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SUMMARY OF LEARNING GOALS 1 What is the role of the product in the marketing mix, and how are products classified and developed? A product is any good or service, along with its perceived attributes and benefits, that creates customer value. Tangible attributes include the good itself, packaging, and warranties. Intangible attributes are symbolic, like a brand’s image. Most items are a combination of goods and services. Services and goods are often marketed differently. Products are categorized as either consumer products or industrial products. Consumer products are goods and services that are bought and used by the end users. They can be classified as unsought products, convenience products, shopping products, or specialty products, depending on how much effort consumers are willing to exert to get them. Industrial products are those bought by organizations for use in making other products or in rendering services. Capital products are usually large, expensive items with a long life span. Expense items are typically smaller, less expensive items that usually have a life span of less than a year. Products usually have brand names. Brands identify products by words, names, symbols, designs, or a combination of these things. The two major types of brands are manufacturer (national) brands and dealer (private) brands. Generic products carry no brand name. Branding has three main purposes: product identification, repeat sales, and new product sales. Often the promotional claims of well-known brands are reinforced in the printing on the package. Packaging is an important way to promote sales and protect the product. A package should be easy to ship, store, and stack on a store shelf. The steps in new product development are setting new product goals, exploring ideas, screening ideas, developing the concept (creating a prototype and building the marketing strategy), test-marketing, and introducing the product. When the product enters the marketplace, it is often managed by a product manager. 2 What are the stages of the product life cycle? After a product reaches the marketplace, it enters the product life cycle. This cycle typically has four stages: introduction, growth, maturity, and decline (and possibly death). Profits usually are small in the introductory phase, reach a peak at the end of the growth phase, and then decline. 3 What strategies are used for pricing products? Price indicates value, helps position a product in the marketplace, and is the means for earning a fair return on investment. If a price is too high, the product won’t sell well, and the firm will lose money. If the price is too low, the firm may lose money even if the product sells well. The two main strategies for pricing a new product are price skimming and penetration pricing. Price skimming involves charging a high introductory price and then, usually, lowering the price as the product moves through its life cycle. Penetration pricing involves selling a new product at a low price in the hope of achieving a large sales volume. Pricing tactics are used to fine-tune the base prices of products. Among these tactics are odd–even pricing and prestige pricing. Setting a price at an odd number tends to create a perception that the item is cheaper than the actual price. Prices in even numbers denote quality or status. Raising the price so an item will be perceived as having high quality and status is called prestige pricing. Consumers pay more because of the perceived quality or status. 4 Describe the distribution channels and the manner in which they are organized. Distribution channels are the series of marketing entities through which goods and services pass on their way from producers to end users. Distribution systems focus on the physical transfer of goods and services and on their legal ownership at each stage of the distribution process. A vertical marketing system is a planned, hierarchically organized distribution channel. There are three types of vertical marketing systems: corporate, administrative, and contractual. In a corporate system, one firm owns the entire channel. In an administrative system, a strong organization takes over as leader and sets channel policies. In a contractual distribution system, the independent firms coordinate their distribution activities by written contract. 5 What are the logistical functions of the supply chain? The logistics supply chain consists of several interrelated and integrated logistical components: (1) sourcing and procurement of raw materials and supplies, (2) production scheduling, (3) warehousing, (4) materials-handling, and (5) transportation. Integrating and linking all of the logistics functions of the supply chain is the logistics information system. Information technology connects the various components and partners of the supply chain into an integrated whole. The supply chain team, in concert with the logistics information system, orchestrates the movement of goods, services, and information from the source to the consumer. Supply chain teams typically cut across organizational boundaries, embracing all parties who participate in moving product to market. Procurement deals with the purchase of raw materials, supplies, and components according to production scheduling. Warehousing provides storage of goods until needed by the customer while the materials-handling system moves inventory into, within, and out of the warehouse. Finally, the major modes of transportation include railroads, motor carriers, pipelines, waterways, and airways. 6 Explain the promotional mix and integrated marketing communications. The unique combination of advertising, personal selling, sales promotion, and public relations used to promote a product is the promotional mix. Advertising is any paid form of nonpersonal promotion by an identified sponsor. Personal selling consists of a face-to-face presentation in a conversation with a prospective purchaser. Sales promotion consists of marketing activities—other than personal selling, advertising, and public relations—that stimulate consumers to buy. These activities include coupons and samples, displays, shows and exhibitions, demonstrations, and other selling efforts. Public relations is the marketing function that links the policies of the organization with the public interest and develops programs designed to earn public understanding and acceptance. Integrated marketing communications is the careful coordination of all promotional messages for a product or service to assure the consistency of messages at every contact point where a company meets the consumer—advertising, sales promotion, personal selling, public relations, as well as direct marketing, packaging, and other forms of communication. Marketing managers carefully coordinate all promotional activities to ensure that consumers see and hear one message. Integrated marketing communications has received more attention in recent years due to the proliferation of media choices, the fragmentation of mass markets into more segmented niches, and the decrease in advertising spending in favor of promotional techniques that generate an immediate sales response. 7 Describe the trends affecting elements of the marketing mix. Yield management systems, category management, and guerrilla marketing are key trends in maximizing the effectiveness of the marketing mix.