars in a
single period. Flighting calls for advertising during a period,
followed by a period with no advertising, followed by a second
period of advertising activity. Pulsing is continuous advertising
at low-weight levels, reinforced periodically by waves of heavier
activity.
Events & ExperiencesMarketers report a number of reasons to
sponsor events: To identify with a particular target market or
lifestyle To increase salience of company or product name To create
or reinforce perceptions of key brand image association To enhance
corporate image To create experiences and evoke feelings To express
commitment to the community or on social issues To entertain key
clients or reward key employees To permit merchandising or
promotional opportunitiesSupply-side methods approximate the amount
of time or space devoted to media coverage of an event, for
example, the number of seconds the brand is clearly visible on a
television screen or the column inches of press clippings that
mention it.Demand-side method identifies the effect sponsorship has
on consumers brand knowledge.
Public RelationsPublic relations include a variety of programs
to promote or protect a companys image or individual products. The
best PR departments counsel top management to adopt positive
programs and eliminate questionably practices so negative publicity
doesnt arise in the first place. They perform the following five
functions: Press relations Product publicity Corporate
communications Lobbying Counseling
Marketing public relations goes beyond simple publicity and
plays an important role in the following tasks: Launching new
products Repositioning a mature product Building interest in a
product category Influencing specific target groups Defending
products that have encountered public problems Building the
corporate image in a way that reflects favorably on its
products
19. Managing Personal Communications
Direct MarketingDirect marketing is the use of consumer-direct
(CD) channels to reach and deliver goods and services to customers
without using marketing middlemen.Most direct marketers apply the
REM (recency, frequency, monetary amount) formula to select
customers according to how much time has passed since their last
purchase, how many times they have purchased, and how much they
spent since becoming a customer.
Designing the Sales Force
The term sales representative covers six positions, ranging from
the least tot the most creative types of selling: Deliverer a
salesperson whose major task is the delivery of a product Order
taker Missionary a salesperson not permitted to take an order but
expected rather to build goodwill or educate the actual or
potential user Technician Demand creator Solution vendorA direct
sales force consists of full or part-time paid employees who work
exclusively for the company.A contractual sales force consists of
manufacturers reps, sales agents, and brokers, who earn a
commission based on sales.
Principles of Personal SellingReps are taught the SPIN method to
build long-term relationships, with questions such as: Selling
questions ask about facts or explore buyers present situation
Problem questions deal with problems, difficulties, and
dissatisfactions the buyer is experiencing ex: What parts of the
system create errors? Implication questions ask about the
consequences or effects of a buyers problems, difficulties, or
dissatisfactions. Ex: how does this problem affect your peoples
productivity? Need-payoff questions ask about the value or
usefulness of a proposed solution ex: how much would you save if
our company could help reduce errors by 80%?