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Developing the Marketing Mix Chapter 12 Chapter 12 Learning Goals 1. What is the role of the product in the marketing mix, and how are products classified and developed? 2. What are the stages of the product life cycle? 3. What strategies are used for pricing products? 4. Describe the distribution channels and the manner in which they are organized. Chapter 12 Learning Goals (cont’d.) 5. What are the functions of physical distribution? 6. Explain the promotional mix and its primary elements. 7. Describe the trends affecting elements of the marketing mix. Learning Goal 1 • What is the role of the product in the marketing mix, and how are products classified and developed? – A product is any good or service that creates customer value – Products are categorized as either: • Consumer products – Goods and services bought and used by the end users – Unsought products, convenience products, shopping products, or specialty products • Industrial products – Bought by organizations for use in making other products or in rendering services – Capital products are large, expensive items with long life span – Expense items are smaller, less expensive items with a life span of less than a year Product: In marketing, any good or service, along with its perceived attributes and benefits, that creates value for the customer • General Electric is shifting its emphasis away from goods toward services: – 1981, sales were 85% goods/15% services – 2000, estimated 25% goods/75% services (Source: Neff & Citrin, Lessons from the Top, 1999, p. 344) Tangible & Intangible Attributes Create Product Value Service after sale Image of store Warranty Product Attachments type of material, size, shape, smell Image of brand Color Packaging Instructions Product Successes vs. Failures Successes: Failures: • aspirin tablet (1900) • • laminated safety • glass (1909) • mass-produced • tampons & pads (1920s) • • adhesive tape (1925) • • latex paint (1941) New Coke (1985) Apple Newton (1993) disposable dress (1966) Ford Pinto (1970) quadraphonic sound (mid-1970s) Source: Consumer Reports, Jan. 2000, pp. 14-17. Types of Products Consumer Product Unsought Convenience Shopping Specialty Effort Required No effort Examples Life insurance New products Little or minimum Soft drinks Bread Considerable Automobiles Homes Maximum Expensive jewelry Rare collectibles Purposes of Branding • Product identification – brands allow marketers to distinguish their products from all others • Repeat sales; brand loyalty • New product sales – brand equity fuels sales of new products • Brand: A company’s product identifier that distinguishes the company’s products from those of its competitors • Brand equity: The value of company and brand names Importance of Packaging • Protects the product – prevent damage, prevent spoilage • Distinguish product from competition – Ben & Jerry’s® has an ecologically friendly unbleached paperboard package for its ice cream pints, consistent with its socially conscious mission (Source: Ben & Jerry’s, www.benandjerrys.com) • Promote product – brand identification, information Creating New Products 1. Set new product goals 2. Develop new product ideas 3. Screen ideas/concepts 4. Develop the concept 5. Test-market the new product 6. Introduce the product to the marketplace Creating New Products Some new products that incorporate human factors engineering: – DaimlerChrysler’s Neon 2000 has higher placement of manual window cranks – Maytag offers an easy-to-load front-loading washer – warehouse lift trucks that improve operator visibility by facing sideways – coil tubing units that reduce the complexity and work of oil drilling Source: Fortune, Mar. 1, 1999, pp. 164B-D. Learning Goal 2 • What are the stages of the product life cycle? – Four stages of the product life cycle • Introduction – Profits are usually small • Growth – Profits reach a peak at the end of this phase • Maturity – Profits begin to decline • Decline (and possibly death) Sales & Profits During Product Life Cycle Sales Profits Sales & Profits Introduction + 0 - Growth Maturity Decline Learning Goal 3 • What strategies are used for pricing products? – Price skimming • Charging a high introductory price • Lowering price as product moves through its life cycle – Penetration pricing • Selling a new product at a low price in hopes of achieving a large sales volume Learning Goal 3 (cont’d.) • What strategies are used for pricing products? – Pricing tactics used to fine-tune base prices are: • Odd-even pricing – Creates a perception that the item is cheaper than actual price • Prestige pricing – Raising price so item will be perceived as having high quality and status Product Pricing Strategies 1. Price skimming 2. Penetration pricing 3. Odd-even pricing 4. Prestige pricing Learning Goal 4 • Describe the distribution channels and the manner in which they are organized. – Channels: • Reduce the number of transactions • Ease the flow of goods • Increase channel efficiency – Vertical marketing systems • Corporate system – One firm owns the entire channel • Administrative system – A strong organization takes over as leader – Sets channel policies • Contractual system – Independent firms coordinate their distribution activities by written contract Distribution Channels: A series of marketing entities through which goods and services pass on their way from producers to end users Functions of Distribution Channels • Reduce number of transactions • Ease the flow of goods – account numbers help keep track of goods • individual digits can indicate type of account, locations & addresses, & delivery routes • 15-digit numbers provide a quadrillion unique combinations (Source: Fortune, Sept. 28, 1998, p. 66) • Perform needed functions Some Different Distribution Channels • Agents & brokers – electronic marketplaces on the Internet are doing what brokers have traditionally done • requests for proposals, verifying credit, lining up financing, arranging inspections, scheduling deliveries, collecting payment (Source: Entrepreneur, Jan. 2000, p. 22) • Industrial distributors • Wholesalers • Retailers Wholesalers: Channel members that buy finished products from manufacturers and sell the products to consumers –merchant wholesalers –agents and brokers Wholesaling Wholesaling Intermediaries Manufacturer Merchant Wholesalers Full-service Retailers or industrial users Customers Agents & Brokers Limited service Types of Retailers In-store: • department store • specialty store • variety store • convenience store • supermarket • discount store • factory outlet • hypermart Non-store: • vending machine • direct selling • direct-response marketing • home shopping network • e-commerce Vertical Marketing System: An organized, formal distribution channel in which firms are aligned in a hierarchy from manufacturer to wholesaler to retailer Types of Vertical Marketing Systems • Corporate Distribution Systems – forward integration, backward integration • Administrative Distribution Systems • Contractual Distribution Systems Intensity of Market Coverage • Exclusive distribution – 1-2 dealers market all products • Selective distribution – a few dealers market all products • Intensive distribution – products sold wherever possible Learning Goal 5 • What are the functions of physical distribution? – Choosing a warehouse location and type – Setting up a materials-handling system – Choosing modes of transportation • Criteria for selecting a mode of transportation include: – – – – – – Cost Transit time Reliability Capability Accessibility Traceability Physical Distribution to Increase Efficiency & Satisfaction • Choose warehouse location & type • Set up materials-handling system • Make transport decisions – cost –capability – transit time –accessibility – reliability –traceability Comparing Modes of Transportation Highest Lowest Relative cost air truck rail pipe water Transit time water rail pipe truck air Reliability pipe truck rail air water Capability water rail truck air pipe Accessibility truck rail air water pipe Traceability air truck rail water pipe Learning Goal 6 • Explain the promotional mix and its primary elements? – Promotional mix is the combination of the following to promote a product • Advertising – Paid form of nonpersonal promotion by an identified sponsor • Personal selling – Face-to-face presentation with a prospective buyer • Sales promotion – Marketing activities that stimulate consumers to buy • Public relations – Marketing function that links policies of the organization with public interest – Develops programs designed to earn public understanding and acceptance Promotion: the attempt by marketers to inform, persuade, or remind consumers and industrial users to engage in the exchange process Components of Promotional Mix 1. Advertising 2. Personal selling (face-to-face) 3. Sales promotion includes coupons, free samples, demonstrations 4. Public relations Advertising: any paid form of nonpersonal promotion by an identified sponsor Advertising Media Types of media: newspaper, magazine, radio, television, outdoor advertising, direct mail, Internet Factors influencing choice of media: –cost –audience reached Personal Selling: a face-to-face presentation to a prospective buyer Steps of the Selling Process 1. Prospecting and qualifying 2. Approaching customers 3. Presenting and demonstrating 4. Handling objections 5. Closing the sale 6. Following up the sale Sales Promotion: marketing activities that stimulate consumer buying, including coupons and samples, displays, shows and exhibitions, demonstrations, and other types of selling efforts Promotional Goals Depend on Type of Customer Type of customer 1. loyal to your brand 2. competitor’s customer 3. brand switchers 4. price buyers Promotional goal reinforce behavior, increase consumption break loyalty, switch to your brand buy your brand more often appeal with low prices or add value for same price Public Relations: the linking of organizational goals with key aspects of the public interest and the development of programs designed to earn public understanding and acceptance Public Relations Activities: • • • • • • • Press relations Product publicity Corporate communication Public affairs Lobbying Employee & investor relations Crisis management Factors That Affect the Promotional Mix: • Nature of the product • Market characteristics • Available funds • Push and pull strategies Learning Goal 7 • Describe the trends affecting elements of the marketing mix. – Mass customization – Growth in service distribution • minimize waiting, increase capacity, new distribution channels – Integrated marketing communications (IMC)