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Chapter 1 - Understanding Marketing and the Marketing Process Marketing Activities What is Marketing? Marketing is a social and managerial process whereby individuals and groups obtain what they need and want through creating and exchanging products and value with others. Core Marketing Concepts Needs – states of felt deprivation Wants – human needs shaped by culture and individual personality Demands – Human wants backed by buying power Product - any good, service, or idea that satisfies a need or want and can be offered in an exchange Good - a tangible object - can be seen and touched when used Service - an intangible product - involves human or mechanical effort Idea - a philosophy, concept, or image Customer Value – the difference between the values the customer gains from owning and using a product and the costs of obtaining it. Customer Satisfaction – the extent to which a product’s perceived performance matches a buyer’s expectations Quality – Freedom from defects Exchange – The act of obtaining a desired object from someone by offering something in return Transaction – A trade between two parties that involves at least two things of value, agreed upon conditions, a time of agreement, and a place of agreement. Relationship Marketing - the process of creating, maintaining and enhancing strong value-laden relationships with customers and other stakeholders. Who Purchases Products and Services? Market – Buyers who share a particular need or want that can be satisfied through exchange or relationships Modern Marketing System (Fig. 1-3) Marketing Management Philosophies Societal Marketing Concept Societal Marketing Concept • Marketing Challenges in the New “Connected” Millennium Technologies for Connecting The Internet The Internet has been hailed as the technology behind a new model for doing business. • New applications include: – Internet – connecting with customers, – Intranets – connecting with others in the company, and – Extranets – connecting with strategic partners, suppliers, and dealers. • Purchasing will be over $1.4 trillion in 2003. • 400,000 companies are now using the Internet to do business. • Connections With Customers Most marketers are targeting fewer, potentially more profitable customers. • Asking: – What value does the customer bring to the organization? – Are they worth pursuing? • Focus has shifted to: – keeping current customers, and – building lasting relationships based on superior satisfaction and value. • Direct Connections With Customers Many companies use technologies to let them connect more directly with their customers. – Products available via telephone, mail-order catalogs, kiosks and e-commerce. – Some firms sell only via direct channels (i.e. Dell Computer, www.Amazon.com), others use a combination. • Direct marketing is redefining the buyer’s role in connecting with sellers. – Buyers are active participants in shaping the marketing offer and process; some buyers design their own products online such as at www.LandsEnd.com. Chapter 2 - Strategic Planning and the Marketing Process Formal Planning Many companies operate without formal plans, yet these plans can provide many benefits such as: - Strategic Planning - is the Process of Developing and Maintaining a Strategic Fit Between the Organization’s Goals and Capabilities and Its Changing Marketing Opportunities. and Capabilities and Its Changing Marketing Opportunities. Steps in Strategic Planning(Fig. 2.1) The Mission Statement - a formal statement that describes what management wants the organization to be and the guidelines for getting there. Components of a Good Mission Statement Examples of a Mission Statement Organizational Objectives Organizational Strategies Designing the Business Portfolio The business portfolio is the collection of businesses and products that make up the company. The company must: analyze its current business portfolio or Strategic Business Units (SBU’s) decide which SBU’s should receive more, less, or no investment develop growth strategies for adding new products or businesses to the portfolio Analyzing Current SBU’s: Boston Consulting Group (BCG) Approach High High Low Low Analyzing Current SBU’s: GE’s Strategic Business-Planning Grid Strong Average Weak High Medium Low Problems With Matrix Approaches Developing Growth Strategies in the Age of Connectedness Existing Products Existing Markets New Markets New Products The Marketing Process (Fig. 2.5) Connecting With Customers Market Segmentation: determining distinct groups of buyers (segments) with different needs, characteristics, or behavior. Market Targeting: evaluating each segment’s attractiveness and selecting one or more segments to enter. Market Positioning: arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. The 4 P’s & 4C’s of the Marketing Mix 4 P’s Product Price Place Promotion 4 C’s Customer Solution Customer Cost Convenience Communication Managing the Marketing Effort (Fig 2.7) Marketing Analysis of Company’s Situation Marketing Implementation Marketing Planning Control Measure Develop Strategic Plans Results Carry Out The Plans Develop Marketing Plans Contents of a Marketing Plan (Table 2.2) Executive Summary Current Marketing Situation Threats and Opportunity Analysis Objectives and Issues Marketing Strategy Action Programs Budgets Controls Evaluate Results Take Corrective Action Chapter 3 - The Marketing Environment Marketing Environment- consists of the actors and forces outside marketing that affect marketing management’s ability to develop and maintain successful relationships with its target customers. Includes: Microenvironment – Macroenvironment Company’s Internal Environment - functional areas inside a company that have an impact on the marketing department’s plans. Figure 3.1 Suppliers - provide the resources needed to produce goods and services and are an important link in the “value delivery system”. Marketing Intermediaries - help the company to promote, sell, and distribute its goods to final buyers. i.e. resellers. Customers - five types of markets that purchase a company’s goods and services. Figure 3.2 Competitors - those who serve a target market with similar products and services against whom a company must gain strategic advantage. Publics - any group that perceives itself having an interest in a company’s ability to achieve its objectives. Figure 3.3 Major Forces in the Company’s Macroenvironment Demographic - studies populations in terms of size, density, location, age, gender, race, occupation and other statistics. Economic - factors that affect consumer purchasing power and spending patterns. Natural - natural resources needed as inputs by marketers or that are affected by marketing activities. Key U.S. Demographic Trends Changing Age Structure Changing American Family Geographic Shifts Better-Educated & More White-Collar Increasing Diversity Age Distribution of the U.S. Population Baby Boomer Generation Generation X Echo Boomer Generation (generation Y) Economic Development Changes in Income: Value Marketing Changing Consumer Spending Patterns Key Economic Concerns for Marketers Factors Affecting the Natural Environment The Company’s Macroenvironment Technological - forces that create new technologies, creating new product and market opportunities. Political - laws, agencies and pressure groups that influence and limit organizations and individuals in a given society. Cultural - institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors. Technological Environment Political Environment - Includes Laws, Government Agencies, Etc. that Influence & Limit Organizations/ Individuals in a Given Society Cultural Environment – cultural values of a society Responding to the Marketing Environment Advertorials Chapter 4 - Marketing Research and Marketing Information New Coke The Importance of Information Companies need information about their: - - The Explosion of Marketing Information What is a Marketing Information System (MIS)? A MIS consists of people, equipment, and procedures to gather, sort, analyze, evaluate and distribute needed, timely, and accurate information to marketing decision makers. The MIS helps managers to: Assess Information Needs, Develop Needed Information, Distribute Information. Assessing Information Needs The Value/Cost Trade-off Functions of a MIS: Developing Information Internal Data – Marketing Intelligence - Marketing Research - Sources of Information (Data) Internal sources of information: External sources of information (Marketing Intelligence): Functions of a MIS: Distributing Information Marketing Research The systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization. Marketing Research Process Step 1. Defining the Problem & Research Objectives Common Research Methods Marketing Research Methods Exploratory research – Gathers preliminary information that will help define the problem and suggest hypotheses. Descriptive Research - Describes things as market potential for a product or the demographics and consumers’ attitudes. Causal research - Test hypotheses about cause- and-effect relationships. Step 2. Develop the Research Plan Research plan development follows these steps: Determining Specific Information Needs Gathering Secondary information Internal : inside the company’s database External : Sources outside the Firm Planning Primary Data Collection Develop the Research Plan Gathering Secondary Information Secondary Data: information that has been previously collected for some other purpose Advantages Disadvantages Develop the Research Plan - Planning Primary Data Collection Primary Data: data that must be collected from original sources for the specific purpose at hand Observation - The gathering of primary data by observing relevant people, actions and situations (Exploratory) Survey Research - The gathering of primary data by asking people questions about their knowledge, attitudes, preferences, and buying behavior (Descriptive) Experimental Research - Using groups of people to determine cause-and-effect relationships (Causal) Primary Data Advantages Disadvantages Planning Primary Data Collection Develop the Research Plan Planning Primary Data Collection - Table 4.3 Online as a Research Contact Method Planning Primary Data Collection Sampling Decisions 1 2 3 4 Sampling Units Sampling Unit a single element or group of elements subject to selection in the sample Simple Random Sampling a sampling procedure that assures each element in the population of an equal chance of being included in the sample Stratified Sampling a probability sampling procedure in which simple random subsamples are drawn from within each stratum that are more or less equal on some characteristic Cluster Sampling an economically efficient sampling technique in which the population is divided into mutually exclusive groups (such as neighborhood blocks), and the researcher draws a random sample of the groups to interview Convenience Sampling the sampling procedure of obtaining those people or units that are most conveniently available. Judgment (purposive) Sampling a nonprobability sampling technique in which an experienced researcher selects the sample based on personal judgment about some appropriate characteristic of the sample member. Develop the Research Plan - Planning Primary Data Collection Research Instruments Presenting the Research Plan Summarize the plan in a written proposal and cover: Marketing Research Process - Step 3. Implementing the Research Plan Collecting the Data Processing the Data Analyzing the Data - Marketing Research Process - Step 4. Interpreting & Reporting Findings Researcher Should Present Important Findings that are Useful in the Major Decisions Faced by Management. Step 1 Step 2 Step 3 Online Report Delivery Other Marketing Research - Considerations Ethics In Marketing Research Common examples of unethical research practices: 1. Deception 2. Invasion of privacy 3. Reporting faulty conclusions 4. Disguising sales efforts as marketing research Chapter 5 – Consumer Markets and Buyer Behavior Harley Davidson Consumer Buying Behavior • Consumer Buying Behavior refers to the buying behavior of final consumers -individuals & households who buy goods and services for personal consumption. Model of Buyer Behavior (Fig. 5.1) Marketing & Other Stimuli Marketing Buyer’s Black Box Buyer Responses Other Factors Influencing CB (Fig. 5.2) Factors Affecting CB: Culture Culture – the set of basic values, perceptions, wants, and behaviors learned by a member of society from family and other important institutions Factors Affecting CB: Culture Major cultural shifts over the last 25 years: Subcultural Influences Subculture - Group of people with shared value systems based on common life experiences. Social Class Influence • Social Class – relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors. Factors Affecting Consumer Behavior: Social Factors Affecting CB: Personal Personal Influences Age and Life Cycle Stage Occupation Economic Situation Personality and Self-concept Lifestyle Identification Influences Activities Factors Affecting CB: Psychological Interests Opinions Maslow’s Hierarchy of Needs (Fig. 5.4) Buyer Decision Process (Fig. 5.6) Step 1. Need Recognition Desired State - Actual State - Step 2. Information Search Types of Information Search Internal - the acquisition of information that is available in memory External - the quest for information, relevant to the product, brand, or shopping behavior, not found in memory Prepurchase Search - Information seeking to make a better purchase decision Ongoing Search - Information search activities that are independent of needs or a purchase decision Sources of Information 1. 2. 3. 4. Step 3. Evaluation of Alternatives Steps Between Evaluation of Alternatives and Purchase Decision Step 4. Purchase Decision • Actual Purchase • Postpone Purchase Purchase Decision Step 5. Postpurchase Behavior Stages in the Adoption Process Awareness: Consumer is aware of product, but lacks information. Interest: Consumer seeks Information about new product. Evaluation: Consumer considers trying new product. Trial : Consumer tries new product on a small scale Adoption: Consumer decides to make regular use of product Adopter Categories (Fig. 5.7) Early Majority Innovators % of Adopters Adopter Categories (Fig. 5.7) Late Majority Early Adopters 34% 34% Laggards 16% 2.5% 13.5% Early Time of Adoption Late Chapter 6 – Business Markets and Business Buyer Behavior What is a Business Market? A business market comprises all the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. Characteristics of Business Markets Marketing Structure and Demand Types of Decisions and the Decision Process Model of Business Buyer Behavior (Fig. 6.1) The Environment The Buying Organization Buyer Responses Marketing Stimuli: The buying center Buying decision process (Interpersonal & individual influences) (Organizational Influences) Product or service choice Supplier Choice Order Quantities Delivery terms and times Service terms Payment •Product •Price •Place •Promotion Other Stimuli: •Economic •Technological •Political •Cultural •Competitive Business vs. Consumer Behavior Major Types of Buying Situations New Task Buying Modified Rebuy Straight Rebuy Participants in the Business Buying Process Major Influences on Business Buyer Behavior (Fig. 6.2) The Business Buying Process Environmental Economic developments Supply Conditions Technological change Political and regulatory developments Organizational Objectives Policies Procedures Stage 1. Problem Recognition Interpersonal Authority Status Organizational Structure Empathy Systems Persuasiveness Stage 2. General Need Description Individual Age Education Job Position Personality Risk Attitudes Buyers Competitive Developments Culture and customs Business Buying on the Internet Business buyers may purchase electronically by: Connecting to customers to: Stage 3. Product Specification Stage 4. Supplier Search Stage 5. Proposal Solicitation Stage 6. Supplier Selection Stage 7. Order-Routine Specification Stage 8. Performance Review Chapter 7 –Market Segmentation, Targeting, and Positioning for Competitive Advantage Steps in Market Segmentation, Targeting, and Positioning (Fig. 7.1) Market Segmentation 1. Identify bases for segmenting the market 2. Develop segment profiles Market Targeting 3. Develop measure of segment attractiveness 4. Select target segments Market Positioning 5. Develop positioning for target segments 6. Develop a marketing mix for each segment Step 1. Market Segmentation - Levels of Market Segmentation Through Market Segmentation, Companies Divide Large, Heterogeneous Markets into Smaller Segments that Can be Reached More Efficiently And Effectively With Products and Services That Match Their Unique Needs. Mass Marketing – Segment Marketing – Niche Marketing – focusing on subsegments or niches with distinctive traits Micromarketing – tailoring to the needs of individuals and locations local - individual - Geographic Segmentation World Region or Country City or Metro Size Density or Climate Demographic Segmentation Dividing the market into groups based on variables such as: Age Family size or life Occupation Gender cycle Education Income Religion Race Generation Nationality Psychographic Segmentation Divides Buyers Into Different Groups Based on: Behavioral Segmentation Dividing the market into groups based on variables such as: Occasions Usage rate Benefits Loyalty status User status Readiness stage Attitude toward product How could you segment the following markets? Segmentation Profile - Good segmentation analysis develops profile of consumer group which considers all relevant segmentation variables. Requirements for Effective Segmentation _______________ - Size, purchasing power, profiles of segments can be measured. _______________ - Segments can be effectively reached and served. _______________ - Segments are large or profitable enough to serve. _______________ - Segments must respond differently to different marketing mix elements & programs. _______________ - Effective programs can be designed to attract and serve the segments. Step 2. Market Targeting - Evaluating Market Segments Segment Size and Growth - Analyze current sales, growth rates and expected profitability for various segments. Segment Structural Attractiveness - Consider effects of: competitors, availability of substitute products and, the power of buyers & suppliers. Company Objectives and Resources - Company skills & resources needed to succeed in that segment(s). Look for Competitive Advantages. Market Coverage Strategies Choosing a Market-Coverage Strategy Company Resources Product Variability Product’s Stage in the Life Cycle Market Variability Competitor’s Marketing Strategies 80 - 20 Rule Positioning Perceptual vs. Physical Product’s Position - the way the product is defined by consumers on important attributes - the place the product occupies in consumers’ minds relative to competing products. Marketers must: Identifying Possible Competitive Advantages Key to winning and keeping customers is to understand their needs and buying processes better than competitors do and deliver more value. Competitive advantage is an advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits, that justify competitive advantage, Product Differentiation - Services Differentiation – Image Differentiation – Personnel Differentiation – Chapter 8 – Product and Services Strategy What is a Product? A Product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. Includes: What is a Service? A Service is a form of product that consist of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything. Examples include: Nature and Characteristic of a Service Intangibility - Can’t be seen, tasted, felt, heard, or smelled before purchase. Inseparability - Can’t be separated from service providers. Variability - Quality depends on who provides them and when, where and how. Perishability - Can’t be stored for later sale or use. Products, Services, & Experiences: The Product/Service Continuum Levels of Product Product Classifications Consumer Products Industrial Products Materials & Parts Capital Items Supplies & Services Individual Product Decisions (Fig. 8.2) Product Attributes Developing a Product or Service Involves Defining the Benefits that it Will Offer Such as: ______________________ - Ability of a Product to Perform Its Functions; Includes Level & Consistency ______________________ - Help to Differentiate the Product from Those of the Competition ______________________ - Process of Designing a Product’s Style & Function Branding Brand – a name, term, sign, symbol, or design, or a combination of these, that identifies the maker or seller of a product or service Why Brand? Brand Equity - the set of assets (or liabilities) linked to the brand that add (or subtract) value The Billion Dollar Brands Advantages of Branding Brand Equity Major Branding Decisions (Fig. 8.3) Brand Name Selection Brand Sponsor Brand Strategy Branding Strategies Packaging Activity of designing and producing the container or wrapper for a product. Packaging is used to: Packing now has promotional value and marketers should: Establish a packaging concept, Develop specific elements of the package, Tie together elements to support the positioning and marketing strategy. Labeling Printed information appearing on or with the package. Performs several functions: Product Mix Decisions Product Mix - all the product lines & items offered Width - number of different product lines Length - total number of items in product lines Depth - number of versions of each product Chapter 9 – New Product Development (NPD) and Product Life Cycle (PLC) Strategies New products Last year food products alone accounted for more than 10,000 of the year’s 25,261 total new-product launches, according to Marketing Intelligence Service. That’s 486 product launches a week, or 69 per day. Interesting, considering the launch of a new shampoo can range in cost from $20 to $50 million dollars. When is a New Product Really New? - never been introduced before (i.e. inventions); functionally new - firm enters into new product category or offers a modification of an old one - how much consumer learning is involved to use product - generally, a product is “new” for only six months New Product Strategy Development Involves defining the role of new products in achieving the firm’s overall objectives. Cross functional teams seem to produce best results in searching for new product and/or market opportunities. Causes of New Product Failures One study estimated that as many as 80% of new consumer packaged products failed. Only about 40% of new consumer products are around 5 years after introduction. Why Do Products Fail? Rush to market Product design problems Product may have been pushed despite poor marketing research findings Costs of product development Consumer “need” was a fad, or short-lived Timing Major Stages in New Product Development (Fig 9.1) Idea Generation Idea Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization Strategies for Obtaining New Product Ideas – – – New Product Development Process Step 1. Idea Generation … the Systematic Search for New Product Ideas Obtained Internally From Employees and Also From: – – – – Step 2. Idea Screening • • • Many companies have systems for rating and screening ideas which estimate: • • • • • Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return Step 3. Concept Development 1. Develop New Product Ideas into Alternative Detailed Product Concepts 2. Concept Testing - Test the New Product Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers Step 4. Marketing Strategy Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy Step 5. Business Analysis Business Analysis - Review of Product Sales, Costs, and Profits Projections to See if they Meet Company Objectives Step 6. Product Development Step 7. Test Marketing Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings. ________________________ - Full marketing campaign in a small number of representative cities. ________________________ - A few stores that have agreed to carry new products for a fee. ________________________ - Test in a simulated shopping environment to a sample of consumers. Step 8. Commercialization Commercialization is the Introduction of the New Product into the Marketplace. Where? When? Sequential Speeding Up New Product Development Simultaneous Product Development Costs Consumer vs. Industrial Product Life Cycle Product Life Cycle (Fig. 9.2) Sales and Profits ($) Sales Profits Time Product Development Introduction Growth Maturity Decline Losses/ Investments ($) Sales and Profits Over the Product’s Life From Inception to Demise Problems Using the PLC The PLC Concept Can Help in Developing Good Marketing Strategies for Different Stages of the Product Life Cycle, However Some Problems Can Arise: Characteristic Sales Costs Profits Marketing Objectives Product Price Distribution Advertising Introduction Growth Maturity Decline Chapter 10 – Pricing Products: Pricing Considerations & Approaches Which is Price?? Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. Factors Affecting Price Decisions ( Fig. 10.1) External Factors Internal Factors • • • • • • • Marketing Objectives Marketing Mix Strategy Costs Organizational considerations Nature of the market and demand Competition Other environmental factors • • • Economy Resellers Government Internal Factors Affecting Pricing Decisions: Marketing Objectives - Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. - Choose the Price that Produces the Maximum Current Profit, Etc. - Low as Possible Prices to Become the Market Share Leader. - High Prices to Cover Higher Performance Quality and R & D. Other specific objectives include: Nonprofit and public organization may have other pricing objectives such as: University aims for _____________________ Hospital may aim for _____________________ Theater may price to _____________________ Internal Factors Affecting Pricing Decisions: Marketing Mix Customers Seek Products that Give Them the Best Value in Terms of Benefits Received for the Price Paid. Types of Cost Factors that Affect Pricing Decisions Fixed Costs (Overhead) – Variable Costs Total Costs Different Levels of Production – costs vary with different levels of production and production capability - (in) efficiency impacts the eventual cost. Function of Production Experience - As a firm gains experience in production, it learns how to do it better. The experience curve (or the learning curve) indicates that average cost drops with accumulated production experience. External Factors Affecting Pricing Decisions - Market and Demand Factors Affecting Pricing Decisions - Many Buyers and Sellers Who Have Little Effect on the Price - Many Buyers and Sellers Who Trade Over a Range of Prices - Few Sellers Who Are Sensitive to Each Other’s Pricing/ Marketing Strategies - Single Seller Demand Curves and Price Elasticity of Demand A Demand Curve is a Curve that Shows the Number of Units the Market Will Buy in a Given Time Period at Different Prices that Might be Charged. = ----------------------------------- Price / Demand Relationship Major Considerations in Setting Price (Fig. 10.5) Price Ceiling - Price Floor Cost Considerations Types of Mark-Up Pricing o Cost-plus pricing - a pricing method in which the producer (seller) determines its costs and then adds a specified profit amount or percentage to the selling price. o Break-even Analysis & Target Profit Pricing – setting price to break even on the costs of making and marketing a product: or setting price to make a target profit Cost-Based Pricing Cost-Plus Pricing is an Approach That Adds a Standard Markup to the Cost of the Product. Breakeven Analysis Target Return Pricing Cost-Based Versus Value-Based Pricing (Fig. 10.7) Competition-Based Pricing Setting prices based on the prices that competitors charge for similar products ______________________________ - Company Sets Prices Based on What Competitors Are Charging. _________________________ - Company Sets Prices Based on What They Think Competitors Will Charge. Chapter 11 – Pricing Products: Pricing Strategies Dynamic Pricing Strategies New Product Pricing Strategies Market Skimming - Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market. -Use Under These Conditions: Product’s Quality and Image Must Support Its Higher Price. Costs Can’t be so High that They Cancel the Advantage of Charging More. Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price. Examples: Market Penetration - Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply. -Use Under These Conditions: Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth. Production/ Distribution Costs Must Fall as Sales Volume Increases. Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary. Examples: Product Mix-Pricing Strategies: Product Line Pricing Involves setting price steps between various products in a product line based on: --Optional-Product Pricing - Pricing optional or accessory products sold with the main product. Captive-Product Pricing - Pricing products that must be used with the main product. By-Product Pricing - Pricing low-value by-products to get rid of them and make the main product’s price more competitive. Product-Bundling - combining several products and offering the bundle at a reduced price. Discount and Allowance Pricing Adjusting Basic Price to Reward Customers for Certain Responses Cash Discount Quantity Discount Functional Discount Seasonal Discount Trade-in Allowance Promotional Allowance – Segmented Pricing Selling Products at Different Prices Even Though There is No Difference in Cost Customer – Segment Product Form Location Pricing Time Pricing - Psychological Pricing Considers the psychology of prices and not simply the economics. Customers use price less when they can judge quality of a product. Price becomes an important quality signal when customers can’t judge quality; price is used to say something about a product. Psychological Pricing Methods Prestige Pricing - setting prices artificially high to evoke an image of prestige or quality Odd-Even Pricing - Ending prices with a certain number to influence customers Customary Pricing - setting prices on the basis of tradition. Price Lining - setting a limited number of prices for selected lines of merchandise. Promotional Pricing Temporarily Pricing Products Below List Price to Increase Short-Term Sales Through: Other Price Adjustment Strategies - Adjusting Prices to Account for the Geographical Location of Customers. - Adjusting Prices for International Markets. Initiating Price Changes Price Cuts – Price Increases – Assessing/Responding to Competitor’s Price Changes (see Fig. 11.1) Public Policy Issues in Pricing --Pricing Across Channel Levels _________________________ - Ensure sellers offer the same price/terms to a given level of trade _________________________ - Manufacturer can’t require dealers to charge a specified retail price for its product _________________________ - Occurs when a seller states prices or prices savings not available to consumers Chapter 12 – Distribution Channels and Logistics Management Issues Concerning Distribution Channels What is the Nature Of Distribution Channels? How do Channel Firms Interact and Organize to do the Work of the Channel? What Problems do Companies Face in Designing and Managing Their Channels? What Role Does Physical Distribution Play in Attracting and Satisfying Customers? What is a Distribution Channel? A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user. Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision. Why are Marketing Intermediaries Used? • • • The use of intermediaries results from their greater efficiency in making goods available to target markets. Offer the firm more than it can achieve on it’s own through the intermediaries: Purpose: CD example How a Marketing Intermediary Reduces the Number of Channel Transactions Distribution Channel Functions These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory Assortments of Goods and Services to Target Customers. Number of Channel Levels (Fig. 12.2) Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer. Dual Distribution Channel Behavior & Conflict • The channel will be most effective when: • all members cooperate to attain overall channel goals and satisfy the target market. When this doesn’t happen, conflict occurs: ___________________ occurs among firms at the same level of the channel, i.e retailer to retailer. ___________________ occurs between different levels of the same channel, i.e. wholesaler to retailer. • Conventional Marketing Channel Vs. a Vertical Marketing System (Fig. 12.3) Types of Vertical Marketing Systems Corporate Systems Involves single ownership of two or more levels of a channel Vertical integration - one channel member acquires control of one or more other members, usually by purchasing them. Total vertical integration - one organization controls all marketing channel functions. - Manufacturer purchases distributor or retailer - Wholesaler or retailer purchases channel members above them. Contractual Systems Involve independent production and distribution companies entering into formal contracts to perform designated marketing functions. Administered Systems Characterized by a higher degree of interorganizational planning and management usually resulting from the existence of a strong channel leader. Innovations in Marketing Systems Horizontal Marketing System Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity. Hybrid Marketing System A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments. Changing Channel Organization A Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones. Impact of the Internet Channel Design Decisions Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives Evaluating the Major Alternatives Designing International Distribution Channels Channel Management Decisions Selecting Channel Members Motivating Channel Members Evaluating Channel Members Chapter 13 – Retailing and Wholesaling Top Retailers 1. 6. 2. 7. 3. 8. 4. 9. 5. 10. What is Retailing? Retailing - Includes all the activities Involved in Selling Goods or Services Directly to Final Consumers for Their Personal, Non-business Use. Retailing can be done in stores (_________________) or out of a store (_______________________) such as: Classification of Retailing - Self-Service, Limited-Service and Full-Service Retailer - Length and Breadth of the Product Assortment - Pricing Structure that is used by the Retailer - Independent, Corporate, or Contractual Ownership Organization Classification of Retailing: Amount of Service Self-Service Retailer - Limited-Service Retailers - Full-Service Retailers - Classification of Retailing:Product Line (Tab. 13.1) Specialty Stores - Department Stores - Supermarkets - Convenience Stores - Classification of Retailing:Product Line (Tab. 13.1) Superstores - Discount Stores - Off-Price Retailers - Warehouse Clubs - Classification of Retailing: Relative Prices Higher Prices and Offer Higher-Quality Goods and Superior Customer Service Regular Prices and Offer Normal-Quality Goods and Average Customer Service Low Prices and Offer Lower-Quality Goods and Little Customer Service Classification of Retailing: Retail Organization Merchandising Conglomerates - Corporate Chain - Voluntary Chain - Retailer Cooperatives - Franchise Organizations - Retailer Marketing Decisions (Fig. 13.1) Retailer Strategy • • Target Market Retail Store Positioning Retailer Marketing Mix •Product and service assortment •Prices •Promotion •Place (location) Product Assortment and Services Decisions Product Assortment ---Services Mix – Key tool of non-price competition for setting one store apart from another Store’s Atmosphere --Retailer’s Price, Promotion, & Place Decisions Prices Decisions Promotion Decisions The Future of Retailing New Retail Forms and Shortening Retail Lifecycle Growth of Non-store Retailing Increasing Intertype Competition Rise of the Megaretailer Growing Importance of Retail Technology Global Expansion of Major Retailers Retail Stores as “communities” or “hangouts” Place Decisions ELECTRONIC COMMERCE DEFINITION - Exchange of information, goods, service, and payments by electronic means. History of E-Commerce E-commerce actually began in the 1970s when larger corporations started creating private networks to share information with business partners and suppliers. This process is called Electronic Data Interchange (EDI). Prodigy was running text ads and selling flowers in the early '80s. The first documented Online sale in 1994 was what? E-Commerce Today Some major product categories have paved the way: travel services ($5.95 B in 1999 sales), computer hardware and software ($5.8 B), books ($1.7 B), gifts and flowers ($730 M), music ($540 M), and apparel and footwear ($460 M), E-Commerce Services Today In 1999, the online market size for business services was estimated at $22 billion. Primary service categories include o financial ($7.3 billion, 1999), o corporate travel ($5 billion), and o professional ($4.4 billion), o telecommunications ($1.5 billion). o administrative support ($3.9 billion), By 2003, Forrester Research predicts that online services will represent nearly 8 percent of the overall sector hardly a drop in the bucket. Future of E-Commerce eMarketer, an Internet technology (IT) research and reporting firm, estimates that the dollar figure for ecommerce will rise from approximately In Europe, consumers' internet purchases will jump from: Online business-to-business e-commerce is projected to speed past $1 trillion in annual revenue by 2003 Future Trends to Watch in E-Commerce Women take control. Women make or influence 80 percent of household sales in the United States, according to WomanTrend, despite the fact that they make up 51 percent of the population. The untapped get tapped. Two highly touted markets $509 million health and beauty, and $513 million grocery still lag behind expectations. More "click and mortar." Traditional retailers Circuit City, Crate and Barrel, Sears, Toys R Us, Wal-Mart, and Federated Department Stores missed the boat in 1995 and 1996, but rest assured they "get it" now, and are attempting re-entry, this time around with more money and smarts. Watch out. Still a Long Way To Go Andersen Consulting and Forrester Research both show shopping cart abandonment rates of 25%. E-commerce still accounts for less than 1% of total retail sales Pure plays are struggling to maintain cash flow and are either: Security Issues are Important What is Wholesaling? All the activities involved in selling goods and services to those buying for resale or business use. Wholesaler - those firms engaged primarily in wholesaling activity. Wholesalers buy mostly from producers and sell mostly to: ---Why are Wholesalers Used? Wholesalers are Often Better at Performing One or More of the Following Channel Functions: Types of Wholesalers - independently owned business that takes title to the merchandise it handles. - they don’t take title to the goods, and they perform only a few functions. - wholesaling by sellers or buyers themselves rather than through independent wholesalers. Retailer Marketing Decisions (Fig. 13.1) Wholesaler Strategy • • Target Market Service Positioning Wholesaler Marketing Mix • • • • Trends in Wholesaling Consolidation within the industry is reducing # of wholesalers Distinction between large retailers and wholesalers blurs Wholesalers will continue to increase the services provided Wholesalers are beginning to go global Product and service assortment Prices Promotion Place (location) Chapter 14 – Integrated Marketing Communications Strategy Marketing Communication Mix or Promotion Mix Advertising Personal Selling Sales Promotion Public Relations Direct Marketing The Changing Communications Environment Two Factors are Changing the Face of Today’s Marketing Communications: The Need for Integrated Marketing Communications • With Integrated Marketing Communications (IMC), the Company Carefully Integrates and Coordinates Its Many Communications Channels to Deliver a Clear, Consistent, and Compelling Message About the Organization and Its Product or Service. Elements in the Communication Process (Fig. 14.2) Key Factors in Good Communication Sellers need to know what audiences they wish to reach and response desired. Sellers must be good at encoding messages that target audience can decode. Sellers must send messages through media that reach target audiences Sellers must develop feedback channels to assess audience’s response to messages. Steps in Developing Effective Communication Step 1. Identifying the Target Audience Step 2. Determining the Communication Objectives Buyer Readiness Stages Step 3. Designing a Message A I D A Message Content Message Structure Message Format Step 4. Choosing Media Personal Communication Channels Non-personal Communication Channels Step 5. Selecting the Message Source Step 6. Collecting Feedback Setting the Total Promotion Budget One of the Hardest Marketing Decisions Facing a Company is How Much to Spend on Promotion. - Based on What the Company Can Afford - Based on a Certain Percentage of Current or Forecasted Sales - Based on Determining Objectives & Tasks, Then Estimating Costs - Based on the Competitor’s Promotion Budget Setting the Promotion Mix Advertising Personal Selling Sales Promotion Public Relations Direct Marketing Product Placement • • • Product Placement is the use or display of a product or service in an entertainment program. The placement involves a payment to the entertainment vehicle, but does not involve payment for “airtime” Famous examples include: Promotion Mix Strategies - Strategy that Calls for Spending A Lot on Advertising and Consumer Promotion to Build Up (Pull) Consumer Demand. - Strategy that Calls for Using the Salesforce and Trade Promotion to Push the Product Through the Channels. Strategy Selected Depends on: --- examples: Socially Responsible Marketing Communication Advertising and Sales Promotion Personal Selling Chapter 15 – Advertising, Promotions, and Publicity Advertising History U.S. advertisers spend in excess of $212 billion each year; Worldwide spending exceeds $414 billion. Advertising is used by: What is Advertising? Advertising is Any Paid Form of Non-personal Presentation and Promotion of Ideas, Goods, or Services by an Identified Sponsor. Setting Advertising Objectives Advertising Objective - specific communication task accomplished with a specific target audience during a specific period of time _____________________ - inform consumers or build primary demand _____________________ - build selective demand _____________________ - compares one brand to another _____________________ - keeps consumers thinking about a product Setting the Promotion Budget After determining its advertising objectives, the marketer must set the advertising budget for each product and market. (From Chapter 14) _____________________ - based on what the company can afford _____________________ - based on a certain percentage of current or forecasted sales _____________________ - based on determining objectives & tasks, then estimating costs _____________________ - based on the competitor’s promotion budget Setting the Advertising Budget Factors to be considered when setting the advertising budget: Developing Advertising Strategy Advertising Strategy Consists of Two Major Elements and Companies are realizing the Benefits of Planning These Two Elements Jointly. Developing Advertising Strategy: Creating Ad Messages Plan a Message Strategy Develop a Message Creative Concept “Big Idea” Advertising Appeals ---- Developing Advertising Strategy: Message Execution Turning the “Big Idea” Into an Actual Ad to Capture the Target Market’s Attention and Interest. Typical message execution styles: Testimonial Evidence Slice of Life Scientific Evidence Lifestyle Technical Expertise Fantasy Personality Symbol Mood or Image Musical Advertising Strategy: Selecting Advertising Media Step 1. Decide on Reach, Frequency, and Impact Step 2. Choosing Among Major Media Types Step 3. Selecting Specific Media Vehicles Step 4. Deciding on Media Timing Major Media Types Newspapers Television Direct mail Radio Magazines Outdoor Internet Evaluating Advertising Communication Effects - Sales Effects - International Advertising Decisions Adaptation of global advertising Advertising media differ considerably in availability & cost Regulation in advertising practices Comparison ads not acceptable in all countries Programs must be matched to local cultures and customs What is Sales Promotion ? Sales promotion is a mass communication technique that offers short-term incentives to encourage purchase or sales of a product or service. Rapid Growth of Sales Promotion Sales promotion can take the form of . . . ----Rapid growth in the industry has been achieved because: Product managers are facing more pressure to increase their current sales, Companies face more competition, Advertising efficiency has declined, Consumers have become more deal oriented. Sales Promotion Objectives Increase short-term sales or help build long-term market share. Get retailers to: Major Consumer Sales Promotion Tools Samples Coupons Cash Refunds Price Packs Major Consumer Sales Promotion Tools – (con’t) Premium Advertising Specialties Patronage Rewards Point-of-Purchase Contests Sweepstakes Game Major Trade Sales Promotion Tools Trade Promotion Objectives Persuade Retailers or Wholesalers to Carry a Brand Give a Brand Shelf Space Promote a Brand in Advertising Push a Brand to Consumers Trade-Promotion Tools Discounts Allowances Major Business Sales Promotion Tools Business-Promotion Tools Business-Promotion Objectives Conventions Generate Business Leads Trade Shows Stimulate Purchases Sales Contests Reward Customers Motivate Salespeople Developing the Sales Promotion Program Decide on the Size of the Incentive Set Conditions for Participation Determine How to Promote and Distribute the Promotion Program Determine the Length of the Program Evaluate the Program What is Public Relations? Public relations involves building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events. Major Public Relations Functions Public Relations Departments May Perform Any of All of the Following Functions: Press Relations or Agentry - Product Publicity - Public Affairs- Lobbying - Investor Relations - Development - Major Public Relations Tools News Speeches Special Events Written Materials Audio/Visual Materials Corporate Identity Materials Public Service Activities Web Site Major Public Relations Decisions Setting Public Relations Objectives Choosing the Public Relations Messages and Vehicles Implementing the Public Relations Plan Evaluating Public Relations Results Chapter 16 – Personal Selling and Sales Management Nature of Personal Selling Most salespeople are well-educated, well-trained professionals who work to build and maintain long-term relationships with customers. The term salesperson covers a wide spectrum of positions from: What is Personal Selling? Involves two-way, personal communication between salespeople and individual customers. Communication can be: The Role of the Sales Force Personal selling is effective because salespeople can: probe customers to learn more about their problems, adjust the marketing offer to fit the special needs of each customer, negotiate terms of sale, and build long-term personal relationships with key decision makers. The Role of the Sales Force Sales Force Serves as a Critical Link Between a Company and its Customers Since They: Major Steps in Sales Force Management (Fig. 16.1) Designing Sales Force Strategy and Structure - exclusive territory to sell the company’s full product line - sales force sells only a portion of the company’s products or lines - sales force sells only to certain customers or industries Some Traits of Good Salespeople Recommendations for Recruiting Salespeople Current Salespeople, Employment Agencies, Classified Ads, College Students, Internet Training Salespeople The Average Sales Training Program lasts for Four Months and Has the Following Goals: Help salespeople know & identify with the company Learn about the products Learn about competitors’ and customers’ characteristics Learn how to make effective presentations Understand field procedures and responsibilities Compensating Salespeople To Attract Salespeople, a Company Must Have an Attractive Plan Made Up of Several Elements Directing Salespeople • • Supervising Salespeople Motivating Salespeople • Organizational Climate • Sales Quotas • Positive Incentives • Annual Call Plan Time-and-Duty Analysis Sales Force Automation Evaluating Salespeople Management gets information about its salespeople in several ways: Formal evaluation of performance can be done qualitatively or quantitatively. Evaluation methods of performance include: Chapter 17 – Direct and Online Marketing: The New Marketing Model Mass Marketing and Direct Marketing Mass Marketing Direct Marketing What is Direct Marketing? Direct marketing consists of direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships. Forms of Direct Marketing Face-to-Face Selling Direct Response TV Telemarketing Kiosk Marketing Direct Mail Online Marketing Catalog Benefits and Growth of Direct Marketing Buyers Benefits Sellers Benefits Customer Databases Customer Databases are an Organized Collection of Comprehensive Data About Individual Customers or Prospects Including: ----Database Marketing is the process of building, maintaining, and using customer databases and other databases for the purposes of contacting and transacting with customers. How companies use their databases: Online Marketing Online Marketing is conducted through interactive online computer systems, which link consumers with sellers electronically. Who is the Online Customer? They tend to be younger, more affluent, better educated, and more male than the general population; female usage almost equals males. Other characteristic of net users: Promise and Challenge of Online Marketing Limited Consumer Exposure and Buying Skewed User Demographics and Psychographics Chaos and Clutter Security Ethical Concerns Public Policy and Ethical Issues in Direct Marketing Irritation to Consumers Unfairness, Deception, or Fraud Invasion of Privacy Chapter 19 – The Global Marketplace Global Marketing into the 21st Century To compete, many U.S. companies are continuously improving their products, expanding into foreign markets, and becoming global firms. Global firms face several major problems: Political-Legal Environment At Least Four Political-Legal Factors Should be Considered in Deciding Whether to do Business in a Given Country: Sellers must examine the following before planning a marketing program within a given country: Deciding How to Enter the Market (Fig. 19.2) o o o o o o o o Deciding on the Global Marketing Program Adapted Marketing Mix - Standardized Marketing Mix - Examples: International Pricing Companies face many problems in setting their international prices. Possibilities in setting prices include: International prices tend to be higher than domestic prices because of ______________________ Companies may become guilty of _______________ – when a foreign subsidiary charges less than its costs or less than in its home market. Problems in International Markets International Problems can arise and cause VERY large international as well as domestic problems Chapter 20 – Marketing and Society Ben & Jerry’s Marketing’s Impact on Individual Consumers Criticisms Leveled at the Marketing Function by Consumers and Others: Marketing’s Impact on Society as a Whole Marketing’s Impact on Other Businesses All Can Harm Other Companies & Reduce Competition What company has been charged with these violations? Consumerism Consumerism is an Organized Movement of Citizens and Government Agencies to Improve the Rights and Power of Buyers in Relation to Sellers. Basic Consumer Rights Marketing Ethics Companies Need to Develop Corporate Marketing Ethics Policies – Broad Guidelines That Everyone in the Organization Must Follow and Should Address: Principles That Should Guide Companies and Marketing Managers On Issues of Ethics and Social Responsibility: