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Part 5: Integrating Chapter 17: THE MARKETING MIX CHAPTER OVERVIEW Leads students to explore how the marketing mix is constructed and managed. Encourages students to understand the concept of optimizing each element of the marketing mix. Helps students understand “modeling” and the importance of measuring effectiveness. VISUAL SUMMARY TEACHING TIPS This chapter is a summary of how all the “parts” of past chapters accomplish marketing objectives through integration and provides an opportunity to revisit past concepts. Provide current examples of how companies are expanding their media choices and how these various choices are integrated into an overall marketing strategy. EXAMPLES TO CONSIDER (Please know that the links below were live when this Instructor’s Manual was developed. We, of course, cannot promise that they still are. Please check before trying to connect in class.) Crayola http://www.crayola.com/ Encourage discussion about Crayola® and how the company devised a marketing strategy to revise the 4Ps and re-position their product line. Planters Peanuts http://www.planterspeanuts.ca/index.shtml Planters-Canada’s website reveals a marketing strategy that is aligned with the product and the target market—keeping a 100-year-old product fresh. Barbie http://yhadz-critic.blogspot.com/2008/10/barbie-marketing-strategy.html http://barbie.everythinggirl.com/ The first site provides a critical look at one aspect of Mattel’s marketing strategy for Barbie. The second is the home page for Barbie. Encourage students to discuss ways Mattel’s marketing mix has led to Barbie’s global success. Copernicus Consulting http://www.copernicusmarketing.com/consult/e.shtml This webpage introduces the students to the applications of the Copernican Discovery™ Marketing Mix Model. SUGGESTED CLASSROOM ACTIVITIES PetSmart Analysis Visit the following website in class: http://www.petsmart.com/ Then, divide the class into small groups and ask each group to describe how PetSmart’s website reflects their marketing strategy. What are their 4Ps? What types of promotion are evident? The 7Ps Divide the class into seven groups and assign each group one of the “Ps” in the extended services marketing mix. Using a local service provider (banking, hotel, restaurant, etc.) have each group describe for the class how the business addresses their assigned marketing mix component. GEICO Preview the following website with the class: http://www.geico.com/ Form students into groups of three to five asking each group to answer the following questions. Each group should share its findings with the class. 1. How do its ads break through the “clutter”? 2. How do you think GIECO approaches setting advertising objectives? Would this be the same for other insurance companies? 3. What’s next for GEICO? What new advertising direction would you suggest for it now? 4. How should GEICO plan a marketing mix model? 5. How should GIECO’s marketing mix change if it were to enter the international environment? MEDIA PowerPoint Use PowerPoint materials provided to support lecture material. (Please know that the links below were live when this Instructor’s Manual was developed. We, of course, cannot promise that they still are. Please check before trying to connect in class.) Video Links These links to commercials – probably familiar—can be used to discuss the marketing mix. Commercial: Peyton Manning for MasterCard http://www.youtube.com/watch?v=NwDAfdmNMVw This TV commercial was part of the “for everything else” campaign. Discussion topics could include celebrity endorsement value, target market for credit cards, and the 4Ps of MasterCard strategy. Disney World http://www.youtube.com/watch?v=bw2Q0_uUu3M Discuss the unique marketing mix for Disney. Especially note the variety of target markets and the wants and needs of each of the markets. Allstate Insurance http://www.youtube.com/watch?v=6HNKqffU3Cc This commercial could launch a good discussion on the unique propositions of services. Discuss the relations of services to people, physical evidence, and process. How does this message impact the audience? What’s the objective of the message? Where does emotional appeal fit in the marketing mix? Article Links Each of these articles focuses on an aspect of marketing mix: The Clorox Company http://www.prweekus.com/Clorox-finds-confidence-in-strongcomms/article/127788/ This article looks at measuring the effectiveness of public relations through modeling and an effort to pull PR out of the marketing mix for measurement purposes. Marketing Management Analytics http://www.mma.com/marketing_mix.htm This article explores the concept of “modeling” based on John Wanamaker’s famous line: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Benefits of Sales Catalogs http://www.articledashboard.com/Article/Measuring-the-Benefits-of-SalesCatalogs/465636 This article looks at the role of sales catalogs in the marketing mix of successful companies like Victoria Secret, Radio Shack, Staples, and DELL. CHAPTER OUTLINE…OBJECTIVES…and KEY TERMS MARKETING MIX (pp. 209-210) Objective 1: What choices to marketers make to achieve their sales goals? Defined: A marketing mix is a group of marketing variables that a business controls with the intent of implementing a marketing strategy directed at a specific target market. Explained: The 4Ps (product, price, place, and promotion) are the most common classification for the marketing mix. It is essential to understand the marketing objectives of the company and the needs and wants of the target segments. Applied: In practice, businesses make decisions about marketing-mix variables either by reacting to changes in the market or strategically changing positions for improved financial results. KEY TERMS CHECKLIST Be sure to include this objective’s key term in your lecture and class discussion: p. 209 □ 4 Ps The most common classification of a marketing mix and consist of product, price, place, and promotion. MARKETING-MIX STRATEGIES (pp. 210-213) Objective 2: How do marketers select a particular marketing mix to achieve their sales goals? Within the Marketing Mix Beyond the 4Ps Defined: Marketing-mix strategy is the logic that guides the selection of a particular marketing mix to achieve marketing objectives. Explained: The marketing-mix strategy considers whether each decision will serve the company in meeting its objectives; is consistent with the company’s overall mission and business plan; and, is increasing the level of risk or exposure for the company. Applied: Changes in the product portfolio or the market will require assessment of the marketing mix. In addition to the basic 4Ps, service industries need to consider an additional 3Ps – people, process and physical evidence. The 4Ps can be translated into a consumer perspective called the 4Cs: customer value, cost, convenience, and communication. As competition grows, it becomes even more important to be consumer-centric and consider consumer expectations in our marketing-mix strategies. KEY TERMS CHECKLIST Be sure to include this objective’s key terms in your lecture and class discussion: p. 213 □ 4 Cs A classification of a marketing mix that includes customer value, cost, convenience, and communication. □ 7 Ps A classification of a marketing mix that includes product, price, place,promotion, people, physical evidence, and process. MARKETING-MIX MODELS (pp. 213-215) Objective 3: How do marketers measure the effects of each component in a marketing program? Defined: Marketing-mix models evaluate the contribution that each component of a marketing program makes to changes in market performance. Explained: Marketing activities can be tracked on databases using statistical modeling as the measurement tool. In this way, performance can be tied directly to specific marketing events. Applied: The marketing-mix model is a statistical way to justify the costs associated with implementing a marketing plan. The use of a marketing-mix model will increase the effectiveness of every marketing dollar across different media. KEY TERMS CHECKLIST Be sure to include this objective’s key term in your lecture and class discussion: p. 214 □ Marketing-mix optimization This involves assigning portions of the marketing budget to each marketing-mix element so as to maximize revenues or profits. CAPSTONE EXERCISE (appears in text at end of chapter) ACME manufacturing has traditionally spent very little on marketing activities. Recently, ACME invented several new products and has greatly expanded its portfolio. ACME has decided to increase its marketing expenditures and plans to implement marketingmix modeling. Explain marketing-mix modeling and describe the potential benefits that ACME could realize. Answers will vary. Marketing-mix modeling provides insights into which types of marketing activities provide the greatest contribution to favorable changes in market performance. ACME could identify which types of media are most efficient for each product in its portfolio and at the overall portfolio level. A marketing mix model would provide confidence for the business to invest in marketing to support growth of the business. APPLICATION EXERCISES (appears in text at end of chapter) Please complete the following exercises. 1. GE is planning to launch a new collection of kitchen appliances. Discuss how marketing-mix models might help GE with their product launch in a two-page paper. The individual papers will vary. The concept of marketing-mix models should be explained as it applies to GE’s new products and some type of measurement method should be described. 2. Develop a marketing-mix strategy using the 7 Ps for a product of your choice. Consider Wal-Mart (www.walmart.com) and Amazon (www.amazon.com). In what ways do these two companies compete? Compare them using the variables of the marketing mix. Specifically, look at how both companies market their music offerings. Which do you believe has the upper hand? Why? Answers will vary. Answers should include some specifics on the target markets of each and address each of the 7 elements for each company: product, price, place, promotion, people, process, and physical evidence. CASE STUDY Snap-on Tools began its business in Milwaukee, Wisconsin, in 1918. The original business sold an interchangeable socket wrench set directly to auto mechanics. Snapon Wrench was incorporated in 1920. They intended to grow the business in a typical fashion by offering its wrenches in an indirect marketing channel through distributors. The distributors, at that time, were less than impressed with the product and Snap-on had difficulty getting its product into the hands of end-users. The founders developed a selling strategy that presented the tools directly to the mechanics with a demonstration and opportunity for the mechanics to try out the product. By 1927 the transition to direct selling-- “from factory-to-warehouse-to-you”— was completed. Although in the past 80 years the sales force dynamics have changed, the basic commitment to direct selling has remained the cornerstone of the Snap-on marketing strategy. In 1939, the Teamsters Union attempted to organize the branch sales force. In direct response, Snap-on introduced a new distribution method by selling territories to individual sales representatives (dealers) and having them carry product inventory in their vehicles for immediate delivery to the customer. The final step in the marketing evolution was establishing each independent dealer as a franchised owner carrying a rolling stock of Snap-on small hand tools. In an effort to increase volume, Snap-on started a program (that still exists today) of selling to mechanics on credit with weekly time payments. The company backs this credit program as it proved to increase sales and generated customer loyalty. Snap-on’s growth since 1960 has been impressive. Despite rapid growth Snap-on has not wavered from its core marketing strategy. The company’s basic purpose has remained unchanged – “the production and sale of quality hand tools and related items to professional mechanics and industrial users.” Snap-on concentrates on selling direct to end-users through a system of salespersonfranchisees and distributors. Today, there are 5,700 franchise dealers driving their independently-owned white cargo vans loaded with more than $100,000 worth of inventory to over 300,000 car dealerships, service stations, and independent repair shops around the U.S. and abroad. Snap-on is committed to quality. To tool-lovers, Snap-on is the “gold standard” similar to Rolex, Rolls-Royce, and Chivas Regal in their own markets. Snap-on’s target market is distinctively blue-collar, lower-to-middle income level with a limited access to credit. The market consists of 1.25 million automobile, truck, and airplane mechanics. However, Snap-on sees itself as an upscale retail operation disguised as a manufacturer of tools. For those who fix cars for a living, tools are like toys and entering the Snap-on van is like entering a toy-lover’s fantasyland. However, Snap-on utilizes a pull strategy with the end-users built on trust rather than emotion. Snap-on has stayed focused on its core customer avoiding expansion into other related areas like construction and home improvement. Snap-on charges premium prices – about 10% more than its direct competitors. To respond to new computerized components on vehicles, Snap-on has added diagnostic equipment under the name Snap-on Diagnostics and another van makes the circuit with a technical representative who backs up the dealers and their increasingly-complex product line with training and technical advice. Snap-on utilizes four channels: mobile van franchises, company-direct, distributor and the Internet. The company-owner vans only comprise 3% of total business and are used to open new markets. A select number of distributors purchase products directly from Snap-on and then resell them to end-users. Snap-on markets it products and brands through multiple distribution channels in approximately 130 countries. It has replicated the franchised mobile van in several countries. Snap-on has always avoided huge advertising and promotional expenditures, relying instead on direct-selling and a product catalog (print and online) offering over 14,000 products. Snap-on maintains a 60% share of the mobile-van tool business with their closest competitor, Mac Tools, holding just 13%. A single Snap-on van with approximately 160 square feet of cargo space typically produces more than $400,000 per year in revenues. Snap-on’s net sales in 2008 were $2.9billion--an increase of about 3% over 2007. Level 1/Qualitative Questions 1. What are the four key components of the Snap-on marketing strategy? Snap-on focuses on product quality, premium pricing, a well-defined target market, and an effective distribution system. 2. What one element of Snap-on’s marketing mix do you think separates it from its competition? Answers may vary. Two key differences are the credit services and the direct sales to end-users through franchised mobile vans. 3. How would you describe Snap-on’s marketing channels? Answers will vary. Snap-on uses direct sales, company direct (catalog), and interactive (web catalog). In addition, word-of-mouth and customer retention play a major role in their marketing strategy. Level 2/Quantitative Question 1. Assume that average annual per-square-foot sales for specialty retail are approximately $400 per square foot. How does this compare to Snap-on’s revenue generation per square foot? Why do you think there is such a difference? The typical Snap-on van has 160-square-feet of cargo space and produces an average of $400,000 annually. $400,000 ÷ 160 = $2,500. Snap-on mobile vans generate about 6.25 times the revenues (per square foot) compared to the typical retail space. Taking the product to the consumer and utilizing quality personal selling strategies on the end-user’s own “turf” is more effective than the traditional brick-and-mortar retail orientation.