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MBA 601 Entrepreneurial Marketing Strategies Week Two Class Lecture Chapters 13, 14, 15 & 16 1 13 Designing and Managing Services What is a Service? A service is any act of performance that one party can offer another that is essentially intangible and does not result in the ownership of anything; its production may or may not be tied to a physical product. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Services are Everywhere Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Categories of Service Mix • • • • • Pure tangible good Good with accompanying services Hybrid Service with accompany goods Pure service Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Service Distinctions • • • • • Equipment-based or people-based Service processes Client’s presence required or not Personal needs or business needs Objectives and ownership Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Distinctive Characteristics of Services Intangibility Inseparability Variability Perishability Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Physical Evidence and Presentation • • • • • • Place People Equipment Communication material Symbols Price Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Inseparability Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Variability Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Increasing Quality Control Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Perishability Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Matching Demand and Supply Demand side • Differential pricing • Nonpeak demand • Complementary services • Reservation systems Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Supply side • Part-time employees • Peak-time efficiency • Increased consumer participation • Shared services • Facilities for future expansion Figure 13.3 Root Causes of Customer Failure Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Solutions to Customer Failures • Redesign processes and redefine customer roles to simplify service encounters • Incorporate the right technology to aid employees and customers • Create high-performance customers by enhancing their role clarity, motivation, and ability • Encourage customer citizenship where customers help customers Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 13.4 Types of Marketing in Service Industries Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Best Practices • • • • • • • Strategic Concept Top-Management Commitment High Standards Self-Service Technologies Monitoring Systems Satisfying Customer Complaints Satisfying Employees Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Table 13.3 Factors Leading to Customer Switching Behavior • • • • • • • • Pricing Inconvenience Core Service Failure Service Encounter Failures Response to Service Failure Competition Ethical Problems Involuntary Switching Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Improving Service Quality • • • • • Listening Reliability Basic service Service design Recovery Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall • • • • • Surprising customers Fair play Teamwork Employee research Servant leadership Figure 13.6 Service-Quality Model Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Determinants of Service Quality • • • • • Reliability Responsiveness Assurance Empathy Tangibles Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Customer Worries Failure frequency Downtime Out-of-Pocket Costs Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 1 14 Developing Pricing Strategies and Programs Synonyms for Price • • • • • • • • Rent Tuition Fee Fare Rate Toll Premium Honorarium Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall • • • • • • • Special assessment Bribe Dues Salary Commission Wage Tax The Internet Changes the Pricing Environment – By Providing Information Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Common Pricing Mistakes • Determine costs and take traditional industry margins • Failure to revise price to capitalize on market changes • Setting price independently of the rest of the marketing mix • Failure to vary price by product item, market segment, distribution channels, and purchase occasion Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Consumer Psychology and Pricing • • • • Reference prices Price-quality inferences Price endings Price cues Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Table 14.1 Possible Consumer Reference Prices • • • • “Fair price” Typical price Last price paid Upper-bound price Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall • • • • Lower-bound price Competitor prices Expected future price Usual discounted price Steps in Setting Price • • • • • • Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 1: Selecting the Pricing Objective • • • • • Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 2: Determining Demand • Price sensitivity • Estimate demand curves • Price elasticity of demand Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 3: Estimating Costs • • • • Types of costs Accumulated production Activity-based cost accounting Target costing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 14.2 Cost Per Unit at Different Levels of Production Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Cost Terms and Production • • • • • Fixed costs Variable costs Total costs Average cost Cost at different levels of production Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-34 Analyzing Competitor’s Costs Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 5: Selecting a Pricing Method • • • • • • Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 14.5 Break-Even Chart for Determining Target-Return Price and Break-Even Volume Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 6: Selecting the Final Price • • • • Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Geographical Pricing • Pricing varies by location Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Promotional Pricing Tactics • • • • • • • Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Differentiated Pricing • • • • • • • Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing Yield pricing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Traps in Price Cutting Strategies • • • • Low-quality trap Fragile-market-share trap Shallow-pockets trap Price-war trap Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Should We Raise Prices? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Brand Leader Responses to Competitive Price Cuts • • • • • Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 1 15 Designing and Managing Integrated Marketing Channels What is a Marketing Channel? A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service available for use or consumption. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Intermediaries Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channels and Marketing Decisions • A push strategy uses the manufacturer’s sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users • A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall REI Employs Hybrid Channels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Buyer Expectations for Channel Integration • Ability to order a product online and pick it up at a convenient retail location • Ability to return an online-ordered product to a nearby store • Right to receive discounts based on total online and offline purchases Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Table 15.1 Channel Member Functions • Gather information • Develop and disseminate persuasive communications • Reach agreements on price and terms • Acquire funds to finance inventories • Assume risks • Provide for storage • Provide for buyers’ payment of their bills • Oversee actual transfer of ownership Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Marketing Channel Levels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 15.2 Consumer Markets Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 15.2 Industrial Markets Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Reverse-Flow Channels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Designing a Marketing Channel System • • • • Analyze customer needs Establish channel objectives Identify major channel alternatives Evaluate major channel alternatives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 15.3 What European Consumers Value Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Service Outputs of Channels Lot size Waiting and delivery time Spatial convenience Product variety Service backup Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Identifying Channel Alternatives • Types of intermediaries • Number of intermediaries • Terms and responsibilities Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Figure 15.5 Break-Even Cost Chart Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channel-Management Decisions • • • • • Selecting channel members Training channel members Motivating channel members Evaluating channel members Modifying channel members Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channel Integration and Systems • Vertical marketing systems – Corporate VMS – Administered VMS – Contractual VMS Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall • Horizontal marketing systems • Multichannel systems Figure 15.6 The Hybrid Grid Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channel Conflict • What types of conflict arise in channels? • What causes conflict? • What can marketers do to resolve it? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Causes of Channel Conflict • • • • Goal incompatibility Unclear roles and rights Differences in perception Intermediaries’ dependence on manufacturer Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Table 15.3 Strategies for Managing Channel Conflict • • • • • Strategic justification Dual compensation Superordinate goals Employee exchange Joint memberships Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall • • • • • Cooptation Diplomacy Mediation Arbitration Legal recourse E-Commerce Pure-click Brick-and-click Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall M-Commerce Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 1 16 Managing Retailing, Wholesaling, and Logistics Retailing Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Table 16.1 Major Retailer Types • • • • Specialty store Department store Supermarket Convenience store Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • • • • Discount store Off-price retailer Superstore Catalog showroom Nonstore Retailing • • • • Direct selling Direct marketing Automatic vending Buying service Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Franchising System • The franchisor owns a trade or service mark and licenses it to franchisees in return for royalty payments • The franchisee pays for the right to be part of the system • The franchisor provides its franchisees with a system for doing business Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Changes in the Retail Environment • New retail forms and combinations • Competition between store-based and nonstore-based retailing • Growth of giant retailers • Decline of middle market retailers • Growing investment in technology • Global profile of major retailers • Growth of shopper marketing Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Retailers’ Marketing Decisions • • • • • Target market Product assortment Procurement Prices Services Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • • • • • Store atmosphere Store activities Store experiences Communications Location Retailer Services Mix • Prepurchase services • Postpurchase services • Ancillary services Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Store Atmosphere and Experiences Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 16-77 Location Decision • • • • • Central business districts Regional shopping centers Community shopping centers Shopping strips Location within a larger store Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Wholesaling Functions • Selling and promoting • Buying and assortment building • Bulk breaking • Warehousing Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • • • • • Transportation Financing Risk bearing Market information Management services and counseling Major Wholesaler Types • • • • • • Merchant Full-service Limited-service Brokers and agents Manufacturers Specialized Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Supply Chain Management Supply chain management starts before physical distribution and means strategically procuring the right inputs (raw materials, components, and capital equipment); converting them efficiently into finished products; and dispatching them to the final destinations. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Market Logistics Planning • Deciding on the company’s value proposition to its customers • Deciding on the best channel design and network strategy • Developing operational excellence • Implementing the solution Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Market Logistics • • • • Sales forecasting Distribution scheduling Production plans Finished-goods inventory decisions • Packaging Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • In-plant warehousing • Shipping-room processing • Outbound transportation • Field warehousing • Customer delivery and servicing Market Logistics Decisions • • • • How should orders be handled? Where should stock be located? How much stock should be held? How should goods be shipped? Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Figure 16.1 Determining Optimal Order Quantity Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Transportation Factors Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall