Download markets - Chinhoyi University of Technology

MARKETING MANAGEMENT
BY
DR GERALD MUNYORO
CHINHOYI UNIVERSITY OF TECHNOLOGY
SCHOOL OF BUSINESS SCIENCES AND MANAGEMENT
DEPARTMENT OF INTERNATIONAL MARKETING
COURSE OUTLINE
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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
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Choosing and targeting appropriate
customers
Positioning your offering
Interacting with those customers
Controlling the marketing effort
Continuity of performance
The Marketing concept
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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
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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
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Profitable
Offensive (rather than defensive)
Integrated
Strategic (is future orientated)
Effective (gets results)
Davidson (1972)
Definition of Marketing Management
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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
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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
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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
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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
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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
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Consumer behaviour
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“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
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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
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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
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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
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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
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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
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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
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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).
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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.
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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
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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
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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
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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
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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
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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?
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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
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Convenience
Shopping
Specialty
Unsought
Convenience
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Frequent purchases bought with
minimal buying effort and little
comparison shopping
Low price
Widespread distribution
Mass promotion by producer
Shopping
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Systematic Search for New
Product Ideas
Internal sources
Customers
Competitors
Distributors
Suppliers
Screening
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Process to spot good ideas and drop poor
ones
Criteria
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Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return
Concept development and
business analysis phase
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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
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Test marketing
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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
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Initial Ideas – possibly large number
May come from any of the following –
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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
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• 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
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• 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
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• 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
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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
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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
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Modifying the Product
-Alter product quality
-Enhance performance
-Change appearance
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Modifying the Market
-Finding New Users
-Increase use
-Create new use situations
EXTENDING THE PRODUCT LIFE CYCLE
Repositioning
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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
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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
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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
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Is your product starting to embarrass
your company?
Classifies Products into four
simple categories
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Consumer experiences create
brand bonding, brand advertising
does not.
Brand Categories
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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
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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
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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
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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
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Aaker identified five levels of customer attitudes toward brands:
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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
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Key Challenges
To brand or not
Brand sponsor
Brand name
Brand strategy
Brand repositioning
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Advantages of branding
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•
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Facilitates order processing
Trademark protection
Aids in segmentation
Enhances corporate image
Branded goods are desired by retailers and distributors
Key Challenges
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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
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Brand strategy
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Varies by type of brand
• Functional brands
• Image brands
• Experiential brands
Line extensions
Brand extensions
Multibrands
New brands
Co-branding
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Key Challenges
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Brand repositioning
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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.
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Packaging and Labeling
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Packaging and Labeling
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Packaging includes:
• The primary package
• The secondary package
• The shipping package
Many factors have influenced the increased use of packaging as a marketing
tool.
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Developing an effective package:
• Determine the packaging concept
• Determine key package elements
• Testing:
 Engineering tests
 Visual tests
 Dealer tests
 Consumer tests
Packaging and Labeling
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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?
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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?
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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
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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?
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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 =
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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?
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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
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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
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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
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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
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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
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Direct distribution:
• When the producer sells goods or
services directly to the customer, with
no intermediaries.
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Indirect distribution:
• Involving one or more intermediaries.
Channel Members
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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
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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
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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
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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
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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
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Catalogs and direct mail
Vending machines
Television home shopping
Direct sales
Electronic exchange
E-cart abandonment
Channel Members
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Agents
• Intermediaries that bring buyers
and sellers together.
• Independent Manufacturer’s
Representative
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Work with several related, but
noncompeting manufacturer’s in a
specific industry.
Paid commission on what they sell.
• Brokers
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Negotiate a sell, paid a commission,
and look for new customers
Channel Members
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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
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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
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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
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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
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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
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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
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Analyzing consumer needs
Setting channel objectives
Identifying major channel
alternatives
Evaluation
Channel Design Decisions
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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
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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
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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

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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
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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
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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
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Brand Name
Marketing Support
Contracts
Plans and Systems
Reservation systemsCustomers
Franchisee – Disadvantages

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Value of brand name determined by
franchiser
Introduction of new products
determined by franchiser
Your reliability tied to the rest of the
system
Price
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
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


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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

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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

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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

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
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



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

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
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
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


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
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

•
•
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•
•
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•
•
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•
•
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

•
•
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•
•

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

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

•
•
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•
•
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•
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
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