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MARKETING MANAGEMENT BY DR GERALD MUNYORO CHINHOYI UNIVERSITY OF TECHNOLOGY SCHOOL OF BUSINESS SCIENCES AND MANAGEMENT DEPARTMENT OF INTERNATIONAL MARKETING COURSE OUTLINE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Introduction Definition of Marketing Management The significance of information and research in marketing Consumer behaviour Marketing Environment The Marketing Process Market segmentation Product Price Place Promotion Service Businesses Definitions of Marketing ‘Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably’ The Chartered Institute of Marketing Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large American Marketing Association Definitions of Marketing ‘Marketing is a social and managerial process by which individuals and groups obtain what they want and need through creating, offering and exchanging products of value with others’ Kotler et al (2010) ‘The right product, in the right place, at the right time, and at the right price’ Adcock et al (2001) The Marketing concept Choosing and targeting appropriate customers Positioning your offering Interacting with those customers Controlling the marketing effort Continuity of performance The Marketing concept Customer focus, profits, and integration of organizational efforts. • Customer orientation Satisfying its customers at a profit… Determining the needs and wants of target markets… Discovering the wants of a target audience and then creating the goods and services to satisfy them The Marketing concept According to Levitt (1960), "the organization must learn to think of itself not as producing goods or services but as buying customers, as doing the things that will make people want to do business with it." Since its publication, corporate leaders have moved from product-orientation toward market-orientation. Firms overemphasize the satisfaction of customer wants and needs and as a result ignore competition. The Marketing concept Profitable Offensive (rather than defensive) Integrated Strategic (is future orientated) Effective (gets results) Davidson (1972) Definition of Marketing Management Marketing Management is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. Marketing management process Analysis/Audit - where are we now? Objectives - where do we want to be? Strategies - which way is best? Tactics - how do we get there? (Implementation - Getting there!) Control - Ensuring arrival Marketing planning Systematic futuristic thinking by management better co-ordination of a company’s efforts development of performance standards for control sharpening of objectives and policies better prepare for sudden developments Building relationships with consumers Firms that embrace the marketing concept seek ways to build a long-term relationship with each customer. This is an important idea. Even the most innovative firm faces competition sooner or later. And trying to get new customers by taking them away from a competitor is usually more costly than retaining current customers by really satisfying their needs. Satisfied customers buy again and again. This makes their buying job easier, and it also increases the selling firm’s profits. Building mutually beneficial relationships with customers requires that everyone in an organization work together to provide customer value before and after each purchase. If there is a problem with a customer’s bill, the accounting people can’t just leave it to the salesperson to straighten it out or, even worse, act like it’s “the customer’s problem.” Rather, it’s the firm’s problem. Marketing’s role in non profit organisations The marketing concept is as important for nonprofit organizations as it is for business firms. However, prior to 1970 few people in nonprofits paid attention to the role of marketing. Now marketing is widely recognized as applicable to all sorts of public and private nonprofit organizations Ñranging from government agencies, health care organizations, educational institutions, and religious groups to charities, political parties, and fine arts organizations. Some nonprofit organizations operate just like a business. For example, there may be no practical difference between thegift shop at a museum and a for-profit shop located across the street. On the other hand, some nonprofits differ from business firms in a variety of ways. As with any business firm, a nonprofit organization needs resources and support to survive and achieve its objectives. Yet support often does not come directly from those who receive the benefits the organization produces. Marketing Research Marketing research is the systematic gathering, recording and analyzing of data about problems relating to the marketing of goods and services. A systematic inquiry whose objective is to provide information to solve managerial problems. Marketing research is the function that links the consumer, customer, and public to the marketer through information--information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information required to address these issues, designs the method for collecting information, manages and implements the data collection process, analyzes the results, and communicates the findings and their implications. American Marketing Association Marketing Research Market research will give you the data you need to identify and reach your target market at a price customers are willing to pay. Research provides you with the knowledge and skills needed for the fastpaced decision-making environment. Applied Research • Emphasis on solving practical (specific) problems • It could be exploring opportunities also Rectifying an inventory system that is resulting into lost sales Opportunity to increase stockholder wealth by acquiring another firm Pure Research/Basic Research • Emphasis on problem solving but of a general nature (not specific) Effect of coupon as against rebate to stimulate demand Consumer behaviour Those activities directly involved in obtaining , consuming and disposing of products and services, including the decision processes that precede and follow these actions ‘You cannot take the consumer for granted any more’ Therefore a sound understanding of consumer behaviour is essential for the long run success of any marketing program Logical Positivism Understanding and predicting consumer behaviour Cause and effect relationships that govern persuasion and/or education Post Modern – to understand consumption behaviour without any attempt to influence it Consumer behaviour “MEET THE NEW CONSUMER and smile when you do because she is your boss. It may not be the person you thought you knew. Instead of choosing from what you have to offer, she tells you what she wants. You figure it out how to give it to her.” -Fortune Editor A new product must satisfy consumer needs, not the needs and expectations of management Understanding and adapting to consumer motivation and behaviour is not an option – it becomes a necessity for competitive survival Consumer behaviour Consumer sovereignty presents a formidable challenge but skilful marketing can affect both motivation and behaviour if the product or service offered is designed to meet consumer needs and expectations. A sales success occurs because demand either exists already or is latent and awaiting activation by the right marketing offering. Consumer behaviour Dominant forces shaping Consumer Research Factors that move an economy from Production-driven to Market-driven Level of sophistication with which human behaviour is understood in psychology and other behavioural sciences Consumer behaviour Motivational Research It seeks to learn what motivates people in making choices. The techniques are such as to delve into the conscious, subconscious and the unconscious. ‘women don’t buy cosmetics, they buy hope.’ ‘women bake cakes out of the unconscious desire to give birth’ Consumer behaviour The advice to footwear salesmen should be ‘Don’t sell shoes – sell lovely feet’ Marketers must contend with small changing segments of highly selective buyers intent on receiving genuine value at the lowest price All managers must become astute analysts of Consumer motivation and Behaviour Three foundations for marketing decisions Experience Intuition Research Consumer behaviour Enhancing Consumer Value-added Marketers have to constantly innovate after understanding their consumers to strip out costs permanently by focusing on what adds value for the customer and eliminating what doesn’t. Individualised Marketing A very personal form of marketing that recognises, acknowledges, appreciates and serves individuals who become or are known to the marketer. Data – based marketing; DM Customized marketing Consumer behaviour Variables involved in understanding consumer behaviour Stimulus – ads, products, hungerpangs Response – physical/mental reaction to the stimulus Intervening variables – mood, knowledge, attitude, values, situations, etc Overall Model of Consumer Behaviour External Influences Culture Subculture Demographics Social status Reference groups Family Marketing Activities Internal Influences Perception Learning Memory Motives Personality Emotions Attitudes Decision Processes Problem Recognition Information Search Self-Concept & Learning Alt Eval & Selection Outlet select & Purchase Postpurchase Processes Marketing Environment A company’s 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. 1). Being successful means being able to adapt the marketing mix to trends and changes this environment. 2). Changes in the marketing environment are often quick and unpredictable. 3). The marketing environment offers both opportunities and threats. 4). The company must use its marketing research and marketing intelligence systems to monitor the changing environment. 5). Systematic environmental scanning helps marketers to revise and adapt marketing strategies to meet new challenges and opportunities in the marketplace. Marketing Environment Includes: • Micro environment: actors close to the company that affect its ability to serve its customers. • Macro environment: larger societal forces that affect the microenvironment. Considered to be beyond the control of the organization. Marketing Environment 1. Micro Environmental The microenvironment consists of five components. The first is the organization’s internal environment—its several departments and management levels—as it affects marketing management's decision making. The second component includes the marketing channel firms that cooperate to create value: the suppliers and marketing intermediaries (middlemen, physical distribution firms, marketing-service agencies, financial intermediaries). The third component consists of the five types of markets in which the organization can sell: the consumer, producer, reseller, government, and international markets. Marketing Environment The fourth component consists of the competitors facing the organization. The fifth component consists of all the publics that have an actual or potential interest in or impact on the organization’s ability to achieve its objectives: financial, media, government, citizen action, and local, general, and internal publics. - So the microenvironment consists of six forces close to the company that affect its ability to serve its customers: a. The company itself (including departments). 1). Top management is responsible for setting the company’s mission, objectives, broad strategies, and policies. 2). Marketing managers must make decisions within the parameters established by top management. 3). Marketing managers must also work closely with other company departments. Areas such as finance, R & D, purchasing, manufacturing, and accounting all produce better results when aligned by common objectives and goals. 4). All departments must “think consumer” if the firm is to be successful. The goal is to provide superior customer value and satisfaction. Marketing Environment b. Suppliers. Suppliers are firms and individuals that provide the resources needed by the company and its competitors to produce goods and services. They are an important link in the company’s overall customer “value delivery system.” 1). One consideration is to watch supply availability (such as supply shortages). 2). Another point of concern is the monitoring of price trends of key inputs. Rising supply costs must be carefully monitored. Marketing Environment c. Marketing channel firms (intermediaries). Marketing intermediaries are firms that help the company to promote, sell, and distribute its goods to final buyers. 1). Resellers are distribution channel firms that help the company find customers or make sales to them. 2). These include wholesalers and retailers who buy and resell merchandise. 3). Resellers often perform important functions more cheaply than the company can perform itself. However, seeking and working with resellers is not easy because of the power that some demand and use. Physical distribution firms help the company to stock and move goods from their points of origin to their destinations. Examples would be warehouses (that store and protect goods before they move to the next destination). Marketing service agencies (such as marketing research firms, advertising agencies, media firms, etc.) help the company target and promote its products. Financial intermediaries (such as banks, credit companies, insurance companies, etc.) help finance transactions and Marketing Environment d. Customer markets'. Competitors'. Publics. The company must study its customer markets closely since each market has its own special characteristics. These markets normally include: 1). Consumer markets (individuals and households that buy goods and services for personal consumption). 2). Business markets (buy goods and services for further processing or for use in their production process). 3). Reseller markets (buy goods and services in order to resell them at a profit). 4). Government markets (agencies that buy goods and services in order to produce public services or transfer them to those that need them). 5). International markets (buyers of all types in foreign countries). Marketing Environment e. Competitors. Every company faces a wide range of competitors. A company must secure a strategic advantage over competitors by positioning their offerings to be successful in the marketplace. No single competitive strategy is best for all companies. Marketing Environment f. Publics A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. A company should prepare a marketing plan for all of their major publics as well as their customer markets. Generally, publics can be identified as being: 1). Financial publics--influence the company’s ability to obtain funds. 2). Media publics--carry news, features, and editorial opinion. 3). Government publics--take developments into account. 4). Citizen-action publics--a company’s decisions are often questioned by consumer organizations. 5). Local publics--includes neighbourhood residents and community organizations. 6). General publics--a company must be concerned about the general public’s attitude toward its products and services. 7). Internal publics--workers, managers, volunteers, and the board of directors. Marketing Environment 2. MACRO ENVIRONMENT The Company’s Macro environment The company and all of the other actors operate in a larger macro environment of forces that shape opportunities and pose threats to the company. The company and all of the other actors operate in a larger macro environment of forces that’s have opportunities and pose threats to the company. There are six major forces (outlined below)in the company’s macro environment. There are six major forces (outlined below) in the company’s macro environment. a. Demographic. b. Economic. c. Natural. d. Technological. e. Political. f. Cultural. Marketing Environment a. Demographic Environment Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation, and other statistics. It is of major interest to marketers because it involves people and people make up markets. Demographic trends are constantly changing. Some more interesting ones are.1). The world’s population (though not all countries) rate is growing at an explosive rate that will soon exceed food supply and ability to adequately service the population. The greatest danger is in the poorest countries where poverty contributes to the difficulties. Emerging markets such as China are receiving increased attention from global marketers.2). The most important trend is the changing age structure of the population. The population is aging because of a slowdown in the birth rate (in this country) and life expectancy is increasing. The baby boomers following World War II have produced a huge “bulge” in our population's age distribution. The new prime market is the middle age group (in the future it will be the senior citizen group). There are many subdivisions of this group. a). Generation X--this group lies in the shadow of the boomers and lack obvious distinguishing characteristics. They are a very cynical group because of all the difficulties that have surrounded and impacted their group. b). Echo boomers (baby boom lets) are the large growing kid and teen market. This group is used to affluence on the part of their parents (as different from the Gen Xers). One distinguishing characteristic is their utter fluency and comfort with computer, digital, and Internet technology(sometimes called Net-Gens). Marketing Environment c). Generational marketing is possible, however, caution must be used to avoid generational alienation. Many in the modern family now “telecommute”--work at home or in a remote office and conduct their business using fax, cell phones, modem, or the Internet. In general, the population is becoming better educated. The work force is becoming more white-collar. Products such as books and education services appeal to groups following this trend. Technical skills (such as in computers) will be a must in the future. The final demographic trend is the increasing ethnic and racial diversity of the population. Diversity is a force that must be recognized in the next decade. However, companies must recognize that diversity goes beyond ethnic heritage. One of the important markets of the future are that disabled people (a market larger any of our ethnic minority groups). Marketing Environment b. Economic Environment The economic environment -includes those factors that affect consumer purchasing power and spending patterns. Major economic trends in the United States include: 1). Personal consumption (along with personal debt) has gone up (1980s) and the early 1990s brought recession that has caused adjustments both personally and corporately in this country. Today, consumers are more careful shoppers. 2). Value marketing (trying to offer the consumer greater value for their dollar) is a very serious strategy in the 1990s. Real income is on the rise again but is being carefully guarded by a value-conscious consumer. 3). Income distribution is still very skewed in the U. S. and all classes have not shared in prosperity. In addition, spending patterns show that food, housing, and transportation still account for the majority of consumer dollars. It is also of note that distribution of income has created a “two-tiered market” where there are those that are affluent and less affluent. Marketers must carefully monitor economic changes so they will be able to prosper with the trend, not suffer from it. Marketing Environment c. Natural Environment The natural environment -involves natural resources that are needed as inputs by marketers or that are affected by marketing activities. During the past two decades environmental concerns have steadily grown. Some trend analysts labelled the specific areas of concern were: 1). Shortages of raw materials. Staples such as air, water, and wood products have been seriously damaged and non-renewable such as oil, coal, and various minerals have been seriously depleted during industrial expansion. 2). Increased pollution is a worldwide problem. Industrial damage to the environment is very serious. Farsighted companies are becoming “environmentally friendly” and are producing environmentally safe and recyclable or biodegradable goods. The public response to these companies is encouraging. However, lack of adequate funding, especially in third world countries, is a major barrier. Marketing Environment 3). Government intervention In natural resource management has caused environmental concerns to be more practical and necessary in business and industry. Leadership, not punishment, seems to be the best policy for long-term results. Instead of opposing regulation, marketers should help develop solutions to the material and energy problems facing the world. 4). Environmentally sustainable strategies. The so-called green movement has encouraged or even demanded that firms produce strategies that are not only environmentally friendly but are also environmentally proactive. Firms are beginning to recognize the link between a healthy economy and a healthy environment. Marketing Environment d. Technological Environment The technological environment -includes forces that create new technologies, creating new product and market opportunities. 1). Technology is perhaps the most dramatic force shaping our destiny. 2). New technologies create new markets and opportunities.3). The following trends are worth watching a). Faster pace of technological change. Products are being technologically outdated at a rapid pace. b). There seems to be almost unlimited opportunities being developed daily. Consider the expanding fields of health care, the space shuttle, robotics, and biogenetic industries. c). The challenge is not only technical but also commercial--to make practical, affordable versions of products. d). Increased regulation. Marketers should be aware of the regulations concerning product safety, individual privacy, and other areas that affect technological changes. They must also be alert to any possible negative aspects of an innovation that might harm users or arouse opposition. Marketing Environment e. Political Environment The political environment includes laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society. Various forms of legislation regulate business. 1). Governments develop public policy to guide commerce--sets of laws and regulations limiting business for the good of society as a whole. 2). Almost every marketing activity is subject to a wide range of laws and regulations. Some trends in the political environment include: - Increasing legislation to: a). Protect companies from each other. b). Protecting consumers from unfair business practices. c). Protecting interests of society against unrestrained business behaviour. Marketing Environment -Changing government agency enforcement. New laws and their enforcement will continue or increase. 3). Increased emphasis on ethics and socially responsible actions. Socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment. a). Enlightened companies encourage their managers to look beyond regulation and “do the right thing.” b). Recent scandals have increased concern about ethics and social responsibility. c). The boom in e-commerce and Internet marketing has created a new set of social and ethical issues. Concerns are Privacy, Security, Access by vulnerable or unauthorized groups. Marketing Environment f. Cultural Environment The cultural environment is made up of institutions and other forces that affect society’s basic values, perceptions, preferences, and behaviours. Certain cultural characteristics can affect marketing decisionmaking. Among the most dynamic cultural characteristics are: 1). Persistence of cultural values. People’s core beliefs and values have a high degree of persistence. Core beliefs and values are passed on from parents to children and are reinforced by schools, churches, business, and government. Secondary beliefs and values are more open to change. 2). Shifts in secondary cultural values. Since secondary cultural values and beliefs are open to change, marketers want to spot them and be able to capitalize on the change potential. Society’s major cultural views are expressed in: a). People’s views of themselves. People vary in their emphasis on serving themselves versus serving others. In the 1980s, personal ambition and materialism increased dramatically, with significant implications for marketing. The leisure industry was a chief beneficiary. b). People’s views of others. Observers have noted a shift from a “me-society” to a “wesociety.” Consumers are spending more on products and services that will improve their lives rather than their image. Marketing Environment c). People’s views of organizations. People are willing to work for large organizations but expect them to become increasingly socially responsible. Many companies are linking themselves to worthwhile causes. Honesty in appeals is a must. d). People’s views of society. This orientation influences consumption patterns. “Buy American” versus buying abroad is an issue that will continue into the next decade. e). People’s view of nature. There is a growing trend toward people’s feeling of mastery over nature through technology and the belief that nature is bountiful. However, nature is finite. Love of nature and sports associated with nature are expected to be significant trends in the next several years. f). People’s views of the universe. Studies of the origin of man, religion, and thought-provoking ad campaigns are on the rise. Currently, Americans are on a spiritual journey. This will probably take the form of “spiritual individualism.” MARKETING MIX The term "marketing-mix," was first coined by Neil Borden, the president of the American Marketing Association in 1953. It is still used today to make important decisions that lead to the execution of a marketing plan. The various approaches that are used have evolved over time, especially with the increased use of technology. Usually referring to E. Jerome McCarthy's 4 P classification for developing an effective marketing strategy, which encompasses: product, price, place (distribution) and promotion. When it's a consumer-centric marketing mix, it has been extended to include three more Ps: people, process and physical evidence, and three Cs: cost, consumer and competitor. Depending on the industry and the target of the marketing plan, marketing managers will take various approaches to each of the four Ps. Combination of marketing elements used in the sale of a particular product. The marketing elements center around four distinct functions, sometimes called the Four Ps: product, price, place (of distribution), and promotion. All these functions are considered in planning a marketing strategy, and any one may be enhanced, deducted, or changed in some degree in order to create the strategy necessary to efficiently and PRODUCT Defining “Product”-Anything that you can “sell” Product • Anything offered to a market for attention, acquisition, use, or consumption that might satisfy a need or want. Service • Any activity or benefit that one party can offer to another that is essentially intangible and does not result in ownership of anything. What is a product? Products, Services, and Experiences • Market offerings, pure tangible goods, pure services, experiences Levels of Product and Services • Core benefit, actual product, and augmented product Product and Service Classifications • Consumer products • Industrial products Core ... Actual ... Augmented product Types of Consumer Products Convenience Shopping Specialty Unsought Convenience Frequent purchases bought with minimal buying effort and little comparison shopping Low price Widespread distribution Mass promotion by producer Shopping Less frequent purchases requiring more shopping effort and price, quality, and style comparisons. Higher than convenience good pricing Selective distribution in fewer outlets Advertising and personal selling by producer and reseller Speciality Strong brand preference and loyalty, requires special purchase effort, little brand comparisons, and low price sensitivity High price Exclusive distribution Carefully targeted promotion by producers and resellers Unsought Little product awareness and knowledge (or if aware, sometimes negative interest) Pricing varies Distribution varies Aggressive advertising and personal selling by producers and resellers Types of Consumer Products Types of Consumer Products 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 Industrial goods Installations - major capital items, such as new factories, heavy equipment and machinery, and custom-made equipment. Accessory equipment - includes less expensive and shorter-lived capital items than installations and involves fewer decision makers. Component parts and materials - become part of a final product. Raw materials - farm and natural products used in producing other final products. Supplies - expense items used in a firm’s daily operation that do not become part of the final 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 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 New Product Development • Expensive, time-consuming, and risky. • Only 1/3 of new products become success stories. • Each step requires a “go or no-go” decision. New Product Development New Product Development Stages Stage 1: Generating ideas for new offerings Stage 2: Idea Screening Stage 3: Concept development and business analysis phase Stage 4: Product development Stage 5: Test marketing Stage 6: Commercialization Causes of New Product Failures Overestimation of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions To create successful new products, the company must: • understand it’s customers, markets and competitors • develop products that deliver superior value to customers. Generating ideas for new offerings Systematic Search for New Product Ideas Internal sources Customers Competitors Distributors Suppliers Screening Process to spot good ideas and drop poor ones Criteria • • • • • Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return Concept development and business analysis phase 1) Develop Product Ideas into Alternative Product Concepts. 2) Concept Testing - Test the Product Concepts with Groups of Target Customers. 3) Choose the Best One Product development Business Analysis -Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development Test marketing Standard Test Market Full marketing campaign in a small number of representative cities. Controlled Test Market A few stores that have agreed to carry new products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Commercialization LAUNCHING NEW PRODUCTS IN THE MARKET -Unleashing the Power of Branding through Trademarks The Stages of the Product Life Cycle • Development • Introduction/Launch • Growth • Maturity • Saturation • Decline • Withdrawal The Product Development Stage Initial Ideas – possibly large number May come from any of the following – • • • • • • Market research – identifies gaps in the market Monitoring competitors Planned research and development (R&D) Luck or intuition – stumble across ideas? Creative thinking – inventions, hunches? Futures thinking – what will people be using/wanting/needing 5,10,20 years hence? Product Development Stage • New ideas/possible inventions • Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? • Product Development and refinement • Test Marketing – possibly local/regional • Analysis of test marketing results and amendment of product/production process • Preparations for launch – publicity, marketing campaign Introduction Stage Full-Scale Launch of New Products • Advertising and promotion campaigns • Target campaign at specific audience? • Monitor initial sales • Maximise publicity • High cost/low sales • Length of time – type of product High failure rates Little competition Frequent product modification Limited distribution High marketing and production costs Negative profits Promotion focuses on awareness and information Intensive personal selling to channels Growth Offered in more sizes, flavors, options • Increased consumer awareness • Revenues increase-Initial healthy profits • Costs - fixed costs/variable costs, profits may be made • Monitor market – competitors reaction? Increasing rate of sales-Sales rise Entrance of competitors Market consolidation Promotion emphasizes brand ads Goal is wider distribution Prices normally fall Development costs are recovered Maturity Many consumer products are in Maturity Stage • Sales reach peak • Declining sales growth -Prices and profits fall • Cost of supporting the product declines • Ratio of revenue to cost high • Sales growth likely to be low • Market share may be high • Competition likely to be greater • Price elasticity of demand? • Monitor market – changes/amendments/new strategies? Saturated markets Extending product line Stylistic product changes Heavy promotions to dealers and consumers Marginal competitors drop out Niche marketers emerge Saturation New entrants likely to mean market is ‘flooded’ Necessity to develop new strategies becomes more pressing: • Searching out new markets: Linking to changing fashions Seeking new or exploiting market segments Linking to joint ventures – media/music, etc. • Developing new uses • Focus on adapting the product • Re-packaging or format • Improving the standard or quality • Developing the product range Decline and Withdrawal Rate of decline depends on change in tastes or adoption of substitute products • • • • • • • • Product outlives/outgrows its usefulness/value Fashions change Technology changes Sales decline -Long-run drop in sales Large inventories of unsold items Cost of supporting starts to rise too far Elimination of all nonessential marketing expenses Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again? MANAGING THE PRODUCT LIFE CYCLE Modifying the Product -Alter product quality -Enhance performance -Change appearance Modifying the Market -Finding New Users -Increase use -Create new use situations EXTENDING THE PRODUCT LIFE CYCLE Repositioning Reacting to a Competitor’s Position-never compete head on Catching a Rising Trend-baby aspirin is now low dose aspirin to reduce heart attacks Changing the Value Offered Trading Up-add bells & whistles to raise price Trading Down- remove bells & whistles to lower price Downsizing-reduce contents but maintain price Five Profiles of Product Adopters The Boston Matrix • A means of analysing the product portfolio and informing decision making about possible marketing strategies • Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968 • Links growth rate, market share and cash flow Classifies Products into four simple categories Stars – products in markets experiencing high growth rates with a high or increasing share of the market - Potential for high revenue growth Cash Cows: • High market share • Low growth markets – maturity stage of PLC • Low cost support • High cash revenue – positive cash flows Classifies Products into four simple categories Dogs: • Products in a low growth market • Have low or declining market share (decline stage of PLC) • Associated with negative cash flow • May require large sums of money to support Is your product starting to embarrass your company? Classifies Products into four simple categories Problem Child: Products having a low market share in a high growth market Need money spent to develop them May produce negative cash flow Potential for the future? Problem children – worth spending good money on? Implications Dogs: • Are they worth persevering with? • How much are they costing? • Could they be revived in some way? • How much would it cost to continue to support such products? • How much would it cost to remove from the market? Implications Problem Children: • What are the chances of these products securing a hold in the market? • How much will it cost to promote them to a stronger position? • Is it worth it? Implications Stars: • Huge potential • May have been expensive to develop • Worth spending money to promote • Consider the extent of their product life cycle in decision making Implications Cash Cows: • Cheap to promote • Generate large amounts of cash – use for further R&D? • Costs of developing and promoting have largely gone • Need to monitor their performance – the long term? • At the maturity stage of the PLC? Product Identification Branding and trademarks are keys to success in business and in the global market 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.” What is Branding Branding -- is the process by which the name or the identify of an owner, a company/enterprise or organization, is communicated. Branding allows a company to differentiate its products and services from the competition by creating a bond with its customers. It aims to create customer loyalty. This way, a company takes a position in the marketplace. What is Branding Brand - name, term, sign, symbol, design, or some combination that identifies the products of one firm and differentiates them from competitors’ offerings. Brand name - part of the brand consisting of words or letters included in a name used to identify and distinguish the firm’s offerings from those of competitors. Trademark - brand that has been given legal protection granted solely to the brand’s owner. What is Branding A way by which companies launch and sell goods & services. A brand name is sometimes made of a part or the totality of a trademark name It communicates the essence of a products or its line, including why it is great and how it is better than all competing products. It reflects in general a prestigious (aesthetic) image in order to attract more consumers. 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. Brand Categories Manufacturer’s brand - brand offered and promoted by a manufacturer. Examples: Tide, Jockey, Gatorade, Swatch, and Reebok. Private or store brand - brand that is not linked to the manufacturer but instead carries a wholesaler’s or retailer’s label. Examples: Sears’ DieHard batteries and Wal-Mart’s Ol’Roy dog food & Member’s Mark brand Family branding strategy - a single brand name used for several related products. Examples: KitchenAid, Johnson & Johnson, Hewlett-Packard, and Dole Individual branding strategy - giving each product within a line a different name. Examples: Procter & Gamble products Tide, Cheer, and Dash. Brand Loyalty Brand recognition - consumer is aware of the brand but does not have a preference for it over other brands. Brand preference - consumer chooses one firm’s brand over a competitor’s. Brand insistence - consumer will seek out preferred brand and accept no substitute for it. Brand equity - added value that a respected and successful name gives to a product. Brand awareness - product is the first one that comes to mind when a product category is mentioned. Packages and Labels Important in product identification and play an important role in a firm’s overall product strategy. Choosing right package is especially important in international marketing. Must meet legal requirements of all countries in which product is sold. Universal Product Code - bar code read by optical scanner. SUCCESSFUL BRANDING Attracts / catches the consumers Marketers should attempt to create or facilitate awareness, acceptability, preference, and loyalty among consumers. Valuable and powerful brands enjoy high levels of brand loyalty. Attracts / catches the consumers Developing a brand is part of every strategic business plan Target what customers care about: articulate precise values and qualities that are relevant and of direct interest Emphasize features that are both important to consumer and quite differentiated from competitors Communicate constant innovating brand image at all levels of operation Aaker identified 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 Decions Key Challenges To brand or not Brand sponsor Brand name Brand strategy Brand repositioning Advantages of branding • • • • • Facilitates order processing Trademark protection Aids in segmentation Enhances corporate image Branded goods are desired by retailers and distributors Key Challenges 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 Key Challenges Brand strategy Varies by type of brand • Functional brands • Image brands • Experiential brands Line extensions Brand extensions Multibrands New brands Co-branding Key Challenges Brand 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. Packaging and Labeling Packaging and Labeling Packaging includes: • The primary package • The secondary package • The shipping package Many factors have influenced the increased use of packaging as a marketing tool. Developing an effective package: • Determine the packaging concept • Determine key package elements • Testing: Engineering tests Visual tests Dealer tests Consumer tests Packaging and Labeling Labeling functions: • Identifies the product or brand • May identify product grade • May describe the product • May promote the product Legal restrictions impact packaging for many products. What is a Trademark? A BRAND NAME - A KIND OF VISIT CARD THAT PROMOTES THE IMAGE OF A COMPANY AND ITS RANGE OF GOODS & SERVICES. “A sign distinguishing goods or services produced or sold by one enterprise (from those of other enterprises)”. Types of Trademarks? Trade marks: to distinguish goods Service marks: to distinguish services Collective marks: to distinguish goods or services by members of an association Certification marks Well-known marks: benefit from stronger protection Tradename (Brand name) The function of a Trademark ALLOWS COMPANIES TO MARK A TERRITORY, EXPRESSING SPECIFIC FUNCTIONS AMONG SIMILAR PRODUCTS IN THE MARKET. ENSURES THAT CONSUMERS CAN IDENTIFY A LINE OF PRODUCTS. ENSURES EXTENSION OF THE MARK THROUGH LICENSING OR FRANCHISING PROCESS. THE VALUE OF A TRADEMARK? A MARKETING TOOL SOURCE OF REVENUE THROUGH LICENSING CRUCIAL COMPONENT OF FRANCHISING AGREEMENTS USEFUL FOR OBTAINING BANKS OR THIRD PART FINANCE A VALUABLE BUSINESS ASSET Trademark protection > Registration = EXCLUSIVE RIGHTS PREVENT OTHERS FROM MARKETING PRODUCTS UNDER SAME OR CONFUSINGLY SIMILAR MARK SECURES INVESTMENT IN MARKETING EFFORT PROMOTES CUSTOMER LOYALTY/ REPUTATION / IMAGE OF COMPANY PROVIDES COVERAGE IN RELEVANT MARKETS WHERE BUSINESS OPERATES REGISTERED MARKS FOR LICENSE OR BASIS FRANCHISING AGREEMENTS What to Remember when selecting Trademark? Inherently distinctive Coined or fanciful words: “Kodak” • Arbitrary marks: “apple” for computers • Suggestive marks: SUNNY for heaters Easy to memorize and pronounce Fits product or image of the business Has no legal restrictions • Reasons for rejection • TM search>not identical or confusingly similar to existing TM Has a positive connotation Suitable for export markets Corresponding domain name available PLACE A distribution channel- is a set of independent organizations involved in the process of making a product or service available to the consumer or business user. Channels of Distribution- the path a product takes from its producer or manufacturer to the final user. Channel of Distribution – a set of interdependent organizations that, by the exchange of outputs, are involved in the process of making a product or service available for consumption. PLACE Distribution- is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. Channel-firms handling goods between production and consumption (Wal-Mart). A marketing channel (or distribution channel)-is the network of organizations that creates time, place, and possession utilities. The Importance of Marketing Channels Intermediaries- make distribution and selling processes more efficient. Intermediaries- offers supply chain partners more than they could achieve on their own. • Market Exposure • Technical Knowledge/Information Sharing • Operational Specialization • Scale of operation Consumer and Business Marketing Channels Channel Organization A vertical marketing system (VMS)- consists of producers, wholesalers, and retailers acting as a unified system One channel member- either owns the others, has contracts with them, or wields so much power that they all cooperate Direct and Indirect Channels Direct distribution: • When the producer sells goods or services directly to the customer, with no intermediaries. Indirect distribution: • Involving one or more intermediaries. Channel Members Intermediaries- (middlemen); businesses involved in sales transactions that move products from the manufacturer to the final user. • Reduces number of contacts required to reach the final user • Classified by whether they take ownership of goods and services Channel Members Manufacturer to Wholesaler to Retailer to Consumer • Most commonly used for staple goods, which are items that are always carried in stock and whose styles do not change frequently • Manufacturer to Agents to Wholesaler to Retailer to Consumer • For manufacturers who wish to concentrate on production and leave sales and distribution to others Channel Members Wholesalers • Businesses that buy large quantities of goods from manufacturers, store the goods, and then resell them to other businesses. • Take title to goods they buy for resale. • Rack jobbers-wholesalers who manage inventory and merchandising for retailers by counting stock, filling it in when needed and maintaining store displays. • Drop shippers-own the goods they sell but do not physically handle the actual products. Channel Members Retailers • Sell goods to final consumer for personal use. • Brick-and-mortar retailers-sell goods to the customer from their own physical stores. • Buy products from manufacturers or wholesalers. • Non-store retailers • Takes title for goods. • E-tailing-online retailing; selling products over the Internet Store Retailing Mass merchandisers – Carry broad assortments of goods and compete based on selection and price Specialty stores – Handle deep assortments in a limited number of product categories • Limited-line stores • Single-line stores • Category killers Convenience stores – Retailers whose primary advantages are location convenience, close-in parking, and easy entry and exit Non-Store Retailing Catalogs and direct mail Vending machines Television home shopping Direct sales Electronic exchange E-cart abandonment Channel Members Agents • Intermediaries that bring buyers and sellers together. • Independent Manufacturer’s Representative Work with several related, but noncompeting manufacturer’s in a specific industry. Paid commission on what they sell. • Brokers Negotiate a sell, paid a commission, and look for new customers Channel Members Manufacturer Directly to Consumer • Selling products at the production site • Having a sales force call on consumers • Using catalogs or ads to generate sales • Using telemarketing • Using the internet to make online sales Manufacturer to Retailer to Consumer • Used for merchandise that dates quickly or needs servicing Manufacturer to Agents to Retailer to Consumer • Used by manufacturers who do not want to handle their own sales. ChannelMembers Distribution Intensity Exclusive Distribution: • Protected territories for distribution of a product in a given geographic area • Characteristics: prestige, image, channel control, and high profit margins • selling through only one middleman in a particular geographic region Selective Distribution: • A limited number of outlets in a given geographic area are used to sell the product • Select channel members that maintain the image of the product and are good credit risks, aggressive marketers, and good inventory planners. • selling through only those middlemen who will give the product special attention Distribution Intensity Intensive Distribution • The use of all suitable outlets to sell a product • Objective/Goal: complete market coverage and to sell to as many customers as possible • selling through all responsible and suitable wholesalers and retailers who will stock and/or sell the product Distribution Intensity Exclusive distribution is when the seller allows only certain outlets to carry its products - legal Exclusive dealing is when the seller requires that the sellers not handle competitor’s products - legal Benefits include: Seller obtains more loyal and dependable dealers Dealers obtain a steady and stronger seller support Exclusive territorial agreements refers to agreements where the producer may agree not to sell to other dealers in a given area or the buyer may agree to sell only in its own territory Tying agreements, while not necessarily illegal as long as they do not substantially lessen competition, are agreements where producers sell to dealers only if the dealers will take some or all of the rest of the line Selective Distribution Sell only through middlemen who give the product special attention Avoids dealing with middlemen who: • have poor credit standing • make too many returns • require too much service • place only small orders • can't or won't do a satisfactory job Becoming more popular • less expensive than intensive distribution • better cooperation among channel members Selective Distribution Selecting a channel of distribution can hinge on one of these factors • Distribution coverage required • Degree of control desired • Total distribution cost • Channel flexibility Designing a channel system requires Analyzing consumer needs Setting channel objectives Identifying major channel alternatives Evaluation Channel Design Decisions Analyzing Consumer Needs -Designing a marketing channel starts with finding out what target customers want from the channel Setting Channel Objectives- In terms of: Targeted levels of customer service What segments to serve Best channels to use Minimizing the cost of meeting customer service requirements Identifying Major Alternatives- In terms of: Types of intermediaries Number of intermediaries Responsibilities of each channel member Conventional Distributions Systems Conventional distribution systems consist of one or more independent producers, wholesalers, and retailers. Each seeks to maximize its own profits, and there is little control over the other members and no formal means for assigning roles and resolving conflict. Identifying Major Alternatives Types of intermediaries refers to channel members available to carry out channel work. Examples include: Company sales force Manufacturer’s agency Industrial distributors Responsibilities of Channel Members Producers and intermediaries need to agree on: Price policies Conditions of sale Territorial rights Services provided by each party Evaluating the Major Alternatives Economic criteria compares the likely sales costs and profitability of different channel members Control refers to channel member’s control over the marketing of the product Adaptive criteria refers to the ability to remain flexible to adapt to environmental changes Selecting Channel Members Selecting channel members involves: Determining the characteristics that distinguish the better ones • Evaluate channel members Years in business Lines carried Profit record Selecting intermediaries that are sales agents involves evaluating: Number and character of other lines carried Size and quality of sales force Selecting intermediaries that are retail stores that want exclusive or selective distribution Evaluate: • Store’s customers • Locations • Growth potential Vertical Marketing Systems Vertical marketing systems (VMSs) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of: Corporate marketing systems Contractual marketing systems Administered marketing systems Corporate vertical marketing system integrates successive stages of production and distribution under single ownership Vertical Marketing Systems Contractual vertical marketing system consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. The most common form is the franchise organization. Franchise organization links several stages in the production distribution process • Manufacturer-sponsored retailer franchise system • Manufacturer-sponsored wholesaler franchise system • Service firm-sponsored retailer franchise system Administered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power. Horizontal Marketing Systems Horizontal marketing systems are when two or more companies at one level join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. Multichannel Distribution Systems Hybrid Marketing Channels Hybrid marketing channels are when a single firm sets up two or more marketing channels to reach one or more customer segments Multichannel Distribution Systems Hybrid Marketing Channels Advantages • Increased sales and market coverage • New opportunities to tailor products and services to specific needs of diverse customer segments Challenges • Hard to control • Create channel conflict Franchising Granting the right to engage in offering, selling, or distributing goods or services under a marketing format which is designed by the franchisor The franchisor permits the franchisee to use its trademark, name, and advertising Higher survival rates Disadvantages – Franchiser Distribution system – other systems can add conflict, Little Caesars going into K-marts cases conflict with other Little Caesars in the area. Consistency Changing operation – Pizza Hut adding delivery Advertising expenditures Franchisee – Advantages Brand Name Marketing Support Contracts Plans and Systems Reservation systemsCustomers Franchisee – Disadvantages Value of brand name determined by franchiser Introduction of new products determined by franchiser Your reliability tied to the rest of the system Price Price- is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. Price- is the only element in the marketing mix that produces revenue; all other elements represent costs Price-is the value that customers give up or exchange to obtain a desired product Payment- may be in the form of money, goods, services, favors, votes or anything else that has value to the other party Price- is the only P which represents revenue rather than an expense Pricing Strategies Penetration Pricing Penetration Pricing Price set to ‘penetrate the market’ ‘Low’ price to secure high volumes Typical in mass market products – chocolate bars, food stuffs, household goods, etc. Suitable for products with long anticipated life cycles May be useful if launching into a new market New-Product Pricing Strategies Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share Price sensitive market Inverse relationship of production and distribution cost to sales growth Low prices must keep competition out of the market Market Skimming Market Skimming High price, Low volumes Skim the profit from the market Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: Playstation, jewellery, digital technology, new DVDs, etc. Value Pricing Value Pricing Price set in accordance with customer perceptions about the value of the product/service Examples include status products/exclusive products Loss Leader Loss Leader Goods/services deliberately sold below cost to encourage sales elsewhere Typical in supermarkets, e.g. at Christmas, selling bottles of gin at £3 in the hope that people will be attracted to the store and buy other things Purchases of other items more than covers ‘loss’ on item sold e.g. ‘Free’ mobile phone when taking on contract package Promotional pricing is when prices are temporarily priced below list price or cost to increase demand Loss leaders Special event pricing Cash rebates Low-interest financing Longer warrantees Free maintenance Psychological Pricing Psychological Pricing Used to play on consumer perceptions Classic example - £9.99 instead of £10.99! Links with value pricing – high value goods priced according to what consumers THINK should be the price Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics Reference prices are prices that buyers carry in their minds and refer to when looking at a given product • Noting current prices • Remembering past prices • Assessing the buying situations Going Rate (Price Leadership) Going Rate (Price Leadership) In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market May follow pricing leads of rivals especially where those rivals have a clear dominance of market share Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarkets, electrical goods – find very similar prices in all outlets Tender Pricing Tender Pricing Many contracts awarded on a tender basis Firm (or firms) submit their price for carrying out the work Purchaser then chooses which represents best value Mostly done in secret Price Discrimination Price Discrimination Charging a different price for the same good/service in different markets Requires each market to be impenetrable Requires different price elasticity of demand in each market Destroyer Pricing/Predatory Pricing Destroyer Pricing/Predatory Pricing Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and weaker) out of business or prevent new entrants Anti-competitive and illegal if it can be proved Absorption/Full Cost Pricing Absorption/Full Cost Pricing Full Cost Pricing – attempting to set price to cover both fixed and variable costs Absorption Cost Pricing – Price set to ‘absorb’ some of the fixed costs of production Marginal Cost Pricing Marginal Cost Pricing Marginal cost – the cost of producing ONE extra or ONE fewer item of production MC pricing – allows flexibility Particularly relevant in transport where fixed costs may be relatively high Allows variable pricing structure – e.g. on a flight from London to New York – providing the cost of the extra passenger is covered, the price could be varied a good deal to attract customers and fill the aircraft Marginal Cost Pricing Aircraft flying from Bristol to Edinburgh – Total Cost (including normal profit) = £15,000 of which £13,000 is fixed cost* Number of seats = 160, average price = £93.75 MC of each passenger = 2000/160 = £12.50 If flight not full, better to offer passengers chance of flying at £12.50 and fill the seat than not fill it at all! *All figures are estimates only Contribution Pricing Contribution Pricing Contribution = Selling Price – Variable (direct costs) Prices set to ensure coverage of variable costs and a ‘contribution’ to the fixed costs Similar in principle to marginal cost pricing Break-even analysis might be useful in such circumstances Target Pricing Target Pricing Setting price to ‘target’ a specified profit level Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the mark-up Mark-up = Profit/Cost x 100 Cost-Plus Pricing Cost-Plus Pricing Calculation of the average cost (AC) plus a mark up AC = Total Cost/Output International pricing International pricing is when prices are set in a specific country based on country-specific factors Economic conditions Competitive conditions Laws and regulations Infrastructure Company marketing objective Dumping Selling in foreign market at or below cost Selling in a foreign market more than 5% below price in home market Influence of Elasticity Influence of Elasticity Any pricing decision must be mindful of the impact of price elasticity The degree of price elasticity impacts on the level of sales and hence revenue Elasticity focuses on proportionate (percentage) changes PED = % Change in Quantity demanded/% Change in Price Price Inelastic: % change in Q < % change in P e.g. a 5% increase in price would be met by a fall in sales of something less than 5% Revenue would rise A 7% reduction in price would lead to a rise in sales of something less than 7% Revenue would fall Influence of Elasticity Price Elastic: % change in quantity demanded > % change in price e.g. A 4% rise in price would lead to sales falling by something more than 4% Revenue would fall A 9% fall in price would lead to a rise in sales of something more than 9% Revenue would rise Factors to Consider When Setting Prices Customer Perceptions of Value Understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value 1.Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set. Value-based pricing is customer driven 2.Cost-based pricing is product driven Factors to Consider When Setting Prices Customer Perceptions of Value 3.Good-value pricing offers the right combination of quality and good service to fair price Existing brands are being redesigned to offer more quality for a given price or the same quality for less price 4.Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts 5.High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items Factors to Consider When Setting Prices Customer Perceptions of Value 6.Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power Pricing power is the ability to escape price competition and to justify higher prices and margins without losing market share 7.Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk Cost-based pricing adds a standard markup to the cost of the product Factors to Consider When Setting Prices Company and Product Costs 1.Fixed costs are the costs that do not vary with production or sales level Rent Heat Interest Executive salaries Factors to Consider When Setting Prices Company and Product Costs 2.Variable costs are the costs that vary with the level of production Packaging Raw materials 3.Total costs are the sum of the fixed and variable costs for any given level of production Average cost is the cost associated with a given level of output Costs as a Function of Production Experience Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units Factors to Consider When Setting Prices 1.Cost-Plus Pricing Cost-plus pricing adds a standard markup to the cost of the product Benefits • Sellers are certain about costs • Prices are similar in industry and price competition is minimized • Consumers feel it is fair Disadvantages • Ignores demand and competitor prices Factors to Consider When Setting Prices Break-Even Analysis and Target Profit Pricing Break-even pricing is the price at which total costs are equal to total revenue and there is no profit Target profit pricing is the price at which the firm will break even or make the profit it’s seeking Other Internal and External Considerations Customer perceptions of value set the upper limit for prices, and costs set the lower limit Companies must consider internal and external factors when setting prices Factors to Consider When Setting Prices Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met Organizational considerations include: Who should set the price Who can influence the prices The Market and Demand Before setting prices, the marketer must understand the relationship between price and demand for its products Factors to Consider When Setting Prices Other Internal and External Consideration The Market and Demand The demand curve shows the number of units the market will buy in a given period at different prices Normally, demand and price are inversely related Higher price = lower demand For prestige (luxury) goods, higher price can equal higher demand when consumers perceive higher prices as higher quality Price elasticity of demand illustrates the response of demand to a change in price Inelastic demand occurs when demand hardly changes when there is a small change in price Elastic demand occurs when demand changes greatly for a small change in price Price elasticity of demand = % change in quantity demand % change in price Factors to Consider When Setting Prices Other Internal and External Considerations Competitor's Strategies Comparison of offering in terms of customer value Strength of competitors Competition pricing strategies Customer price sensitivity Economic conditions Reseller’s response to price Government Social concerns Pricing Objectives in the Marketing Mix Pricing Objectives Profitability Objectives • Maximize profits by reducing costs. • Maintain price while reducing package size. Volume Objectives • Base pricing decisions on market share goals. Pricing to Meet Competition • Meeting competitors’ price. • • Competitors cannot legally work together to set prices. Competition can result in a price war. Pricing Strategies • • • Prestige Objectives Establishing a relatively high price to develop and maintain an image of quality and exclusiveness. Recognition of the role of price in communicating an overall image for the firm and its products. Pricing is influenced by people in different areas of a company. Break-even Analysis Breakeven analysis -pricing technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs. Break-even Analysis Alternative Pricing Objectives • • • • • • • • Skimming Pricing Setting an intentionally high price relative to the prices of competing products. Helps marketers set a price that distinguishes a firm’s high-end product from those of competitors. Penetration Pricing Setting a low price as a major marketing weapon. Often used with new products. Everyday Low Pricing and mix.Discount Pricing Maintaining continuous low prices. Discount pricing - attracting customers by dropping prices for a set period of time. Competitive Pricing Reducing the emphasis on price competition by matching other firms’ prices. Concentrating marketing efforts on the product, distribution, and promotional elements of the marketing Consumer Perceptions of Price Price-Quality Relationships • Consumers’ perceptions of quality closely tied to price. • High price = prestige and higher quality. • Low price = less prestige and lower quality. Odd Pricing • Setting prices in uneven amounts or amounts that sound less than they really are. – Example: $1.99 or $299. PROMOTION • • • Promotion is the function of informing, persuading, and influencing a purchase decision. Integrated marketing communications (IMC) is the coordination of all promotional activities—media advertising, direct mail, personal selling, sales promotion, and public relations—to produce a unified customer-focused message Integrated Marketing Communications Must take a broad view and plan for all form of customer contact. Create unified personality and message for the good, service, or brand. Elements include personal selling, advertising, sales promotion, publicity, and public relations. Promotion Promotion communication of information influence the buyer 3 methods Personal Selling Mass Selling Advertising Publicity Sales Promotion Promotion Personal Selling direct communication between seller and buyer face2face contact Usually used to sell industrial goods and services Also used to sell some expensive consumer items, eg. Cars, computer systems Mass Selling communicating with large numbers of potential customers “non”-personal selling used when the target market is large and dispersed Advertising is a form of Mass Selling Promotion Advertising the main form of mass selling any paid form of nonpersonal communication eg. Techniques include billboard ads and TV commercials Publicity The generation of awareness about a product beyond regular advertising methods. Usually less costly than advertising because sometimes the message is spread for free by a newspaper article or TV story. Promotion Publicity Examples of Publicity famous person photographed using your product your product mentioned in National News in a positive way your product featured in a movie TV commentary about aspects of your product trade magazines carrying a story eg. Road and Track doing a feature on the new Landrover Promotion Publicity Publicity can be negative eg. If a famous movie star gets electrocuted using your product, this can cause people to NOT want to buy it - this would be a major problems eg. If your product is sabotaged - this could include tampering with medical products ie. Tylenol eg. If there are negative rumours about the ingredients in your product eg. If there are negative ingredients about the moral aspects of your company Promotion Promotion People Sales Managers Are concerned with managing personal selling In small companies this person also does the advertising and sales promotion Advertising Managers They manage the mass selling activities They chose the company to make the commercials Pick the billboard signs etc. If the company is big enough they hire an outside agency They may also do publicity as well Sales Promotion Managers They manage the Sales Promotion activities They decide about in-store coupons, prizes, contests etc. They spend a lot of time visiting the retail outlets where the product is sold Promotion Sales Promotion Managers - they deal with Point-of-purchase advertising specialty advertising samples coupons premiums loyalty points / air miles rebates contests Promotion Sales Promotion includes: Point-of-purchase advertising specialty advertising samples coupons premiums loyalty points / air miles rebates contests Relationship between Advertising and the Product Life Cycle Relationship between Advertising and the Product Life Cycle Informing people have to know about it, in order to buy it Advertising that seeks to develop demand through presenting factual information on the attributes of a product or service. Tends to be used in promoting NEW products. Use in the Introductory Stage of PLC Persuading when competition offers similar product, you have to “persuade” them to try yours Advertising that emphasizes using words and/or images to try to create an image for a product and to influence attitudes about it. Used by Coke and Pepsi re: lifestyle ads. Used after the Introductory Stage of the PLC Relationship between Advertising and the Product Life Cycle Reminding when new competition comes along, you have to “remind” customers of your greater experience, advantages etc. Advertising whose goal is to reinforce previous promotional activity by keeping the product’s or service’s name in front of the public. Used in the Maturity Period and the Decline Stage of the PLC. Advertising and The Product Life Cycle • • • • Informative advertising - used to build initial demand for a product in the introductory phase. Persuasive advertising - attempts to improve the competitive status of a product, institution, or concept, usually in the growth and maturity stages. Comparative advertising - compares products directly with their competitors either by name or by inference. Reminder-oriented advertising - appears in the late maturity or decline stages to maintain awareness of the importance and usefulness of a product. Pushing through the promotion channel Producer customer personal selling 2 wholesaler retailer Promotion techniques used run ads in trade magazines to make wholesalers aware of the product provide incentives to retailers to carry the item “… free case of drinks with each 2 cases it buys…” page 466 run contests for salespeople to win prizes for selling the product Pulling through the promotion channel Producer customer personal selling 2 wholesaler retailer Promotion techniques used run TV commercials so customers directly learn about the product - then they go to the store and ask for it, or call around to find out where it is sold give free samples to potential customers Comparison of Direct Marketing and General Advertising Direct Marketing General Advertising Selling to individuals. Customers are often identifiable by name, address, and purchase behaviour. Mass selling. Buyers identified as broad groups sharing common demographic and psychographic characteristics. Products have added value or service. Distribution is important product benefit. Product benefits do not always include convenient distribution channels. The medium is the marketplace. Retail outlet is the marketplace. Marketer controls product until delivery. enters distribution channel. Marketer may lose control as product Advertising used to motivate an immediate order or inquiry. Advertising used for cumulative effect over time to build image, awareness,loyalty, benefit recall. Purchase action deferred. Repetition used within ad. Repetition used over time. Consumers feel high perceived risk – product brought unseen. Recourse is distant. Consumers feel less risk – have direct contact with the product and direct recourse. Adoption Process Innovators Early Adopters - sales people concentrate their efforts here Early majority Late majority Laggards, or nonadopters Potential Mail Recipients Once your name is on a list for a newspaper subscription, your name and address can be “sold” to another company who will mail you information to try and convince you to buy their product. Buying and selling lists (databases) of such names is big business. Promotion (Marketing Communications) Mix Advertising • any paid form of nonpersonal presentation of ideas, goods or services by an identified sponsor Personal Selling • a paid form of personal presentation of ideas, goods or services by an identified sponsor Publicity • any unpaid form of nonpersonal presentation of ideas, goods or services Sales Promotion • an activity and/or material that acts as a direct inducement, offering added value or incentive for the product, to resellers, consumers or employees Promotional Elements Promotion-Expenditure Strategy Percentage-of-Sales Per-Unit Expenditure All You Can Afford Competitive Parity Research Approach Objective and Task Promotion Mix Strategy Several factors affect the promotional mix: • • • • • • Nature of the Product Stage in the PLC Target of the Promotion Promotion Budget Nature of the Competition Marketing mix factors Promotional Mix • • • Promotional mix - combination of personal and nonpersonal selling techniques designed to achieve promotional objectives. Personal selling - interpersonal promotional process involving a seller’s face-to-face presentation to a prospective buyer. Nonpersonal selling - advertising, sales promotion, direct marketing, and public relations. Promotional Mix • • Product placement - marketers pay placement fees to have their products showcased in various media, ranging from newspapers and magazines to television and movies. Guerilla marketing - innovative, low-cost marketing efforts designed to get consumers’ attention in unusual ways. Components of the Marketing Mix Objectives of Promotional Strategies Advertising • • • Advertising - paid nonpersonal communication delivered through various media and designed to inform, persuade, or remind members of a particular audience. Consumers receive 5,000 marketing messages each day. Firms need to be more and more creative and efficient at getting consumers’ attention. Advertising Campaign Strategy 1. Identify and analyze the target market 2. Define advertising objectives A. Specific, obtainable, measurable B. Communication and sales 3. Create the advertising platform 4. Determine the advertising appropriation 5. Develop the media plan A. Type of media B. Specific vehicles C. Reach and frequency D. Message content Advertising Campaign Strategy 6. Create the advertising message A. Consider type of media and platform B. Copy and artwork 7. Execute the advertising campaign 8. Evaluate the effectiveness of the advertising A. Extent of reaching objectives B. Testing procedures Types of Advertising • • • Product advertising - messages designed to sell a particular good or service. Institutional advertising - messages that promote concepts, ideas, philosophies, or goodwill for industries, companies, organizations, or government entities. Cause advertising - institutional messaging that promotes a specific viewpoint on a public issue as a way to influence public opinion and the legislative process. Advertising Media Pie Types of Advertising • • • • Television Easiest way to reach a large number of consumers. Most expensive advertising medium. Advantages: Combines sight, sound, motion; high attention; high reach; appealing to senses Limitations: High absolute costs; high clutter; fleeting exposure; less audience selectivity Newspapers Dominate local advertising. Relatively short life span. Advantages: Flexibility, timeliness; good local market coverage; broad acceptance, high believability Limitations: Short life; poor reproduction quality; small pass-along audience Radio Commuters in cars are a captive audience. Satellite radio offers new opportunities. Advantages: Mass use; high geographic and demographic selectivity; low cost Limitations: Audio only; fleeting exposure; lower attention; nonstandardized rates; fragmented audiences Types of Advertising • • • • • Magazines Consumer publications and trade journals. Can customize message for different areas of the country. Advantages: High geographic and demographic selectivity; credibility and prestige; high-quality reproduction; long life; good pass-along readership Limitations: Long ad purchase lead time; waste circulation; no guarantee of position Direct Mail Average American receives 550 pieces annually High per person cost, but can be carefully targeted and highly effective. Advantages: Audience selectivity; flexibility, no ad competition within same medium; allows personalization Limitations: Relative high cost; “junk mail” image Outdoor Advertising $3.2 billion annually Requires brief messages. Advantages: Flexibility; high repeat exposure; low cost; low message competition Limitations: Little audience selectivity; creative limitations Types of Advertising • • • • • Online and Interactive Advertising Viral advertising creates a message that is novel or entertaining enough for consumers to forward it to others, spreading it like a virus. Many consumers resent the intrusion of pop-up ads that suddenly appear on their computer screen. Sponsorship Providing funds for a sporting or cultural event in exchange for a direct association with the event. Benefits: exposure to target audience and association with image of the event. Other Media Options Marketers look for novel ways to reach customers: infomercials, ATM receipts, directory advertising. Sales Promotion Consists of media and non-media marketing communications employed for a predetermined, limited time to stimulate trial, increase consumer demand, or improve product availability nonpersonal marketing activities other than advertising, personal selling, and public relations that stimulate consumer purchasing and dealer effectiveness. Sales Promotion The Role of Sales Promotion Consumer Sales Promotion: • Directed at Consumers Trade Sales Promotion: • Directed at Resellers Consumer Sales Promotion Techniques Price Deals Coupons Rebates Cross-Promotions Contests, Sweepstakes, Games Premiums Sampling Advertising Specialties Trade Sales Promotion Objectives of Trade Sales Promotion: Gain/maintain distribution Influence resellers to promote product Influence resellers to offer price discount Increase reseller inventory Defend against competitors Avoid reduction of normal prices Consumer-Oriented Promotions • • • • • • Premiums, Coupons, Rebates, Samples Coupons attract new customers but focus on price rather than brand loyalty. Rebates increase purchase rates, promote multiple purchases, and reward product users. Three of every four consumers who receive a sample will try it. Games, Contests, and Sweepstakes Introduction of new products. Subject to legal restrictions. Specialty Advertising Gift of useful merchandise carrying the name, logo, or slogan of an organization. Trade-Oriented Promotions Trade Sales Promotion Techniques Trade Allowances Dealer Loaders Trade Contests Point-of-Purchase Displays Trade Shows Training Programs Push Money Personal Selling • A person-to-person promotional presentation to a potential buyer. – Customers are relatively few in number and geographically concentrated. – The product is technically complex, involves trade-ins, and requires special handling. – The product carries a relatively high price. – It moves through direct-distribution channels. • Example: Selling to the government or military. Sales Tasks • • • • Order Processing Identifying customer needs, pointing out merchandise to meet them, and processing the order. Creative Selling Promoting a good or service whose benefits are not readily apparent or whose purchase decision requires a close analysis of alternatives. Missionary Selling Representative promotes goodwill for a company or provides technical or operational assistance to the customer. Telemarketing Personal selling conducted by telephone; regulated by the Federal Trade Commission’s 1996 Telemarketing Sales Rule The Sales Process Prospecting, Qualifying, and Approaching • A good salesperson varies the sales process based on customers’ needs and responses. • Prospecting - identifying potential customers. • Qualifying - identifying potential customers. • • • Approaching - analyzing available data about a prospective customer’s product lines and other pertinent information. Presentation Salespeople communicate promotional messages. They may describe the major features of their products, highlight the advantages, and cite examples of satisfied consumers. Demonstration Reinforces the message that the salesperson has been communicating. Handling Objections & Closing • • • Use objections as an opportunity to answer questions and explain how the product will benefit the customer. The closing is the critical point in the sales process. Even if the sale is not made, the salesperson should regard the interaction as the beginning of a potential relationship. Follow-up • • An important part of building a longlasting relationship. May determine whether the customer will make another purchase. Publicity Strategy 1. A. B. C. D. E. F. Types Press release Feature article Captioned photograph Press conference Letters to editor/editorials Films/tapes/videos 2. Requirements 3. Limitations Public Relations • Public relations - a public organization’s communications and relationships with its various audiences. – • Helps a firm establish awareness of goods and services and builds a positive image of them. Publicity - stimulation of demand for a good, service, place, idea, person, or organization by disseminating news or obtaining favorable unpaid media presentations. – Good publicity can promote a firm’s positive image. – Negative publicity can cause problems. Promotional Strategy • Pushing strategy - relies on personal selling to market an item to wholesalers and retailers in a company’s distribution channels. – Companies promote the product to members of the marketing channel, not to end users. • Pulling strategy - promote a product by generating consumer demand for it, primarily through advertising and sales promotion appeals. – Potential buyers will request that their suppliers—retailers or local distributors—carry the product, thereby pulling it through the distribution channel. • Most marketing situations require combinations of push and pull strategies Price-Quality Relationships •Consumers’ perceptions of quality closely tied to price. •High price = prestige and higher quality. •Low price = less prestige and lower quality. Odd Pricing •Setting prices in uneven amounts or amounts that sound less than they really are. –Example: $1.99 or $299. SWOT Analysis and Porter’s Five Forces Model ● Strengths • What aspects of a firm are its strengths? ● Weaknesses • What aspects of a firm are weak? ● Can be structural, legal, market based, etc. What hinders a firm from competing well? Opportunities • • ● Can be structural, market based, IP, etc. What gives a firm its competitive advantages? What areas/markets are there that a firm can grow into? Do the above strengths contribute, or do new capabilities need to be created? Threats • • • What will stop a firm from growing into new spaces? What out there threatens a firm’s existing market share and product line? What is the nature of this threat? Competition? Political environment? Something else? The purpose of SWOT Analysis It is an easy-to-use tool for developing an overview of a company’s strategic situation • It forms a basis for matching your company’s strategy to its situation • SWOT is the starting point It provides an overview of the strategic situation. It provides the “raw material” to do more extensive internal and external analysis. Opportunities An OPPORTUNITY is a chance for firm growth or progress due to a favorable juncture of circumstances in the business environment. Possible Opportunities: • Emerging customer needs • Quality Improvements • Expanding global markets • Vertical Integration Threats A THREAT is a factor in your company’s external environment that poses a danger to its well-being. Possible Threats: • New entry by competitors • Changing demographics/shifting demand • Emergence of cheaper technologies • Regulatory requirements Opportunities and Threats form a basis for EXTERNAL analysis By examining opportunities, you can discover untapped markets, and new products or technologies, or identify potential avenues for diversification. By examining threats, you can identify unfavorable market shifts or changes in technology, and create a defensive posture aimed at preserving your competitive position. The purpose of Five-Forces Analysis The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is. Economies of Scale Threat of New Entrants Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Expected Retaliation Bargaining Power of Buyers Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to seller’s sales Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated Buyers face few switching costs Buyers’ industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information Buyers compete with the supplying industry by: * Bargaining down prices * Forcing higher quality * Playing firms off of each other Bargaining Power of Suppliers Suppliers are likely to be powerful if: Suppliers exert power in the industry by: Supplier industry is dominated by a few firms Suppliers’ products have few substitutes * Threatening to raise price or reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration Threat of Substitute Products Keys to evaluate substitute products: Products with similar function limit the prices firms can charge Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery Rivalry Among Existing Competitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service Making new product introductions Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors Porter’s Five Forces Model of Competition Threat of Threat New of New Entrants Entrants Bargaining Power of Suppliers Rivalry Among Competing Firms in Industry Threat of Substitute Products Bargaining Power of Buyers Competitor Analysis The follow-up to Industry Analysis is effective analysis of a firm’s Competitors Industry Environment Competitive Environment Competitor Analysis Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Response What will our competitors do in the future? Where do we have a competitive advantage? Future Objectives How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? How will this change our relationship with our competition? The Five Forces are Unique to Your Industry Five-Forces Analysis is a framework for analyzing a particular industry. • Yet, the five forces affect all the other businesses in that industry. Competitor Analysis Future How do our goals Objectives What are the competitor’s capabilities? compare to our competitors’ Where will goals? Current emphasis be placed How are we Strategy in the future? What is the attitude currently Assumption towardcompeting? risk? Does this strategy Do we sassume the support changes in future will be the competition volatile? What assumptions structure? do our competitors Capabilities hold about the What industry andare my competitors’ Are we operating strengths and weaknesses? themselves? under a status quo? How do our capabilities compare to our competitors? Competitor Analysis Response Future How do our goals Objectives compare to our competitors’ Where will goals? Current emphasis be placed How are we Strategy in the future? What is the attitude currently Assumption towardcompeting? risk? Does this strategy Do we sassume the support changes in future will be the competition volatile? What assumptions structure? do our competitors Capabiliti hold about the es my What are industry and Are wecompetitors’ operating themselves? under strengths a status and quo? weaknesses? How do our capabilities compare to our What will our competi do in the future? Where do we have a competitive advantag How will this change our relationship with our competition? Ansoff Matrix Long-term business strategy is dependant on planning for their introduction Ansoff Matrix represents the different options open to a marketing manager when considering new opportunities for sales growth Variables in the matrix Two variables in Strategic marketing Decisions: • The market in which the firm was going to operate • The product intended for sale In terms of the market, managers had two options: • Remain in the existing market • Enter new ones In terms of the product, the two options are: • selling existing products • developing new ones ANSOFF GROWTH STRATEGY MATRIX ANSOFF GROWTH STRATEGY MATRIX The matrix presents four main strategic choices, ranging from an incremental strategy in whichcurrent products are sold to existing customers to a revolutionary strategy in which new products aresold to new customers. Market penetration. In this quadrant, the company markets existing products to existingcustomers. The products remain unchanged and no new customer segments are pursued; instead,the company repositions the brand, launches new promotions or otherwise tries to gain marketshare and accordingly, increase revenue. Market development. Here, the company markets existing products to one or more newcustomer segments. These customers could represent untapped verticals, virgin geographies orother new opportunities. ANSOFF GROWTH STRATEGY MATRIX Product development. This quadrant involves marketing new products to existing customers.The company grows by innovating, gradually replacing old products with new ones. Diversification. This quadrant entails the greatest risk; here, the company markets newproducts to new customers. There are two types of diversification: related and unrelated. In relateddiversification, the company enters a related market or industry. In unrelated diversification, thecompany enters a market or industry in which it has no relevant experience.These quadrants represent varying degrees of risk. Assuming that the more a business knows aboutits market, the more likely it will be to succeed, the market penetration strategy entails the least risk,while the diversification strategy entails the most. (In fact, consultants often refer to thediversification cell as the 'suicide cell.') ANSOFF GROWTH STRATEGY MATRIX In 1998, Bruce D. Buskirk of Pepperdine University and Edward D. Popper of Bellarmine College amended Ansoff's growth strategy matrix for the high-tech market. They argue that expanding the original four-cell matrix was necessary because it assumes customers are "familiar with the products (or product category) being offered (even if they are not familiar with the firm who offered the product). Even without technological innovation, in an expanding market, customers will enter the market place without product knowledge.“ The expanded matrix includes cells that account for new technology—technology new to the market—which, according to Buskirk and Popper, means the company will have to educate customers about the technology before exposure to the product's benefits. ANSOFF GROWTH STRATEGY MATRIX (Expanded) Existing Existing New PRODUCTS MARKET PENETRATION PRODUCT DEVELOPMENT Sell new products in existing markets MARKETS MARKET EXTENSION New Achieve higher sales/market share of existing products in new markets DIVERSIFICATION Sell new products in new markets INCREASING RISK Sell more in existing Markets INCREASING RISK Existing Existing New MARKET PENETRATION MARKETS New INCREASING RISK INCREASING RISK Sell more in existing Markets PRODUCTS MARKET PENETRATION This is the objective of higher market share in existing markets • E.g. in 2000, Mitsubishi announced a 10% reduction in prices in the UK in order to encourage purchases Existing Existing New PRODUCTS MARKET PENETRATION MARKETS MARKET EXTENSION New Achieve higher sales/market share of existing products in new markets INCREASING RISK Sell more in existing Markets INCREASING RISK MARKET EXTENSION This is the strategy of selling an existing product to new markets. This could involve selling to an overseas market, or a new market segment • Nintendo are making hand held games consoles (e.g. DS) appeal to the adult/grey market by introducing games such as Brain Train Existing Existing New PRODUCTS MARKET PENETRATION MARKETS MARKET EXTENSION New Achieve higher sales/market share of existing products in new markets PRODUCT DEVELOPMENT Sell new products in existing markets INCREASING RISK Sell more in existing Markets INCREASING RISK PRODUCT DEVELOPMENT Least risky of all four strategies This involves taking an existing product and developing it in existing markets • E.g. Coca-Cola. This has been developed to have vanilla, lime, cherry and diet varieties (amongst others) in the SOFT DRINKS market Existing Existing New PRODUCTS MARKET PENETRATION PRODUCT DEVELOPMENT Sell new products in existing markets MARKETS MARKET EXTENSION New Achieve higher sales/market share of existing products in new markets DIVERSIFICATION Sell new products in new markets INCREASING RISK Sell more in existing Markets INCREASING RISK DIVERSIFICATION This is the process of selling different, unrelated goods or services in unrelated markets This is the most risky of all four strategies • E.g. the Virgin group Summary Risks involved differ substantially The matrix identifies different strategic areas in which a business COULD expand Managers need to then asses the costs, potential gains and risks associated with the other options What Service Marketing What are services? Why services marketing? Service and Technology Characteristics of Services Compared to Goods Services Marketing Mix Staying Focused on the Customer Explain what services are and identify important trends in services. Explain the need for special services marketing concepts and practices and why the need has developed and is accelerating. Explore the profound impact of technology on service. Outline the basic differences between goods and services and the resulting challenges and opportunities for service businesses. Introduce the expanded marketing mix for services and the philosophy of customer focus as powerful frameworks and themes that are fundamental to the rest of the text. Service Marketing Examples of Service Industries Health Care • hospital, medical practice, dentistry, eye care Professional Services • accounting, legal, architectural Financial Services • banking, investment advising, insurance Hospitality • restaurant, hotel/motel, bed & breakfast • ski resort, rafting Travel • airline, travel agency, theme park Others • hair styling, pest control, plumbing, lawn maintenance, counseling services, health club, interior design What is Service “Service is an act or performance offered by one party to another that is essentially intangible and does not result in the ownership of anything.” Services are economic activities offered by one party to another. Often time-based, performances bring about desired results to recipients, objects, or other assets for which purchasers have responsibility. In exchange for money, time, and effort, service customers expect value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved. Services marketing typically refers to both business to consumer (B2C) and business to business (B2B) services, and includes marketing of services like telecommunications services, financial services, all types of hospitality services, car rental services, air travel, health care services and professional services. What is a service? It is intangible. It does not result in ownership. It may or may not be attached with a physical product Service is a deed, a performance, or effort that can’t be physically possessed You will likely work in services I work in services (education and research) The most job growth is in services (here, education, healthcare, casinos, finance) Vegas thrives on services Services could meet Personal needs – haircuts, tution, massage parlours Business needs – courier services, office cleaning services, delivering fresh flowers The 7 P’s of Services Marketing Product: In case of services, the ‘product’ is intangible, heterogeneous and perishable. Moreover, its production and consumption are inseparable. Hence, there is scope for customizing the offering as per customer requirements and the actual customer encounter therefore assumes particular significance. However, too much customization would compromise the standard delivery of the service and adversely affect its quality. Hence particular care has to be taken in designing the service offering. Pricing: Pricing of services is tougher than pricing of goods. While the latter can be priced easily by taking into account the raw material costs, in case of services attendant costs - such as labor and overhead costs - also need to be factored in. Thus a restaurant not only has to charge for the cost of the food served but also has to calculate a price for the ambience provided. The final price for the service is then arrived at by including a mark up for an adequate profit margin. Place: Since service delivery is concurrent with its production and cannot be stored or transported, the location of the service product assumes importance. Service providers have to give special thought to where the service would be provided. Thus, a fine dine restaurant is better located in a busy, upscale market as against on the outskirts of a city. Similarly, a holiday resort is better situated in the countryside away from the rush and noise of a city. Promotion: Since a service offering can be easily replicated promotion becomes crucial in differentiating a service offering in the mind of the consumer. Thus, service providers offering identical services such as airlines or banks and insurance companies invest heavily in advertising their services. This is crucial in attracting customers in a segment where the services providers have nearly identical offerings. The 7 P’s of Services Marketing The final three elements of the services marketing mix - people, process and physical evidence - are unique to the marketing of services. People: People are a defining factor in a service delivery process, since a service is inseparable from the person providing it. Thus, a restaurant is known as much for its food as for the service provided by its staff. The same is true of banks and department stores. Consequently, customer service training for staff has become a top priority for many organizations today. Process: The process of service delivery is crucial since it ensures that the same standard of service is repeatedly delivered to the customers. Therefore, most companies have a service blueprint which provides the details of the service delivery process, often going down to even defining the service script and the greeting phrases to be used by the service staff. Physical Evidence: Since services are intangible in nature most service providers strive to incorporate certain tangible elements into their offering to enhance customer experience. Thus, there are hair salons that have well designed waiting areas often with magazines and plush sofas for patrons to read and relax while they await their turn. Similarly, restaurants invest heavily in their interior design and decorations to offer a tangible and unique experience to their guests. Service Marketing Service Marketing Services Marketing Service Marketing Service Marketing Service Marketing Service Marketing Service Marketing Service Marketing Service Marketing Service Marketing Services can provide higher profit margins and growth potential than products Customer satisfaction and loyalty are driven by service excellence Services can be used as a differentiation strategy in competitive markets Service-based economies Service as a business imperative in manufacturing and IT Deregulated industries and professional service needs Services marketing is different Service Marketing Service Marketing Service Marketing Service Marketing Service Marketing Service Marketing RECOMMENEND TEXTBOOKS Kotler, P,. Armstrong, G,. Wong, V and Saunders, J (2010) Principles of Marketing: Pearson Education Limited: Harlow, Engand, UK Armstrong, G,. Kotler, P,. Harker, M and Brennan, R (2012) Marketing: A Introduction: Pearson Education Limited: Harlow, Engand, UK Kotler, P,. Keller, K,. L,. Brady,. M,. Goodman, M and Hansen, T (2009) Marketing Management: Pearson Education Limited: Harlow, Engand, UK Pride, W,. M and Ferrell, O,. C (2012) Foundations of Marketing: Cengage Learning: South-Western: USA RECOMMENEND TEXTBOOKS Jobber, D (2004) Principles and Practice of Marketing: McGraw-Hill International (UK) Limited Brassington, F and Pettitt, S (2006) Principles of Marketing: Pearson Education Limited: Harlow, Engand, UK Adcock, D,. Halborg, A,. L,. Ross, C (2001) Marketing: Principles and Practice: Pearson Education Limited: Harlow, Engand, UK Perreault, J,. R,. Cannon, J and McCarthy, E,. J (2011) Essentials of Marketing: McGraw-Hill International (UK) Limited RECOMMENEND TEXTBOOKS Ansoff, H.I.;(1957) "Strategies for Diversification"; Harvard Business Review Buskirk, B,. D. and Popper, E,. D.; "Growth Strategies for High Tech Firms";The Graziadio Business Report