Download 1. Problem recognition

1. MARKETING
Marketing is dealing with customers and managing profitable customer
relationship. It is social and managerial process whereby individuals and
groups obtain what they need and want through creating and exchanging
products and value with others ( building customer relationship based on
customer value and satisfaction).,
Marketing includes satisfying customer needs, wants and demands.
Needs are physical needs for food, clothing, warmth and safety. Wants
are the form human needs take as they are shaped by culture and
individual personality. When backed by buying power, wants become
needs.
2. MARKETING MANAGEMENT ORIENTATION
Marketing management is the art and science of choosing target markets
and building profitable relationships with them. This involves getting,
keeping, and growing customers through creating, delivering, and
communicating superior customer value.
There are five alternative concepts under which organizations conduct
their marketing activities.
PRODUCTION CONCEPT holds that consumers will favor products that
are available and highly affordable. Therefore, management should
focus on improving production and distribution efficiency.
PRODUCT CONCEPT holds the idea that consumers will favor products
that offer most quality, performance, and features and that the
organization should therefore devote its energy to making continuous
products improvements.
THE SELLING CONCEPT holds the idea that consumers will not buy
enough of the organizations products unless the organization undertakes
a large-scale selling and promoting effort
THE MARKETING CONCEPT holds that achieving organizational goals
depend on determining the needs and wants of target markets and
delivering the desired satisfaction more effectively and efficiently than
competitors do.
THE SOCIAL-MARKET CONCEPT holds the idea that the organization
should determine the needs and wants of target markets and deliver the
desired satisfaction more effectively and efficiently than do competitors in
a way that maintains or improves the consumer’s and society’s wellbeing.
3. CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
CRM is the overall process of building and maintaining profitable
customer relationships by delivering superior customer value and
satisfaction. Thus, today’s companies are going beyond designing
strategies to attract new customers and create transaction with them.
They are using CRM to retain current customers and build profitable,
long-term relationship with them. The new view it that marketing is the
science and art of finding and retaining and growing profitable
customers. (Sears found that it costs 12 times more to attract a
customer than to keep an existing one).
The key to building lasting customer relationship is to create value and
satisfaction. Satisfied customers are more likely to be loyal customers,
and loyal customers are more likely to give the company a larger amount
of their income and their business.
4. CUSTOMER LOYALTY
Highly satisfied customers produce several benefits for the company.
Satisfied customers are less price-sensitive. They talk favorably to others
about the company and its products and remain loyal for a longer period
Brand loyalty is a strong motivated and long standing decision to
purchase a particular product or service.
5. CONSUMER PURCHASE DECISSION PROCESS
Consumer purchase decision process consists five phases through
which a consumer is passing through:
1. Problem recognition
2. Information search
3. Alternative evaluation
4. Purchase decision
5. Post-purchase behavior
6. PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR
Psychology helps marketers understand why and how consumers behave as they do.
In particular, concepts such as motivation and personality; perception; learning;
values, beliefs, and attitudes; and lifestyle are useful for interpreting buying
processes and directing marketing efforts.
MOTIVATION AND PERSONALITY
Motivation and personality are two familiar psychological concepts that have specific
meanings and marketing implications. They are both used frequently to describe why
people do some things and not others.
Motivation is the energizing force that causes behavior that satisfies a need. Because
consumer needs are the focus of the marketing concept, marketers try to arouse
these needs.
Personality refers to a person's consistent behaviors or responses to recurring
situations. Although numerous personality theories exist, most identify key traits –
enduring characteristics within a person or in his or her relationship with others. Such
traits include extroversion, compliance, dominance, and aggression, among others.
Hierarchy of needs:
Self-actualization needs
Self-fulfillment
Personal needs
Status, respect, prestige
Social needs
Friendship, belonging, love
Safety needs
Freedom from harm, financial security
Psychological needs
Food, water, sex, oxygen
7. SOCIOCULTURAL INFLUENCES ON CONSUMER BEHAVIOR
Sociocultural influences, which evolve from a consumer's formal and informal
relationships with other people, also exert a significant impact on consumer
behaviour. These involve personal influence, reference groups, the family, social
class, culture and subculture.
PERSONAL INFLUENCE
Two aspects of personal influence are important to marketing: opinion leadership and
word-of-mouth activity. Opinion Leadership: Individuals who exert direct or indirect
social influence over others are called opinion leaders. Word of Mouth: People
influencing each other during their face-to-face conversations is called word of
mouth.
REFERENCE GROUPS
Reference groups are people to whom an individual looks as a basis for self
appraisal or as a source of personal standards. Reference groups affect consumer
purchases because they influence the information, attitudes, and aspiration levels
that help set a consumer's standards
FAMILY INFLUENCES
Family influences on consumer behaviour result from three sources: consumer
socialization, passage through the family life cycle, and decision making within the
family.
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Consumer Socialization: The process by which people acquire the skills,
knowledge, and attitudes necessary to function as consumers is consumer socialization. Children learn how to purchase by (1) interacting with adults in
purchase situations and (2) their own purchasing and product usage experiences.
Family Life Cycle: Consumers act and purchase differently as they go-through
life. The family life cycle concept describes the distinct phases that a family
Family Decision Making: Two decision-making styles exist: spouse dominant
and joint decision making. With a joint decision-making style, most decisions
are made by both husband and wife. Spouse-dominant decisions are those for
which either the husband or the wife is responsible.
SOCIAL CLASS
Social class may be defined as the relatively permanent, homogeneous divisions in a
society into which people sharing similar values, interests, and behaviour can be
grouped. A person's occupation, source of income (not level of income), and
education determine his or her social class.
CULTURE AND SUBCULTURE
Subgroups within the larger, or national, culture with unique values, ideas, and
attitudes are referred to as subcultures. Various subcultures exist within the American
culture. The three largest racial/ethnic subcultures in the United States are blacks,
Hispanics, and Asians.
8. The company's macroenvironment
The company and all of the other actors operate in a larger macroenvironment of forces that
shape oportunities and pose a treath to the company.There are six major forces in the
company's macroenvironment:DEMOGRAPHIC FORCES, ECONOMIC FORCES,
NATURAL FORCES, TECHNOLOGICAL FORCES, POLITICAL FORCES AND
CULTURAL FORCES.
Demographic environment
Demography is the study of human population in terms of size, density, location, age, gender,
rase, occupation and other statistics. This study is of major interest to marketers because it
involves people and people make up markets. The explosive world population growth has
major implications for business. A growing population means growing human needs to satisfy
and it may also mean growing market oportunities.
The marketers track changing age and family structures, geographic population shifts,
educational characteristics and population diversity.
Changing Age Structure of the Population
There are three main groups:Baby Boomers, Generation X and Generation Y.
The boomers have presented a moving target, creating new markets as they grew from
infancy to their preadolescente, teenage, young adult, and now middle-age to mature years.
The Generation X is defined as much by their shared experiences as by their age. Increasing
divorce rates and higher employment for their mothers made them the first generation of
latchke kids.
Having grown up during times of recession and corporate downsizing, they have developed a
more cautios economic outlook. They are more sceptical and sinical.
The Generation Y is the first to grow up surrounded by digital media: computers and other
digital technologies. That's why this generation represents a comlex target for marketers.
9. Microenvironment
The actors close to the company that affect its ability to serve its cstomers- the
company , suppliers, market intermediaries, customer markets, competitors and publics.
Marketing success will require colaboration beweenthese segments.
Microenvironment actors:
 the company – internal environment
o (top management, finance, R&D, purchasing operations and accounting)
 suppliers – overall customer delivery system
o (providing resurces, can cause delays or shortages)
 marketing intermediaries – helpigg the company to promote, sell distribute
o (resellers, distributiom firms, marketiong agencies, financial intermed.)
 customers – 4 types (consumer, business, government, international markets)
 competitors – gaining advantages, and target customers
 publics – groups with actual or potential interest io or impact on organization's ability
to achive its objectives:
o financial – influencing companies funds
o media publics – newspapers, magasines, tv, radio...
o government publics – consulting lawyers on issues of product safety truth in
advertising
o citizen-action publics – environment, minority groups...
o local publics – consulting and inform neighbourhood residents and community
organisations
o general publics – general attitude towards a product
o internal publics – workers, managers, volunteers (good feeling about their
company and product)
10. Target market
Company has to make a decision about which market segment(s) a business decides to
prioritise for its sales and merketing efforts.
Two types of strategies
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
concentration strategy – business and marketing efforts dirtected on one
market segment
multi segment strategy – on two or more market segments
Factors cocerning how many and which markets to prioritise:
 market factors – size, growth, deversity, sensitivity to price. (needs, wants)...
 competition (intensity)
 financial and economic – enty and exit barriers, capasity (resources,
capabilities)...
 technology – patents, copyrights, manufactory process...
 socio-political – social attitudes and trends, influence by groups, government,
law
11. Market segmentation (segmentation variables)
Market segmentation – process of grouping customers based on certan variables. The
identification of target groups in which customers are aggregated into groups with similar
requierments and buying charceristics.
Segmentation helps companies persue 4 types of market opportunities:
 market penetration
 product development (improving, expanding range)
 market development (develops existing product in new markets)
 diversification (moving into new markets with new products)
Segmentation variables – the charactheristics of individuals, groups, buseinesses that are used
for dividing a total market into segments
Variables:
 demographic
o age
o sex
o family
o race
o religion
 socio-economic
o income
o occupation
o education
o social class
 geographical location
o country
o region
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
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o type of urban area
o type of housing
personality
motives
lifestyle
11. Marketing segmentation (and segmentation variables)
Segmentation: process of grouping customers in markets with some heterogenity into smaller,
more similar or homogeneous segments. Customers are aggregated into groups with similar
requirements and buying characteristics.
Segmentation variables(bases):dimensions or characteristics of individuals, groups or
businesses that are used for dividing a total market into segments. They must be measurable.
Basic customers characteristics:
 demographic variables (age, sex, family, race, religion)
 socio-economic variables (income, occupation, education, social class)
 geographic variables (languages spoken, market density)
 personality, motives, lifestyle
 product related behaviour base (brand loyal customers vs. Brand swithers)
12. Marketing research
Process of gathering, interpreting and reporting informations to help marketers solve specific
marketing problems or take advantage of marketing opportunities.
Two types of m. research: quantitative & qualitative ( look at 13.)
Steps of marketing research process:
1. defining and locating problems (departure from some normal function)
2. developing hypotheses (an informed guess or assumption about a certain problem)
3. collecting data to test the hypotheses
(3 approachs: exploratory, descriptive, causal
primary vs. Secondary data collection)
4. analysing and interpretating research findings
5. reporting research findings
primary data collection can be made with:
 experimentation
 sampling (sample of total population): random, stratified, area, quota
 survey methods: mail surveys, mail panels, consumer purchase diary,
telephone survey, computer assisted telephone interview, personal interview
(shopping mall/pavement intercept interviews, focus group interviews, inhome interviews)
 observations (questionnaires are instruments used to obtain information from
respondents and to record observations)
13. Quontitative vs. Qualitative research
In quantitative research, collected dana can be statistically analysed and results can be
expressed numerically.
In qualitative research informations are difficult or expensive to quantify: subjective opinions
and value judgments.
14. MIS
A marketing information system is the framework for day-to-day management and structuring
of information gathered regulary from sources both inside and outside an organisation.
MIS provides continious flow of information about prices, advertising expenditures, sales,
competition and distribution expenses.
Parts of MIS:
1. inputs :external and internal information sources
2. processing: classifying, storing, indexing, retrieving
3. outputs: information for marketing decision-making
Difference between m. research and a MIS>
research is an information gathering process for speciffic situations and MIS provides
continuous data for an organisation
GROUP: IMPACT
Answers 15, 16, 17!
15. INTUITION VS. SCIENTIFIC DECISSIONS MAKING
Today, in marketing, there is big transition from intuitive to scientific problem solving. In
relying on intuition, marketing managers base decisions on personal knowledge and past
experience. In scientific decision-making managers take an orderly and logical approach to
gathering information. They seek facts on a systematic basis, and they apply methods other
than trial and error or generalization from experience.
Usually, low risk problems are handled on the basis of intuition (personal judgment and
common sense). If good decision can be made without information, we should do it. But,
sometimes there are many financial, social and ethical risks, and because of that gathering
information is necessary for solving a problem.
Statistics, mathematics and logic are powerful tools in problem solving, and the information
they provide can reduce the uncertainty of predictions based on limited experience. But these
tools do not necessarily bring out the right answers. Successful decision blends both research
and intuition.
16. MARKETING MIX
Marketing mix are some tactical tools that marketers use to implement their strategies.
Marketing mix consists of PRODUCT, PRICE, PLACE and PROMOTION. element of
(Look questions 17, 26, 28 and 33)
17. PRODUCT
Product is anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or a need. Products can be tangible and intangible
goods. They can include physical objects, services, events, persons, places, organizations,
ideas…Product is a key element of marketing offer.
Service is just one form of a product. The main difference between product and service is that
service is always intangible, and does not result in the ownership of anything. On the other
hand, products can be tangible and intangible goods.
Some examples of a product are shampoo, car, book, chair…
Some examples of services are hotel services, banking services, airline services, doctor’s
exam…
Today products and services are more and more connected. Many companies are delivering
total customer experience. Today’s offer is a hybrid offer; it often includes tangible and
intangible goods – services. Each component is more or less included in marketing offer.
18. LEVELS OF PRODUCT AND SERVICES
We can observe products and services on three levels. It is important to know that level from
level is distinguished by how much customer value it adds to consumers.
1. First level (basic level) is called core benefit
Core benefit answers the question what consumer is really buying
2. Second level
Second level means turning the core benefit into actual product (product or service features,
design, quality, packaging, brand name)
3. Third level
This involves building an augmented product around the core benefit and actual product
(this implies some additional customer services such as warranty, instructions how-to-use,
toll-free telephone number...)
So when creating product, marketers must first identify the core consumer needs, than design
an actual product and at the end find ways to augment in order to create the bundle of benefits
that is the most satisfying consumer experience.
19. PRODUCT AND SERVICES CLASIFICATION
First mayor classification is on consumer products and industrial products, based on types of
consumers that use them.
Consumer products:
They are bought from final consumers for personal consumption. Classification is based on
how consumers go about buying them.
a) Convenience products- they are bought frequently, immediately and with minimal
comparison and buying effort (soap, candy, newspaper…)
b) Shopping products- they are less frequently purchased and customers are carefully
comparing them by price, style, quality, in a word they put a lot of effort when buying
them (furniture, clothing, used cars, hotel reservations…)
c) Specialty products- they have unique characteristics or brand name for which
customers are willing to make an extra effort when buying them (specific cars, highpriced technical equipment) There is no need for comparison when buying a specialty
product.
d) Unsought products- consumers do not know about them or doesn’t think about them.
They need a lot of advertising or other marketing efforts to be recognized. (Blood
donation, life assurance…)
Industrial products:
They are bought by firms for further production or for use in conducting business
a) Materials and parts Raw materials: include both raw materials of farm production (wheat, cotton,
vegetables) and natural production (fish, iron ore, crude petroleum)
 Manufactured materials and parts: include component materials (iron, cement…) and
component parts (tires, motors…)
In this group price and service have major role; brand and advertising are not so
important.
b) Capital items- these are major purchases such as buildings, large computer systems,
and generators. In this group there are also factory equipment and tools and office
equipment and tools.
c) Supplies and services Supplies are coal, paper, pencils…they require minimal effort when purchased
 Business services are computer repair, cleaning, legal and managerial
consulting. They are supplied under the contract.
20. BRAND, BRANDING
Brand is: a name, term, sign, symbol or design…possible a combination of all that. A
purpose of a brand is to identify the good or a service of one seller and to differentiate them
from the goods and services made by competition.
Branding become extremely important today and in favor to this statement goes that hardly
anything goes unbranded. Even salt is in branded containers! Branding is not just good for
producers but also for the buyers, in many ways.
Brand names help consumers to identify product that may benefit them and tell them
something about product quality. Also, consumers can be sure that if they buy always the
same brand they will get the same features, benefits and quality every time.
Brand name helps sellers to protect their product’s special qualities legally (otherwise product
might be copied by competitors). Branding can be also very useful for segmenting markets
(many types of breakfast cereals from one producer-but each is it’s own brand!)
21. Packaging, labeling
Packaging involves designing and producing the container or wrapper for a product.
It includes a product's primary container (the tube containing toothpaste), and may
include a secondary package that is thrown away when the product is about to be
used (cardboard box). The primary function of the package is to contain and protect
the product and it is also an important marketing tool. The package may be the
seller's last chance to influence the buyers (five-second commercial). Innovative
packaging – advantage over competitors. Packaging concept states what the
package should be or do for the product (protection, new dispensing method…).
Product safety has also become a major packaging concern.
Labeling – label is the information attached to or on a product for the purpose of
naming it and describing it use, its dangers, its ingredients, manufacturer… A label is
usually thought of as printed material, but labeling in the broader sense has been
ruled to include spoken information and separate promotional pieces, if they serve
the information purpose and are closely allied to the product. Labels perform several
functions: identify the product or brand, describe who made the product, where it was
made, when it was made, its contents, how it is to be used, how to use it safely,
promote the product through attractive graphics.
22. Product support service
Customer service is another element of product strategy. A company's offer to the
marketplace usually includes some support services, which can be a minor or major
part of the total offering. Companies first survey the customers periodically to assess
the value of current services. Then the company must assess the costs of providing
these services. Many companies are using the Internet and other modern
technologies to provide support services.
23. Product line
Product line is a group of products that are closely related because they function in
a similar manner, are sold to the same customer groups, are marketed through the
same types of outlets, or fall within given price ranges. The major product line
decision involves product line length – the number of items in the product line. The
line is too short if the manager can increase profits by adding items; the line is too
long if the manager can increase profits by dropping items. A company can lengthen
its product line by line stretching (occurs when a company lengthens its product line
beyond its current range – downward, upward, or both ways) or line filling (adding
more items within the present range of the line). Companies located at the upper end
of the market can stretch their product lines downward. Companies at the lower end
of a market can stretch their product lines upward. Companies in the middle range of
the market may decide to stretch their lines in both directions.
24.) PRODUCT MIX DECISIONS
An organization with several product lines has a product mix.A product mix consists of
all the product lines and items that a particular seller offers for sale.Avon's product mix
consists of four major product lines: beauty products, wellness products, jewlery and
accessories, and inspirational products (gifts, books, music, and home accents). Each product
line consists of several sublines. For example, the beauty line breaks down into makeup, skin
care, bath and beauty, fragrance, and outdoor protection products. Each line and subline has
many individual items. Altogether, Avon's product mix includes 1,300 items.
A company1s product mix has four important dimensions: width, length, depth, and
consistency. Product mix width refers to the number of different product lines the company
carries. Product mix length refers to the total number of items the company carries within its
product lines. Product line depth refers to the number of versions offered of each product in
the line. Finnaly, the consistency of the product mix refers to how closely related the various
product lines are in end use, production requirements, distribution channels, or some other
way.
These product mix dimensions provide the handles for defining the company's product
strategy. The company can increase its business in four ways. It can add newproduct
lines,thus widening its product mix. The company can lenghten its existing product lines to
become a more full-line company. Or it can add more versions of each product and thus
deepen its product mix. Finally, the company can pursue more product line consistency-or
less-depending on whether it wants to have a strong reputation in a single field or in several
fields.
25.) CO-BRANDING
Co-branding occurs when two established brand names of different companies are used on
the same product. For example, Nabisco joined forces with Pillsbury to create Pillsbury Oreo
Bars baking mix. In most co-branding situations, one compeny licenses another company's
well-known brand to use in combination with its own.
Co-branding offers many advantages. Because each brand dominates in a different
category the combined brands create broader consuner appeal and greater brand equity. Cobranding also allowa a company to expand its existing brand into a category it might
otherwise have difficulty entering alone.
Co-branding also has limitations. Such relationships usually involve complex legal
contracts and licenses. Co-branding partners must carefully coordinate their advertising, sales
promotion, and other marketing efforts. Finally, when co-branding, each partner must trust the
other will take good care of its brand.
26.) PLC (Product Life Cycle)
The product life cycle describes the stages a new product idea goes through from
beginning ti end. The product life cycle is divided into four major stages: 1) market
introduction, 2) market growth, 3) market maturity , and 4) sales decline.
In the market introduction stage, sales are low as a new idea is first introduced to a
market. Customers aren't looking for the product. They don't even know about it. Informative
promotion is needed to tell potential customers about the advantages and uses of the new
product concept.
In the market growth stage, industry sles grow fast-but industry profits rise and then start
falling. The innovator begins to make big profits as more and more customers buy. But
competitors see the opportunity and enter the market. Some just copy the most succesful
product or try to inprove it to compete better. Others try to reffine their offerings to do a better
job of appealing to some target markets. The new entries result in much product variety. So
monopolistic competition-with down sloping demand curves-is typical of the market growth
stage.
The market maturity stage occurs when industry sales level off-and competition gets
tougher. Many aggresive competitors have entered the race for profits-exept in oligopoly
situations. Industry profits go down throughout the market maturity stage because promotion
costs rise and some competitors cut prices to attract business. Less efficient firms can't
compete with this pressure-and they drop out of the market. Even in oligopoly situations,
there is a long run downward pressure on prices.
During sales decline stage, new products replace old. Price competition from dying
products becomes more vigorous-but firms with strong brands may make profits until the end.
These firms have down sloping demand curves because they succesfully differentiated their
products.
27. NEW PRODUCT DEVELOPMENT (HANDOUT-PRODUCT MANAGEMENT
AND NEW-PRODUCT DEVELOPMENT)
Identifying and developing new-product ideas - and effective strategies to go with
them – is often the key to firm's success and survival. New product development
demands effort, time, and talent – and still the risks and costs of failure are high. A
new product may fail for many reasons. Most often, companies fail to offer a unique
benefit or underestimate the competition. Sometimes the idea is good, but the
company has design problems – or the product costs much more to produce than
was expected. Some companies rush to get a product on the market without
developing a complete marketing plan. But moving too slowly can be a problem too
sometimes.
To move quickly and also avoid expensive new-product failures, many companies
follow an organized new-product development process. There are five steps: 1) IDEA
GENERATION, 2)SCREENING, 3)IDEA EVALUATION, 4)DEVELOPMENT(OF
PRODUCT AND MARKETING MIX) AND 5) COMMERCIALIZATION.
An important element in this new-product development process is continued
evaluation of a new idea's likely profitability and return on investment.
1)IDEA GENERATION – new ideas come from a company's own sales or production
staff, middlemen, competitors, consumers surveys, or other sources such as trade
associations, advertising agencies, or government agencies.By analyzing new and
different views of the company's markets and studying present consumer behavior, a
marketing manager can spot opportunities that have not yet occured to competitorsor even potential customers.
2) SCREENING – it involves evaluating the new ideas with the product – market
screening criteria. Recall that these criteria include the combined output of a
resource(strengths and weaknesses)analysis, a lon-run trends analysis, and a
through understanding of the company's objectives.
Screening should consider how the strategy for a new product will hold up over the
whole product life cycle,meaning it should consider how attractive the new product
will be both in the short and long-term.
-ROI is a crucial screening criterion(return on investment)
3)IDEA EVALUATION-when an idea moves past the screening step, it is evaluated
more carefully.Note that an actual product has not yet been developed-and this can
handicap the firm in getting feedback from customers.For help in idea evaluation,
firms use concept testing- getting reactions from customers about how well a new
product idea fits their needs. Comapnies can often estimate likely costs, revenue,
and profitability at this stage.And market research can help identify the size of
potential markets.Idea evaluation is more precise in business markets. Potential
customers are more informed- and their needs focus on the economic reasons for
buying rather than emotional factors.
4)DEVELOPMENT – products ideas that survive the screening and idea evaluation
steps must now be analyzed further. Usually, this involves some research and
development and engineering to design and develop the physical part of the
product.It is still dood to test and models and early version of the product in the
market.Product tests with customers may lead to revision-before the firm commits to
full-scale efforts to produce the good or service.If a company follows the new-product
development process carefully, the market test will provide a lot more information to
the firm than to its competitors.Some companies don't do market tests because they
aren't pratical. In fashion market,for example, speed is extremely important, and
products are usually tried in the market.
5) COMMERCIALIZATION – a product idea that survives this far can finally be
placed on the market. First, the new-product development decide exactly which
product form or line to sell.Then they complete the marketin mix – really a whole
strategic plan.And a top management has to approve an ROI estimate for the plan
before it is implemented.Putting a product on the market is expensive. Some firms
introduce their products city by city or region by region- in gradual «roll out»-untill
they have complete market coverage.
28. PRICE (HANDOUTS-DESIGNING PRICING STRATEGIES AND PROGRAMS)
Price is the only element in the marketing mix that produces revenue; the other
elements produce costs. Price is also one of the most flexible elements of the
marketing mix, in that it can be changed quickly, unlike product features and channel
commitments.Many companies do not handle pricing well. The most common
mistakes are these: Pricing is too cost-oriented;Price is not revised often enough to
capitalize on market changes; price is set independent of the rest of the marketing
mix rather than as an intrinsic element of market-positioning strategy;and price is not
varied enough for different product items,market segments, and purchase
occasions.Top management sets the general pricing objectives and policies and
often approves the prices proposed by lower levels of managemnt.In industries
where pricing is a key factor, companies will often establish a pricing department to
set prices or assist others in determining appropriate prices.This department reports
to either the marketing department, the finance department, or top management.
29. PRICING DECISIONS (HANDOUTS-DESIGNING PRICING STRATEGIES AND
PROGRAMS)
In setting its pricing policy, a company follows a six step procedure:
1. it selects its pricing objective, what it wants to accomplish with its product iffer
(survival, max current profit, max current revenue, max sales growth, max market
skimming or product-quality leadership)
2. it estimates the demand curve (the probable quantities it will sell at each possible
price); the more inelastic demand is, the higher the company can set its price
3. it estimates how its costs vary at different levels of output
4. it examines competitors' costs, prices and offers (and can use them as an orienting
point for its own pricing)
5. it selects one of the following pricing methods: markup pricing (to add a standard
markup to the projct cost), target-return pricing (the firm determines the price that
would yield its target rate of return on investment), perceived value pricing (key to
pricing is the buyer's perception of value), value pricing (companies charge a fairly
low price for a high-quality offering), going-rate pricing (company bases its price
largely on competitors' prices) or sealed-bid pricing (firm bases its price on
expectations of how competitors will price)
6. it selects the final price; company has to consider psychological pricing, the
influence of other marketing mix elements on price, company pricing policies and the
impact of price on other parties
Companies usually set a pricing structure that reflects variations in geographical
demand and costs, purchase timing and so on.
Several price-adaption strategies are available:
1. geographical pricing
2. price discounts and allowances (cash and quantity discounts)
3. promotional pricing (special event pricing)
4. discriminatory pricing (company sells a product at different prices to different
market segments)
5. product-mix pricing (includes the setting of prices for product lines, byproducts,
product bundles)
Firms often need to change their prices. A price decrease might be brought about by
desire to dominate market or by excess plant capacity. A price increase might be
brought about by cost inflation or overdemand. It is difficult to predict how customers
and competitors will react to a price change.
30. PRODUCT MIX PRICING
It´s a price-adaptation strategy in which firm searches for a set of prices that maximizes the
profits on the total product mix. Includes the setting of prices for;
 Product-line pricing
Companies develop product lines rather than single products, for exp. Reebok offers 4
different types of sneakers, starting with the cheapest and ending with the top-of-the-line
sneaker they must decide on the price steps that should take into account cost differences
between sneakers, customer evaluations and competitors price. If the price difference is
greater then the cost difference company profits will increase
 Optional-feature pricing
Optional products or features are offered along with theire main product- automobile
companies must decide which to include as a sticker price and which to offer as a option
(electric window control, air-conditioning, light dimmers). So they advertise stripped-down
models to pull people into showrooms, and in the end price is more higher
 Captive-product pricing
Some things require the use of captive or ancillary products, such as razor blades(razors are
useless without them), camera films..Manufacturers price main product low and set high
prices for the captive product. There is a danger in pricing the captive product too high in the
aftermarket (market for ancillary supplies to the main product)
 Two-part pricing
Service firms engage in this type of pricing; they charge a fixed fee+variable usage fee.
Amusment parks charge an admission fee plus fees for rides over a certain minimum. Similar
problem as in captive pricing-how much to charge the basic service and variable service.
 Byproduct pricing
The production of certain good-meats, petroleum- often results in byproduct. If they have
value to the customer group, should be priced in theire value.
 Product-bundling pricing
Sellers often bundle theire products at a set price-so a theater company will price a season
subscription at less then the cost of buying all the preformances separately. The savings on the
price bundle must be substantial enough to induce them to buy the bundle.
31. PRICING AND COSTS
The company wants to charge a price that covers its cost of producing, distributing, and
selling the product, including a fair return for its effort and risk. Given the three Cs- the
customers´ demand schedule, the cost function and compertitors price company is ready to
select a price. They resolve the price issue by selecting a price method;
-markup pricing- the most basic method is to add a standard markup to the product´s cost
-target-return pricing- the firm determines the price that would yield its target rate of return
on investment (ROI)
-percived value pricing- the key of pricing is the buyers perception of value not the sellers cost
-value pricing- companies charge a fairly low price for a high-quality offering
-going-rate pricing- firm pays less attention to its own costs and bases its price on
competitor´s prices
-selected-bid pricing- the firm bases its price on expectations of how competitors will price
rather than on a rigid relation to the firms costs
There are some types of costs;
-fixed- they do not vary with production or sales revenue
-variable- vary directly with the level of production
-total- consist of the sum of the fixed and variable
-avarage- the cost per unit at thet level of production
32. MARKETING CHANNELS
 The Nature of Marketing Channels
A channel of distribution or marketing channel is a group of individuals and organizations
that direct the flow of products from producers to customers. They have marketing
intermadiaries or middleman who links producers to other middleman or those who
ultimately use the products. There are two major types; merchants take title to products and
re-sell them, and functional middleman who do not take title to products.

Functions of Marketing Channel
1. Creating utility- there are 4 types of utility; time, place, possession and form
2. Facilitating exchange efficiencies- marketing intermediaries can reduce the costs of
exchanges by efficiently performing certain services or functions
3. Alleviating discrepancies- there are 2 major distribution problems; discrepancies in
quantity( exp. manufacturer of jeans produces hundred thousand pairs of jeans although
people want only few pairs) and in assortment ( consumers wants broad assortment, but an
individual manufacturer produces a narrow assortment)
4. Standardising transactions- marketing channels help to standardise the transactions
associated with numerous products
5. Providing customer service
 Types of Channels
1. Channels for consumer products
producer --producer --retailers
producer --wholesalers --- retailers
producer --- agents or brokers --- wholesalers --- retailers
---------
consumers
consumers
consumers
consumers
2. Channels for industrial product
Like theire consumer products counterparts, manufacturers of industrial products work with
more than one level of wholesalers. From producer to business-to-business buyer, there are
agents and distributors.
33,PROMOTION:
Communication with individuals, groups or organizations in order to
facilitate exchanges by informing and persuading audiences to accept a
company's product.
(Example: PepsiCo recruited pop star Michael Jackson to communicate
the benefits of its cola drink)
Effective promotional activities are based on information from marketing
environment, often obtained from organization's marketing information
system. How effectively marketers can use promotion to maintain
positive relationships depends largely on the quantity and quality of
information an organization takes in.
33.PROMOTION MIX:
The specific combinations of ingredients an organization uses to promote
a product, traditionally including four ingredients: advertising, personal
selling, publicity and public relations, and sales promotions.
Increasingly, sponsorship and direct mail are elements of the
promotional mix in their own right.
The internet and direct marketing are recent additions to promotional
mix.
For some products, businesses use all of these ingredients; for other
products, two or three will suffice.
34.ADVERTISING:
Advertising is a paid form of non-personal communication about an
organization and its products that is transmitted to target audience
through a mass medium such as television, radio, newspapers,
magazines, direct mail, public transport, outdoor displays, catalogues or
the Internet.
Individuals and organizations use advertising to promote goods,
services, ideas, issues and people.
Because it is highly flexible, advertising offers the options of reaching an
extremely large target audience or focusing on a small, precisely defined
segment of the population.
Advertising offers several benefits. It can be an extremely cost efficient
promotional method because it reaches a vast number of people at low
cost per person.