Exam 2

Question 1

What is the difference between a want and a need from the consumer buying process’ perspective?

Answer 1

• Need
  
  • Occurs when the consumer’s existing level of satisfaction and desired level of satisfaction are not the same
  • Based on internal (e.g., hunger, thirst, and fatigue) or external (e.g., advertising, window shopping, interacting with salespeople) stimuli _{– (Consumers can “recognize needs” in a variety of settings and situations based on internal and external stimuli. Interestingly, external stimuli can also arouse internal responses, such as the hunger you might feel when watching an advertisement for Burger King)}
• Want
  
  • Consumer’s desire for a specific product that will satisfy the need

The buying process begins when consumers recognize that they have an “unmet” need.

The relationship between need and want: If some people would argue that they need a car when their “real need” is for transportation. Their need for a car is really a “want” for a car. Please take a look at the above descriptions of need and want again. Hence, people need transportation, but they choose to fulfill that need with a car, rather than with alternative products like motorcycles, bicycles, public transportation, a taxi, or Uber.

Question 2

What are outcomes consumers experience in the postpurchase stage, and how are they different?

Answer 2

• Connection between buying process and developing long-term customer relationships
• Four possible outcomes

1. Delight
2. Satisfaction
3. Dissatisfaction
4. Cognitive dissonance (post-purchase doubt)

• High likelihood of experiencing dissatisfaction or cognitive dissonance when: _{(Firms can manage these responses by offering liberal return policies, providing extensive post-sale support, or reinforcing the wisdom of the consumer’s purchase decision).}
  
  • Dollar value of the purchase increases
  • Opportunity costs of rejected alternatives are high
  • Purchase decision is emotionally involving

In the postpurchase stage, consumers will experience one of these four outcomes:

1. Delight—the product’s performance “greatly exceeds” the buyer’s expectations
2. Satisfaction—the product’s performance “matches” the buyer’s expectations
3. Dissatisfaction—the product’s performance “falls” short of the buyer’s expectations
4. Cognitive Dissonance (Postpurchase Doubt)—the buyer is “unsure” of the product’s performance relative to his or her “expectations”

Question 3

What are issues in the buying process?

Answer 3

Buyer behavior in Consumer Markets

• Often irrational and unpredictable – _{Consumers often say one thing but do another.}
• Progresses through five stages – _{Need recognition; Information search; Evaluation of alternatives; Purchase decision; Postpurchase evaluation}
• Issues in the buying process

1. Consumers do not always follow stages in the sequence and can be swayed by brand

loyalty

2. Involves making parallel decisions
   * What to buy
   * Where to buy
3. Bias towards a merchant limits purchasing powers

Issues in the buying process:

1. The buying process describes the possible range of activities that may occur in consumers’ making purchase decisions. However, consumers do not always follow these processes in sequence and may even skip stages en route to making a purchase (e.g., impulse purchases or loyalty toward a product or brand).
2. The buying process often involves a parallel sequence of activities associated with finding the most suitable merchant of the product in question. In other words, consumers consider what product to buy and where they might buy it at the same time. In the case of name brand products, for example, this selection process may focus on the product’s price and availability at different stores or online merchants.
3. The choice of a suitable merchant may actually take precedence over the choice of a specific product. In some cases, consumers are so loyal to a particular merchant that they will not consider looking elsewhere. For example, if some consumers are fiercely loyal to American car manufacturers, they may limit their product selection to a single brand or dealership, greatly limiting their range of potential product choices.

Question 4

When does “need recognition” mean in the consumer buying process?

Answer 4

• Need
  
  • Occurs when the consumer’s existing level of satisfaction and desired level of satisfaction are not the same
  • Based on internal (e.g., hunger, thirst, and fatigue) or external (e.g., advertising, window shopping, interacting with salespeople) stimuli
• Want
  
  • Consumer’s desire for a specific product that will satisfy the need
• Demand
  
  • Occurs only when a consumer’s ability and willingness to purchase a specific product backs up the want for that product

The buying process begins when consumers recognize that they have an “unmet” need.

The relationship between need and want: If some people would argue that they need a car when their “real need” is for transportation. Their need for a car is really a “want” for a car. Please take a look at the above descriptions of need and want again. Hence, people need transportation, but they choose to fulfill that need with a car, rather than with alternative products like motorcycles, bicycles, public transportation, a taxi, or Uber.

The difference between want and demand: Many customers “want” a luxury car, but only a few are able and willing to buy one (i.e., demand).

Question 5

What are the characteristics of information search in the consumer buying process?

Answer 5

• Marketing activities can stimulate a desire for information
  
  • Passive information search (consumer becomes more attentive and receptive to information) – _{e.g., noticing and paying attention to automobile advertisements “if the customer has a want for a specific car brand”}
  • Active information search (consumer purposely seeks additional information) – _{e.g., browsing the Internet, asking friends, or visiting dealer showrooms.}
• Sources of information
  
  • Internal sources - Personal experiences and memories
  • External sources - Advertising, websites, packaging, display, and salespeople
• Amount of time, effort, and expense dedicated to information search depends on:
  
  • Degree of risk involved in the purchase – _{Consumers are naturally risk averse; they use their search for information to reduce risk and increase the odds of making the right choice. Risks comes in many forms, such as financial risk (paying a reasonable price for a house), social risk (buying socially acceptable products), emotional risk (lead to negative emotions if the product is different from what you expected), and personal risk (choosing a right drug or surgeon).}
  • Amount of expertise with the product category – _{If you are a first-time buyer, you are more likely to engage in an extensive information search to reduce risk and narrow the potential set of product choices.}
  • Actual cost of the search (time and money) – _{In some situations, such as time deadlines or emergencies, consumers have little time to consult all sources of information at their disposal.}
• Evoked set – _{Evoked set: Throughout the information search, consumers learn about different products or brands and begin to remove some from further consideration.}
  
  • Narrowing down potential product choices to a few products that can meet consumer needs
  • Represents the outcome of information search and the beginning of the next stage of the buying process

Sources of information: Internal sources are typically the first type of information that consumers search. Information can also come from word-of-mouth advice from friends, family, or coworkers (i.e., getting the advice can be a personal experience, it can be stored as your memory). Please take a look at the external sources. Although external sources are the most numerous, consumers typically trust these sources less than internal and personal sources of information (i.e., this may be because consumers perceive that the external sources are initially designed to sell and promote a product instead to provide information about the product).

Question 6

What does ‘evoke set’ mean?

Answer 6

• Evoked set – _{Evoked set: Throughout the information search, consumers learn about different products or brands and begin to remove some from further consideration.}
  
  • Narrowing down potential product choices to a few products that can meet consumer needs
  • Represents the outcome of information search and the beginning of the next stage of the buying process

Question 7

What are factors affecting the consumer buying process?

(4 of them)

Answer 7

• Decision-making complexity
  
  • Primary reason for variations in the buying process
• Individual influences
  
  • Demographics, perceptions, motives, interests, attitudes, opinions, or lifestyles
• Social influences
  
  • Culture, subculture, social class, reference groups, and opinion leaders
• Situational influences
  
  • Affect amount of time and effort devoted to the purchase task

Decision-making complexity: the primary reason why the buying process will vary across consumers and with the same consumer in different situations. Level of risk and complexity will often determine whether a consumer spends a long time deciding to purchase a product (e.g., house, car) or only a small amount of time (e.g., groceries). It is important for marketers to manage decision-making complexity. For instance, with complex products entailing much risk, marketers should provide access to high-quality and useful information.

Individual influences: many individual influences (age, life cycle, occupation, and socioeconomic status) are fairly easy to understand and incorporate into the marketing strategy. Other factors (perceptions, motives, interests, attitudes, opinions, or lifestyles) are much harder to understand because they do not clearly coincide with demographic characteristics.

Social influences: culture, subculture, social class, reference groups, and family have a profound impact on what, why, and how consumers buy. Reference groups and opinion leaders have an important impact on consumers’ buying processes. Reference groups act as a point of comparison and source of product information. A consumer’s purchase decisions tend to fall in line with the advice, beliefs, and actions of one or more reference groups. Opinion leaders can be part of a reference group or may be specific individuals that exist outside of a reference group. When consumers feel like they lack personal expertise, they seek the advice of opinion leaders, who they view as being well informed in a particular field of knowledge.

Situational influences: typically affect the amount of time and effort that consumers devote to the purchase task, or they affect specific product choices. For more information, please take a look at the next slide.

Common Situational Influences

• Physical and spatial influences
  
  • Such as retail atmospherics, retail crowding, or store layout and design
• Social and interpersonal influences
  
  • Such as shopping in groups, salespeople (e.g., rude salespeople can end the buying process), or other customers (e.g., obnoxious other customers may cause the consumers to leave)
• Temporal influences
  
  • Such as lack of time, emergencies, or convenience (e.g., ample time may allow consumers to seek information on many different product alternatives)
• Purchase task or product usage influences
  
  • Such as special occasions, buying for others, or buying a gift (e.g., they may lead consumers to buyer higher quality products)
• Consumer dispositional influences
  
  • Such as stress, anxiety, fear, fatigue, emotional involvement, or good/bad mood

Question 8

What are types of business markets (4 of them) and unique characteristics (4 of them) of the business buying process?

Answer 8

• Four types of business markets
  
  • Commercial markets: buying raw materials for use in producing finished goods, and buying facilitating goods and services used in the production of finished goods
  • Reseller markets: consisting of channel intermediaries such as wholesalers, retailers, or brokers that buy finished goods from the commercial market and resell them at a profit
  • Government markets: including federal, state, county, city, and local governments (buying goods for citizens, such as education, fire and police protection, maintenance and repair of roads, and water and sewage treatment)
  • Institutional markets: consisting of a diverse group of non-commercial organizations such as churches, charities, schools, hospitals, or professional organizations.
• Unique characteristics of business markets
  
  • Buying center
  • Hard and soft costs
  • Reciprocity
  • Mutual dependence

Buying center: the group of people responsible for making purchase decisions. It can be complex and difficult to identify, in part because it may include three distinct groups of people—economic buyers, technical buyers, and users.

Economic buyers are senior managers with the overall responsibility of achieving the buying firm’s objectives. In recent years, economic buyers have become increasingly influential as price has become less important in determining a product’s true value to the buying firm.

Technical buyers are employees with the responsibility of buying products to meet needs on an ongoing basis, including purchasing agents and materials managers. These buyers have the responsibility of narrowing the number of product options and delivering buying recommendations to the economic buyer(s) that are within budget.

Users are managers and employees who have the responsibility of using a product purchased by the firm, comprising the last group of people in the buying center. The user is often not the ultimate decision maker, but frequently has a place in the decision process.

Hard and soft costs: both consumers and organizations consider hard costs (monetary price, shipping, installation). Organizations must also consider soft costs (downtime, opportunity costs, and human resource costs associated with the compatibility of systems in the buying decision). For example, the purchase and implementation of a new payroll system will decrease productivity and increase training costs in the payroll department until the new system has been fully integrated.

Reciprocity: business marketing is often a two-way street, with each firm marketing products that the other firm buys. For example, a company may buy office supplies from another company that in turn buys copiers from the first firm. In fact, such arrangements can be an upfront condition of purchase in purely transaction-based marketing.

Mutual dependence: the buyer and seller are more likely to be dependent on one another, especially in situations of sole-source or limited-source buying. This characteristic can be applied when consumers are loyal to a brand or merchant. In this case, consumers become dependent on a single brand or merchant, and the firm can become dependent on the sales volume generated by these brand loyal consumers. This is not the case in business markets where sole-source or limited-source buying may leave an organization’s operations severely distressed when a supplier shuts down or cannot deliver. The same is true for the loss of a customer. The selling firm has invested significantly in the client relationship, often modifying products and altering information or other systems central to the organization. Each client relationship represents a significant portion of the firm’s profit, and the loss of a single customer can take months or even years to replace.

The Business Buying Process

• Problem Recognition—Business buyers often recognize needs due to special circumstances, such as when equipment or machinery breaks or malfunctions.
• Develop Product Specifications—Detailed product specifications often define business purchases because new purchases must be integrated with current technologies and processes.
• Vendor Identification and Qualification—Business buyers must ensure that potential vendors can deliver on needed product specifications, within a specified time frame and in the needed quantities.
• Solicitation of Proposals or Bids—The buying firm may request that qualified vendors submit proposals or bids.
• Vendor Selection—The buying firm will select the vendor or vendors that can best meet its needs. Issues such as reputation, timeliness of delivery, guarantees, or personal relationships with the members of the buying center are often more important than price.
• Order Processing—Processing involves the details of processing the order, negotiating credit terms, setting firm delivery dates, and any final technical assistance needed to complete the purchase.
• Vendor Performance Review—In this stage, both product and vendor specifications can be evaluated.

Like consumers, businesses follow a buying process. However, given the complexity, risk, and expense of many business purchases, business buyers tend to follow the above stages in sequence.

Factors Influencing the Buying Process

• Environmental conditions
  
  • Increase uncertainty, risk, and complexity associated with purchase
• Organizational factors
  
  • Include internal and external environmental conditions
• Individual factors
  
  • Importance depends on specific buying situations and the importance of the firm’s goals and objectives

However, like consumer markets, there are a number of factors that can influence the business buying process.

Environmental conditions: in situations of rapid “environmental change”, business buyers may alter their buying plans, postpone purchases, or even cancel purchases until things settle down. Environmental conditions affect the purchase of products as well as decisions regarding the recruitment and hiring of employees.

Organizational factors: a shift in a firm’s resources can change buying decisions, such as a temporary delay in purchasing until favorable credit terms can be arranged. Likewise, if a supplier suddenly cannot provide needed quantities of products or cannot meet a needed delivery schedule, the buying firm will be forced to identify and qualify new suppliers.

Individual factors: it occurs when members of the buying center are at odds over purchase decisions. Power struggles are not common in business buying, and they can bring the entire process to a halt if not handled properly. Also, a manager’s personal preferences or prejudices can influence business buying decision as individual factors.

Question 9

What are traditional segmentation approaches (3 of them), and how are they different?

Answer 9

Market Segmentation

• Process of dividing total market for a particular product into homogeneous segments or groups
• Should create groups where members are similar to each other but dissimilar to other groups
• Involves the fundamental decision of whether to segment at all
• Mandate in today’s economy due to:
  
  • Search for niche or unique products
  • Changing use of media

Market Segmentation: the process of dividing the total market for a particular product or product category into relatively homogeneous segments or groups. Its goal is creating groups where the members within the group have similar likes, tastes, needs, wants, or preferences but where the groups themselves are dissimilar from each other.

Most firms opt to target one or more segments of the total market because they find that they can be more successful when they tailor products to fit unique needs or requirements. In today’s economy, segmentation is often mandated by customers due to their search for unique products and their changing uses of communication media. The end result is that customer segments have become even more fragmented and more difficult to reach. Many firms today take segmentation to the extreme by targeting small niches of a market, or even the smallest of market segments: individuals.

• Traditional Segmentation Approaches: Mass Marketing*
  1. Involves no segmentation
  2. Adopts an undifferentiated approach
  3. Works best when the needs of an entire market are similar
  4. Results in efficient production and lower marketing costs
  5. Risky since it makes firm’s vulnerable to competitors

Many segmentation approaches are traditional in the sense that firms have used them successfully for decades.

Mass marketing can be one type of traditional segmentation:

1. involves no segmentation whatsoever, occurs when companies aim marketing campaigns at the total (whole) market for a particular product.
2. Companies that adopt mass marketing take an undifferentiated approach that assumes that all customers in the market have similar needs and wants that can be reasonably satisfied with a single marketing program.
3. Mass marketing works best when the needs of an entire market are relatively homogeneous.
4. Mass marketing is advantageous in terms of production efficiency and lower marketing costs; however, it is inherently risky.
5. By offering a standard product to all customers, the organization becomes vulnerable to competitors that offer specialized products that better match customers’ needs.
   * Traditional Segmentation Approaches: Differentiated Marketing*

• Dividing the total market into groups of customers having relatively common or homogenous needs
  
  • Developing marketing strategies to pursue one or more of these groups
• Multi-segment approach
  
  • Attracting buyers in more than one segment by offering a variety of products that appeal to different needs
• Market concentration
  
  • Focusing on a single market segment

This approach may be necessary when customer needs are similar within a single group, but their needs differ across groups. Through well-designed and carefully conducted research, firms can identify the particular needs of each market segment to create marketing programs that best match those needs and expectations. This approach has two options: (1) multi-segment approach; and (2) market concentration.

(1) Multi-segment approach: Medium- to large-sized firms use this approach. In particular, it is common in packaged goods and grocery products. For example, Kellogg’s offers seemingly hundreds of brands of breakfast cereals targeted at specific segments, such as children (e.g., Apple Jacks), health-conscious adults (e.g., Shredded Wheat), parents looking for healthier foods for their children (e.g., Life, Kix), and so on. Also, Kraft Foods offers 69 different flavor and package varieties under the Maxwell House brand alone.
(2) Market concentration: Firms often find it most efficient to seek a maximum share in one segment of the market. Armor All, for example, markets a well-known line of automotive cleaners, protectants, and polishes targeted primarily to young, driving-age males. Its main advantage is specialization, as it allows the firm to focus all of its resources toward understanding and serving a single segment. However, its disadvantage is that the firm can be vulnerable to changes in its market segment, such as demographic shifts and economic downturns by “putting all of its eggs in one basket.”
* Traditional Segmentation Approaches: Niche Marketing*

• Efforts are focused on one small, well-defined market segment or niche
  
  • Possess unique and specific set of needs
• Customers will pay high prices for products that match specialized needs
• Firms should understand and meet the needs of target customers completely in order to earn a substantial share of the market segment

Some companies focus their efforts on one small, well-defined market segment or niche that has a unique, specific set of needs. Customers in niche markets will typically pay higher prices for products that match their specialized needs. The key to niche marketing is to understand and meet the needs of target customers so completely that the firm’s substantial share makes the segment highly profitable. An attractive market niche is one that has growth and profit potential, but is not so appealing that it attracts competitors.

In the gym industry, for example, Curves (a health club for women) has 10,000 locations in 90 countries around the world. In addition, The Little Gym (a gym for kids ages 4 months through 12 years) has over 300 locations worldwide.

Question 10

What are individualized segmentation approaches (i.e., one-to-one marketing, mass customization, and permission marketing), and how are they different?

Answer 10

• One-to-one marketing
  
  • Creating an entirely unique product offering for each customer
• Mass customization
  
  • Extension of one-to-one marketing
  • Provides unique solutions to individual customers on a mass scale
• Permission marketing
  
  • Customers choose to become part of firm’s target market
  • Key advantage - Customers are already interested in the product offering

One-to-one marketing, mass customization, and permission marketing will become even more important in the future because their focus on individual customers makes them critical to the development and maintenance of long-term relationships. Today, personalization means much more than simply calling customers by name. We use the term to describe the idea of giving customers choices—not only in terms of product configuration.

One-to-One Marketing: occurring when a company creates an entirely unique product or marketing program for each customer in the target segment. Historically, it has been used less often in consumer markets. However, it is common in luxury and custom-made products, as well as in services. It has grown rapidly in electronic commerce where customers can be targeted very precisely.

Mass Customization: referring to providing unique products and solutions to individual customers on a mass scale. Along with the Internet, advances in supply chain management have allowed companies to customize products in ways that are both cost effective and practical.

Permission Marketing: occurring when customers choose to become part of a firm’s market segment by giving companies permission to specifically target them in their marketing efforts. The most common tool used in permission marketing is the opt-in e-mail list, where customers permit a firm—or a third-party partner of the firm—to send periodic e-mail about goods and services. Its major advantage is that customers who opt-in have already shown interest in the products offered by the firm.

Question 11

What are common segmentation variables used in consumer markets? (4 of them)

Answer 11

1. Behavioral segmentation
   * Variables: benefits sought, product usage, occasions or situations
2. Demographic segmentation
   * Variables: gender, occupation, education
3. Psychographic segmentation
   * Variables: personality, lifestyle, motives
4. Geographic segmentation
   * Variables: city/country size, population density
5. Behavioral segmentation: the most powerful approach because it uses actual consumer behavior or product usage to make distinctions among market segments. It, unlike other types of consumer segmentation, is most closely associated with consumer needs. The key to successful behavioral segmentation is to clearly understand the basic needs and benefits sought by different consumer groups.
6. Demographic segmentation: dividing markets into segments using demographic factors such as gender, age, income, and education. It tends to be the most widely used basis for segmenting consumer markets because demographic information is widely available and relatively easy to measure. It becomes less useful when the firm has a strong interest in understanding the motives or values that drive buying behavior.
7. Psychographic segmentation: dealing with state-of-mind issues such as motives, attitudes, opinions, values, lifestyles, interests, and personality. Psychographic profiles are usually combined with demographic, geographic, or behavioral segmentation to create fully developed consumer profiles. It is useful because it transcends purely descriptive characteristics to help explain personal motives, attitudes, emotions, and lifestyles.
8. Geographic segmentation: it often play a large part in developing market segments, especially when retailers use geography to develop trade areas. It is often most useful when combined with other segmentation variables. One of the best examples is geodemographic segmentation, or geoclustering that looks at neighborhood profiles based on demographic, geographic, and lifestyle segmentation variables. One of the best-known geoclustering tools is Nielsen’s PRIZM segmentation system, which classifies every neighborhood in the United States into one of 66 different demographic and behavioral clusters.

Question 12

What are bases for segmentation of business buyers? (5 of them)

Answer 12

1. Type of organization
2. Organizational characteristics
3. Benefits sought or buying processes
4. Personal and psychological characteristics
5. Relationship intensity

The most basic method of segmenting business markets involves the four types of markets: commercial markets, reseller markets, government markets, and institutional markets. Business buyers can also be segmented on:

1. Type of Organization: different types of organizations may require different and specific marketing programs, such as product modifications, different distribution and delivery structures, or selling strategies.
2. Organizational characteristics: the needs of business buyers often vary based on their size, geographic location, or product usage.
3. Benefits sought or buying processes: organizations differ with respect to the benefits they seek and the buying processes they use.
4. Personal and psychological characteristics: the personal characteristics of the buyers themselves often play a role in segmentation decisions.
5. Relationship intensity: business markets can also be segmented based on the strength and longevity of the relationship with the firm.

Question 13

What are target marketing strategies (5 of them)

Answer 13

1. Single segment targeting
2. Selective targeting
3. Mass market targeting
4. Product specialization
5. Market specialization

Once the firm has completed segmenting a market, it must then evaluate each segment to determine its attractiveness and whether it offers opportunities that match the firm’s capabilities and resources. There are five basic strategies for target market selection.

1. Single segment targeting: firms use single segment targeting when their capabilities are intrinsically tied to the needs of a specific market segment.
2. Selective targeting: firms that have multiple capabilities in many different product categories use selective targeting successfully. This strategy has several advantages, including diversification of the firm’s risk and the ability to cherry pick only the most attractive market segments.
3. Mass market targeting: only the largest firms have the capability to execute mass market targeting, which involves the development of multiple marketing programs to serve all customer segments simultaneously.
4. Product specialization: firms engage in product specialization when their expertise in a product category can be leveraged across many different market segments.
5. Market specialization: firms engage in market specialization when their intimate knowledge and expertise in one market allows them to offer customized marketing programs that not only deliver needed products, but also provide needed solutions to customers’ problems.

Targeting Noncustomers

• Understand why customers do not buy the products
  
  • Unique customer needs
  • Better competing alternative
  • High switching costs
  • Lack of product awareness
  • Existence of long-held assumptions
• Find ways to remove obstacles
  
  • Major strategic issue in developing effective marketing programs

In addition to targeting a subset of current customers within the product/market, firms can also take steps to target noncustomers. The key to targeting noncustomers lies in understanding the reasons that they do not buy and then finding ways to remove these obstacles. Removing obstacles to purchase, whether they exist in product design, affordability, distribution convenience, or product awareness, is a major strategic issue in developing an effective marketing program.

Question 14

What is marketing program?

Answer 14

• Strategic combination of four marketing mix elements (product, price, distribution or place, and promotion)
  
  • Aimed at maximizing tangible, intangible, and perceptual attributes of a complete offering
• Commoditization
  
  • Core product is incapable of differentiating the offering from that of the competition – _{Given the state of commoditization in many markets, the core product (the element that satisfies the basic customer need) typically becomes incapable of differentiating the offering from those of the competition.}
  • Most organizations try to enhance the service and symbolic elements of their offerings by changing price, distribution, or promotion

The best marketing strategy is likely to be one that combines the product, price, distribution, and promotion elements in a way that maximizes the tangible, intangible, and perceptual attributes of the complete offering. Therefore, the best marketing strategy considers all four elements of the marketing program and the offering rather than emphasizes a single element.

Question 15

What is product strategy?

Answer 15

• Most critical strategic decision in a marketing plan
  
  • Involves design, development, branding, and positioning decisions
• Real value of offerings
  
  • Ability to deliver benefits that enhance customer’s situation or solves a customer’s problems – _{For example, customers do not purchase pest control; they purchase a bug-free environment. BMW customers do not purchase a car; they purchase luxury, status, comfort, and social appeal.}
• Products fall into two general categories
  
  • Consumer products - For personal use and enjoyment
  • Business products - _{For resale, use in making other products, or use in firm’s operations – For example, companies do not need computers; they need to store, retrieve, distribute, network, and analyze data and information for their operations.}

In the marketing plan, the design, development, branding, and positioning of the product are the most critical because the heart of every organization lies one or more products that define what the organization does and why it exists.

Question 16

What are types of consumer (4 of them) and business (6 of them) products?

Answer 16

• Consumer products
  
  • Convenience products - _{Soft drinks, candy and gum, gasoline, dry cleaning – Inexpensive, routinely purchased products that consumers spend little time and effort in acquiring.}
  • Shopping products – _{Appliances, furniture, clothing, vacations – Products that consumers will spend time and effort to obtain. Consumers shop different options to compare prices, features, and service.}
  • Speciality products – _{Antiques, sports memorabilia, plastic surgery, luxury items – Unique, one-of-a-kind products that consumers will spend considerable time, effort, and money to acquire.}
  • Unsought products - _{Emergency medicine, repair services, insurance – Products that consumers are unaware of or a finished product that consumers do not consider purchasing until a need arises.}
• Business products
  
  • Raw materials - Iron ore, chemicals, agricultural products, wood pulp
  • Component parts - Spark plugs, computer chips, pane glass, hard drives
  • Process materials - Food additives, wood sealants, paint colorings
  • Maintenance, repair, and operating products – Furniture, building security, janitorial services
  • Installations - Enterprise software, buildings, heat and air systems
  • Business services - Legal services, accounting services, consulting, research services

Business products

Raw materials: basic natural materials that become part of a finished product. They are purchased in very large quantities based on specifications or grades.

Component parts: finished items that become part of a larger finished product. They are purchased based on specifications or industry standards.

Process materials: finished products that become unidentifiable upon their inclusion in the finished product.

Maintenance, repair, and operating products: products that are used in business processes or operations but do not become part of the finished product.

Installations: major purchases, typically of a physical nature, that are based on customized solutions including installation/construction, training, financing, maintenance, and repair.

Business services: intangible products that support business operations. These purchases often occur as a part of outsourcing decisions.

Question 17

What does the product portfolio mean?

Answer 17

• Product line
  
  • Group of closely related product items
• Product mix or portfolio
  
  • Total group of products offered by the firm
• Critical strategic decisions
  
  • Width or variety of product mix, which refers to the number of product lines offered
  • Assortment or depth of each product line

Most firms sell a variety of products to fulfill a variety of different needs. The products sold by a firm can be described with respect to product lines and product mix or portfolio. A product line consists of a group of closely related product items. For example, Proctor & Gamble sells a number of famous brands in its Fabric and Home Care line, including Tide, Dawn, and Cascade.

A firm’s product mix or portfolio is the total group of products offered by the company. For example, Proctor & Gamble’s entire product mix consists of Beauty, Hair, and Personal Care product; Baby, Feminine, and Family Care products; and Health and Grooming products in addition to the products in its Fabric and Home Care line.

Critical strategic decisions: (1) by offering a wide variety of product lines, the firm can diversify its risk across a portfolio of product offerings. Also, a wide product mix can be used to capitalize on the strength and reputation of the firm; (2) Firms can attract a wide range of customers and market segments by offering a deep assortment of products in a specific line. Each brand or product in the assortment can be used to fulfill different customer needs (e.g., Hilton, Inc.: Hilton, Hilton Garden Inn, Hampton Inn, Conrad, and Embassy Suits).

Question 18

What are potential benefits (5 of them) of offering a large product portfolio?

Answer 18

• Economies of scale
  
  • Offering many different product lines can create economies of scale in production, bulk buying, and promotion.
• Package uniformity
  
  • All packages in a product line have the same look and feel.
• Standardization
  
  • Product lines can use the same component parts.
• Sales and distribution efficiency
  
  • Sales personnel can offer a full range of choices and options to customers.
• Equivalent quality beliefs
  
  • Customers expect and believe that all products in a line are equal in terms of quality and performance.

Although offering a large portfolio of products can make the coordination of marketing activities more challenging and expensive, it also creates the above important benefits.

Question 19

What are unique characteristics of services and resulting marketing challenges?

Answer 19

• Intangibility
• Simultaneous production and consumption
• Perishability
• Heterogeneity
• Client-based relationships

It is important to remember that products can be intangible services and ideas as well as tangible goods. Service firms (e.g., hotels, hospitals, hair stylists, nonprofit organizations, governmental agencies) develop and implement marketing strategies designed to match their portfolio of intangible products to the needs of target markets. Here are five unique characteristics of services and resulting marketing challenges:

1. Intangibility: (1) it is difficult for customers to evaluate quality, especially before purchase and consumption; (2) it is difficult to convey service characteristics and benefits in promotion. As a result, the firm is forced to sell a promise; (3) many services have few standardized units of measurement. Therefore, service prices are difficult to set and justify.
2. Simultaneous production and consumption: (1) customers or their possessions must be present during service delivery; (2) other customers can affect service outcomes including service quality and customer satisfaction; (3) service employees are critical because they must interact with customers to deliver service; (4) converting high-contact services to low-contact services will lower costs but may reduce service quality.
3. Perishability: (1) services cannot be inventoried for later use. Therefore, unused service capacity is lost forever (unsold hotel room and flight seat); (2) service demand is very time-and-place sensitive. As a result, it is difficult to balance supply and demand, especially during periods of peak demand; (3) service facilities and equipment sit idle during periods of off-peak demand.
4. Heterogeneity: (1) service quality varies across people, time, and place, making it very difficult to delivery good service consistently; (2) there are limited opportunities to standardize service delivery; (3) many services are customized by nature. However, customization can dramatically increase the costs of providing the service.
5. Client-based relationships: (1) most services live or die by maintaining a satisfied clientele over the long term; (2) generating repeat business is crucial for the service firm’s success.

Question 20

What are issues in pricing strategy?

Answer 20

Importance of Pricing Strategy

1. Relation to revenue equation (revenue = price × quantity sold)
2. Easily changeable marketing variable
3. Important consideration in competitive intelligence
4. Only real means of differentiation in highly commoditized markets

There is no other component of the marketing program that firms become more infatuated with than pricing. There are at least four reasons for this attention:

1. There are only two ways for a firm to grow revenue: increase prices or increase the volume of product sold.
2. Pricing is the easiest of all marketing variables to change.
3. Firms take considerable pains to discover and anticipate the pricing strategies and tactics of other firms.
4. Price is considered to be one of the few ways to differentiate a product in commoditized and mature markets.

• Issues in Pricing Strategy: Using the Firm’s Cost Structure*
• Breakeven in units

Total Fixed Costs

Unit Price – Unit Variable Costs

• Selling price

Average Unit Cost

1 – Markup Percent (decimal)

A firm that fails to cover both its direct costs (e.g., finished goods/components, materials, supplies, sales commission, transportation) and its indirect costs (e.g., administrative expenses, utilities, rent) will not make a profit. A popular way to associate costs and prices is through breakeven pricing as indicated above.

Cost-plus pricing is another strategy that is commonly used in retailing. As indicated above, the firm sets prices based on average unit costs and its planned markup percentage.

However, a firm’s cost structure should not be the driving force behind pricing strategy because different firms have different cost structures.

Issues in Pricing Strategy: Perceived Value

• Value
  
  • Customer’s subjective evaluation of benefits relative to costs
  • Helps determine worth of a firm’s product-offering relative to other product offerings
  • Intricately tied to all marketing program elements
  • Key factor in customer satisfaction and retention
• Customer benefits
  
  • Everything customers obtain from an offering
• Customer costs
  
  • Everything the customer must give up

Value can be defined as a customer’s subjective evaluation of benefits relative to costs to determine the worth of a firm’s product offering relative to other product offerings. A simple formula: Perceived Value = Customer Benefits / Customer Costs

Value is a key component in setting a viable pricing strategy. In fact, value is intricately tied to every element in the marketing program and is a key factor in customer satisfaction and retention.

Issues in Pricing Strategy: Price/Revenue Relationship

• Myth #1 - When business is good, a price cut will capture greater market share
• Myth #2 - When business is bad, a price cut will stimulate sales
• Price cutting should be offset by increase in sales volume to maintain revenue level
• To stimulate sales and revenue, build value into the product offering at the same, or even a higher price

Virtually all firms face intense price competition from their rivals, which tends to hold prices down. Although it is natural for firms to see price-cutting as a viable means of increasing sales, all price cuts affect the firm’s bottom line. There are two general pricing myths:

1. Myth #1: When business is good, a price cut will capture greater market share.
2. Myth #2: When business is bad, a price cut will stimulate sales.

However, the reality is that any price cut must be offset by an increase in sales volume just to maintain the same level of revenue. It is often better for a firm to find ways to build value into the product and justify the current price, or even a higher price, rather than cut the price.

Description of Common Pricing Objectives

• Profit-oriented: designed to maximize price relative to competitors’ prices, the product’s perceived value, the firm’s cost structure, and production efficiency. Profit objectives are typically based on a target return, rather than simple profit maximization.
• Volume-oriented: sets prices to maximize dollar or unit sales volume. This objective sacrifices profit margin in favor of high product turnover.
• Market demand: sets prices in accordance with customer expectations and specific buying situations. This objective is often known as “charging what the market will bear.”
• Market share: designed to increase or maintain market share regardless of fluctuations in industry sales. Market share objectives are often used in the maturity stage of the product life cycle.
• Cash flow: designed to maximize the recovery of cash as quickly as possible. This objective is useful when a firm has a cash emergency or when the product life cycle is expected to be quite short.
• Competitive matching: designed to match or beat competitors’ prices. The goal is to maintain the perception of good value relative to the competition.
• Prestige: sets high prices that are consistent with a prestige of high-status product. Prices are set with little regard for the firm’s cost structure or the competition.
• Status quo: maintains current prices in an effort to sustain a position relative to the competition.

Pricing objectives must be realistic, measurable, and attainable. Firms make money on profit margin, volume, or some combination of the two. A firm’s pricing objectives will always reflect this market reality. A firm’s pricing objectives will always reflect this market reality.

Issues in Pricing Strategy: Price Elasticity

• Customers’ sensitivity to changes in price
• Relative impact on the demand for a product
• Specific increases or decreases in the price charged for that product is given
• Situations that increase price elasticity:
  
  • Availability of substitute products
  • Higher total expenditure
  • Noticeable price differences
  • Easy price comparisons
• Situations that decrease price elasticity:
  
  • Lack of substitutes
  • Real or perceived necessities
  • Complementary products
  • Perceived product benefits
  • Situational influences
  • Product differentiation

Price elasticity refers to customers’ responsiveness or sensitivity to changes in price. A more precise definition defines elasticity as the relative impact on the demand for a product, given specific increases or decreases in the price charged for that product.

Firms cannot base prices solely on price elasticity calculations because they will rarely know the elasticity for any product with great precision over time.

Since the same product can have different elasticities in different times, places, and situations, firms often consider price elasticity in regard to differing customer behavior patterns or purchase situations.

Question 21

What does price elasticity mean?

Answer 21

Price elasticity refers to customers’ responsiveness or sensitivity to changes in price. A more precise definition defines elasticity as the relative impact on the demand for a product, given specific increases or decreases in the price charged for that product.

Question 22

What are situations that higher price elasticity and situations that lower price elasticity?

Answer 22

Increase

• Availability of substitute products
• Higher total expenditure
• Noticeable price differences
• Easy price comparisons

1. Availability of substitute products: when customers can choose among a number of different substitutes, they will be much more sensitive to price differences. This situation occurs very frequently among name-brand products and in markets where product offerings have become commoditized, such as airlines.
2. Higher total expenditure: As a general rule, the higher the total expense, the more elastic the demand for that product will be. This effect is actually easier to see if we look at a low-priced product (e.g., A 20% increase in the price of a newspaper, from $1.00 to $1.20 would not have a large impact on demand).
3. Noticeable price differences: Products having heavily promoted prices tend to experience more elastic demand. For example, an increase of 3 cents per gallon is only 45 cents more on a 15-gallon fill-up. However, many customers will drive several miles out of their way to find a lower price (often spending more in gas consumption than they save). Noticeable price differences sometimes occur at specific pricing thresholds. For example, many customers will not notice price increases until gas reaches $4.00 per gallon. At this price, these customers suddenly move from an inelastic mindset to an elastic mindset. The move from $3.80 to $3.90 may not have an impact on these customers, but the jump from $3.90 to $4.00 totally changes their mental framework.
4. Easy price comparisons: Regardless of the product or product category, customers will become more price sensitive if they can easily compare prices among competing products.

Decrease

• Lack of substitutes
• Real or perceived necessities
• Complementary products
• Perceived product benefits
• Situational influences
• Product differentiation
• Lack of substitutes: when customers have few choices in terms of substitutes, they will be much less sensitive to price. Also, the more unique or specialized the product, the more customers will pay for it.
• Real or perceived necessities: Food, water, medical care, and prescription drugs have extremely inelastic demand because customers have real or perceived needs for them. Some product categories are price inelastic because customers perceive those products as true necessities. It matters little whether a customer truly has a need for a specific product.
• Complementary products: complementary products have an effect on the price sensitivity of related products. If the price of one product falls, customers will become less sensitive to the price of complementary products. For instance, when the price of a cruise goes down, the price of shore excursions becomes more inelastic. With more travelers on board, and each having more money to spend, excursion operators realize that travelers are less sensitive to the prices they charge.
• Perceived product benefits: For some customers, certain products are just worth the price. For these purchases, the phrase “expensive but worth it” comes to mind, such as fine wines, imported coffee, or gourmet chocolates. Since these products do not comprise the bulk of our purchasing activities, customer rarely notice, or simply ignore, price increases.
• Situational influences: the circumstances surrounding a purchase situation can vastly alter the price elasticity for a product. Many of these situational influences occur because time pressures or purchase risk increase to the point that an immediate purchase must be made (e.g., emergencies). Other common situational influences revolve around purchase risk, typically the social risk involved in making a bad decision. In a general sense, customers tend to be much less price sensitive when they purchase items for others or for gift giving.
• Product differentiation: Differentiation reduces the number of perceived substitutes for a product. Product differentiation does not have to be based on real differences to make customers less price sensitive. Many times the differences are perceptual. For example, blindfolded, a person may not know the difference between Pepsi and Coke, but consumers do not buy or consume soft drinks blindfolded. The look of the can, the advertising, and prior experiences all come together to differentiate the product. In a strategic sense, product differentiation is the best way to ensure that customers are not sensitive to price changes. The ultimate goal of this effort is to differentiate the product so well that customers perceive that no competing product can take its place. When this happens, customers will become brand loyalty and the demand for the product will become very inelastic.

Question 23

What are base pricing strategies?

Answer 23

• Price skimming: occurs when a firm intentionally sets a high price relative to the competition.
• Price penetration: occurs when a firm sets a relatively low initial price to maximize sales, gain widespread market acceptance, and capture a large market share quickly.
• Prestige pricing: setting prices at the top end of all competing products in a category to promote an image of exclusivity and superior quality.
• Value-based pricing (EDLP): setting reasonably low prices, but still offering high quality products and adequate customer services.
• Competitive matching: focuses on matching competitors’ prices and price changes.
• Non-price strategies: building a marketing program around factors other than price.

A firm’s base pricing strategy establishes the initial price and sets the range of possible price movements throughout the product’s life cycle. The above strategies are the base pricing approaches.

Question 24

How can we adjust the base price?

Answer 24

• Discounting: using sales or other temporary price reductions to attract customers and create excitement.
• Reference pricing: comparing the actual selling price to an internal or external reference price.
• Price lining: occurs when a firm creates lines of products that are similar in appearance and functionality but are offered with different features and at different price points.
• Odd pricing: prices are rarely set at whole, round numbers.
• Price bundling: bringing together two or more complementary products for a single price.

The above are about how to adjust base prices in consumer markets.

1. Discounting: customers love a sale, and that is precisely the main benefit of discounting. Virtually all firms, even those using value-based pricing, will occasionally run special promotions or sales to attract customers and create excitement.
2. Reference pricing: as an example, consumers’ experiences have given them a reasonable expectation of how much to pay for a combo meal at McDonald’s (internal reference). In other cases, the firm will state a reference price, such as “Originally $99, Now $49” (external reference). These comparisons make it easier for customer to judge prices prior to purchase.
3. Price lining: this strategy, where the price of a competing product is the reference price, takes advantage of the simple truth that some customers will always choose the lowest-priced or highest-priced product. For example, Sony can cut a few feature off its top-of-the-line Model A1 digital camcorder, and Model B2 can be on the shelf at $799 rather than the original $999. Cut a few more features and the price can drop to $599 for Model C3. Here, each model in the Sony line establishes reference prices for the other models in the line.
4. Odd pricing: for example, the concert tickets are $49.95, the breakfast special is $3.95, and the gallon of gas is $2.799. The prevalence of odd pricing is based mostly on psychology: Customer perceive that the seller did everything possible to get the price as fine (and thus as low) as he or she possibly could.
5. Price bundling: at its best, the bundled price is less than if a company sold the products separately. Slow moving items can be bundled with hot sellers to expand the scope of the product offering, build value, and manage inventory.

Question 25

What are pricing strategies in business markets?

Answer 25

• Trade discounts: manufacturers will reduce prices for certain intermediaries in the supply chain based on the functions that the intermediary performs.
• Discounts and allowances: business buyers can take advantage of sales and other price breaks including discounts for cash, quantity or bulk discounts, seasonal discounts, or trade allowances for participation in advertising or sales support programs.
• Geographic pricing: selling firms often quote prices in terms of reductions or increases based on transportation costs or the actual physical distance between the seller and the buyer.
• Transfer pricing: transfer pricing occurs when one unit in an organization sells products to another unit.
• Barter and countertrade: in business exchanges across national boundaries, companies sometimes use products, rather than cash, for payments.
• Price discrimination: it occurs when firms charge different prices to different customers. When this situation occurs, firms set different prices based on actual cost differences in selling products to one customer relative to the costs involved in selling to other customers.

The above are about how to adjust base prices in business markets.

• Trade discounts: in general, discounts are greater for wholesalers than for retailers because the manufacturer wants to compensate wholesalers for the extra functions they perform, such as selling, storage, transportation, and risk taking.
• Geographic pricing: the most common examples of geographic pricing are uniform delivered pricing (same price for all buyers regardless of transportation expenses) and zone pricing (different prices based on transportation to redefined geographic zones).
• Barter and countertrade: Barter involves the direct exchange of goods or services between two firms or nations. Countertrade refers to agreements based on partial payments in both cash and products, or to agreements between firms or nations to buy goods and services from each other.
• Price discrimination: it is a viable technique because the costs of selling to one firm are often much higher than selling to others.

Question 26

What is supply chain strategy?

Answer 26

• Marketing channels
  
  • Organized system of marketing institutions
  • Facilitate flow of products, resources, information, funds, or product ownership from point of production to final user
• Physical distribution
  
  • Coordinating flow of information and products among members of the channel
  • Helps ensure that products are available in right places, in right quantities, at right times, and in a cost-efficient manner
• Supply chain
  
  • Connection and integration of all members of the marketing channel

Supply chain management is essentially invisible to customers because the process occurs behind the scenes. Customers take these processes for granted and only notice interruptions of the supply chain. The picture is drastically different from the firm’s perspective. Supply chain concerns now rank at the top of the list for achieving a sustainable advantage and true differentiation in the marketplace. Supply chain management consists of two interrelated components:

1. Marketing channels: an organized system of marketing institutions, through which products, resources, information, funds, and/or product ownership flow from the point of production to the final user.
2. Physical distribution: coordinating the flow of information and products among members of the channel to ensure the availability of products in the right places, in the right quantities, at the right times, and in a cost- efficient manner.

The term supply chain expresses the connection and integration of all members of the marketing channel. Creating an extended enterprise requires investments in and commitment to three key factors: connectivity, community, and collaboration (described in the next slide). The goal of channel integration is to create a seamless network of collaborating suppliers, vendors, buyers, and customers.

Question 27

What are strategic supply chain issues with marketing channel functions?

Answer 27

• Basic benefit is contact efficiency
• Marketing channel functions
  
  1. Sorting
  2. Breaking bulk
  3. Maintaining inventories
  4. Maintaining convenient locations
  5. Provide services
• All functions must be performed regardless of who does them

The importance of the supply chain ultimately comes down to providing time, place, and possession utility for consumer and business buyers. However, the expense of distribution requires that firms balance customers’ needs with their own need to minimize costs. There are give marketing channel functions

1. Sorting: manufacturers make one or a few products while customers need a wide variety and deep assortment of different products. Intermediaries overcome this discrepancy of assortment.
2. Breaking bulk: manufacturers produce large quantities of a product; however, customers typically want only one of a particular item. Intermediaries-particularly retailers-overcome this discrepancy of quantity.
3. Maintaining inventories: manufacturers cannot make products on demand, so the channel must store products for future purchase and use. Intermediaries overcome this temporal (time) discrepancy. This issue does not apply to services.
4. Maintaining convenient locations: since manufacturers and customers have a geographic separation, the channel must overcome this spatial discrepancy.
5. Provide services: channels add value to products by offering facilitating services and standardizing the exchange process.

With the exception of highly tangible services, the fulfillment of these functions occurs in every marketing channel. Also, these functions must be fulfilled in order for the channel to operate effectively. It does not matter which intermediary performs these functions; the fact remains that they must be performed.

Question 28

What are strategic supply chain issues with marketing channel structure?

Answer 28

• Exclusive distribution
  
  • Giving one merchant or outlet sole right to sell a product within a defined geographic region
• Selective distribution
  
  • Giving several merchants or outlets the right to sell a product within a defined geographic region
• Intensive distribution
  
  • Making a product available to maximum number of merchants or outlets
  • Helps gain exposure and enhance sales opportunities

Marketing channel strategies are complex and very costly to implement. However, a good distribution strategy is essential for success because once a firm selects a channel and makes commitments to it, distribution often becomes highly inflexible due to long-term contracts, sizable investments, and commitments among channel members. There are three basic structural options for distribution in terms of the amount of market coverage and level of exclusivity between vendor and retailer:

• Exclusive distribution: the most restrictive type of market coverage, occurs when a firm gives one merchant or outlet the sole right to sell a product within a defined geographic region.
• Selective distribution: a somewhat restrictive type of market coverage, occurs when a firm gives several merchants or outlets the right to sell a product in a defined geographic region.
• Intensive distribution: the least restrictive type of market coverage, occurs when a firm makes a product available in the maximum number of merchants or outlets in each area to gain as much exposure and as many sales opportunities as possible.

Question 29

What are sources of power in a supply chain?

Answer 29

• Basis of conflict in the supply chain:
  
  • Each firm is different and has its own goals and objectives
  • Mutual interdependence goes against natural tendency of firms to seek their own self-interests
• Sources of power in a supply chain:
  
  • Legitimate power
  • Reward power
  • Coercive power
  • Information power
  • Referent power

True supply chain integration requires a fundamental change in how channel members work together, including moving from a “win-lose” competitive attitude to a “win-win” collaborative approach. Each firm in a supply chain has its own mission, goals, objectives, and strategies. It is not surprising that firms often assess their own interests before considering others in the supply chain.

Power can be defined as the influence one channel member has over others in the supply chain.

• Legitimate power deals with the firm’s position in the supply chain—this power balance shifted to large retailers in the 1990s.
• Reward power involves the ability to help other parties reach their goals and objectives.
• Coercive power stems from the ability to take positive outcomes away from other channel members, or the ability to inflict punishment on other channel members.
• Information power comes from having and sharing knowledge among members of the supply chain.
• Referent power is based in personal relationships and the fact that one party likes another party.

Today, discount mass merchandise retailers—like Walmart, Costco, and Target hold the power in most consumer channels. Manufacturers typically must pay hefty fees, called slotting allowances, just to get a single product placed on store shelves.

Question 30

What are outsourcing channel functions?

Answer 30

• Outsourcing channel functions – _{Outsourcing has traditionally been used as a way of cutting expenses associated with labor, transportation, or other overhead costs. Today, the desire of many firms to focus on core competencies drives outsourcing decisions. Many firms have shifted to offshoring their own activities (rather than outsourcing) to maintain some control over operations. Information technology is the primary activity outsourced today.}
  
  • Outsourcing versus offshoring

Question 31

What is the AIDA model?

Answer 31

• AIDA model – The classic model for outlining promotional goals is the AIDA model:
  
  • Attention: the first major goal of any promotional campaign is to attract the attention of potential customers.
  • Interest: the firm must spark interest in the product by demonstrating its features, uses, and benefits.
  • Desire: good promotion will stimulate desire by convincing potential customers of the product’s superiority and its ability to satisfy needs.
  • Action: promotion must push customers toward the actual purchase

Ultimately, the goals and objectives of any promotional campaign culminate in the purchase of goods or services by the target market. The classic model for outlining promotional goals and achieving this ultimate outcome is the AIDA Model (Attention, Interest, Desire, and Action). For more detailed descriptions of each component, please refer to the memo in this slide.

Question 32

What do pull strategy and push strategy mean?

Answer 32

• Promotional goals regarding supply chain
  
  • Pull strategy - Focus promotional efforts toward stimulating consumer demand
  • Push strategy - Focus promotional efforts toward supply chain

Pull Strategy: firms use a pull strategy when they focus their promotional efforts toward stimulating demand among final customers, who then exert pressure on the supply chain to carry the product.

Push strategy: firms use a push strategy when they focus their promotional efforts on members of the supply chain to motivate them to spend extra time and effort on selling the product.

The firm must also consider its promotional goals with respect to the supply chain, such as pull strategy and push strategy. For more detailed description of each, please refer to the other memo in this slide.

Question 33

What are public relations methods?

Answer 33

• News (or press) releases – _{They are used to draw attention to a company event, product, or person affiliated with the firm. News releases can be submitted to newspapers, magazines, television contacts, suppliers, key customers, or even the firm’s employees.}
• Feature articles – _{They are full-length stories prepared for a specific purpose or target audience. Feature articles typically focus on the implications or economic impact of a firm’s actions. They are also very useful when responding to negative events or publicity.}
• White papers – _{They are similar to feature articles; however, they are more technical and focus on very specific topics of interest to the firm’s stakeholders. White papers promote a firm’s stance on important product or market issues and can be used to promote the firm’s own products and solutions. White papers have been used extensively in the information technology field where firms continually work to establish standards and keep up with standards and keep up with technological innovation.}
• Press conferences – _{They are a meeting with news media called to announce or respond to major events. Multimedia materials may be distributed to broadcast stations in hopes that they will air some of the activities that occurred at the press conference. Firms typically hold press conferences when announcing new products, patents, mergers or acquisitions, philanthropic efforts, or internal administrative changes.}
• Event sponsorship – _{It has become an entire industry in itself. Sponsorships can range from local events to international events. Another popular sponsorship strategy involves the naming of sports stadiums and venues.}
• Employee relations – _{They are every bit as important as public and investor relations. Employee relations’ activities provide organizational support for employees with respect to their jobs and lives. Employee relations can encompass many different activities including internal newsletters, training programs, employee assistance programs, and human resource programs.}

Firms use a number of public relation methods to convey messages and to create the right attitudes, images, and opinions. Public relations is sometimes confused with publicity. Although publicity is one part of public relations, it is more narrowly defined to include the firm’s activities designed to gain media attention through articles, editorials, or news stories. By encouraging the media to report on a firm’s accomplishments, publicity helps maintain positive public awareness, visibility, and a desired image. Publicity can be used for a single purpose, such as to launch a new product or diminish the public’s opinion regarding a negative event, or it can be used for multiple purposes to enhance many aspects of the firm’s activities. Having a good publicity strategy is important because publicity can have the same effect as advertising, though typically with greater credibility. For more detailed descriptions about each method, please refer to memos in this slide.

Question 34

Single segment targeting

Answer 34

firms use single segment targeting when their capabilities are intrinsically tied to the needs of a specific market segment.

Question 35

Selective targeting

Answer 35

firms that have multiple capabilities in many different product categories use selective targeting successfully. This strategy has several advantages, including diversification of the firm’s risk and the ability to cherry pick only the most attractive market segments.

Question 36

Mass market targeting

Answer 36

only the largest firms have the capability to execute mass market targeting, which involves the development of multiple marketing programs to serve all customer segments simultaneously.

Question 37

Market specialization

Answer 37

firms engage in market specialization when their intimate knowledge and expertise in one market allows them to offer customized marketing programs that not only deliver needed products, but also provide needed solutions to customers’ problems.

Question 38

Product specialization

Answer 38

firms engage in product specialization when their expertise in a product category can be leveraged across many different market segments.

Question 39

What are the characteristics of personal selling?

Answer 39

• Paid personal communication
  
  • Informs customers about offerings and persuades them to buy
• Most precise form of communication, but has very high cost per contact
• Goals vary based on role in the IMC strategy
• Has evolved to take on elements of customer service and marketing research
• Frontline knowledge held by the sales force is one of the most important assets of the firm

Personal selling is paid personal communication that attempts to inform customers about products and persuade them to purchase those products. Compared to other types of promotion, personal selling is the most precise form of communication because it assures companies that they are in direct contact with an excellent prospect. The most serious drawback of personal selling is the cost per contact. Because firms depend on repeat sales and ongoing customer relationships, personal selling activities must include elements of customer service and marketing research.

Question 40

What are the characteristics of sales promotion?

Answer 40

• Accounts for the bulk of promotional spending in many firms
• Activities that create buyer incentives to purchase a product
  
  • Add value for buyer or the trade
• Universal goal
  
  • To induce product trial and purchase
• Used to support other promotional activities rather than as a stand-alone promotional element

Despite the attention paid to advertising, sales promotion activities account for the bulk of promotional spending in many firms. This is especially true for firms selling consumer products in grocery stores and mass-merchandise retailers where sales promotion can account for up to 70 percent of the firm’s promotional budget. Sales promotion involves activities that create buyer incentives to purchase a product or that add value for the buyer or the trade. Sales promotion can be targeted toward consumers, channel intermediaries, or the sales force.

Roughly a third of all sales promotion expenditures are targeted toward the trade (wholesalers and retailers). Direct main comprises the next largest expense at between 15 and 20 percent. Regardless of the activity and toward whom it is directed, sales promotion has one universal goal: to induce product trial and purchase.

Most firms use sales promotion in support of advertising, public relations, or personal selling activities rather than as a stand-alone promotional element. Advertising is frequently coordinated with sales promotion activities to provide free product samples, premiums, or value-added incentives.

Question 41

Buying center

Answer 41

the groups of people responsible for making purchase decisions. It can be complex and idfficult to identify, in part because it may include three distinct groups of people: 1) economic buyers, 2) technical buyers, 3) users

Question 42

Economic buyers

Answer 42

senior managers with the overall responsibility of achieving the buying firm’s objectives. In recent years, economic buyers have become increasingly influential as price has become less important in determining a product’s true value to the firm.

Question 43

Technical buyers

Answer 43

Employees with the responsibility of buying products to meet needs on an ongoing basis, including purchasing agents and materials managers. These buyers have the responsibility of narrowing the number of product options and delivering buying recommendations to the economic buyer that are within budget.

Question 44

Users

Answer 44

managers and employees who have the responsibility of using a product purchased by the firm comprising the last grou of people in the buying center. The user is often not the ultimate decision maker, but frequently has a place in the decision process.

Question 45

What are types of consumer products? (4 of them)

Answer 45

Convenience products - Soft drinks, candy and gum, gasoline, dry cleaning – Inexpensive, routinely purchased products that consumers spend little time and effort in acquiring.

Shopping products – Appliances, furniture, clothing, vacations – Products that consumers will spend time and effort to obtain. Consumers shop different options to compare prices, features, and service.

Speciality products – Antiques, sports memorabilia, plastic surgery, luxury items – Unique, one-of-a-kind products that consumers will spend considerable time, effort, and money to acquire.

Unsought products - Emergency medicine, repair services, insurance – Products that consumers are unaware of or a finished product that consumers do not consider purchasing until a need arises.

Question 46

What are types of business (6 of them) products?

Answer 46

Raw materials: basic natural materials that become part of a finished product. They are purchased in very large quantities based on specifications or grades.

Component parts: finished items that become part of a larger finished product. They are purchased based on specifications or industry standards.

Process materials: finished products that become unidentifiable upon their inclusion in the finished product.

Maintenance, repair, and operating products: products that are used in business processes or operations but do not become part of the finished product.

Installations: major purchases, typically of a physical nature, that are based on customized solutions including installation/construction, training, financing, maintenance, and repair.

Business services: intangible products that support business operations. These purchases often occur as a part of outsourcing decisions.

Question 47

What are the 5 stages of buyer behavior in consumer markets?

Answer 47

1) Need recognition
2) Information search
3) Evaluation of alternatives
4) Purchase decision
5) Postpurchase evaluation

Question 48

Discounting

Answer 48

A way to adjust the base price. using sales or other temporary price reductions to attract customers and create excitement.

Question 49

Reference pricing

Answer 49

A way to adjust the base price. Comparing the actual selling price to an internal or external reference price.

Question 50

Price lining

Answer 50

A way to adjust the base price. Occurs when a firm creates lines of products that are similar in appearance and functionality but are offered with different features and at different price points.

Question 51

Odd pricing

Answer 51

A way to adjust the base price. Prices are rarely set at whole, round numbers.

Question 52

Price bundling

Answer 52

A way to adjust the base price. Bringing together two or more complementary products for a single price.