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CHAPTER 1 DEFINING MARKETING FOR THE 21E CENTURY New economy The digital revolution has given consumers and companies new capabilities. The Information Age has given consumers some new benefits: 1. substantial increase in buying power 2. greater variety of available goods 3. great amount of information about practically anything 4. greater ease in interacting and placing and receiving order 5. ability to compare notes on products and services Companies benefits from the new economy: 1. new information and promotion channel with augmented geographical reach. 2. more available data about markets, consumers and competitors. 3. improved communication between employees and costumers. 4. ability to customize promotions Whereas the Industrial Age was characterized by mass production and mass consumption, high inventory levels, ubiquitous ads, and discounting. The Information age is leading to a more accurate level of production, more targeted communications, and more relevant pricing. Marketing deals with identifying and meeting human and social needs. Marketing can pass trough 3 stages: 1. entrepreneurial marketing 2. formulated marketing 3. entrepreneurial marketing Marketing people are involved in marketing 10 types of entities: 1. goods 6. places 2. services 7. properties 3. experiences 8. organizations 4. events 9. information 5. persons 10. ideas Marketers are skilled in stimulating demand for these 10 types of entities. They can operate in four major categories of markets: 1. consumer markets 2. business markets 3. global markets 4. non-profit and governmental markets Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering and exchanging products and services of value freely with others. Core marketing concepts Target markets and segmentation. Market segments can be identified by examining demographic, physiographic and behavioural differences among buyers. The firm decides which segment presents the greatest opportunity- which is the target market. Market place, market space and metamarket. Shopping can be done in the markets place (physical entity) market space (virtual entity). Metamarket describes a cluster of complementary good and services that are closely related in the minds of the consumers. Needs, wants and demands. Needs are basic human requirements( food, water etc.) which become wants when they are directed to specific objects that might satisfy the need. Demands are wants for specific products backed by an ability to pay. Product offering and brand A Product is any offering that can satisfy a need or want, while a brand is a specific offering from a known source. Value and satisfaction Marketers can enhance the value of an offering to the customer by: Raising benefits: – Reducing costs. – Raising benefits while lowering costs. – Raising benefits by more than the increase in costs. – Lowering benefits by less than the reduction in costs. Exchange and transactions Exchange involves obtaining a desired product from someone by offering something in return. Five conditions must be satisfied for exchange to occur. 1. there are at least 2 parties 2. each party has something that might be of value to the other party 3. each party is capable of communication and delivery 4. each party is free to accept or reject the exchange offer 5. each party believes it is appropriate or desirable to deal with the other party Transaction involves at least two things of value, agreed-upon conditions, a time of agreement, and a place of agreement. Relationship and networks Relationship marketing aims to build long-term mutually satisfying relations with key parties, which ultimately results in marketing network between the company and its supporting stakeholders. Marketing channels - Communication channels Deliver messages to and receive messages from target buyers. Includes traditional media, non-verbal communication, and store atmospherics - Distribution channels Display or deliver the physical products or services to the buyer / user. - Service channels Carry out transactions with potential buyers by facilitating the transaction. Supply chain A supply chain stretches from raw materials to components to final products that are carried to final buyers. Each company captures only a certain percentage of the total value generated by the supply chain. Competition Four levels of competition can be distinguished by the level of product substitutability: – Brand competition – Industry competition – Form competition – Generic competition Marketing environment The following forces in the broad environment have a major impact on the task environment: – Demographics – Economics – Natural environment – Technological environment – Political-legal environment – Social-cultural environment Marketing program The marketing program is developed to achieve the company’s objectives. Marketing mix decisions include: Product: provides customer solution. Price: represents the customer’s cost. Place: customer convenience is key. Promotion: communicates with customer. Several competing orientations exist: – Production concept – Product concept – Selling concept – Marketing concept – Customer concept – Societal marketing concept Changes in the Marketplace Globalization, technological advances, and deregulation have created many challenges: – Customers – Brand manufacturers – Store-based retailers Both companies and marketers have been forced to respond and adjust. CHAPTER 2 Adapting Marketing to the New Economy 4 major drivers of the New Economy Digitalization and connectivity – The Internet, intranets & extranets are key Disintermediation and reintermediation Customization and customerization Industry convergence Changes in Business Practices Old Economy – Product unit organization – Profitable transactions – Financial scorecard – Stockholders – Marketing does the marketing New Economy – Customer segment organization – Lifetime value of customer – Marketing scorecard – Stakeholders – Everyone does the marketing Old Economy – Build brands via advertising – Customer acquisition – No customer satisfaction measurement – Overpromise, underdeliver New Economy – Build brands via performance – Customer retention – Measure customer satisfaction and retention rates – Underdeliver, overpromise How Marketing Practices are changing: E-business Business practices are changing . . . – E-business uses electronic means and platforms to conduct business. – E-commerce web sites facilitate the online sale of products and services. – E-purchasing from online suppliers. – E-marketing efforts include those that inform, communicate, promote, and sell products and services over the Internet. CHAPTER 3 Building customer satisfaction, value and retention. Customer Value Customers seek to maximize value by – estimating which offer (product/firm) delivers the most value (CPV) – forming an expectation of value and acting upon it (purchase) – evaluating their usage experience against the expectations Satisfaction results when expectations are equaled or surpassed Customer Perceived Value Perception of delivered value is a function of: – Total customer costs – Total customer value Firms at a disadvantage must: – Reduce perceptions of costs or enhance perceptions of value Customer Satisfaction To maximize satisfaction . . . Don’t exaggerate the product / service’s capabilities in advertising or other communications - Dissatisfaction will result - FTC may become involved Don’t set expectations too low -Market size will be limited High Performance Businesses Stakeholders - Identify several stakeholder groups for your University - How might the needs of these groups conflict with each other? Processes - New product development - Customer attraction and retention - Order fulfillment - Reengineering work flows - Building cross functional teams Resources - Resources include labor, materials, machines, energy, and information - Outsourcing vs. ownership: Own and nurture core competencies Organization - Organization refers to the organization’s policies, structures, and corporate culture - Corporate culture: shared experiences, stories, beliefs, and norms within an organization DELIVER CUSTOMER VALUE AND SATISFACTION Value chain The value chain identifies nine strategically relevant activities that create value and cost in a business. The five core business processes are: - Market Sensing - Customer Acquisition - Customer Relationship Management - Fulfillment Management - New Offering Realization Customer Retention Reducing customer churn (defection) is highly desirable – Define and measure retention rate – Identify causes of attrition – Estimate profit lost from customer defection (customer lifetime value) – Estimate cost to reduce defection; take appropriate action Losing profitable customers can hurt profits, so companies need to examine the percentage of customers who defect. Winning back lost costumers is an important marketing activity since it often costs less than attracting new costumers. Customer relationship marketing The key to retaining profitable customers is relationship marketing. The goal of relationship marketing is to produce high customer equity. We distinguish three drivers of customer equity: - Brand Equity - Relationship Equity - Value Equity There five levels of investment in customer relationship building: 1. basic marketing 2. reactive marketing 3. accountable marketing 4. proactive marketing 5. partnership marketing CHAPTER 4 WINNING MARKETS THROUGH STRATEGIC PLANNING, IMPLEMENTATION AND CONTROL Nature of Strategic Planning Strategic planning requires actions in three key areas: 1. managing a company’s business as an investment portfolio 2. Involves assessing each business’s strength by considering the market’s growth rate and the company’s position and fit in that market. 3. Establishing a strategy for each business as a game plan for achieving long term objectives. Strategic planning takes place at the corporate, division, business unit and product levels Marketing plans operate at strategic and tactical levels The strategic marketing plan lays out the target markets and the value proposition that will be offered based on an analysis of the best market opportunities. The tactical marketing plan specifies the marketing tactics, including product features, promotion, merchandising, pricing, channels and service. Corporate and Division Strategic Planning Planning activities include: – Defining the Corporate Mission – Establishing Strategic Business Units (SBUs), and Assigning Resources to SBUs – Planning New Businesses, Downsizing Older Businesses Mission statements define the company’s major competitive scopes: - Industry scope - Products and applications scope - Competence scope - Vertical scope - Market-segment scope - Geographical scope Strategic Business Units share three characteristics: – Single business or collection of businesses which can be managed separately – Has own set of competitors – Has manager responsible for strategic planning and profits SBUs are treated as investment portfolios. Resources are allocated by: – The BCG Growth-Share Matrix Stars Cash Cows Question Marks Dogs – The General Electric Market-Attractiveness Model zie pag. 63 Planning New Businesses and Downsizing Old Businesses – Involves taking advantage of one or more of the following: - Intensive growth - Integrative growth - Diversification growth - Harvesting or divesting old businesses Planning Involves Eight Steps: - Business Mission - SWOT Analysis: Internal - SWOT Analysis: External - Goal Formulation - Strategy Formulation - Program Formulation - Implementation - Feedback and Control SWOT Analysis Opportunities and threats stemming from the external environment - Monitoring key forces for trends - For each trend, conduct an MOA - Marketing Opportunity Analysis Internal strengths and weaknesses - Brand awareness, image, and reputation - Distribution, pricing, customer loyalty, product benefits - Finance, R&D, manufacturing Effective goals should be formulated so that they are: – Arranged hierarchically from broader to more specific objectives – Stated in quantitative terms – Realistic – Consistent with each other and the company mission Strategy dictates the game plan for achieving goals. Porter’s generic strategies offer a starting point for strategic thinking: – Overall cost leadership – Differentiation – Focus Program formulation and implementation involves: – Developing supporting programs – Estimating implementation costs – Carefully managing the details so great strategy isn’t ruined by poor implementation Feedback and control is crucial The Marketing Process Two Views of the Value Delivery Process: – Traditional physical process sequence Make the product . . . Sell the product – Value creation and delivery sequence Choose the value . . . Provide the value . . . Communicate the value Steps in the Marketing Process: – Analyzing market opportunities – Developing marketing strategies – Planning marketing programs – Managing the marketing effort Marketing Plan Contents Executive summary and TOC Current situation Opportunity and issue analysis Objectives Marketing strategy Action programs Financial projections Controls CHAPTER 5 Understanding Markets, Market Demand, and the Marketing Environment A Marketing Information System is defined as . . . “people, equipment, and procedures that gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers.” Marketing Information Systems compile information from: – Internal records systems – Marketing intelligence systems – Marketing research – Marketing decision support analysis Internal Records Systems – Order-to-payment cycle is key – Timely sales reports help to better manage inventory – Customer, product, salesperson and other databases can be mined for fresh insights Marketing intelligence systems is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment. Improving the Quality of Marketing Intelligence System Data Requires: – – – – – – Training and motivating sales force to report developments Motivating channel members to share important intelligence Collecting competitive intelligence Developing a customer advisory panel Purchasing information from commercial data sources Establishing a marketing information center within the company Marketing research Is the systematic design, collection, analysis and reporting of data and findings that are relevant to a specific marketing situation facing the company. The process: – Defining the problem and research objectives – Developing the research plan – Collecting the information – Analyzing the information – Presenting the findings – Making the decision Developing the Research Plan Involves: – Gathering secondary and primary data – Selecting one or more research approaches for primary data collection – Using the appropriate research instrument – Developing a sampling plan – Determining subject contact methods Approaches for primary data collection include: – Observational research – Focus-group research – Survey research – Behavioral data – Experimental research Forecasting and Demand Measurement Essential Aspects The market Market Potential market Available market Target market (served market) Qualified available market Penetrated market Measuring demand Market demand – Market minimum – Market forecast – Market potential – No expansible vs. expansible markets – Primary vs. secondary demand Market forecast Market potential Company demand and sales forecasts Company demand Company sales forecast Sales quota Sales budget Company sales potential Current demand Total market potential Area market potential – Market-buildup method Future demand Many Forecasting Methods: Buyer intentions survey Composite of sales force opinions Expert opinion Past-sales analysis Market-test method Chapter 6 Analyzing Consumer Markets and Buyer Behavior How and Why Consumers Buy Buying behavior is influenced by: – Cultural factors – Social factors – Personal factors – Psychological factors Cultural – Exert broadest and deepest influence – Culture – Subculture – Social classes Social Reference groups – Membership -Primary vs. secondary – Aspirational vs. dissociative Family Social roles and statuses Personal – – – – – – Age Stage in life cycle Occupation Economic circumstances Lifestyle Personality – Self-concept Psychological – Motivation – Perception – Learning – Beliefs – Attitudes Consumer Buying Decision Process In addition to understanding how these factors influence consumers, marketers must identify and understand: – Who makes the buying decision – The types of buying decisions – The stages in the buying process Buying roles – Initiator – Influencer – Decider – Buyer – User Buying behavior – Complex buying behavior – Dissonance-reducing buying behavior – Habitual buying behavior – Variety-seeking buying behavior Buying decision process – Problem recognition – Information search – Evaluation of alternatives – Purchase decision – Post purchase behavior Postpurchase Behavior: – Consumers’ expectations are compared to performance – Postpurchase satisfaction influences future behavior Purchasing behavior Word-of-mouth communications Marketers should attempt to influence and monitor post purchase behavior – Post purchase communications reduce dissonance, returns, and order cancellations – Talk with customers to discover new uses for existing products – Investigate methods of product disposal Chapter 8 Dealing with the Competition Competitive Markets Porter’s Five Forces that Determine Market Attractiveness: – Threat of intense segment rivalry – Threat of new entrants – Threat of substitute products – Threat of buyers’ growing bargaining power – Threat of suppliers’ growing bargaining power Failing to identify competitors can lead to extinction. Internet businesses have led to disintermediation of middlemen Competition can be identified using the industry or market approach Industries Can Be Classified By: Number of sellers and degree of differentiation Cost structure Entry, mobility and exit barriers Degree of vertical integration Degree of globalization Industry Structures: Pure Monopoly Only one firm offers an undifferentiated product or service in an area – Unregulated – Regulated Example: Most utility companies Pure Oligopoly A few firms produce essentially identical commodities and little differentiation exists Lower costs are the key to higher profits Example: oil Differentiated Oligopoly A few firms produce partially differentiated items Differentiation is by key attributes Premium price may be charged Example: Luxury autos Monopolistic Competition Many firms differentiate items in whole or part Appropriate market segmentation is key to success Example: beer, restaurants Pure Competition Many competitors offer the same product Price is the same due to lack of differentiation Example: farmers selling milk, crops A broader group of competitors will be identified using the market approach Competitor maps plot buying steps in purchasing and using the product, as well as direct and indirect competitors Competitor Analysis Key characteristics of the competition must be identified: – Strategies – Objectives – Strengths and Weaknesses Effect a firm’s competitive position in the target market – Reaction Patterns Competitive Positions in the Target Market Dominant This firm controls the competitors’ behavior and has many strategic options. Strong This firm can take independent action without endangering its long-term position and can maintain its long-term position regardless of competitors’ actions. Favorable This firm has an exploitable strength and a better opportunity to improve its position. Tenable This firm’s performance is sufficient for it to remain in business, but it exists at the sufferance of the dominant company and has less opportunity to improve its position. Weak This firm has unsatisfactory performance and an opportunity for improvement; it must change or exit Nonviable This firm has unsatisfactory performance and no opportunity to improvement. Designing the system involves: – Setting up the system – Collecting the data – Evaluating and analyzing the data – Disseminating information and responding to queries Value analysis helps firms to select competitors to attack and to avoid – Customers identify and rate attributes important in the purchase decision for the company and competition Attacking strong, close, and bad competitors will be most beneficial Designing Competitive Strategies Major Strategies: Market-Leader Expanding the total market: o Targeting Product to New Users Market-penetration strategy New-market strategy Geographical-expansion strategy o Promoting New Uses of Product o Encouraging Greater Product Use Defending market share: Position defense This approach involves building superior brand power, making the brand almost impregnable. Flank defense The market leader should also erect outposts to protect a weak front or possible serve as an invasion base for counterattack. Preemptive defense A more aggressive maneuver is to attack before a rival starts its offense. Counteroffensive defense When attacked, most leaders will counterattack. One effective counterattack is to invade the attacker’s main market so it will have to defend its territory. Mobile defense The leader stretches its domain over new territories that can serve as future centers for defense and offense. Contraction defense Large companies sometimes realizes that they can no longer defend all territory. The best course of action then appears to be planned contraction( strategic withdrawal) giving up weaker territories and reassigning resources to stronger territories. Expanding market share Before Attempting to Expand Market Share, Consider: Probability of invoking antitrust action Economic costs involved Likelihood that marketing mix decisions will increase profits Market-Challenger First define the strategic goals and opponent(s) Choose general attack strategy Frontal attacks match competition Flank attacks serve unmet market needs or underserved areas Encirclement “blitzes” opponent Bypassing opponent and attacking easier markets is also an option Choose specific attack strategy Price-discount Lower-price goods Prestige goods Improved services Product proliferation Product innovation Distribution innovation Manufacturing cost reduction Intensive advertising promotion Market-Follower Imitation may be more profitable than innovation Four broad strategies: – Counterfeiter – Cloner – Imitator – Adapter Market-Nicher Niche specialties: – End-user – Vertical-level – Customer-size – Specific customer – Geographic – Product/product line – Product feature – Job-shop – Quality-price – Service – Channel Balancing Customer and Competitor Orientations Competitor-centered companies evaluate what competitors are doing, then formulate competitive reactions Customer-centered companies focus on customer developments when formulating strategy Chapter 9 Identifying Market Segments and Selecting Target Markets Target Marketing Target marketing requires marketers to take three major steps: – Market segmentation: Identifying and profiling distinct groups of buyers who differ in their needs and preferences. – Market targeting: Selecting one or more market segments to enter. – Market positioning: Establishing and communicating the key distinctive benefit(s) of the company’s market offering to each target. Using Market Segmentation Mass marketing is losing popularity Micromarketing can be undertaken at four levels: – Segment marketing – Niche marketing – Local marketing – Individual marketing Three patterns of preference segments are typically identified: – Homogeneous preferences – Diffused preferences – Clustered preferences Needs-based Segmentation Process Needs-based segmentation Segment identification Segment attractiveness Segment profitability Segment positioning Segment “acid test Marketing-mix strategy Useful market segments share certain characteristics: – Measurable – Substantial – Accessible – Differentiable – Actionable Segmenting Consumer Markets Bases for Segmentation: Geographic Nation or country State or region City or metro size Density Climate Demographic Age, race, gender Income, education Family size Family life cycle Occupation Religion, nationality Generation Social class Psychographic Lifestyle Activities Interests Opinions Personality Core values Behavioral Occasions Benefits User status Usage rate Loyalty status Buyer-readiness Attitude Market Targeting Strategies Targeting multiple segments may result in cost economies Super segment targeting may be appropriate Blocked markets often require megamarketing countermeasures Be aware of ethical concerns Chapter 10 Developing, Positioning, and Differentiating Products through the Life Cycle New Product Development What is a “New” Product? – New-to-the-world products – New product lines – Additions to existing product lines – Improvements and revisions of existing products – Repositioned products – Cost reduction products New Product Failure is Rampant: – 95% of new U.S. consumer products – 90% of new European consumer products Reasons for failure include ignoring unfavorable market research, overestimating market size, marketing mix decision errors, and stronger than anticipated competitive actions Successful new products: – Offer a strong relative advantage – Reflect better understanding of customer needs, and beat the competition to market – Exhibit higher performance-to-cost ratios and higher contribution margins – Are launched with larger budgets – Have stronger top management support Managing New Products New Product Development Process: Ideas to Commercialization Idea generation Idea screening Concept development Concept testing Marketing strategy development Business analysis Product development Market testing Commercialization Consumer Adoption Process Adopters of new products move through five stages: – Awareness – Interest – Evaluation – Trial – Adoption People adopt new products at different rates – Innovators – Early adopters – Early majority – Late majority – Laggards Five product characteristics influence the rate of adoption: – Degree of relative advantage – Degree of compatibility – Degree of complexity – Degree of divisibility (trialability) – Degree of communicability Stages of the Product Life Cycle Introduction Low sales High costs per customer Negative profits Innovator customers Few competitors Growth Rising sales Average costs Rising profits Early adopters customers Growing competition Maturity Peak sales Low costs High profits Middle majority customers Stable/declining competition Decline Declining sales Low costs Declining profits Laggard customers Declining competition Objectives and Strategies for the Product Life Cycle Introduction Objective: to create awareness and trial Offer a basic product Price at cost-plus Selective distribution Awareness – dealers and early adopters Induce trial via heavy sales promotion Growth Objective: maximize market share Offer service, product extensions, warranty Price to penetrate Intensive distribution Awareness and interest – mass market Reduce promotions due to heavy demand Maturity Objective: maximize profit while defending market share Diversify brands/items Price to match or beat competition Intensive distribution Stress brand differences and benefits Increase promotions to encourage switching Decline Objective: reduce costs and milk the brand Phase out weak models Cut price Selective distribution Reduce advertising to levels needed to retain hard-core loyalists Reduce promotions to minimal levels Positioning and Differentiation Two views of positioning: – Ries and Trout: products are positioned in the mind of prospect – Treacy and Wiersema: positioning via value disciplines Product leader firm Operationally excellent firm Customer intimate firm Positioning statements: – To (target group and need) our (brand) is (concept) that (point-of-difference) Example: To young, active soft-drink consumers who have little time for sleep, Mountain Dew is the soft drink that gives you more energy than any other brand because it has the highest level of caffeine. Differentiated products feature meaningful and valuable differences that distinguish the company’s offering from the competition. Differences are stronger when they are important, distinctive, superior, preemptive, affordable, and profitable Product Differentiation Tools Form Features Performance Conformance Durability Reliability Repairability Style Design Services Differentiation Tools Ordering ease Delivery Installation Customer training Customer consulting Maintenance and repair Miscellaneous Personnel Differentiation Tools Competence Courtesy Credibility Reliability Responsiveness Communication Channel Differentiation Tools Coverage Expertise Performance Image Differentiation Tools Symbols Media Atmosphere Events Chapter 11 Setting Product and Brand Strategy The Product and Product Mix Potential customers judge product offerings according to three elements: – Product features and quality – Services mix and quality – Value-based prices Marketers plan their market offering at five levels. The customer value hierarchy: – Core benefit – Basic product – Expected product – Augmented product – Potential product Product Classifications Durability and tangibility Nondurable Tangible Rapidly consumed Example: Milk Durable Tangible Lasts a long time Example: Oven Services Intangible Example: Tax preparation Consumer goods Classified by shopping habits: Convenience goods Shopping goods Specialty goods Unsought goods Industrial goods Materials and parts Farm products Natural products Component materials Component parts Capital items Installations Equipment Supplies and business services Maintenance and repair Advisory services Product mix dimensions: Width: number of product lines Length: total number of items in mix Depth: number of product variants Consistency: degree to which product lines are related Product-Line Decisions Product-Line Analysis Product-Line Length Product-Line Modernization, Featuring, and Pruning Brand Decisions The AMA definition of a brand: “A name, term, sign, symbol, or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from the competition.” Brands can convey six levels of meaning: – Attributes – Benefits – Values – Culture – Personality – User Brand identity decisions include: – Name – Logo – Colors – Tagline – Symbol Consumer experiences create brand bonding, brand advertising does not. Marketers should attempt to create or facilitate awareness, acceptability, preference, and loyalty among consumers. Valuable and powerful brands enjoy high levels of brand loyalty. Five levels of customer attitudes toward brands: – Will change brands, especially for price. No brand loyalty. – Satisfied -- has no reason to change. – Satisfied -- switching would incur costs. – Values brand, sees it as a friend. – Devoted to the brand. Brand equity refers to the positive differential effect that a brand name has on customers. Brand equity: – is related to many factors. – allows for reduced marketing costs. – is a major contributor to customer equity. Key Challenges To brand or not Advantages of branding: Facilitates order processing Trademark protection Aids in segmentation Enhances corporate image Branded goods are desired by retailers and distributors Brand sponsor Options include: Manufacturer (national) brand Distributor (reseller, store, house, private) brand Licensing the brand name Brand name Strong brand names: – Suggest benefits – Suggest product qualities – Are easy to say, recognize, and remember – Are distinctive – Should not carry poor meanings in other languages Brand strategy Varies by type of brand Functional brands Image brands Experiential brands Line extensions Brand extensions Multibrands New brands Co-branding Brand auditing and repositioning A brand report card can be used to audit a brand’s strengths and weaknesses. Changes in preferences or the presence of a new competitor may indicate a need for brand repositioning Chapter 13 Designing Pricing Strategies and Programs Names for prices: Rent Tuition Fare Monthly payment Fee Dues Interest Donation Setting the Price Select pricing objective Survival Maximize current profits Maximize market share Penetration strategy Market skimming Skimming strategy Product quality leaders Partial cost recovery Determine demand Understand factors that affect price sensitivity Estimate demand curves Understand price elasticity of demand o Elasticity o Inelasticity Conditions under Which Consumers are Less Price Sensitive: Product is more distinctive Buyers are less aware of substitutes Buyers cannot easily compare quality of substitutes The expenditure is a lower part of buyer’s total income The expenditure is small compared to the total cost Part of the cost is borne by another party The product is used with assets previously bought The product is assumed to have more quality, prestige, or exclusiveness Buyers cannot store the product Conditions under Which Demand is Less Elastic: There are few or no substitutes Buyers do not readily notice the higher price Buyers are slow to change their buying habits and search for lower prices Buyers think higher prices are justified Estimate costs Types of costs and levels of production must be considered Accumulated production leads to cost reduction via the experience curve Differentiated marketing offers create different cost levels Key Pricing Terms: Fixed costs: do not vary directly with changes in level of production Variable costs: vary with production Total costs: sum of fixed and variable costs a given level of production Average cost: cost per unit at a given level of production Analyze competition Firms must analyze the competition with respect to: – Costs – Prices – Possible price reactions Pricing decisions are also influenced by quality of offering relative to competition Select pricing method Price-setting begins with the three “C’s” Select method: – Markup pricing – Target-return pricing – Perceived-value pricing – Value pricing – Going-rate pricing – Auction-type pricing – Group pricing Select final price Requires consideration of additional factors: – Psychological pricing – Gain-and-risk-sharing pricing – Influence of other marketing mix variables – Company pricing policies – Impact of price on other parties Chapter 14 Designing and Managing Value Networks and Marketing Channels Value Networks and Marketing Channel Systems A Value Network is a system of partnerships and alliances used by a firm to source, augment, and deliver its product or service offerings. Intermediaries that help get the product from manufacturer to consumer or end users form the Marketing Channel(s). Work Performed by Channels Producers establish marketing channels for a variety of reasons: – Producers lack financial resources necessary for direct marketing – Direct marketing is not feasible for many offerings – Using channels frees money for investment in main business – Intermediaries are more efficient Channel members perform a number of key functions: – Forward flow functions: Develop / disseminate communication Store and move the physical products Oversee transfer of ownership – Backward flow functions: Place orders with manufacturers Facilitate payment of bills Other key functions performed by channel members include those that flow both ways: – Forward and backward flow functions: Gather information Negotiate price and transfer of ownership Finance inventories Assume risk Channel levels vary according to the number of intermediaries: – Zero-level (direct marketing) channel – One, two, and three-level channels – Reverse flow channels Service sector channels use agencies and locations to access population to be served Channel-Design Decisions Push vs. pull strategy Analyzing consumers’ desired service output levels o Lot size, waiting time, product variety, spatial convenience, service backup Establishing objectives / constraints Identifying and then evaluating major channel alternatives Channel Factors: Intermediary type Merchants – Buy, take title, and resell merchandise Agents – Find customers, negotiate, do not take title to merchandise Facilitators – Aid in distribution, do not negotiate or take title to merchandise Number of intermediaries Exclusive distribution o Severely limited distribution Selective distribution o Some intermediaries willing to carry good are selected Intensive distribution o Offering is placed in as many outlets as possible. Terms and responsibilities of intermediaries Price policies o Price list and schedule of discounts Conditions of sale o Payment terms and guarantees Territorial rights o Define territory / terms Services to be performed by party Channel-Design Decisions Channel Alternative Evaluation Criteria: – Economic criteria Sales and costs vs. added value – Control criteria – Adaptive criteria After choosing a particular channel alternative, firms take several actions Channel Development Process Select channel members Train channel members Motivate channel members Evaluate channel members Modify channel arrangements Channel systems are constantly evolving and developing Vertical Marketing Systems o Corporate VMS o Administered VMS o Contractual VMS Horizontal Marketing Systems Multichannel Marketing Systems Conflict, Cooperation, & Competition Types of conflict Vertical, horizontal, and multichannel Causes of conflict Major causes: Goal incompatibility; unclear roles and rights Other potential causes exist Managing channel conflict Managing Channel Conflict Subordinate goal adoption Exchange people between channel levels Cooptation Diplomacy Mediation Arbitration Legal and Ethical Issues in Channel Relations Two common distribution practices are legal as long as they don’t substantially lessen competition: Exclusive dealing Tying agreements Chapter 16 Designing and Managing Integrated Marketing Communications Marketing Communications Communications Platforms: Advertising Sales Promotion Public relations Direct marketing Personal selling Developing Effective Marketing Communications Steps in Marketing Communications Program Development: Identify target audience – Includes assessing the audience’s perceptions of the company, product, and competitors’ company/product image Determine objectives of communication Cognitive, affective, and behavioral objectives may be set Design the message AIDA model guides message design Message Design Content o Message content decisions involve the selection of appeal, theme, idea, or USP o Types of appeals o Rational appeals o Emotional appeals o Moral appeals Structure o One-sided vs. two-sided messages o Order of argument presentation Format Message format decisions vary with the type of media, but may include: o Graphics, visuals o Headline, copy or script o Sound effects, voice qualities o Shape, scent, texture of package Source o Message source characteristics can influence attention and recall o Factors underlying perceptions of source credibility: o Expertise o Trustworthiness o Likability Select communication channels – Personal communication channels o Effectiveness derives from personalization and feedback o Several methods of stimulating personal communication channels exist – Nonpersonal communication channels o Influence derives from two-step flow-of-communication process Methods of Stimulating Personal Communication Devoting extra effort to influential individuals or companies Creating opinion leaders Working through influential community members Using influential people in testimonial advertising Developing advertising with high “conversation value” Use viral marketing Developing word-of-mouth referral channels Establishing an electronic forum Establish the budget – Affordability method – Percentage-of-sales method – Competitive-parity method – Objective-and-task method Select the marketing communications mix Types of promotional tools Advertising Sales promotion Public relations and publicity Direct marketing Personal selling Selection factors Consumer vs. business market Stage of buyer readiness Stage of product life cycle Market rank Measure results – Recognition, recall, attitudes, behavioral responses Manage the IMC process Provides stronger message consistency and greater sales impact Improves firms’ ability to reach right customers at right time with right message Developing and Managing the Advertising Campaign The Five Ms of Advertising: Mission Objectives can be classified by aim: – Inform – Persuade – Remind – Reinforce Money Factors considered when budget-setting: – Stage of product life cycle – Market share and consumer base – Competition and clutter – Advertising frequency – Product substitutability Message Factors considered when choosing the advertising message: – Message generation – Message evaluation and selection – Message execution – Social responsibility review Media Developing media strategy involves: – Deciding on reach, frequency, and impact – Selecting media and vehicles – Determining media timing – Deciding on geographical media allocation Major Media Types Newspapers Television Direct mail Radio Magazines Outdoor Yellow pages Newsletters Brochures Telephone Internet Deciding on Media Categories Target audience’s media habits, nature of the product and message, cost Media Timing Decisions Macroscheduling vs. microscheduling Continuity, concentration, flighting, and pulsing scheduling options Deciding on Geographical Allocation Measurement Evaluating advertising effectiveness – Communication-effect research – Sales-effect research Sales Promotion Sales promotions are short-term incentives designed to stimulate purchase among consumers or trade Purpose of sales promotion – Attract new triers or brand switchers – Reward loyal customers – Increase repurchase rates Steps in Sales Promotion Program Development: Establish objectives Select consumer-promotion tools Select trade-promotion tools Select business- and sales force promotion tools Develop the program Pretest the program Implement and evaluate the program Major Consumer-Promotion Tools Samples Coupons Cash refunds (rebates) Premiums Prizes (contests, sweepstakes, games) Patronage awards Free trials Product warranties Tie-in promotions Cross-promotions Point-of-purchase displays and demonstrations Public Relations Public relations activities promote or protect the image of a firm or product Public relations functions: – Press relations – Product publicity – Corporate communications – Lobbying – Counseling Marketing Public Relations (MPR) Plays an important role in New product launches Repositioning of mature brand Building interest in product category Influencing specific target groups Defending products with public problems Building the corporate image Three Major MPR Decisions Major Public Relations Tools Publications Events Sponsorships News Speeches Public-service activities Identity media Chapter 17 Managing the Sales Force Designing the Sales Force Types of Sales Representatives: Deliverer Order taker Missionary Technician Demand creator Solution vendor Steps in process: Objectives and strategy Objectives Sales volume and profitability Customer satisfaction Strategy Account manager Type of sales force Direct (company) or contractual Structure Types of sales force structures: – Territorial – Product – Market – Complex Key accounts Sales force size Workload approach: – Group customers by volume – Establish call frequencies – Calculate total yearly sales call workload – Calculate average number of calls/year – Calculate number of sales representatives Compensation Four components of compensation: – Fixed amount – Variable amount – Expense allowances – Benefits Compensation plans – Straight salary – Straight commission – Combination Managing the Sales Force Steps in Sales Force Management Recruitment and selection Training Supervising Motivating Evaluating Recruiting begins with the development of selection criteria Customer desired traits Traits common to successful sales representatives Selection criteria are publicized Various selection procedures are used to evaluate candidates Training topics include: Company background, products Customer characteristics Competitors’ products Sales presentation techniques Procedures and responsibilities Training time needed and training method used vary with task complexity Successful firms have procedures to aid in evaluating the sales force: – Norms for customer calls – Norms for prospect calls – Using sales time efficiently Tools include configuration software, time-and-duty analysis, greater emphasis on phone and Internet usage, greater reliance on inside sales force Motivating the Sales Force – Most valued rewards Pay, promotion, personal growth, sense of accomplishment – Least valued rewards Liking and respect, security, recognition – Sales quotas as motivation tools – Supplementary motivators Evaluating the Sales Force – Sources of information Sales or call reports, personal observation, customer letters and complaints, customer surveys, other representatives – Formal evaluation Performance comparisons Knowledge assessments Personal Selling Principles Major Aspects: Sales professionalism Sales-oriented approach Stresses high pressure techniques Customer-oriented approach Stresses customer problem solving Steps in industrial selling process Prospecting and qualifying Preapproach Approach Presentation and demonstration Overcoming objections Closing Follow-up and maintenance (servicing) Negotiation Reps need skills for effective negotiation Negotiation is useful when certain factors characterize the sale Negotiation strategy Principled BATNA Relationship marketing Building long-term suppler-customer relationships has grown in importance Companies are shifting focus away from transaction marketing to relationship marketing