Chapter 6 Flashcards
Marketing Program
Strategic Combination of 4 Basic Mix Elements:
- Product
- Price
- Promotion
- Distribution (Place)
*Best Marketing Strategy
*Combination of product, price, distribution and promotion that maximizes
- tangible
- intangible and
- perceptual
attributes of the complete offering to satisfy customers’ needs and wants.
Product
Something that buyers can acquire via exchange to satisfy a need or want.
Receives the most attention in the marketing program because it fulfills needs and wants.
*Real Value of Offering
- Ability to deliver benefits that
1. Enhances a customer’s situation or
3. Solves a problem.
Types of Consumer Products
- Convenience Products
- Shopping Products
- Specialty Products
- Unsought Products
Types of Business Products
- Raw Materials
- Component Parts
- Process Materials
- Maintenance, Repair, and Operating Products
- Accessory Equipment
- Installations
- Business Services
Convenience Products
Inexpensive, routinely purchased products
Little time and effort spent in acquiring
Shopping Products
Prices, features, services are compared
Time and effort spent to acquire.
Specialty Products
One-of-a-kind
Considerable time, effort and money to acquire.
Unsought Products
Unaware of by consumers
Do not consider buying until need arises
Raw Materials
Become part of a finished product
Purchased in large quantities
Component Parts
Finished items that become part of finished product
Process Material
Finished products that become unidentifiable upon inclusion in the product
Maintenance, Repair and Operating Products
Used in the business process but do not become part of the product
Accessory Equipment
Facilitates production but does not become part of the product
Installations
Major purchase
Customized solution includes physical nature, construction, training, financing, maintenance and repair
Business Services
Intangible support of business operations
Occur often as part of outsourcing
*Product Line
*A group of closely related product items
I.E. P&G’s Household Care Products (Tide, Bounty, Duracell)
Product Mix (Product Portfolio)
The total group of products offered by the company
I.E. P&G’s Beauty and Grooming, Health and Wellness, Baby and Family, Pet Nutrition and Care, and Household Care
Product Assortment (Depth)
Different brands or products are used to fulfill different customer needs
Benefits of Large Portfolio of Products
- Economies of Scale
- Package Uniformity
- Standardization
- Equivalent Quality Beliefs
Portfolio Economies of Scale
Single themes that cover entire product lines saves on promotion expenses
*Portfolio Package Uniformity
*Easier to coordinate promotion and distribution
Customers can more easily locate products with same packaging look and feel
Portfolio Standardization
Product lines use the same component parts to reduce costs (inventory and handling)
Portfolio Sales and Distribution Efficiency
Sales personnel can offer the full range of choices and options to customers
Channel intermediaries are more accepting
Portfolio Equivalent Quality Beliefs
Customers believe all products are of same quality and performance
*Challenges of Service Products
- Balancing supply with demand
- Time and place dependent - customers must be present
- Difficult to evaluate quality prior to purchase
- Inconsistent delivery
- Balancing supply with demand
Cannot be stored for future use
Differ from products which are tangible
*Unique Characteristics of Services
- Intangibility
- Simultaneous Production and Consumption
- Perishability
- Heterogeneity
- Client-Based Relationships
- Intangibility
Service Intangibility
- Customers cannot evaluate quality before purchase
- Communicating benefits is difficult - firm must sell a promise
- Prices are difficult to set and justify
- No transfer of possession
Service Simultaneous Production and Consumption
- Customers must be present during delivery
- Other customers can impact quality
- Employees are critical to delivery
Service Perishability
- Cannot be inventoried for later use
- Demand is time and place sensitive
- Facilities sit idle during off-peak demand
Service Heterogeneity
- Quality varies across people, time and place - difficult to deliver consistency
- Customization can dramatically impact costs
Service Client-Based Relationships
- Clientele must be satisfied over the long-term
2. Repeat business is critical to success
*Six Strategic Options for Product Newness
- New-to-the-World (Discontinuous Innovations)
- New Product Lines
- Product Line Extensions
- Improvements or Revisions of Existing Products
* 5. Repositioning - Cost Reductions
*Customer perception of newness is critical
*Product Development Process
- Idea Generation
- Screening and Evaluation
- Development
* 4. Test Marketing - Commercialization
Easiest Marketing Variable to Change
Price
*Key Issues in Pricing Strategy
- Firm’s Cost Structure
* 2. Perceived Value - Price/Revenue Relationship
- Pricing Objectives
- Price Elasticity
Breakeven Pricing
Breakeven Units = Total Fixed Costs / (Unit Price - Unit Variable Costs)
Cost-Plus Pricing
Selling Price = Average Unit Cost / (1 - Markup Percent)
- Intuitive and easy to use
- Difficult sometimes to determine markup price
*Perceived Value
Customer’s subjective evaluation of benefits relative to costs relative to other product offerings
*Perceived Value = Customer Benefits / Customer Costs
Costs include money, time, effort and opportunity costs
Myths of Price Cutting
- When business is good, price cuts capture greater market share
- When business is bad, price cuts stimulate sales
Can move excess inventory and generate short-term cash flow. However, the bottom line is impacted.
Substitutes for Price Cuts
- Find ways to build value
2. Justify current price (or higher price)
Pricing Objectives
- Realistic, measurable, and attainable
2. Money is made off profit margin, volume or some combination of the two
*Price Elasticity
*Customers’ sensitivity to change in price
Relative impact on the demand given specific changes in price
Situations for Higher Price Elasticity
- Availability of Substitute Products
- Higher Total Expenditure
- Noticeable Price Differences
- Easy Price Comparisons
Situations for Lower Price Elasticity
- Lack of Substitutes
- Real or Perceived Necessities
- Complementary Products
- Perceived Product Benefits
- Situational Influences
- Product Differentiation
Common Pricing Objectives
- Profit-Oriented
- Volume-Oriented
- Market Demand
- Market Share
- Cash Flow
- Competitive Matching
- Prestige
- Status Quo
Best Approach to Ensure Low Price Elasticity
Product Differentiation
Based on either real or perceived differences
Brand Loyalty
When customers will not make a purchase when in need and in the presence of substitutes when specific product is not available
Demand becomes inelastic
Yield Management
Allows firm to
- Simultaneously control capacity and demand to maximize revenue and utilization
- Offer same basic service to different market segments at different price points
Common in services with high fixed costs and low variable costs - profits are driven by sales and utilization
*Base Pricing Strategies
- Price Skimming
- Price Penetration
* 3. Prestige Pricing - Value-Based Pricing (EDLP)
* 5. Competitive Matching - Non-Price Strategies
*Adjusting the Base Price
Consumer Markets
- Discounting
- Reference Pricing
- Price Lining
* 4. Odd Pricing
* 5. Price Bundling
Adjusting the Base Price
Business Markets
- Trade Discounts
- Discounts and Allowances
- Geographic Pricing
- Transfer Pricing
- Barter and Countertrade
Price Skimming
Base Pricing Strategies
Initial high sales prices then reduced
- Recovers high R&D costs
- Skims profits early
Price Penetration
Base Pricing Strategies
With low initial price designed to:
- Maximize Sales
- Gain Market Acceptance
- Capture Large Market Share
Works best when:
- Customers who are price sensitive
- R&D and Marketing expenses are low
- New competitors will enter market
Firm must have cost structure and economies of scale that can sustain narrow profit margins
Prestige Pricing
Base Pricing Strategies
Promotes image of exclusivity and superior quality
Used in situations where hard to judge true value
Value-Based Pricing (EDLP)
Base Pricing Strategies
Reasonably low prices, with high quality products and adequate customer services
ELDP = Every Day Low Prices
Competitive Matching
Base Pricing Strategies
Firm will match competitor’s price
Non-Price Strategies
Base Pricing Strategies
Emphasis on quality, benefits and unique features
Best used with unique products like Disney World, Sea World, etc…
Discounting
Pricing Technique
Temporary price reduction to stimulate sales or store traffic.
Reference Pricing
Pricing Techniques
Comparison of actual selling price to and internal or external reference price.
Makes customer price judgement easier.
Price Lining
Pricing Techniques
Some customers will buy the lowest or highest price.
Lines of products at different price points (varying features) captures full market.
Odd Pricing
Pricing Techniques
Based on psychology - customers believe the seller reduced the price as much as possible
Price Bundling
Pricing Techniques
Brings together two or more complementary products
Bundled price is less than if two products were sold separately
Slow moving items can be bundled with hot items
Trade Discounts
Pricing Techniques
Manufacturers reduce prices for certain intermediaries in the supply chain based on their function.
I.E. wholesalers receive greater discounts than retailers
Discounts and Allowances
Pricing Techniques
Business buyer discounts for cash, quantity or bulk, seasonal, or trade for advertising and support
Geographic Pricing
Pricing Techniques
Cost differences due to delivery location and costs
Leads to uniform delivered pricing and zone pricing
Transfer Pricing
Pricing Techniques
One unit of an organization selling to another unit of the organization
Barter and Countertrade
Pricing Techniques
Barter occurs across national boundaries using products instead of cash
Countertrade occurs with agreements to buy goods and services from eachother
2 Components of Supply Chain Management
- Marketing Channels
2. Physical Distribution
Marketing Channels
An organized system where products, resources, information, funds flow from the point of production to the final user
Physical Distribution
Concerned with getting the product to the right place at the right time in the right quantity in a cost effective manner
The Linchpin of Effective Supply Chain Management
Integration
Supply Chain Goal
Providing time, place and possession utility for consumer and business buyers.
Functions of Channel Intermediaries
- Sorting
- Breaking Bulk
- Maintaining Inventories
- Maintaining Convenient Locations
- Provide Services
Marketing Channel Structure
- Exclusive Distribution
- Selective Distribution
- Intensive Distribution
5 Sources of Power in the Supply Chain
- Legitimate Power
- Reward Power
- Coercive Power
- Information Power
- Referent Power
Most Important Source of Power In Supply Chain
Information Power
Impact of Technology Improvements on Sales
eCommerce then and now in manufacturing
eCommerce accounted for in the manufacturing sector:
2002 - 46% of sales
Impacts of RFID at Walmart
16% Reduction in Stockouts
67% Reduction in Replenishment Times
Downsides of Outsourcing
- Lost control of data security
2. Quality delivered to customers
Nontraditional Forms of Direct Distribution
- Catalog and Direct Marketing
- Direct Selling
- Home Shopping Network
- Vending
- Direct Response Advertising
*Integrated Marketing Communication (IMC)
Strategic, coordinated use of promotion to create one consistent message across multiple channels to ensure maximum persuasive impact.
Used to convey an image of truly knowing and caring about their customers translating into long term relationships.
*Importance: long term relationships, reduces redundancies, technology allows for better targeting
AIDA Model
- Attention
- Attract attention of potential customers - Interest
- Spark interest by demonstrating features, uses and benefits - Desire
- Stimulate desire by convincing customers of ability to satisfy needs and superiority - Action
- Promotion must push customers to actual sale
Pull Strategy
Promotional Goals
Demand must be stimulated among final customers to exert pressure on the supply chain to carry a product.
Heavy advertising, public relations, and consumer sales promotion
Push Strategy
Promotional Goals
Promotion is focused on supply chain for them to sell the product
Relies on personal selling and trade sales promotions
Advertising
Paid, non-personal communication transmitted through media such as television, radio, magazines, newspapers, direct mail, outdoor displays, the internet and mobile devices.
Most Rapidly Changing Marketing Statistic/Demographic
Hispanics wield $1-trillion in buying power - a number expected to increase to $1.5-trillion by 2015.
Hispanics account for 11% of total buying power in US
Average Production Cost of Advertising Spot (30-sec)
$400,000
Trademark Law Revision Act
Marketers using comparative advertising must ensure they do not misrepresent the characteristics of competing products.
Goal of Public Relations
Track public attitudes, identify issues that may elicit concern, and maintain positive relationships between a firm and its stakeholders.
Publicity
Part of public relations that includes activities designed to gain media attention through articles, editorials or news stories.
6 Public Relations and Publicity Efforts
- News Releases
- Feature Articles
- White Papers
- Press Conferences
- Event Sponsorship
- Employee Relations
Major Drawback of Public Relations Activities
Firms have much less control over how the message is delivered.
Media personnel may insert their own opinions.
Time and effort may be spent on messages that fail to attract attention.
Personal Selling
Paid personal communication that attempts to inform customers about products and persuade them to purchase those products.
Most Serious Drawback of Personal Selling
Cost per Contact
Goals of Personal Selling
- Finding Prospects
- Informing Prospects
- Persuading Prospects to Buy
- Keep customers satisfied
Attributes of Salespeople
- Closer to the Customer - More Opportunities for Communication
- Can learn about competing products
- Knowledge is a strength that can be leveraged in the marketing strategy
Strategic Implementation of Sales Management
- Developing Sales Force Objectives
- Determining Sales Force Size
- Recruiting and Training Salespeople
- Controlling and Evaluating the Sales Force
Developing Sales Force Objectives
Strategic Implementation
- Should involve desired sales dollars, volume or market share
- Can be used for guidelines and quotas
- Ultimately help evaluate and control activities
Determining Sales Force Size
Strategic Implementation
A balance must be found between sales expenses and revenue generation.
A sales force that is too large/small can lead to inflated expenses or lost sales.
Recruiting and Training Salespeople
Strategic Implementation
New sales people must be continually available to sustain the program.
Types of people must be tied to the IMC strategy
Controlling and Evaluating the Sales Force
Strategic Implementation
Used to compare sales objectives with actual sales performance
Used to determine conpensation
Key to Using Sales Technology
Seamlessly integrate it with customer relationship management systems, competitive intelligence activities and internal customer databases.
Sales Force Compensation Methods
- Straight Salary
- Straight Commission
- Combination (Salary/Commission)
Sales Promotion
Usually accounts for bulk of promotional spending (up to 70%)
One universal goal: Induce Product Trial and Purchase
8 Customer Sales Promotions
- Coupons
- Rebates
- Samples
- Loyalty Programs
- Point-of-Purchase Promotion
- Premiums
- Contests and Sweepstakes
- Direct Mail
Coupons
Reduce the price of a product and encourage customers to try new or established products
Rebates
Similar to coupons, require more effort on the customer’s part to obtain the price reduction
Samples
Stimulate trial of a product to increase volume in early states of the life cycle and encourage active search for the product
Premiums
Items offered for free or at a minimum costs as a bonus for purchasing another product.
Direct Mail
Targets individual customers incorporating advertising, sales promotion and distribution.
Has grown tremendously due to consumer time constraints, low costs and new database management tools.
4 Business Sales Promotions
- Trade Allowances
- Free Merchandise
- Cooperative Advertising
- Training Assistance and Sales Incentives
Trade Allowances Goal
To induce intermediaries to perform specific actions
Free Merchandise Goal
Reduce invoice costs as a way of compensating intermediaries for other activities that assist the manufacturer
Cooperative Advertising
Arrangement where manufacture agrees to pay some of an intermediaries media costs
*Pricing Strategy
- Key factor in producing revenue
- Easiest of all marketing variables to change
- Important consideration in competitive intelligence
* 4. Is considered to be the only real means of differentiation in commoditized markets