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MKTG
101
Final
Lecture
1:
Introduction
- Four
Ps
marketing
mix
o Product
o Promotion
o Price
o Place
- Five
Cs
of
marketing
o Company
o Customers
o Competitors
o Collaborators
o Context
- Evolution
of
marketing
o Product
orientation
(prior
to
1950):
build
a
better
product
and
people
will
want
to
buy
it
o Sales
orientation
(1950
1960):
lets
make
people
want
our
product;
madmen
o The
classic
marketing
concept
(1970):
competitors
have
same
insights
how
do
we
get
ahead?
Desires
of
customers
should
guide
actions
Product
and
demand
oriented
o Competitor
orientation
(1980s):
competitive
actions
and
reactions
o Relationship
management
(CRM):
long
term
relationships
with
customers
because
customers
derive
value
from
firm
relationships
o Customer
centricity/value
marketing
era:
value,
service,
solving
customer
problems,
loyalty,
long-term
approach,
customer
lifetime
value
(CLV)
Marketing
Math
- Case
steps:
(1)
identify
the
core
problem,
(2)
analyze
the
problem,
(3)
evaluate
&
decide,
(4)
summary
- Unit
contribution
=
Revenue
per
unit
Variable
costs
per
unit
=
R(per
unit)
VC(per
unit)
o Variable
costs:
manufacturing,
shipping,
sales
commissions
o Fixed
costs:
executive
salaries,
rent,
insurance,
overhead
expenses
- Profit
Margin
=
Unit
contribution
/
Revenue
per
Unit
o Percent
of
selling
price
associated
with
profit
o Retail
price:
charged
to
the
consumer
o Manufacturer
price:
wholesale
price
o Manufacturer
variable
costs:
costs
of
production
- Break-Even
Volume
=
Fixed
Costs
/
Unit
Contribution
o Number
of
units
you
need
to
produce
to
cover
total
fixed
costs
o Use
BEV
to
make
decisions
about
new
investments
o If
youre
going
to
make
profits
>
0,
do
it
but
dont
accept
the
project
at
breakeven
o Default
time
frame
is
one
year
- Market
share
o Sales/Revenue
market
share:
the
percentage
of
sales
accounted
for
by
that
firm,
within
the
product
category
Firm
Sales/Total
Market
Sales
o Volume
market
share:
the
percentage
of
units
accounted
for
by
that
firm
within
the
product
category
Firm
Units
Sold/Total
Market
Units
Sold
o Customer
market
share:
percentage
of
customers
the
firm
has
relative
to
total
customers
Firm
customers/Total
customers
- Profit
Impact
=
(Unit
Contribution*Units
Sold)
Fixed
Costs
-
-
-
-
o Impact of product on company profits
o How many units must be made/sold to achieve a specific profit impact
Customer Lifetime Value (CLV) = Annual Profit Per Customer * Years as a customer
o The value of the entire stream of purchases that the customer would make over a lifetime of
patronage
o Annual profit per customer: avg amount that a typical customer would spend with the
business, with expenses subtracted (Unit Contribution * Units per customer per year)
o Not all customers stay with the product the same length of time or have the same annual
profit (retention rate)
o Does not account for (1) discounting profits over time, (2) retention rate (morality/attrition),
(3) segments with different values/lifetimes
o margin(retention rate / (1+discount rate-retention rate))
Opportunity costs: must deliver value above the opportunity cost to be acceptable but not included
when assessing absolute profitability of a course of action
Sunk costs: market research and R&D expenses
Premium: percentage of manufacturer price that is added to the retail price (rev-cost / cost)
Return on investment: ratio of net profit to the investment used to make the net profit
CHAPTER
1:
Marketings
Value
to
Consumers,
Firms,
and
Society
Marketing
Whats
it
all
about
- Marketing
is
much
more
than
selling
or
advertising
- Production:
actually
making
goods
or
performing
services
- Marketing:
provides
needed
direction
for
production
and
helps
make
sure
that
the
right
goods
are
services
are
produced
and
find
their
way
to
consumers
- Customer
satisfaction:
the
extent
to
which
a
firm
fulfills
a
customers
needs,
desires
and
expectations
Marketing
is
important
to
you
- Marketing
is
important
to
every
consumer
and
affects
almost
every
aspect
of
life
- In
advanced
economies,
marketing
costs
about
50
cents
of
every
consumer
dollar
- Marketing
encourages
research
and
innovation,
the
development
and
spread
of
new
ideas,
goods
and
services
How
should
we
define
marketing?
- Marketing
is
a
set
of
activities
done
by
an
individual
organization
to
satisfy
its
consumers
- We
can
view
marketing
in
two
ways:
o From
a
micro
view,
as
a
set
of
activities
performed
by
organizations
o Macro
view,
as
a
social
process
(what
people
usually
think
of)
- Marketing:
performance
of
activities
that
seek
to
accomplish
an
organizations
objectives
by
anticipating
customer
or
client
needs
and
directing
a
flow
of
need-satisfying
goods
and
services
from
producer
to
customer
or
client
- Applies
to
both
profit
and
nonprofit
organizations
- Identify
consumer
needs
and
meet
them
so
well
that
the
product
almost
sells
itself
- Marketing
involves
the
facilitation
of
exchanges
- Pure
subsistence
economy:
each
family
unit
produces
everything
it
consumes
- Marketing
exchange
is
part
of
an
ongoing
relationship
- Macro-marketing:
social
process
that
directs
an
economys
flow
of
goods
and
services
from
producers
to
consumers
in
a
way
that
effectively
matches
supply
and
demand
and
accomplishes
the
objectives
of
society
o How
the
whole
marketing
system
works
and
affects
society
o More
difficult
in
an
advanced
society
because
consumers
and
producers
and
more
separated
Discrepancies
of
Quantity:
Producers
prefer
to
produce
and
sell
in
large
quantities.
Consumers
prefer
to
buy
and
consume
in
small
quantities.
Discrepancies
of
Assortment:
producers
specialize
in
producing
a
narrow
assortment
of
goods
and
services,
consumers
need
a
broad
assortment.
o Separations:
-Spatial
separation:
producers
tend
to
locate
where
it
is
economical
to
produce,
while
consumers
are
located
in
many
scattered
places.
-
-Separation
in
Time:
consumers
may
not
want
to
consume
goods
and
services
at
the
time
producers
would
prefer
to
produce
them,
and
time
may
be
required
to
transport
goods
from
producer
to
consumer.
-
-Separation
in
Information;
producers
do
not
know
who
needs
what,
where,
when,
and
at
what
price.
Consumers
do
not
know
what
is
available
from
whom,
where,
when,
and
at
what
price.
-
-Separation
in
Values:
Producers
value
goods
and
services
in
terms
of
costs
and
competitive
prices.
Consumers
value
them
in
terms
of
satisfying
needs
and
their
ability
to
pay.
-
-Separation
of
Ownership:
producers
hold
title
to
goods
and
services
that
they
themselves
do
not
want
to
consume.
Consumers
want
goods
and
services
that
they
do
not
own.
- Economics
of
scale:
companies
produce
larger
numbers
of
a
particular
product
so
the
cost
of
the
product
goes
down
- Universal
functions
of
marketing:
buying,
selling,
transporting,
storing,
standardization
and
grading,
financial
risk
taking,
market
information
o All
exchanges
require
buying
and
selling
Buying
function:
looking
for
and
evaluating
goods
and
services
Selling
function:
promoting
the
product
Transporting
function:
movement
Storing
function
Standardization
and
grading:
sorting
products
according
to
size
and
quality
Financing:
provides
the
necessary
cash
and
credit
to
produce,
transport,
store,
promote,
sell,
and
buy
products.
Risk
taking:
bearing
uncertainties
are
part
of
marketing
process
Market
information
function:
involves
the
collection,
analysis,
and
distribution
of
all
the
information
needed
to
plan,
carry
out,
and
control
marketing
activities
- Both
producers
and
consumers
can
benefit
from
an
intermediary
or
middleman
someone
who
specializes
in
trade,
rather
than
production
- Marketing
collaborators:
firms
that
facilitation
or
provide
one
or
more
of
the
marketing
functions
other
than
buying
or
selling
- E-commerce:
exchanges
between
individuals
or
organizations
and
activities
that
facilitate
these
exchanges
based
on
applications
of
information
technology
- All
of
the
marketing
functions
must
be
performed
by
somebody
in
a
macro-marketing
viewpoint;
however,
from
a
micro
viewpoint,
not
every
firm
must
perform
all
the
functions
Role
of
marketing
in
economic
systems
- Economic
system:
the
way
an
economy
organizes
to
use
scarce
resources
to
produce
goods
and
services
and
distribute
them
for
consumption
by
various
people
and
groups
in
society
- Two
kinds
of
basic
economic
systems
o Command
economy:
government
officials
decide
what
and
how
much
is
to
be
produced
and
distributed
by
whom,
when,
to
whom
and
why
planned
economies
Producers
have
little
choice
Prices
are
set
by
government
planners
and
are
rigid
o Market-directed
economy:
individual
decisions
of
many
producers
and
consumers
make
macro-level
decisions
for
the
whole
economy
Price
is
a
measure
of
value
Greatest
freedom
of
choice
The
role
of
government
interest
rates
and
supply
of
money,
import
and
export
rules,
etc.
- Effectiveness
and
fairness
of
particular
macro-marketing
system
is
evaluated
in
terms
of
that
societys
objectives
Marketings
role
has
changed
a
lot
over
the
years
- Five
stages
in
marketing
evolution
Simple
trade
era:
families
traded
or
sold
their
surplus
out
to
local
middlemen
who
resold
the
goods
to
other
consumers
or
distant
middlemen
o Production
era:
from
the
Industrial
Revolution
to
the
1920s
company
focuses
on
production
of
a
few
specific
products
o Sales
era:
companies
emphasize
selling
because
of
increased
competition
(1930
1950)
o Marketing
department
era:
all
marketing
activities
are
brought
under
control
of
one
department
to
improve
short-run
policy
planning
and
to
try
to
integrate
firm
activities
o Marketing
company
era
(1960+):
in
addition
to
short-run
marketing
planning,
marketing
people
develop
long-range
plans
and
the
whole
company
effort
is
guided
by
the
marketing
concept
What
does
the
marketing
concept
mean?
- Marketing
concept:
organization
aims
all
its
efforts
at
satisfying
its
customers
at
a
profit
o Customer
satisfaction:
give
the
customers
what
they
need
o Total
company
effort:
all
departments
should
adopt
philosophy
o Profit
as
an
objective:
the
more
you
satisfy
customers,
the
more
they
are
willing
to
pay
bottom
line
measure
of
firms
success
and
ability
to
survive
- Production
orientation:
making
whatever
products
are
easy
to
produce
and
trying
to
sell
them
- Marketing
orientation:
carrying
out
the
firms
marketing
concept
to
offer
consumers
what
they
need
Adoption
of
the
marketing
concept
has
not
been
easy
or
universal
- First
accepted
by
consumer
products
companies
like
GE
and
P&G
- Service
industries
were
slow
to
adopt
the
marketing
concept
- Easy
to
slip
into
a
production-oriented
way
of
thinking
(dot-com
bubble)
The
marketing
concept
and
customer
value
- Customer
may
look
at
market
offering
from
two
views
o Potential
benefits
of
that
offering
o What
customer
has
to
give
up
to
get
those
benefits
- Customer
value:
the
difference
between
what
the
benefits
a
customer
sees
from
a
market
offering
and
the
costs
of
obtaining
those
benefits
- Building
relationships
with
customers
requires
everyone
in
a
firm
work
together
to
provide
customer
value
before
and
after
each
purchase
The
marketing
concept
applies
in
nonprofit
organizations
- Nonprofits
face
competition
for
resources
and
support
they
need
- Must
take
in
as
much
money
as
it
spends
or
they
cant
survive
The
marketing
concept,
social
responsibility
and
marketing
ethics
- Micro-macro
dilemma:
what
is
good
for
some
firms
may
not
be
good
for
society
as
a
whole
- Social
responsibility:
a
firms
obligation
to
improve
its
positive
effects
on
society
and
reduce
its
negative
effects
- Being
more
socially
conscious
often
leads
to
positive
customer
response
but
it
can
conflict
with
a
firms
profit
objectives
- Marketing
ethics:
moral
standards
that
guide
marketing
decisions
and
actions
CHAPTER
2:
Marketing
Strategy
Planning
The
management
job
in
marketing
- Marketing
management
process:
o Planning
marketing
activities
o Directing
implementation
of
the
plans
o Controlling
these
plans
- Process
is
continuous
- Marketing
managers
must
constantly
seek
new
opportunities
- Strategic
(management)
planning:
managerial
process
of
developing
and
maintaining
a
match
between
an
organizations
resources
and
its
market
opportunities
What
is
a
marketing
strategy?
- Marketing
strategy:
specifies
a
target
market
and
a
related
marketing
mix
big
picture
of
what
a
firm
will
do
in
some
market
o
o Target market: homogenous group of customers
o Marketing mix: controllable variable company puts together to satisfy this target group
Selecting a market-oriented strategy is target marketing
- Target marketing: marketing mix is tailored to fit some specific customers (marketing-oriented
approach)
- Mass marketing: vaguely aims at everyone, assumes everyone is the same, and considers everyone to
be a target customer (production oriented approach)
- Mass marketers: different from mass marketing, aim at clearly defined markets, that happen to be
very large and spread out (Walmart, Kraft)
- Less likely to face direct competitors when you target a specific group
Developing marketing mixes for target markets
- Four Ps make up a marketing mix: product, place, promotion, price
- Customer is not part of the marketing mix it is the target of efforts in the center of the diagram
- Product: developing the right product for the target market, not limited to physical goods
- Place: reaching the target
o Channel of distribution: series of firms that participate in the flow of products from
producer to final user or consumer
- Promotion: telling and selling the customer about the right product
o Personal selling: direct spoken communication
o Customer service: personal communication between seller and customer to resolve a
problem with the purchase
o Mass selling: communicating with large numbers of customers at the same time
Advertising: any paid form of nonpersonal presentation by an identified sponsor
Publicity: any unpaid form of nonpersonal presentation
o Sales promotion: coupons, materials, samples, signs, etc.
- Price: consider competition and cost of whole marketing mix
- Dot-Com bubble: stock went up because investors expected firms would earn profits in the future as
more consumers went online, optimistic predictions about lifetime value of customers
- Selecting target market and developing marketing mix are interrelated strategies must be
evaluated against the companies objectives
- Toddler University example: shoe company, thought there was a mass market for baby shoes but he
knew there was competition so he didnt compete, identified four other different markets
o Traditionalist: well-manufactures shoes from quality stores
o Economy-Oriented: lower income group, basic and low price
o Fashion Conscious: baby shoes like the latest styles
o Attentive Parents: shoes that meet variety of functional needs
Targeting fit and functional with fashion and fun
Contracted with producer in Taiwan that improved the product
Promotion: print ads with close up babies wearing shoes
Price: $35-40 a pair, premium price
Marketing plan is guide to implementation and control
- Marketing plan: written statement of a marketing strategy and the time-related details for carrying
out the strategy, spells out the following:
o What marketing mix will be offered, to whom, and for how long
o What company resources (shown as costs) will be needed at what rate
o What results are expected
o Control procedures
- Implementation: putting marketing plan into operation
- Operational decisions: short-run decisions to help implement strategies
- Several plans are combined to make a whole marketing program for a firm
o Marketing program: blends all the firms marketing plans into one big plan
Marketing program should build on customer equity
- Customer equity: expected earnings stream (profitability) of a firms current and prospective
customers over some period of time
Marketing
manager
should
select
opportunities
and
make
choices
where
the
revenues
from
target
customers
are
greater
than
the
costs
of
acquiring
those
customers,
retaining
their
business
and
keeping
it
- Find
cost-effective
ways
to
increase
earnings
from
current
customers
while
bringing
profitable
new
customers
into
the
fold
Importance
of
marketing
strategy
planning
- Watch
industry:
o Conventional
watch-makers
aimed
for
high-priced,
high-quality
symbols
and
ignored
people
who
just
wanted
to
tell
time
o Timex
watches
become
worlds
largest
company
by
offering
lower
cost
channels
o Texas
Instruments
entered
the
market
with
low-costs
watches
and
liquid
crystal
displays
o In
1990,
economic
downturn
made
consumers
less
interested
in
high-price
watches
so
Timex
came
back
with
It
takes
a
licking
and
keeps
on
ticking
o Inexpensive
yet
durable
choice
o Timex
has
introduced
GPS,
heart
monitors,
I-control
technology,
wireless,
etc.
so
watches
must
be
constantly
updated
and
revised
with
technology
- Attractive
opportunities
for
a
firm
are
those
that
the
firm
has
a
chance
to
do
something
about
given
its
resources
and
objectives
- Breakthrough
opportunities:
opportunities
that
help
innovators
develop
hard-to-copy
marketing
strategies
that
will
be
profitable
for
a
long
time
- Competitive
advantage:
firm
has
a
marketing
mix
that
the
target
market
sees
as
better
than
a
competitors
mix
only
exists
if
firm
provides
superior
value
and
satisfies
customers
better
- Process
narrows
from
broad
opportunities
to
specific
strategy:
narrowing
down
process
- Market
segmentation
can
help
pinpoint
the
target
market
- Differentiation:
marketing
mix
is
distinct
from
and
better
than
what
is
available
at
competitor
- Screening
criteria
(qualitative
and
quantitative)
can
help
to
zero
in
on
a
strategy
- SWOT
Analysis:
useful
aid
for
strategy
identifies
the
firms
strengths,
weaknesses,
opportunities
and
threats
in
the
market
Types
of
opportunities
to
pursue
- Market
penetration:
trying
to
increase
sales
of
a
firms
present
products
in
its
present
markets
probably
through
a
more
aggressive
marketing
mix
o New
promotion
appeals
o Strengthen
customer
relationships
- Market
development:
trying
to
increase
sales
by
selling
present
products
in
new
markets
- Product
development:
offering
new
or
improved
products
for
present
markets
- Diversification:
moving
into
new
lines
of
business,
most
risky
- Greater
market
penetration
is
usually
the
opportunity
that
comes
first,
also
market
development
into
international
markets
International
opportunities
should
be
considered
- Trade
barriers
are
coming
down
and
advances
make
it
easier
to
reach
international
customers
- May
improve
economies
of
scale
Chapter
3:
Evaluating
Opportunities
in
the
Changing
Market
Environment
Cultural
and
Social
Environment:
affects
how
and
why
people
live
and
behave
as
they
do
which
affects
customer
buying
and
behavior
and
eventually
the
economic,
political,
and
legal
environments.
Gross
Domestic
Product:
is
the
total
market
value
of
all
goods
and
services
provided
in
a
countrys
economy
per
year
by
both
residents
and
nonresidents
of
that
country
Metropolitian
Statisitcal
Area:
an
integreated
economic
and
social
unit
with
a
large
popular
nucleus.
Sustainability:
the
idea
thats
its
important
to
meet
todays
needs
without
compromising
the
ability
of
future
generations
to
meet
their
needs.
Do
screens
Chapter
4:
Focusing
Marketing
Strategy
with
Segmentation
and
Positioning
Searching
for
opportunities
can
begin
by
understanding
markets
Market:
group
of
potential
customers
with
similar
needs
who
are
willing
to
exchange
something
of
value
with
sellers
offering
various
goods
or
services
- Within
a
general
market,
marketing-oriented
managers
develop
marketing
mixes
for
specific
target
markets
- Generic
market:
market
with
broadly
similar
needs
and
sellers
offer
various,
often
diverse,
ways
of
satisfying
those
needs
o Quite
different
product
types
can
compete
with
each
other
(need
for
entertainment)
- Product-market:
market
with
very
similar
needs
and
sellers
offering
various
close
substitute
ways
of
satisfying
those
needs
(need
for
a
digital
camera)
Naming
product-markets
and
generic
markets
- Complete
product-market
definition
has
four
parts
product
market
names
o What:
product
type
describes
goods
and
services
customers
want
o To
meet
what:
customer
needs
needs
the
product
type
satisfies
o For
whom:
customer
types
final
consumer
or
user
o Where:
geographic
area
where
a
firm
competes
- Generic
market
description
doesnt
include
any
product-type
terms;
consists
of
three
parts
without
the
product
type
Market
segmentation
defines
possible
target
markets
- Market
segmentation:
o Naming
broad
product-markets:
select
broad
areas
where
the
firm
has
some
resources
and
experience
o Segmenting
those
in
order
to
select
target
markets
and
develop
suitable
marketing
mixes
these
fail
when
the
mass
market
is
used
- Segmenting:
aggregating
process
clustering
people
with
similar
needs
into
a
market
segment
- Market
segment:
homogenous
group
of
customers
who
will
respond
to
a
marketing
mix
in
a
similar
way
look
for
similarities
rather
than
differences
in
needs
- Good
market
segments
o Homoegenous
within
o Heterogenous
between
o Substantial
o Operational:
segmenting
dimensions
should
be
useful
for
identifying
customers
and
deciding
on
marketing
mix
variables,
especially
important
- Three
ways
to
develop
market-oriented
strategies
in
broad
product-market
o Single
target-market
approach
o Multiple
target
market
approach:
different
marketing
mixes
o Combined
target
market
approach:
may
help
achieve
economies
of
scale
but
too
much
combining
is
risky
- Combiners:
try
to
increase
size
of
target
market
by
combining
two
or
more
segments
- Segmenters:
aim
at
one
or
more
homogenous
segments
and
try
to
develop
a
different
marketing
mix
for
each
segment
- In
general,
it
is
safer
to
be
a
segmenter
satisfy
some
customers
very
well
instead
of
many
customers
just
fairly
well
- Cost
considerations
encourage
aggregating
to
obtain
economies
of
sale
What
dimensions
are
used
to
segment
markets?
- Segmentation
dimensions
guide
marketing
mix
planning
o Behavioral
needs,
attitudes,
consumption
patterns
product,
promotion
o Urgency
to
satisfy
need
and
desire
to
shop
place
and
price
o Geographic
location,
demographics
size
of
target
markets,
promotion,
place
- Segmenting
a
broad
product
market
usually
requires
using
several
different
dimensions
at
the
same
time
- Qualifying
dimensions:
those
relevant
to
a
customer
type
in
a
product-market,
help
identify
core
benefits
that
must
be
offered
in
the
market
- Determining
dimensions:
those
that
actually
affect
the
customers
purchase
of
a
specific
product
or
brand
in
a
product-market
All
potential
dimensions
Qualifying
dimensions
Product
type
determining
dimensions
Brand
specific
determining
dimensions
- Can
face
ethical
issues
by
segmenting
decisions
- Clustering
techniques:
try
to
find
similar
patterns
within
sets
of
data,
uses
computers
- Customer
relationship
management
(CRM):
variation
of
clustering
approach,
seller
fine-tunes
the
marketing
effort
with
information
from
a
detailed
customer
database
Differentiation
and
positioning
take
the
customer
point
of
view
- Positioning:
how
customers
think
about
proposed
or
present
brands
in
a
market
o Leads
to
physical
changes
or
image
changes
based
on
promotion
o Perceptual
mapping:
graphs
for
positioning
decisions
based
on
customer
perceptions
o May
lead
a
firm
to
combining
if
managers
think
they
can
make
several
general
appeals
to
different
parts
of
a
combined
market
Lecture
2:
Consumer
Behavior
- Consumer
decision
making
process:
need
recognition
information
search
evaluation
of
alternatives
purchase
decision
postpurchase
behavior
- Need
recognition
o Need:
discrepancy
between
actual
state
and
ideal
state
Can
be
utilitarian
and
psychological
Marketing
can
influence
need
recognition
o Basic
needs:
esteem,
control,
belonging,
meaningfulness
Control:
jeep
example,
90%
of
sport-related
utility
vehicles
never
even
go
off
the
road
so
why
do
we
buy
them
- Information
search
o Internal
search:
consideration
(evoked)
set,
own
long
term
memory
o External
search:
interpersonal
and
word
of
mouth
o Influenced
by
motivation
- Evaluation
of
alternatives
o Influenced
by
motivation
high
vs.
low
effort
o Multi-attribute
model:
rate
importance
of
each
attribute
from
1
to
7
and
rate
each
attribute
from
-3
to
+3.
Multiply
those
two
factors
and
add
them
together
o Low
effort
decision
making:
automatic
and
resource
saving,
cognitive
o Heuristics:
choice
tactics
or
rules
of
thumb
Price:
price/quality
correlation
Habit
Normative:
it
must
be
good
if
everybody
is
doing
it
More
is
better
- Post-Purchase
behavior
o Satisfaction/dissatisfaction:
repeat
business
is
the
profit
center
o Factors
that
influence
satisfaction:
performance,
quality,
value,
equity
o Expectations
o Disconfirmation:
satisfaction
(or
dissatisfaction)
occurs
when
there
is
a
discrepancy,
either
positive
or
negative,
between
our
expectations
and
the
products
actual
performance
Satisfaction
(or
dissatisfaction)
occurs
when
our
expectations
are
disconfirmed
Sat
=
f(perceived
performance
expected
performance)
Chapter
4:
Focusing
Marketing
Strategy
with
Segmentation
and
Positioning
- Case
Study
on
Nintendo:
the
key
to
Nintendos
success
is
from
meeting
entertainment
needs
of
different
groups
of
customers,
used
to
operate
in
the
toy
market
and
saw
new
opportunities
in
video
games
and
released
the
Nintendo
Entertainment
System
(NES)
in
1985.
Delivered
fun
to
kids
with
Game
Boy.
Nintendo
looked
for
other
customer
groups
like
senior
citizens,
families
and
teenage
females
came
out
with
the
DS
and
introduced
the
Wii.
- Strategy
planning
is
a
narrowing-down
process
-
-
-
-
-
-
-
-
-
-
-
-
-
MARKET:
group
of
potential
customers
with
similar
needs
who
are
willing
to
exchange
something
of
value
with
sellers
offering
various
goods
or
services
o Focusing
on
specific
target
market
is
vital
Production
oriented
managers:
describe
their
markets
in
terms
of
the
products
they
sell,
ignores
customers
and
leads
to
missed
opportunities
GENERIC
MARKET:
market
with
broadly
similar
needs
and
sellers
offering
various,
often
diverse,
ways
of
satisfying
those
needs
(entertainment)
o Quite
different
product
types
can
compete
with
each
other
o Doesnt
include
any
product
type-
terms
PRODUCT
MARKET:
market
with
very
similar
needs
and
sellers
offering
very
close
substitute
ways
of
satisfying
those
needs
(digital
camera)
Complete
product-market
definition:
four-part
description,
refers
to
people
o What:
product
type
Goods
and/or
services
that
customers
want
o To
meet
what:
customer
needs
The
needs
the
product
type
satisfies
for
the
customer
Provide
functional
benefits,
basic
needs
Move
on
to
emotional
needs
later
o For
whom:
customer
types
Final
consumer
or
user
of
a
product
type,
not
intermediaries
unless
they
use
the
product
in
their
own
business
o Where:
geographic
area
Where
a
firm
competes
or
plans
to
compete
Market
definition
limits
the
market
in
which
the
firm
will
compete,
sharpens
the
focus
Generic
market
does
not
include
product
type
terms
MARKET
SEGMENTATION:
two
step
process
of
o Naming
broad
product-markets
Disaggregating
all
possible
needs
into
generic
markets
and
broad-product
markets
Brainstorming
solutions
to
generic
needs
o Segmenting
those
broad
product
markets
in
order
to
select
target
markets
and
develop
suitable
marketing
mixes
Takes
a
lot
of
demographic
characteristics
to
segment
the
market
but
you
always
begin
with
customer
needs
All
customer
needs
Some
generic
market
One
broad
product-market
Homogenous
(narrow)
product-markets
either
single
target
market,
multiple
target
markets
or
combined
target
markets
Market
grid
is
a
visual
aid
to
market
segmentation
(bicycles)
SEGMENTING:
aggregating
process
clustering
people
with
similar
needs
into
a
market
segment
MARKET
SEGMENT:
relatively
homogenous
group
of
customers
who
will
respond
to
a
marketing
mix
in
a
similar
way
o Different
from
naming
part
because
we
look
for
similarities
rather
than
differences
in
needs
Good
market
segments:
o Homogenous
within:
as
similar
as
possible
with
respect
to
likely
responses
to
marketing
mix
variables
and
segmenting
dimensions
o Heterogeneous
between:
customers
in
different
segments
should
be
as
different
as
possible
with
respect
to
their
likely
responses
to
marketing
mix
variables
and
segmenting
dimensions
o Substantial:
big
enough
to
be
profitable
o Operational:
segmenting
decisions
should
be
useful
for
identifying
customers
and
deciding
on
marketing
mix
variables,
leads
marketers
to
include
demographic
dimensions
Market-oriented
strategies
in
broad
product
market
o Single
target
market
approach
(segmenters)
o Multiple
target
market
approach:
treat
each
as
separate
target
market
needing
a
different
marketing
mix
(segmenters)
o Combined
target
market
approach:
combining
two
or
more
submarkets
into
one
larger
target
market
and
aiming
at
them
with
the
same
marketing
mix
(combiners)
-
-
-
-
-
-
-
-
-
-
-
Oral
healthcare
market:
Orajel
targets
parents
of
toddlers,
Sensodyne
targets
sensitive
teeth
and
Crest
targets
adults
with
many
oral
concerns
COMBINERS:
try
to
increase
the
size
of
their
target
markets
by
combining
two
or
more
segments;
look
for
similarities
between
submarkets
rather
than
just
differences;
helps
achieve
economies
of
scale
o Harder
to
develop
marketing
mixes
that
best
satisfy
potential
customers
o ATI
lost
business
to
Nvidia
because
they
focused
on
needs
of
video
game
lovers
and
chips
that
did
fewer
things
SEGMENTERS:
aim
at
one
or
more
homogenous
segments
and
try
to
develop
a
different
marketing
mix
for
each
segment;
possible
to
provide
superior
value
o Hope
to
increase
sales
by
getting
larger
share
of
business
in
markets
they
target;
can
charge
a
price
premium
o Aerin
desk
chair
by
HM
with
good
support
and
good
looks
o Safer
to
be
a
segmenter
o Kaepe:
sneaker
sales
plummeted
because
of
competition
so
they
catered
to
the
needs
of
cheerleaders
Profit
is
the
balancing
point
and
determines
how
unique
a
marketing
mix
the
firm
can
afford
to
offer
to
a
particular
group
Segmenting
dimensions:
o Behavioral:
needs,
benefits,
thoughts,
rate
of
use,
purchase
relationship,
brand
familiarity,
kind
of
shopping,
information
required
o Geographic:
region,
city
size
o Demographic:
income,
sex,
age,
family
size,
family
life
cycle,
occupation,
education,
ethnicity,
social
class
QUALIFYING
DIMENSIONS:
those
relevant
to
including
a
customer
type
in
a
product-market.
help
identify
core
benefits
that
must
be
offered
DETERMINING
DIMENSIONS:
those
that
actually
affect
the
customers
purchase
of
a
specific
product
or
brand
in
a
product
market
CLUSTERING
TECHNIQUES:
try
to
find
similar
patterns
within
sets
of
data,
uses
computers,
groups
customers
who
are
similar
on
segmenting
dimensions
CDW:
wholesaler
of
computer
gear
that
targets
small
business
customers
and
atypical
marketing
mix,
each
have
account
manager
CUSTOMER
RELATIONSHIP
MANAGEMENT
(CRM):
seller
fine-tunes
the
marketing
effort
with
information
from
a
detailed
customer
database
o Amazon
recommends
related
books
when
you
buy
one
By
differentiating
the
marketing
mix
to
do
a
better
job
meeting
customers
needs,
the
firm
builds
a
competitive
advantage
POSITIONING:
how
customers
think
about
proposed
or
present
brands
in
a
market
o More
important
when
competitors
are
very
similar
o Physical
changes
in
product
or
image
changes
based
on
promotion
o Perceptual
mapping
(bars
of
soap
deodorant
vs.
moisturizing
what
about
germs?
Dial
captures
that
element)
o May
lead
to
a
firm
combining
rather
than
segmenting
if
managers
think
they
can
make
several
general
appeals
to
different
parts
of
a
combined
market
Chapter
5:
Final
Consumers
and
their
Buying
Behavior
- Case
Study
on
Apple:
Apple
offered
innovative
marketing
mix
that
addressed
the
needs
of
target
customers
(online
iTunes
store,
stylish
iPod,
different
styles,
iPhone)
- ECONOMIC
BUYERS:
people
who
know
all
the
facts
and
logically
compare
choices
to
get
the
greatest
satisfaction
from
spending
their
time
and
money
economists
assume
consumers
are
economic
o Economic-Buyer
Theory:
consumers
decide
what
to
buy
based
on
economic
needs
and
economic
value
Simplistic
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
ECONOMIC
NEEDS:
making
the
best
use
of
a
consumers
time
and
money
o Economy
of
purchase
or
use
o Efficiency
in
operation
or
use
o Dependability
in
use
o Improvement
of
earnings
o Convenience
Other
person
making
decision:
o Psychological
variables
o Economic
needs
o Social
influences
o Purchase
situation
Income
affects
needs
o Median
income:
$61,355
o Americas
middle-income
consumers
have
been
hit
hard
by
the
rising
cost
of
necessities
o Purchase
of
luxuries
comes
from
discretionary
income
o DISCRETIONARY
INCOME:
what
is
left
after
taxes
and
necessities,
elusive
concept
because
it
varies
between
families
NEEDS:
basic
forces
that
motivate
a
person
to
do
something
WANTS:
needs
learned
during
a
persons
life
DRIVE:
strong
stimulus
that
encourages
action
to
reduce
a
need;
internal
o In
marketing,
product
purchase
results
from
drive
to
satisfy
some
need
Maslows
Five
Level
Hierarchy
of
Needs
Four-Level
Hierarchy
of
Needs
for
Consumer
Behavior
o Physiological:
lowest
level,
concerned
with
biological
needs
like
food,
liquid,
rest
and
sex
o Safety:
protection
and
physical
well
being
o Social:
love,
friendship,
status,
esteem
o Personal:
individual
need
for
personal
satisfaction
Motivation
theory:
we
never
reach
a
state
of
complete
satisfaction
target
marketing
at
affluent
customers
in
advanced
economies
because
they
focus
on
higher-level
needs
OXO
utensils
meet
a
variety
of
needs
PERCEPTION:
how
we
gather
and
interpret
information
from
the
world
around
uswhy
consumers
select
varying
ways
to
meet
their
needs
o Selective
exposure:
our
eyes
and
minds
seek
out
and
notice
information
that
interests
us
(close
pop-ups
on
computer)
o Selective
perception:
we
screen
out
or
modify
ideas
that
conflict
with
previously
learned
attitudes
and
beliefs
o Selective
retention:
we
remember
what
we
want
to
o
only
notice
a
Goodyear
newspaper
ad
when
we
need
new
tires
LEARNING:
change
in
a
persons
thought
processes
caused
by
prior
experience
almost
all
consumer
behavior
is
learned.
Can
also
be
caused
by
indirect
experience
and
associations.
Learning
process:
o CUES:
products,
signs
and
stimuli
in
the
environment
that
lead
individual
to
have
a
specific
response
o RESPONSE:
effort
to
satisfy
a
drive
depending
on
cues
and
past
experiences
o REINFORCEMENT:
response
is
followed
by
satisfaction
or
reduction
in
the
drive
o Repeated
reinforcement
leads
to
development
of
a
habit
Ex.
A
person
is
thirsty.
They
see
a
mountain
dew
ad
which
could
be
a
cue
to
the
response
buying
mountain
dew.
If
the
drink
is
satisfactory,
positive
reinforcement
occurs
and
person
may
satisfy
drive
in
the
same
way
next
time.
Positive
cues
like
appealing
to
the
opposite
sex
or
new
car
smell
can
help
a
marketing
mix
Many
needs
are
culturally
or
socially
learned
ATTITUDE:
persons
point
of
view
toward
something
BELIEFS:
not
action-oriented,
persons
opinion
about
something,
does
not
necessarily
involve
liking
or
disliking
Green
attitudes
and
beliefs
change
marketing
mixes
-
-
-
-
-
-
-
-
-
-
-
-
-
-
More
economical
to
work
with
consumer
attitudes
than
to
try
and
change
them;
changing
negative
attitudes
is
most
difficult
job
marketers
face
Spaniards
had
an
opinion
that
yogurt
could
either
be
healthy
or
taste
good
so
Dannon
started
the
Actimel
challenge
EXPECTATION:
attitudes
and
beliefs
combine
to
form
an
expectation
an
outcome
or
event
that
a
person
anticipates
o Often
focus
on
value
that
comes
from
a
firms
marketing
mix
o Consumer
is
likely
to
be
dissatisfied
if
his
or
her
expectations
are
not
met
Managers
have
not
found
a
way
to
use
personality
in
marketing-strategy
planning
PYSCHOGRAPHICS/Lifestyle
Analysis:
analysis
of
a
persons
day-to-day
pattern
of
living
as
expressed
in
that
persons
AIOs
(activities,
interests
and
opinions)
VALS:
service
using
psychographics
to
show
where
customers
live
and
why
they
behave
as
they
do
Family
life
cycle
influences
needs
o Singles
and
young
couples
are
more
willing
to
try
new
brands
o Durable
goods
for
younger
families
o Teens
are
a
huge
target
for
spending
o Empty-nesters
have
high-income,
travel,
etc.
Most
marketers
targeted
the
wife
as
the
family
purchasing
agent
SOCIAL
CLASS:
group
of
people
who
have
approximately
equal
social
position
as
viewed
by
others
in
society
general
relationship
between
income
and
social
class
in
the
U.S.
o Far
less
rigid
than
other
countries
o Based
on
occupation,
income,
housing
location
o America
is
middle-class
society
REFERENCE
GROUP:
people
to
whom
an
individual
looks
when
forming
attitudes
about
a
particular
topic
OPINION
LEADER:
person
who
influences
others
CULTURE:
whole
set
of
beliefs,
attitudes
and
ways
of
doing
things
of
a
reasonably
homogenous
set
of
people
o Religious,
ethnic
and
regional
subcultures
o Pepto-Bismol
in
China:
insulted
Chinese
people
by
accidentally
saying
Chinese
delicacies
were
nauseating
o 1/5
families
is
bilingual
o Variability
among
the
black
market
mistake
to
treat
all
consumers
in
an
ethnic
group
as
homogenous
o Hispanics
are
fasting
growing
ethnic
group
in
the
U.S.
o Asian-Americans
have
highest
median
family
income
o Increasing
buying
power
of
ethnic
submarkets
Individuals
are
affected
by
the
purchase
situation
o Time:
how
much
do
you
have
available,
urgency
of
need
o Surroundings:
excitement
of
auction
vs.
long
lines
Consumer
decision
process
o Consumer
becomes
aware
of
unmet
need
o How
do
I
best
meet
that
need?
o How
they
solve
the
problem
depends
on
the
situation:
Search
for
information
Identify
alternatives
Evaluate
one
or
more
that
might
meet
their
need
Three
levels
of
problem
solving:
o Extensive
problem
solving:
put
in
a
lot
of
effort
in
deciding
how
to
satisfy
a
particular
need
o Limited
problem
solving:
some
effort
is
required,
a
little
previous
experience
with
the
product
o Routined
response
behavior:
he
or
she
regularly
selects
a
particular
item,
know
how
to
best
meet
the
need
o Low-involvement
purchased:
little
importance
or
relevance
for
the
customer
-
-
-
DISSONANCE:
feeling
of
uncertainty
about
whether
the
correct
purchasing
decision
was
made
Research
shows
that
consumers
show
more
dissatisfaction
with
products
than
about
being
satisfied
ADOPTION
PROCESS:
steps
individuals
go
through
on
the
way
to
accepting
or
rejecting
a
new
idea
o Awareness
the
potential
customer
comes
to
know
about
the
product
bit
lacks
details.
The
consumer
may
no
even
know
how
it
works
or
what
it
will
do
o Interest
if
the
consumer
becomes
interested,
he
or
she
will
gather
general
information
and
facts
about
the
product.
o Evaluation
a
consumer
begins
to
give
the
product
a
mental
trial,
applying
it
to
his
or
her
person
situation.
o Trial
the
consumer
may
buy
the
product
to
experiment
with
it
in
use.
A
product
that
is
either
too
expensive
to
try
or
isnt
available
for
trial,
may
never
be
adopted.
o Decision
the
consumer
decides
on
either
adoption
or
rejection,
according
to
learning,
reinforcement
leads
to
adoption.
o Confirmation
the
consumer
continues
to
rethink
the
decision
and
looks
for
support
(aka
further
reinforcement.)
Chapter
6:
Business
and
Organizational
Customers
and
Their
Buying
Behavior
- Case
Study
on
MetoKote
Corp/John
Deere:
protective
coating
applications
for
equipment,
MetoKote
has
closer
relationship
with
Deere,
built
some
facilities
right
next
to
plants,
innovative
approaches
to
delivering
customer
value
like
OneSource
for
golf
courses
- BUSINESS
AND
ORGANIZATIONL
CUSTOMERS:
buy
for
resale
or
to
produce
other
goods
and
services
o Producers
of
goods
and
services:
manufacturers,
farmers,
hotels
o Intermediaries:
wholesalers,
retailers
o Government
units
o Nonprofits
- B2B
market:
business-to-business
market
organizational
customers
- Organizations
make
purchases
to
satisfy
needs,
buy
goods
that
will
help
them
meet
the
demand
for
the
goods
or
services
they
in
turn
supply
to
their
markets
o Focus
on
economic
factors:
total
cost
of
selecting
a
supplier
and
its
marketing
mix,
dependability,
reliability
- PURCHASING
SPECIFICATIONS:
written
description
of
what
the
firm
wants
to
buy,
services
tend
to
be
more
detailed
- ISO
9000:
way
for
supplier
to
document
its
quality
procedures
according
to
internationally
recognized
standards
so
that
customer
does
not
have
to
conduct
a
time
consuming
and
costly
audit
- PURCHASING
MANAGERS:
buying
specialists
for
their
employers;
real
experts
who
specialize
in
product
areas
- MULTIPLE
BUYING
INFLUENCE:
several
people
play
a
part
in
making
a
purchase
decision
including
users,
influencers,
buyers,
deciders,
and
gatekeepers
(people
who
control
the
flow
of
information)
- BUYING
CENTER:
all
the
people
who
participate
in
or
influence
a
purchase
- VENDOR
ANALYSIS:
formal
rating
of
suppliers
on
all
relevant
areas
of
performance
helps
with
purchasing
decisions;
lower
the
TOTAL
costs
associated
with
purchases
o Economic
factors
o Behavioral
needs
- A
sellers
marketing
mix
should
satisfy
both
the
needs
of
the
customer
company
as
well
as
the
needs
of
the
individual
who
influences
the
purchasing
decision
- Centralized
buying:
purchasing
work
done
at
a
central
location
so
sales
rep
can
sell
to
facilities
all
over
the
country
- REQUISITION:
request
to
buy
something
- Some
firms
use
spend
management
systems
to
track
every
single
purchase
and
can
lead
to
cost-
cutting
opportunities
- Three
kinds
of
buying
processes:
o New-task
buying:
organization
has
a
new
need
and
customer
wants
a
great
deal
of
information
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
o Straight rebuy: routine repurchase
o Modified rebuy: in-between process where some review of buying situation is done
Increased attention on global warming and the environment; sustainability identifies savings that
were previously not obvious; be guided by what customers want
Most purchasing managers start with an internet search and online marketplaces
COMPETITIVE BID: terms of sale offered by the supplier in response to the purchase specifications
posted by a buyer; buyers will ask suppliers to submit competitive bids; buyer will select low-price
bid that meets specifications
o Sometimes buyers just invite whatever supplier to submit a bid
o Reverse auctions foster price competition among sellers because all potential bidders can
see the bids
Many firms are reducing the number of suppliers they work with and just expanding the services that
one supplier supplies
Closer relationships are not always the best
o May reduce flexibility
o Avoid all or nothing relationships
Cooperative relationships: buyer and seller work together to achieve mutual and individual
objectives problems are joint responsibility
Operational linkages: direct ties between the internal operations of the buyer and seller firms that
involve coordinate of activities
JUST-IN-TIME DELIVERY: provided a customer with inventory when it is needed, right before the
customer needs it
NEGOTIATED CONTRACT BUYING: agreeing to contracts that allow for changes in purchase
agreements
Industrial suppliers often customize a product for just one customer which may require investments
in R&D or new technologies
OUTSOURCE: contract with an outside firm to produce goods or services rather than produce them
internally, cut costs
Powerful customers may control the relationship
Manufacturers are important customers
o There are not many big manufacturers
o Certain geographic areas
o About 3% of manufacturing plants produce 60% of value added
North American Industry Classification System (NAICS) Codes: groups of firms in similar lines of
business; helps find similar companies that need the same goods and services
Most service firms are small and more spread out around the country, rely on e-commerce for their
purchases but they can add up
Retail and wholesale buyers are purchasing agents for their target customers
o Computerized inventory replenishment systems
o Buying committee: decisions to add or drop lines
o Reorders are straight rebuys
o Some are not open to buy buyers have budgeted funds that can be spent during the
current period
o Resident buyers: independent buying agents who work in central markets for retailers and
wholesale customers in other countries
The government market
o Largest customer group in many countries (30% of GDP)
o Expected to spend money wisely
o Negotiated contracts are common
o Purchases are subject to public review
o Write precise and complete specifications so buyers that dont match what is needed can not
submit a bid
o Foreign Corrupt Practices Act (1977): prohibits U.S. firms from paying bribes to foreign
officials
Lecture
3:
STP
- Market
segmentation:
identifying
bases
for
segmenting
the
market;
develop
segment
profiles
- Target
marketing:
develop
measure
of
segment
attractiveness;
select
target
segments
- Market
positioning:
develop
positioning
for
target
segments;
develop
a
marketing
mix
for
each
segment
- Mass
marketing:
same
product
and
marketing
mix
for
everyone;
efficient
o Highway
example
and
the
Holiday
Inn:
created
chain
of
hotels
that
span
the
whole
country;
most
comfortable
hotel
room
for
most
people
o Vs.
Marriot
and
segmentation
courtyard
Marriot
was
designed
for
businesspeople
who
are
on
the
road
and
need
space
to
work
- Segmentation:
process
of
dividing
markets
into
distinct
subsets
of
consumers
with
common
needs
and
characteristics
o Select
one
or
more
segments
to
target
and
position
with
unique
mix
o Allows
companies
to
expand
markets
o Allows
new
companies
to
find
niches
o Identify
specific
wants
and
needs
of
groups
and
consumers
o Reposition
existing
products
o Determine
appropriate
media
- Conjoint
analysis:
analyzes
how
customers
make
trade-offs
- Segmentation
variables:
o Geographic:
region,
city
size,
density,
climate,
zip
code
o Demographic:
age,
cohort,
marital
status
o Psychological:
needs,
motivations,
personality,
perception,
learning
o Psychographic:
lifestyle
traits
o Sociocultural:
subculture,
religion,
social
class,
family
lifecycle
o Use
related:
usage
rate,
brand
loyalty,
awareness
o Use
situation:
time,
objective,
person
o Benefit
o Hybrid:
geo-demographic,
demographic/psychographic
o
Campbells
soup
segments
markets
by
geographic
regions
because
certain
soups
are
much
bigger
sellers
in
certain
reasons;
also
peanut
butter
Skippy
is
on
the
coasts
and
Jif
in
the
Midwest
- Criteria
for
good
segments
o Homogeneous
within
o Heterogeneous
between
(differentiable)
o Substantial
o Operational
(measurable,
accessible,
actionable)
o Stable
- Methods
o Cluster
analysis
Max
(between
group
variance/within
group
variance)
Choose
the
centers
of
clusters
randomly
and
allocate
each
point
to
its
nearest
center;
choose
centers
again
as
the
centroids
of
the
clusters
from
iteration
1;
choose
centers
again
and
keep
allocation;
analysis
is
complete
when
nothing
changes
Factor
analysis:
things
measure
same
underlying
construct
and
categorize
them:
comfort/luxury
vs.
fun/sporty
o Art
and
opinion
Claritas
PRIZM
NE
system:
geo-demographical
segmentation,
consulting
firm
with
proprietary
clustering
scheme,
66
meaningful
consumer
segments
in
the
U.S.
SBI
VALS
(Values
and
Lifestyle
System):
psychographic-demographic,
39
questions,
8
groups
based
on
value
and
lifestyle
Customer
Relationship
Management
o Micro
segmentation:
moving
towards
a
segment
of
one
o Creating
and
maintaining
a
relationship
with
an
individual
customer
to
build
lifetime
value
o Identify,
differentiate,
interact,
customize
o CRM
systems:
Harrahs,
Amazon
personalized
pages
for
you
Targeting
o Segment
size,
growth,
value,
stability
o Company
position
within
segment
Ease
of
entry
Ability
to
reach
and
serve
segment
o Competitors
Number
and
strength
Ease
of
entry
o Product
life
cycle
Positioning:
influences
how
a
particular
segment
perceives
an
offering
in
comparison
to
the
competition
o Using
the
marketing
mix
o Positioning
statement
To
(target
segment
and
need),
our
(brand)
is
the
(concept)
that
(point
to
differences
o
-
-
-
W
i
tG
C
h
a
lF
V
ip
a
e
L
n
H
sro
isgs
h
w
C
g
a
ri
o
c
o
h
cR
o
C
a
e
u
a
c
n
p
o
C
lh
svo
p
F
tahs
ro
ti
rL
aa
w
n
u
a
cr
ree
d
n
P
e
r
c
e
p
t
u
Lecture
4:
Marketing
Research
- Process:
o Define
the
problem
o Analyze
the
situation
o Get
problem
specific-data
o Interpret
data
o Solve
the
problem
- Research
criteria
o Current:
changing
w/
environment
o Valid:
Internal:
cause/effect;
are
we
measuring
what
we
intend
to
measure?
External:
extent
to
which
we
can
generalize
findings
o Reliable:
effect
is
consistent
or
replicable
test/retest
Surveys
intentionally
ask
the
same
question
in
5
different
ways
o Representative:
of
the
segment,
target
population,
etc.
- Two
broad
uses
of
marketing
research
o Diagnostic
analysis:
How
do
customers
perceive
our
offerings?
How
do
these
perceptions
explain
current
performance?
How
did
we
get
to
where
we
are?
o Opportunity
analysis:
Does
the
market
present
unexploited
opportunities
for
growth?
How
do
we
exploit
those
opportunities?
Forward-looking
- Diagnostic
Protocol:
Why
is
this
great
product
not
selling?
o Availability?
Inappropriate
distribution
channels
Insufficient
production
o Awareness?
Insufficient
absolute
advertising
Insufficient
relative
advertising
o Perceptions?
Poor
performance
on
secondary
attributes
Poor
advertising
positioning
(creative
design)
o History?
Poor
past
history
drags
on
current
sales
o Competition?
Performance
of
your
product
is
always
relative
to
competitors
moves
ex.
Even
though
safety
is
the
most
important,
airlines
dont
advertise
it
because
everybody
is
tied
for
first
so
they
have
to
find
other
areas
to
differentiate
themselves
- Identifying
opportunities
o Typical
applications
Re-positioning
an
underperforming
brand
Introducing
a
new
brand
o Need
to
see
through
eyes
of
the
customer
Direct
elicitation:
directly
asking
customer
what
they
want
Surveys
Likert
Scales
Indirect
elicitation:
observation,
conjoint
analysis
sometimes
customers
dont
know
what
they
want
or
wont
tell
you
- Perceptual
maps
o Plot
data
from
semantic
scales
for
each
attribute
(Likert)
o Visual
representation
of:
Perceived
position
of
competitive
products
on
pairs
of
dimensions
Perceived
position
of
ideal
products
on
pairs
of
dimensions
H&M
and
Zara
have
moved
into
the
fashion
forward/low
cost
area
of
the
perceptual
map;
hard
area
to
operate
because
fewer
high-fashion
items
sell
very
well;
these
two
just
copy
the
high-fashion
successes
very
quickly
o Easy
way
to
spot
opportunities
and
niches
that
are
not
currently
served
in
the
market
Worlds
favorite
paintings
survey
problems
o Customer
may
not
precisely
know
what
they
really
like
in
art
o Customer
may
be
reluctant
or
unable
to
reveal
requirements,
especially
when:
Infrequently
made
decisions
Lack
of
awareness
of
attribute
variation
Sensitive
soft
attributes
New
attributes/technologies
o Cross-customer
differences
(heterogeneity)
o Dimensions
are
not
independent
of
one
another
o Ideal
offering
may
not
be
a
sum
of
the
parts
(George
Washington
+
animals
+
water)
Conjoint
Analysis
o Infers
(via
indirect
elicitation)
the
relative
importance
of
product
features
and
how
objective
values
of
products
relate
to
their
desired
values
by
analyzing
how
consumers
evaluate
an
experimental
array
of
hypothetical
product
profiles
o Uncover
what
is
driving
decisions
and
tradeoffs
o Steps:
Define
a
set
of
attributes,
levels
Construct
set
of
hypothetical
products
Have
members
of
relevant
population
evaluate
them
Calculate
part-worth
utilities
statistical
inferences
about
the
importance
of
a
particular
variable
Conduct
what
if
studies,
segmentations
studies,
price
sensitivity,
etc.
o Look
for
spikes,
peaks
and
altitudes
o Most
widely
used
pre-launch
product
design
and
forecasting
tool
o Used
for:
Courtyard
Marriot
design,
Ravens
logo,
E-Z
pass
design
and
pricing,
etc.
Implicit
theory
of
sales
performance
o Share
of
Market
=
Share
of
Awareness
x
Share
of
Preference
x
Share
of
Distribution
usually
a
glaring
deficiency
in
one
of
these
o
Chapter
7
IMPROVING
DECISIONS
WITH
MARKETING
INFORMATION
to
make
marketing
decisions
market
research:
procedures
that
develop
and
analyze
new
information
about
a
market
MIS
marketing
information
systems
radically
changed
by
technology:
organized
way
of
continually
gathering,
accessing,
and
analyzing
information
that
marketing
managers
need
to
make
ongoing
decisions.
important
to
have
a
continual
flow
of
information
and
not
wait
until
you
have
an
important
question
you
cant
answer
intranet
linked
computers
within
a
company
data
warehouse
readily
available,
a
place
where
databases
are
stored
so
that
they
are
available
when
needed
decision
support
system
get
info
as
decisions
are
being
made
real
time:
a
computer
program
that
makes
it
easy
for
a
marketing
manager
to
get
and
use
information
as
he
or
she
is
making
decision.
involves
some
sort
of
search
engine:
computer
program
that
helps
a
marketing
manager
find
information
that
is
needed.
makes
data
useful
i.e
graphs,
search
engine
marketing
dashboard
real
time
data:
displays
up
to
the
minute
marketing
data
in
an
easy-to-read
format.
Usually
customized
to
a
managers
area
of
expertise
marketing
model
statement
of
relationships
among
marketing
variables,
helps
select
marketing
mix
MIS
used
to
collect
sales
analysis:
a
detailed
breakdown
of
a
companys
sales
records
steps
for
marketing
research:
guided
by
scientific
methods
(focused
on
being
objective
and
orderly
and
testing
before
accepting
ideas
define
problem
hardest
step
analyze
situation(
primary
and
secondary
data
already
published
)
get
problem-specific
data
interpret
data
solve
problem
Step
1:
Defining
the
problem:
dont
confuse
the
problem
with
the
symptom
Step
2:
Analyzing
the
Situation:
-situation
analysis:
an
information
study
of
what
information
is
already
available
in
the
problem
area.
Will
help
you
find
relevant
secondary
data
(information
that
has
been
collected
or
published
already)
vs
primary
data
gathered
in
step
three
(information
specifically
collected
to
solve
a
current
problem)
primary
data
sources
observation/questioning:
surveys,
focus
groups,
using
equipment
for
observation
secondary
data
sources
inside
company/outside
company
research
proposal
to
determine
what
will
be
researched:
plan
that
specifies
what
will
be
researched
and
how.
marketing
research
reduces
uncertainty
Step
3:
Gather
Problem
Specific
Data:
qualitative
research
seeks
in-depth,
open
ended
responses,
not
yet
or
no
answers.
Get
people
to
share
their
thoughts
on
a
topic
without
giving
them
many
directions
or
guidelines
about
what
to
say
focus
groups
focus
group
interview
hard
to
measure
objectively:
goal
=
get
group
reaction,
get
group
talking
can
provide
good
idea
and
hypothesis,
but
isnt
the
most
representative
sample
or
the
most
objective
measure
quantitative
research
when
researchers
use
identical
questions
and
response
alternatives
they
can
summarize
the
information
quantitatively:
helps
do
research,
statistics
and
data:
come
in
many
forms
and
speed
answering
and
analysis
Response
rate:
the
percentage
of
people
contacted
who
complete
the
questionnaire
mail/online(low
response
rate)
telephone
quick
but
people
hate
telemarketers
personal
interview
$$
but
more
personal
focus
group,
observation,
--
focuses
on
a
well
defined
problem
Nielsen
media
research
device
that
measures
what
people
are
watching
on
TV
consumer
panels
consumers
who
regularly
provide
data
used
to
test
hypotheses
experimental
method
researchers
compare
response
of
two
or
more
groups
that
are
similar
except
on
characteristic
being
tested
test-marketing
try
stuff
out
on
a
few
groups
of
people
sometimes
disrupted
by
promotions
subscription
managers
subscribe
to
data
collection
websites
Step
4:
Interpret
the
Data:
statistical
packages
easy
to
use
computer
programs
that
analyze
data
cross
tabulation
shows
relationship
of
answers
to
two
different
questions:
example:
having
internet
vs.
income
test
a
sample
of
a
population
must
be
representative
confidence
intervals
range
on
either
side
of
an
estimate
that
is
likely
to
contain
the
true
value
for
the
whole
population
validity
make
sure
research
data
really
measures
what
you
are
looking
for
sometimes
people
don't
know
what
they're
talking
about
poor
wording
of
questions
data
must
support
the
conclusions
drawn
solution
managers
apply
data
new
or
changed
marketing
mix
international
marketing
research
language
barrier/culture
misunderstandings
out
of
date
information
data
collection
methods
receptivity/willingness
to
participate
standardization
of
practices
research
criteria
current
up
to
date,
factor
in
changes
valid
internal
and
external
internal
control,
how
sure
we
are
that
we
are
measuring
what
we're
supposed
to
lurking
variables
external
we
can
be
sure
that
it
is
realistic,
can
be
applied
comparable
context
reliable
replicable,
consistent
representative
represents
the
population
that
we
are
trying
to
generalize
to
sample
the
population
of
the
broader
target
experimental
method
compare
responses
of
2
or
more
groups
that
are
the
same
except
for
one
characteristic
test
marketing
try
out
on
small
group
test
samples
of
population
be
wary
of
validity
and
make
sure
data
supports
conclusion,
confidence
interval(range
that
true
value
may
lie
within)
statistical
packages
analyze
date
and
relationships
cross
tabulation
international
market
research
is
difficult
but
important
Lecture
5:
Brand
- Great
brands
that
have
been
named
Brand
of
the
Year:
Apple,
Google,
Target,
Starbucks
- Brand
Equity:
what
the
brand
is
worth
to
the
firm
o Interbrand
brand
equity
rankings
Coke
is
the
most
valuable
brand
at
$70.5B
o Calculate
equity
using
price
premium
weighted
by
growth
o Tangible
assets
as
%
of
all
assets
for
non-financial
business
is
now
55%
as
compared
to
80%
in
1950
o Since
2011,
growth
of
Top
100
brands
exceeded
growth
of
advanced
economy
GDP
by
35%
o Strong
brands
have
higher
market
share,
higher
prices
and
higher
margins
o Positive
difference
in
willingness
to
pay,
satisfaction,
loyalty
- The
Power
of
the
Brand
o Identified
vs.
Blind
Taste
Tests
Beer:
people
willing
to
pay
double
for
preferred
beer
even
though
they
taste
the
same
Peanut
Butter:
people
rate
their
preferred
brand
highest
on
all
dimensions;
however,
there
is
no
correlation
with
the
blind
taste
test
o
o
-
-
-
-
Replicated
cross-culturally
fMRI
studies:
monitor
brain
activity
during
particular
exercises
When
loyalists
received
preferred
brand
(Coke/Pepsi)
there
was
a
psychological
reaction
and
therefore,
the
person
experiences
their
loyal
brand
at
a
higher
level
through
the
emotional
centers
in
the
brain
iPhones
demonstrate
the
same
brain
patterns
as
love
Image
o Dimensions
of
Meaning
quick
associations
with
the
brand
o Brand
meaning
maps
Differentiation
Value
(factors
that
are
important
to
the
customer)
- Operational
Excellence
(low
price):
o Key
strengths:
efficiences,
low
prices
(WalMart,
Southwest
Arilines)
o Weaknesses:
selection,
customization,
innovation
- Relational/Intimacy
(Customer
Service)
o Strengths:
customer
responsiveness,
unique
o Weaknesses:
fewer
customers,
higher
prices
(AmEx,
Ritz
Carlton)
o Performance
Superiority
(high
quality):
Strengths:
product
is
actually
better,
new,
best,
cutting
edge
Weaknesses:
high
price,
less
customer
responsiveness
(Nike,
Apple)
o People
seek
out
price,
service
and
quality
You
cant
be
all
three
in
one
package
Best
brands
are
superior
to
other
brands
on
a
single
dimension
but
have
parity
on
the
others
and
occupy
a
unique
space
with
their
triangle
Differentiation
o Positioning
statement
describing
the
value
proposition
to
the
target
segment
Target
(for
whom)
Point
of
differentiation
(reason
to
buy)
Frame
of
reference
(points
of
parity)
o Positioning
is
accomplished
through
the
marketing
mix
4
Ps
o Focuses
on
key
benefits
(value
proposition)
that
are
defensible
Brand
relationship
o Awareness
Associations
Relationship
o Emotional
connections:
contract,
loyalty,
trust
Brand
Personality
o Beyond
brand
image
o Describes
a
brand
as
if
it
were
a
person
(Mac
vs.
PC
commercial)
o Five
Personality
dimensions
Sincerity
Excitement
Competence
Sophistication
Ruggedness
o Whirlpool:
attractive
suburban
woman
(cheerful,
quiet,
creative,
modern,
gentle)
o KitchenAid:
fashionable
career
woman
(smart,
aggressive,
glamorous,
wealthy,
elegant)
o Traits
change
from
country
to
country
In
Spain,
passion
replaces
competence
and
peacefulness
replaces
ruggedness
In
Japan,
peacefulness
replaced
ruggedness
In
China,
there
is
excitement,
competence,
sophistication,
traditionalism,
joyfulness
and
trendiness
(6
dimensions)
Brand
inferences
Schema: organized set of information/cognitions that provide us with an efficient way of
organizing new information
o Brand Extension: Arm & Hammer oral care, pet care, fabric care baking soda is fresh,
clean and deodorizing
- Brand Name
o Four easy tests: say, spell, read, remember
o Four fit tests: target market, benefits, culture, legal
o Inferences
- Packaging: brand value, experience, driver of sales increases (Coke)
o Packaging innovation is a huge growth area
Chapter 8: Elements of Product Planning for Goods and Services
- What is a product?
o Companies are selling satisfaction, the benefit the customer wants
o Product: need-satisfying offering of a firm; thought about in terms of the total satisfaction it
provides
o Elements of Product Planning for goods and services
Product ideas
Product classes
Branding
Packaging
Warranty
o Quality: products ability to satisfy a customers needs or requirements
A product with better features isnt higher quality if it wasnt what the customer
wants
- Differences in goods and services
o Good: tangible item; physical thing that can be seen and touched
Produced before sold
o Service: deed performed by one party for another; experienced, used or consumed;
intangible
Produced and consumed in the same time frame
Perishable; cant be stored
Often produced in presence of customer
o Many products are a combination of tangible and intangible elements
- Whole product lines must be developed
o Product assortment: set of all product lines and individual products that a firm sells
o Product line: set of individual products that are closely related
o Individual product: particular product within a product line that is differentiated on some
element
- Product classes help plan marketing strategies
o Product classes start with a type of consumer
Consumer products: products meant for the final consumer
CP Classes are based on how consumers think about and shop for products
o Convenience products a consumer needs but isnt willing to
spend much time shopping for. (Staples, impulse, emergency)
o Shopping products worth the time and effort to compare with
competing products (homogeneous (price main issue)
heterogeneous different characteristics)
o Specialty products a consumer really wants and makes a special
effort to find,
o Unsought products that potential customers dont yet want or
know they can buy. New unsought = offering really new ideas that
potential customers dont know about yet, regularly unsought =
products that stay unsought, but dont remain unbought forever.
o
Business
products:
products
meant
for
use
in
producing
other
products.
Relate
to
how
and
why
business
firms
make
purchases:
helps
in
strategy
planning
BP
classes
are
based
on
how
buyers
think
about
products
and
how
they
will
be
used
Expense
item:
a
product
whose
total
cost
is
treated
as
a
business
expense
in
the
year
that
its
purchased.
Capital
item:
a
long-lasting
product
that
can
be
used
and
depreciated
for
many
years.
o Installations:
ex.
buildings,
land
rights,
major
equipment
=
important
capital
items
o Accessories
=
short
lived
capital
items
o Raw
Materials
=
unprocessed
expense
items
moved
to
the
next
production
process
with
little
handling.
o =components-are
processed
expense
items
that
become
part
of
the
finished
product
o =supplies
=
expense
items
that
do
not
become
part
of
the
finished
product
o =professional
services
specialized
services
that
support
a
firms
operations
Derived
demand:
demand
for
business
products
derived
from
the
demand
for
final
consumer
products
Consumer
product
classes
o Convenience
products:
consumer
needs
but
isnt
willing
to
spend
a
lot
of
time
or
effort
shopping
for
Staples:
products
bought
often
and
routinely
without
much
thought
Impulse
products:
products
bought
quickly
as
unplanned
purchases
because
of
a
strongly
felt
need
for
them
Emergency
products:
purchased
immediately
when
the
need
is
great
o Shopping
products:
products
consumer
feels
are
worth
the
time
and
effort
to
compare
with
competing
products
Homogeneous:
shopping
products
consumer
sees
as
basically
the
same
and
wants
the
lowest
price
Heterogeneous:
consumer
sees
as
different
and
wants
to
inspect
for
quality
and
sustainability
memberships
at
a
gym
Branding
may
be
less
important
o Specialty
products:
consumer
products
that
the
customer
really
wants
and
makes
a
special
effort
to
find
Willingness
to
search
Any
branded
product
that
consumers
insist
on
by
name
o Unsought
products:
products
that
potential
customers
dont
yet
want
or
know
they
can
buy
New
unsought
products:
offer
new
ideas
that
potential
customers
dont
know
about
yet
Regularly
unsought
products:
products
that
stay
unsought
but
not
unbought
forever
Business
product
classes:
based
on
how
buyers
think
about
products
o Installations:
buildings,
land
rights,
major
equipment
Capital
items:
long-lasting
product
that
can
be
used
and
depreciated
for
many
years
Boom
or
bust
business
Suppliers
sometimes
include
special
services
with
an
installation
at
no
extra
cost
o Accessories:
short-lived
capital
items
tools
and
equipment
used
in
production
o Raw
materials:
unprocessed
goods
that
become
part
of
a
physical
good;
expense
items
Expense
item:
total
cost
is
treated
as
a
business
expense
in
the
year
it
is
purchased
Two
types
of
raw
materials:
Farm
products
Natural
products
Components:
processed
expense
items
that
become
part
of
a
finished
product
Ready
for
assembly
into
the
final
product
Wire,
plastic,
textiles
o Supplies:
expense
items
that
do
not
become
part
of
a
finished
product
Maintenance
Repair
Operating
supplies
o Professional
services:
specialized
services
that
support
a
firms
operations;
generally
expense
items
What
is
branding?
o Branding:
use
of
a
name,
term,
symbol,
or
design
or
a
combination
of
these
to
identify
the
product
Brand
name:
world,
letter
or
group
of
words
or
letters
Trademark:
legal
term;
includes
only
those
words,
symbols
or
letters
that
are
legally
registered
for
use
by
a
single
company
Service
mark:
trademark
for
services
o Good
brands
reduce
selling
time
and
effort
for
the
marketer
Conditions
favorable
to
successful
branding
o Product
is
easy
to
label
and
identify
by
brand
or
trademark
o Product
quality
is
easy
to
maintain;
best
value
for
the
price
o Dependable
and
widespread
availability
o Strong
demand
so
market
price
can
be
high
o Economies
of
scale
o Favorable
shelf
locations
Achieving
brand
familiarity
is
not
easy
o Brand
familiarity:
how
well
customers
recognize
and
accept
a
company
brand
Brand
rejection:
wont
buy
a
brand
unless
image
is
changed
Brand
nonrecognition:
final
customers
dont
recognize
it
Brand
recognition:
customers
remember
the
brand
Brand
preference:
target
customers
choose
a
particular
brand
Brand
insistence:
customers
insist
on
a
firms
branded
product
Differentiation
by
design:
companies
are
finding
they
can
gain
a
competitive
advantage
by
having
designers
involved
in
basic
decisions
about
product
features
and
functions
Good
brand
name
o Short
and
simple
o Easy
to
spell
o Easy
to
remember
o Easy
to
pronounce
in
all
languages
o Suggestive
of
product
benefits
o Adaptable
to
packaging
o No
undesirable
imagery
o Timely
o Legally
available
for
use
Brand
equity:
value
of
a
brand
to
its
current
owner
or
to
a
firm
value
of
a
brands
overall
strength
in
the
market
Protecting
brand
names
and
trademarks
o Lanham
Act
(1946):
spells
out
what
kind
of
marks
can
be
protected
and
the
exact
method
of
protecting
them;
does
not
force
registration
o Brand
name
becomes
public
property
when
it
becomes
a
common
descriptive
term
for
its
product
type
(aspirin,
Kleenex)
What
kinds
of
brands
to
use
o Family
brand:
same
brand
for
several
products
Licensed
brand:
well-know
brand
that
sellers
pay
a
fee
to
use
o
-
-
-
-
Individual
brand:
separate
brand
names
for
each
products
when
they
all
need
a
separate
identity
o Generic
products:
products
that
have
no
brand
at
all
other
than
identification
of
their
contents
and
the
manufacturer
lower
prices
Who
should
do
the
branding?
o Manufacturer
brands:
created
by
producers,
national
brands
(Nabisco,
IBM,
Campbells,
McDonalds)
o Dealer
brands/private:
created
by
middlemen
(Wal-Mart,
Radio
Shack)
advantage
is
that
product
is
already
presold
to
some
target
customers
o Battle
of
the
brands:
competition
between
dealer
brands
and
manufacturer
brands
Strategic
importance
of
packaging
o Packaging:
involves
promotion,
protecting
and
enhancing
the
product
o New
packaging
can
enhance
the
product
o Better
protective
strategy
is
important
to
manufacturers
and
wholesalers
Socially
Responsible
Packaging
o Federal
Fair
Packaging
and
Labeling
Act
(1966):
consumer
goods
must
be
labeled
in
easy-
to-understand
terms
to
give
consumers
more
information
o Many
ethical
decisions
still
remain
Warranty
policies
are
part
of
strategy
planning
o Warranty:
explains
what
the
seller
promises
about
its
product
o Magnuson-Moss
Act
(1975):
producers
must
provide
a
clearly
written
warranty
if
they
choose
to
offer
any
warranty
(full
vs.
limited)
o Warranty
may
improve
the
marketing
mix
o Service
guarantees
are
a
way
to
attract
and
keep
customers;
risky
o Can
be
costly
o
Lecture
6:
Place
Channels
and
Distribution
- Distributors
reduce
the
number
of
contacts
a
manufacturer
needs
to
distribute
their
products
- What
is
a
channel?
o Channel:
path
that
enables
products/services
to
flow
from
producers
to
end
users
Intermediaries:
organizations/partners
Functions:
activities
o Value
delivery
network:
company,
suppliers,
distributors
and
customers
partner
to
improve
performance
of
entire
system
- Channel
functions
and
value
o Transactional
functions:
buying,
selling,
risk-taking
o Logistical
functions:
transporting,
storing,
sorting
breaking
bulk
and
creating
assortments
o Facilitating
functions:
financing,
information/research,
promoting,
inspecting/testing
- Consumer
marketing
channels:
producer
wholesaler
retailers
consumer
- Business
marketing
channels:
producer
manufacturers
representatives
of
sales
branch
business
distributor
business
customer
- Intermediaries
o Agent/broker:
negotiates
sales
without
taking
title
to
the
goods,
generally
paid
by
commission
or
fees
o Wholesaler:
takes
title
to
the
goods
and
resells
them
o Retailer:
sells
to
end
user
o Facilitating
agency:
moves
the
goods
(no
title,
no
negotiating)
postal
service,
railroad,
storage
warehouse,
payment
processors
- Density
of
coverage
o Intensive:
distribution
through
every
reasonable
outlet
in
a
market
High
coverage
Convenient
for
end
customers
High
conflict
potential
o Selective:
distribution
through
multiple,
but
not
all,
reasonable
outlets
in
a
market
Resellers compete to carry our product
Less reseller loyalty
o Exclusive: distribution through a single wholesaling middleman and/or retailer in a market
High influence of reseller marketing activities
High margins throughout the channel
Stable level of distribution
Less competition at point of sale
Disintermediation
o Move towards direct to consumer marketing
o Hybrid systems
o E-Commerce
o Channel conflict
Integration:
o Vertical: combines successive stages of production and distribution under single
ownership
Corporate VMS
Luxottica: lenses, frames, Ray-Ban, Armani, LensCrafters, Sunglass Hut, etc.
Zara
o Administered VMS
Detroit Model: tightly clustered and controlled suppliers
Trends
o Trend toward more effective markets and marketing channels through the endless quest for
different structural advantages
o Growth of direct marketing
o Major downstream power shifts in the channel (from producers and wholesalers to
retailers to customers)
o Much greater degree of sophistication in order fulfillment and customer tracking
o More companies using hybrid systems to reach different consumers through distinct
marketing channels
IKEA Furniture
o Successful, Swedish low-price, warehouse showroom retailer
o Traditional retailers boycotted IKEAs suppliers so IKEA partnered with small suppliers
o IKEA became a design and consulting firm and is now a multinational retailers of stylish,
but affordable, knockdown furniture
Li & Fung
o Est 1906 Trading and Exporting
o Sourcing
o $10B in revenue
o 1000 customers, 10,000 suppliers, 70 offices in 40 countries
o Flat world philosophy own nothing
Moving up the value chain
Just in time coordination
o The Soft $3
Factor Cost of Production = $1
US Consumer Price Paid = $4
The soft $3 provide value-added services move downstream
Licensing recognized brands; private label; proprietary brands
Chapter
10:
Place
and
Development
of
Channel
Systems
- Dell
used
UPS
to
ship
directly
to
customers
and
prices
were
low
because
it
eliminated
retailer
markup;
superior
service;
direct-sales
force;
direct-order
approach
of
distribution
- Marketing
planning
decisions
for
place
o Place:
making
goods
and
service
available
in
the
right
quantities
and
locations,
when
customers
want
them
Channel
of
distribution:
any
series
of
firms
or
individuals
who
participate
in
the
flow
of
products
to
the
final
user
or
consumer
Place
decisions
are
guided
by
ideal
place
objectives
o Place
and
development
of
channel
systems
Place
objectives:
product
class,
life
cycle
Direct
vs.
indirect:
differences
between,
when
to
use
Channel
specialist:
discrepancies
and
assortments,
regrouping
Channel
relationships:
vertical
marketing
systems
Market
exposure:
intensive,
selective,
exclusive
o Product
classes
suggest
place
objectives
Product
classes:
summarize
consumers
urgency
to
have
needs
satisfied
and
their
willingness
to
seek
information,
shop
and
compare
Help
us
decide
how
much
market
exposure
is
needed
in
each
geographic
area
o Place
system
is
not
automatic
several
different
product
classes
may
be
involved
requiring
different
strategies
o Place
decisions
have
long-run
effects
Harder
to
change
than
the
other
4
Ps
Hard
to
develop
effective
working
relationships
with
others
in
the
channel
Ex.
Procter
&
Gamble
acquired
Iams
and
needed
more
distribution
for
premium
pet
food.
Science
Diet
has
cooperative
relationships
with
members
of
their
channel
so
P&G
gives
them
special
promotion
support
Channel
system
may
be
direct
or
indirect
o Direct
distribution:
allows
firm
to
control
the
whole
marketing
job;
think
they
can
serve
customer
at
lower
cost
or
do
the
work
better;
middlemen
work
with
many
products
and
possibly
competitors
o Internet
makes
direct
distribution
easier
o If
a
firm
is
in
direct
contact
with
customers,
they
are
more
aware
of
changes
in
attitudes
o Suitable
middlemen
are
not
available:
firm
may
have
to
go
direct
o Many
business
products
are
sold
direct-to-customer
Fewer
transactions,
larger
orders
Service
firms
often
use
direct
channels
as
well
o Most
consumer
products
are
sold
through
intermediaries
o Direct
marketing:
direct
communication
between
a
seller
and
an
individual
customer
using
a
promotion
method
other
than
face-to-face
personal
selling
Not
the
same
as
direct
distribution
Concerned
with
the
promotion
area,
not
place
o When
indirect
channels
are
best:
Sometimes
customers
have
established
buying
patterns
Consumers
are
spread
throughout
many
geographic
areas
and
prefer
to
shop
for
different
products
and
different
places
Direct
distribution
requires
significant
investments
in
facilities,
people
and
information
technology
Middlemen
reduce
a
producers
need
for
working
capital
by
buying
the
producers
output
and
carrying
it
in
inventory
until
its
sold
Some
middlemen
provide
credit
to
customers
at
the
end
of
the
channel
can
reduce
credit
risks
Intermediary
can
help
producers
serve
customer
needs
better
at
lower
cost
Channel
specialists
may
reduce
discrepancies
and
separations
o Middlemen
supply
needed
information
can
anticipate
customer
needs
and
forecast
demand
more
accurately
o Discrepancy
of
quantity:
the
difference
between
the
quantity
of
products
it
is
economical
for
a
producer
to
make
and
the
quantity
final
consumers
or
users
normally
want
o Discrepancy
of
assortment:
difference
between
the
lines
a
typical
producer
makes
and
the
assortment
that
final
consumers
or
users
want
o Channel
specialists
adjust
discrepancies
with
regrouping
activities
o
Regrouping activities: adjust the quantities or assortments of products handled at
each level in a distribution
Four regrouping activities
Accumulating: collecting products from many small producers
o Especially important in less developed countries and agricultural
markets
o Important with professional services
o Internet websites
Bulk-breaking: dividing larger quantities into smaller quantities as
products get closer to the final market
o Several levels of middlemen
Sorting: separating products into grades and qualities desired by different
target markets
Assorting: putting together a variety of products to give a target market
what it wants
o Those closest to final consumer
o Specialists should develop to adjust to discrepancies if they must be adjusted
Channel relationship must be managed
o Marketing manager chooses type of channel relationship: middlemen may make channel
more efficient but its hard to get firms in a channel to work together well
o The whole channel should have a product-market commitment with all members focusing
on the same target market at the end of the channel and sharing the various marketing
functions
o Traditional channel systems: the various channel members make little or no effort to
cooperate with each other; weak relationships besides buying and selling from each other
o Conflict gets in the way
Vertical: between firms at different levels in channel of distribution
Horizontal: firms at the same level in a channel of distribution
Adding new channels creates conflict if they compete with existing middlemen
Treating channel partners fairly builds trust and reduces conflict
o Channel captain can guide channel relationships manager who helps direct the activities
of a whole channel and tries to avoid or resolve channel conflicts
o Some producers lead their channels select the target market, develop the product, set the
price and do some consumer and channel promotion and the place setup middlemen then
finish the promotion job
o Some middlemen are channel captains because they are closer to the final consumer
Vertical marketing focus on final customers
o Vertical marketing systems: channel systems in which the whole channel focuses on the
same target market at the end of the channel
Corporate channel systems: corporate ownership all along the channel, complete
cooperation
May develop vertical integration for stable sources of supplies, better
control of distribution and quality, greater buying power, etc. acquiring
firms of different channel activity
Administered channel systems: channel members informally agree to cooperate
with each other; control maintained by economic power and leadership (GE, Miller
Beer)
Contractual channel systems: channel members agree to cooperate with each
other; members retain some flexibility (McDonalds, Coke)
Traditional channel systems: little to no cooperation and control is maintained by
ownership by one company; independents
Ex. Costco: Vendor managed inventory where the suppliers take responsibility for
managing the sale of a product and place orders when necessary
o Vertical marketing systems are dominant in the marketplace healthy majority of retail
sales
The best channel system should achieve ideal market exposure
o Ideal market exposure: makes a product available widely enough to satisfy target
customers needs but not exceed them
Intensive distribution: selling a product through all responsible and suitable
wholesalers or retailers who will sell the product
Common for convenience products and business supplies
Selective distribution: selling through only those middlemen who will give the
product special attention
Suitable for most categories of products
Reduce costs and get better partners
Used to avoid selling to wholesalers who:
o Make too many returns
o Place orders too small for service calls
o Have a poor credit rating
o Not in a position to do a satisfactory job
Produce greater profits to all channel members
Moves to intensive as the market grows
Exclusive distribution: selling through only one middleman in a particular
geographic area giving up exposure in return for some other advantage like
lower cost; extreme case of selective
Help control prices and services
Vague area under antimonopoly laws
o Horizontal arrangements among competitors are illegal
o Vertical arrangements may or may not be legal
Sylvnia and the distribution of TV sets (1977)
Channel systems can be complex
o Sometimes competition results between different channels
o Multichannel distribution (dual): occurs when a producer uses several competing
channels to reach the same target market like using several middlemen in addition to
selling directly
o Ethical decisions may be required because other members of the channel can be hurt
o Reverse channels: channels used to retrieve products that customers no longer want
part of complete plan for place ones that help the environment can be profitable (Coke
reusing glass bottles)
Entering international markets
o Exporting: selling what the firm produces to foreign markets
o Licensing: selling the right to use some process, trademark, patent or other right for a fee or
royalty; licensee takes most of the risk because requires initial investment to get started
o Management contracting: seller provides only management and marketing skills and
others own production and distribution facilities Hilton low risk approach to
international marketing
o Joint venture: domestic firm enters partnership with foreign firm; make significant
investments and agree on marketing strategy
o Direct investment: parent firm has a division or subsidiary firm in a foreign market so they
have complete control; build reputation by providing jobs
Lecture
7:
Retailing
- Retailing
facts
o Downstream
shift
in
power
(access
to
large/vast
amounts
of
data)
o Over
3.5T
per
year
in
U.S.
o Make
money
from
managing
cash
flow
o Influences
and
incorporates
every
aspect
of
business
o Consumer
spending
accounts
for
over
70%
of
GDP
o Wal-Mart accounts for 3% of US GDP (Worlds largest company)
Retail industry
o Low barriers to entry how Starbucks got started; good for start-ups
o Replication and scale: Starbucks and Wal-Mart found the key differentiating element and
replicated it
o Cash flow- stock market pressure
Low margins
Use cash flow to grow replicate and grow based on cash flow by carrying no debt
Do well in stocks while still growing
Saturate the markets then stop growing or differentiate
Key Metrics
o Total revenue top line: how many sales there are
o Revenue per square foot
o Gross margin %: generally low but trying to maximize is relevant
o Inventory turn: how quickly you sell items
COGS for year/current inventory = turns per year
Balance between sufficient variety (slower turning items) and stock outs (high turn
rate)
Amazon can handle variety and low turn because cost per square foot where their
warehouses are is super low
Long-tail items sell once or twice a year
Wal-Mart
o 1962 first store in Rogers, AR
o Over 8500 outlets in 15 countries, $404B in revenue and $13.6B in profit
o Sold $1.52B on one day
o #1 in groceries, toys, CDs, pet care, etc.
o Sells 30% of diapers, 30% of hair care, 26% of toothpaste, 20% of dogfood
o 1.7 times bigger than all competitors combined and more data than the government
o Density based segmentation: focused on lower density places where there was largely
local retail crew concentrically around AR (keep distribution costs low, go into places
with low competition)
o Agent for customers reduce the cost of living
o EDLP: Every day low price
other companies are promotional based but wal-Mart keeps everything low all of
the time
o Tight control of distribution channels
Lowest cost structure in the industry
Technologically advanced systems individual ID for a specific unit that identifies
and tracks specific items to minimize holding costs and gather customer data
Pass a lot of savings on to consumers but also use power to get low costs for
themselves
Put many grocery chains out of business
Whole Foods
o Positioning away from Wal-Mart
Smaller, Natural Food Market
Affluent, liberal, educated customers
whole foods, whole people, whole plant
Located in university towns and urban areas
Partner with suppliers, dont beat them down like Wal-Mart Declaration of
Interdependence protect their margin now that WalMart sells organic, they
have a hard time getting suppliers
o Higher prices; higher margins, nearly $900 per sq ft
o Product assortment: private labels brands
365
Why retailers want to be brands
Greater profit opportunity from offering a private label
Unique offering creates differentiation from retail competitors more power due to limited
shelf space
o Increased bargaining clout with national brand suppliers
o Reduction in double marginalization (2-3 suppliers) but only one markup in store
Store brand strategies
o Inferior goods strategy: generics lesser quality at a lower price
No longer the main approach
o Exploit installed base: parity quality at a value price
Me- Toos that mimic the leading national brands at a 30% savings
Most common, growing method
People who want to save money or educated people who realize they are the same
o Private label as differentiator
Exclusive brands offering unique quality as good or better than the category leader
at an affordable price
Proprietary brand
o Differentiator: Trader Joes; not like Me-Too brands
Store Brand Architecture
o Umbrella brands
Store or endorsed brands: where all private labels carry the name of the store;
Trader Joes
Group brands: where all products carry a common non-store name across a wide
variety of products, e.g., Presidents Choice, 365
o Exclusive brands: exclusive, quasi or non-endorsed brands unique private label
dedicated to specific product line or category (Mossimo, Isaac Mizrahi, etc.) Choxie
chocolate offered at target
o Branded variants: Ryobi drill exclusive for Home Depot, Target CDs
Strengths and weaknesses of brands
o Strengths
Creates impression of wide product selection, range
Replacement for second and tertiary brands: get rid of low turning brand and
replace it with your own
Exclusive offering reinforces premium products/services
Allows retailer to offer products less compatible with existing brand equity (upscale
or outside core competence)
o Weaknesses
Consumers do not directly associate brand with store
No existing brand equity or track record of success
Fragmented need to launch several own brands to gain sufficient scale
Ex. Longs Drug Brand Architecture: did both umbrella brand and exclusive brand private labels
Private Labels
o A consistent mark reoccurs throughout the store
o Retailer absorbs all marketing and inventory investment
o Distribution and good shelf placement is guaranteed
o Private labels get 100% pass-through, few arbitrage possibilities
o Adds a competitive edge to the traditional buyer-seller relationship
Traditional model: brands outsource distribution to retailers and retailers outsource brand
development to manufacturers
Hybrid distribution: producers go into many channels of distribution brands become retailers
and retailers become brands
Brand becoming retailers
o Use retail stores as a giant advertising billboard
o Greater market coverage
o Control over the brand message
Education and image
o
o
-
-
-
-
-
Allow information free-riding by other retailers
Get info at brand store and buy at others
o Ability to offer the full product line
o Reduce wholesale markdowns by selling through own factory locations
o Reduction in double marginalization
Billboards
Apple: usually flagship stores arent profitable but are for education and free-riding ; Apple is the
exception because they are so unique and well done
o Apple retail stores represent 25% of total apple sales
o Almost 15K visitors per store per week
o Over 300 stores
o About $10B in revenue
o $4300 sales/sq ft relative to best buy $900
Typical new model
-
-
-
Chatper
12:
Retailers,
Wholesalers
and
Their
Strategy
Planning
- Best
Buy
targets
five
key
customer
segments
and
creates
a
store-within-a-store
to
better
meet
the
needs
of
those
segments;
focuses
on
women
suburban
shoppers
offers
Jill
personal
shopping
assistants
- The
Nature
of
Retailing
o Retailing:
covers
all
of
the
activities
involved
in
the
sale
of
products
to
final
consumers
o Consumers
spend
$4.5
trillion
per
year
buying
goods
and
services
from
U.S.
retailers
o Nature
of
retailing
is
related
to
stage
and
speed
of
a
countrys
economic
development
- Planning
a
Retailers
Strategy
o Consumers
have
a
reason
for
buying
from
particular
retailers
o Retailers
whole
offering
(assortment
of
foods
and
services,
advice
from
salesclerks,
convenience,
etc)
is
its
product
o Features
of
offering
that
relate
to
economic
needs
Convenience
Product
selection
Special
services
Fairness
in
dealings
Helpful
information
Prices
o Social
and
emotional
needs
Social
image
Shopping
atmosphere
o Strategy
requires
carefully
set
policies
o Consumer
needs
relate
to
segmentation
and
positioning
Ex.
Prestige
of
Tiffanys
online
jewelry
stores
are
a
completely
different
shopping
experience
o Different
types
of
retailers
emphasize
different
strategies
- Conventional
Retailers
Try
to
Avoid
Price
Competition
o General
stores:
carry
anything
they
can
sell
in
reasonable
volume;
used
to
be
the
main
retailers
in
the
United
States
o Now
most
conventional:
Single-line
or
limited-line
stores
stores
that
specialize
in
certain
lines
of
related
products
rather
than
a
wide
assortment
Often
in
a
limited-line
within
a
broader
single-line
(shoes/clothes)
o Single-line,
limited-line
stores
are
being
squeezed
by
retailers
who
can
vary
their
marketing
mixes
Limited-line
can
satisfy
target
markets
better
Many
keep
prices
up
because
they
are
small
and
have
high
expenses
- Expand
Assortment
and
Service
to
Compete
at
a
High
Price
Specialty
shop:
type
of
conventional
limited-line
store
is
small
and
has
a
distinct
personality
Carefully
defined
target
market
o Department
stores:
larger
stores
that
are
organized
into
many
departments
and
offer
many
product
lines
each
department
like
separate
limited-line
store;
strong
in
customer
services;
major
force
in
big
cities
but
business
has
declined
Evolution
of
mass-merchandising
retailers
o Mass
merchandising
is
different
from
conventional
retailing
retailers
should
offer
low
prices
to
get
faster
turnover
and
greater
sales
volumes
by
appealing
to
larger
markets
o Supermarkets
started
the
move
to
mass-merchandising
Supermarkets:
large
stores
specializing
in
groceries
with
self-service
and
wide
assortments
developed
in
U.S.
during
1930s
during
the
Depression
Must
have
ann
sales
of
at
least
$2mil
but
avg
is
$17mil
40,000
product
lines
and
average
around
45,000
square
feet
Intense
competition
Survival
depends
on
efficiency
o Discount
houses
upset
some
conventional
retailers
Discount
house:
offers
hard
goods
(cameras,
TVs,
appliances)
at
substantial
price
cuts
to
customers
who
would
go
to
the
discounters
low-rent
store,
pay
cash
and
take
care
of
any
service
problems
themselves
o Mass-merchandisers
are
more
than
discounters
self-service,
large
stores
with
many
departments
that
emphasize
soft
goods
(houseware,
clothing,
fabrics)
but
still
follow
discount
house
emphasis
on
lower
margins
for
faster
turnover
(Wal-Mart,
Target)
Wal-Mart
handles
30%
of
more
of
total
national
sales
for
categories
of
products
High-tech
systems
to
remove
efficiencies
Expanding
internationally
o Supercenters
meet
all
routine
needs
(hypermarkets)
very
large
stores
that
carry
not
only
food
and
drug
items
but
all
goods
and
services
that
consumers
purchase
routinely
to
meet
all
needs
at
a
low
price
Convenient
but
often
long
lines
o New
mass-merchandising
formats
like
the
warehouse
club
keep
coming
Annual
membership
fee
to
shop
in
them
Wholesale
clubs
Low
price
o Single-line
mass-merchandisers
are
coming
on
strong
IKEA,
Home
Depot,
PetSmart,
etc
attract
lots
of
customers
at
low
prices
in
specific
product
category
(category
killers
because
hard
for
others
to
compete)
Some
retailers
focus
on
added
convenience
o Convenience
(food)
stores
must
have
the
right
assortment
limit
stock
to
pickup
or
fill-in
items
like
bread
and
milk
and
many
sell
gas;
higher
priced
o Automatic
vending:
selling
and
delivering
products
through
vending
machines;
vending
machines
are
convenient
(1.5%
of
total
retail
sales
in
the
U.S.)
o Door-to-door
selling
are
still
important
for
some
firms
but
its
becoming
obsolete
o Telephone
and
direct-mail
retailing:
time
pressured
and
dual-career
families
like
this
because
they
can
shop
at
home
and
charge
to
credit
cards
o Put
the
catalog
on
cable
TV
or
computer
QVC
Retailing
on
the
internet
o Still
in
its
growth
stages
e-commerce
purchases
have
grown
at
a
fast
rate
o Biggest
gain
in
faster,
lower-cost
information
flows
result
in
more
efficiency
o Failure
to
understand
back
door
has
hurt
internet
retailers
because
they
focus
on
moving
information
versus
actually
moving
goods
o Convenient
because
consumer
can
get
to
a
very
wide
assortment;
but
inconvenient
because
you
have
to
plan
ahead
and
cant
inspect
products
on
the
internet
o Better
information
available
(more
and
less
at
the
same
time)
o Virtual
malls
like
Amazon
o
The costs are sometimes misleading w/ delivery costs
Retailers are refining their online efforts
Using a website to supplement stores promote best products
Use website to complement stores or catalogs (different benefits)
Being more efficient than competitors
Being very focused on specific needs of target customers
Why retailers evolve and change
o Wheel of retailing theory: new types of retailers enter the market as low-stats, low-margin,
low-price operators and then, if successful, evolve into more conventional retailers offering
more services with higher operating costs and higher prices
Threatened by new low-status, low-margin retailers and the wheel turns again
o Scrambled merchandising: carrying any product lines they think can sell profitably
o Product-life cycle concept applies too
o Ethical issues may arise due to competitive pressure
Retailer size and profits
o Larger retail stores do most of the business 11% of stores account for 70% of the sales
o Corporate chain: firm that owns and manages more than one store a way for retailers to
achieve economies of scale; use central buying for different stores and take advantage of
quantity discounts; dealer brands
o Cooperative chains: retail-sponsored groups formed by independent retailers that run
their own buying organizations and conduct joint promotion efforts
o Voluntary chains: wholesaler-sponsored groups that work with independent retailers (Ace
Hardware)
o Franchise operation: franchisor develops a good marketing strategy and the retail
franchise holders carry out the strategy in their own units (about half of all retail sales)
Differences in retailing in different nations
o Consumers in less developed nations dont have income to support mass distribution
o Political and legal environment severely limits the evolution of retailing in some nations like
Japan and the Large Store Law requiring permits
What is a wholesaler?
o Wholesaling: activities of those persons or establishments that sell to retailers and other
merchants, or to industrial, institutional and commercial users but that do not sell in large
amounts to final consumers
o Wholesalers: firms whose main function is providing wholesaling activities
Wholesaling is changing with times
o Used to dominate the distribution channels
o Producing value and profits rather than chasing orders
o Friedas fruits and vegetables, airfreight for orders and sends produce managers a weekly
hot sheet about the best sellers
Wholesalers add value in different ways
o Manufacturers sales branches: warehouses that producers set up at separate locations
away from their factories; classified as wholesalers and account for over a quarter of
wholesale sales
o Service merchant wholesaler: provides all the functions; owns the products general
merchandise wholesalers, single-line wholesalers, specialty
o Limited-function wholesalers: own the products but only provide some functions
o Wholesalers who dont own the products are agent middlemen
Merchant wholesalers are the most numerous
o Merchant wholesalers: own the products they sell; 90% of wholesaling establishments in
the United States
o Service wholesalers provide all the functions
General merchandise wholesalers: carry variety of nonperishable items; broad
line of convenience and shopping products
Single-line wholesalers: narrower line of merchandise; wide geographic area and
specialized service
o
o
Specialty wholesalers: carry a narrow range of products and offer more
information and service than others
o Limited-function wholesalers: only some wholesaling functions
Cash-and-carry: customers must pay cash; common in less developed nations
Drop-shoppers: own the products they sell but do not actually handle, stock or
deliver them
Truck wholesalers: specialize in delivering products that they stock in their own
trucks
Rack jobbers: specialize in hard-to-handle assortments of products that a retailer
doesnt want to manage
Catalog wholesalers: sell out of catalogs that may be distributed widely to smaller
industrial customers
Agents are strong on selling
o Agent wholesalers: wholesalers who do not own products they sell main purpose is to
help in buying or selling; common in international trade
o Manufacturers agents sell similar products for several noncompeting producers for a
commission on what is actually sold
o Export or import agents: manufacturers agents who specialize in international trade
o Brokers: bring buyers and sellers together
o Selling agents: take over marketing job of producers
o Combination export manager: blend of manufacturers and selling agent handling the
entire export function
o Auction companies: place where buyers and sellers can come together and bid for products
Lecture
8:
Product
Life
Cycle
- Cycle:
Introduction
Growth
Maturity
Decline
o Refrigerators
have
been
in
the
mature
phase
for
60
70
years
stages
can
vary
in
length
of
time
- Profits
decline
during
introduction
and
start
to
decline
again
toward
the
end
of
the
growth
phase
- Number
of
firms
peaks
at
end
of
introduction
phase
but
peak
profitability
is
usually
in
the
growth
phase;
number
of
competitors
starts
to
come
down
because
superior
products
with
market
share
begin
to
take
over
- Introduction
stage
o A
new
product
is
brought
to
market:
market
development
stage
o Demand:
unproven,
must
be
created
o Product:
attributes/functions
may
not
be
fully
developed
o Sales:
low
and
slow
o Competition:
sparse
o Profitability:
not
much;
firms
must
be
able
to
invest
a
lot
o Firms
with
high
risk
tolerance
- Growth
stage
o The
market
is
expanding
rapidly:
takeoff
stage
o Product:
differentiation
begins;
new
variety
of
features
o Sales:
steadily
increasing
o Competition:
immense
increase;
new
entrants
and
new
customers
o Profitability:
increasing
o Risk:
moderate
- Mature
stage
o Intense
competition
on
all
4
Ps
o Clear,
fairly
static
segmentation
Experienced
well-informed
buyers
Slowdown
in
new
customer
acquisition
No
technological
breakthroughs
Repeat/replacement
sales
are
key
Squeeze
out
profits
however
possible
Niche
branding:
high
end
vs.
low
end
fridge
Differentiation
on
minor
attributes
Cost-cutting
and
efficiency
increases
o Market
share
and
cashing
in
on
repeat
sales
is
valued
at
least
as
much
as
profits
Decline
stage
o Sales
and
profits
declining
o Virtually
no
new
customers
(or
firm
investments)
o Often
due
to
dominant
replacement
technology
o Four
basic
strategies
Withdraw
Harvest:
remain
but
invest
as
little
as
possible
Niche:
find
remaining
pocket
of
demand
Market
leadership:
create
new
innovation
Adopters
Categories
based
on
innovativeness
different
types
of
customers
play
a
role
in
diffusion
of
ideas
if
they
like
a
product
it
spreads
because
influential
people
can
send
it
into
rapid
growth
o Innovators
2.5%:
pick
up
a
product
and
pass
to
early
adopters;
you
can
be
an
innovator
in
one
field
but
not
another
o Early
adopters
13.5%
o Early
majority
34%
o Late
majority
34%
o Laggards
16%
Evolution
of
an
epidemic
o Estimated
AIDS
incidence
through
2000
o
o
Introduction
Strategies:
two
key
issues
o Trial
vs.
repeat
sales:
diffusion
Trial
products
are
generally
more
successful
o Skim
vs.
penetration:
launch
strategy
Trial-Repeat
Decomposition
o Trial
depends
on
distribution
and
awareness
o Repeat
depends
on
customer
satisfaction
and
is
much
more
indicative
of
product
profitability
o The
process
of
buying
a
new
product
is
different
for
a
first
time
buyer
versus
a
repeat
buyer
Becoming
aware
and
choosing
to
try
it
Evaluating
and
purchasing
it
-
-
Using
it
Evaluating
it
o The
long
run
success
of
a
new
product
is
more
closely
associated
with
repeat
sales
than
trial
sales
Skim
vs.
Penetration
o Skim:
Start
slow,
then
grow
Follow
the
diffusion
of
innovation
framework
Firm
can
extract
max
value
from
most
interested
customers
Can
be
profitable
from
the
start
but
big
money
comes
later
with
larger
distribution
Enables
testing
of
products
Biggest
innovators
want
the
best
first
High
price
only
marketed
to
those
who
want
it
the
most
o Classic
Skim
Product
Risk
of
product
failure:
Swiffer:
so
what
it
costs
$10
(penetrate)
Botox:
your
face
is
paralyzed
(skim)
Divisibility:
how
easy
is
it
to
try?
Swiffer:
easy
to
try;
high
divisibility;
borrow
or
buy
and
still
have
a
broom
(penetrate)
Botox:
cant
try
it
on
half
of
your
face;
do
it
or
dont
(skim)
o Penetration:
big
bang!
Mass
market
from
the
beginning
Number
of
new
adopters
peaks
early
Requires
significant
resources,
but
can
yield
high
ROI
ACCORD:
what
product
fits
into
what
category
o Relative
ADVANTAGE
to
what
it
replaces
Swiffer
slightly
better
than
brooms
penetration
Botox
much
better
than
creams
skim
o COMPATIBILITY
with
current
behaviors
Swiffer
same
process
Botox
not
at
all,
must
go
to
doctor
o COMPLEXITY
of
communicating
the
benefits
Swiffer:
simple
advertisement
Botox:
complex,
doctors
visits,
etc.
o OBSERVABILITY
of
the
products
benefits
Swiffer:
easy
Botox:
complications
and
if
done
well,
you
cant
notice
o RISK
of
product
failure
o DIVISIBILITY
or
trialability
Strategies for introduction (relative amounts over time)
o High price, low selling effort: skim
o Low price, high selling effort: penetration
Sometimes products fall clearly into one or the other but some dont
Red
Bull:
innovator
in
energy
drinks;
looks
more
like
a
penetration
product
but
they
dont
have
built
in
distribution;
cant
be
high
risk;
communicating
the
benefits
are
not
as
clear
company
chose
to
skim
because
they
did
not
have
the
capital
to
penetrate
Classic
Skim
Products
o Hybrid
corn
seed:
good
advantages,
high
risk
who
adopts
the
product
o S
curve
were
new
adopters
is
a
bell
curve
but
cumulative
production
consistently
grows
and
levels
off
(even
technology)
o
Class
Penetration
Products:
cumulative
Introduction Phase
Growth Phase: migrate to the opposite segment
Mature
Phase
o Tide
laundry
detergent:
high
price,
high
selling
effort
o Other
PG
laundry
detergent:
low
price
and
low
selling
effort
-
-
How
to
get
the
most
out
of
the
end:
o Compare
your
strengths
and
weaknesses
as
you
try
to
reach
small
pockets
of
demand
like
your
competitors
o Starbucks:
possess
competitive
strengths
for
remaining
demand
pockets
Industry
structure:
could
still
get
coffee
and
store
front
so
they
could
take
a
leadership
or
niche
position
they
did
both
when
the
developed
the
coffee
culture
and
brought
coffee
back
to
a
period
of
growth
Practical
problems
with
the
PLC
o Sales
patterns
often
arent
very
smooth
Noisy
data
Sometimes
cant
sort
out
trial
vs.
repeat
Hard
to
know
which
stage
of
PLC
is
in
effect
o Conflicting
factors
make
it
hard
to
judge
skim
vs.
penetration
o Questions
about
cause-and-effect
Does
PLC
drive
strategy
or
vice
versa?
Can
become
a
self-fulfilling
prophecy
o Level
of
analysis
Generally
applies
for
the
(sub)category,
not
specific
brands
Chapter
9:
Product
Management
and
New
Product
Development
- iRobot
story:
robotic
vacuum
cleaner
Roomba;
simple
to
use;
sent
home
with
employees
for
testing;
added
vacuum
to
sweeper
to
add
consumer
value;
helped
people
who
hate
to
vacuum
- Product
life
cycle:
describes
the
stages
a
new
product
goes
through
from
beginning
to
end
o Market
introduction:
sales
are
low
as
an
idea
is
first
introduced
into
the
market
and
customers
are
unaware
of
it;
most
companies
experience
losses;
need
promotion
information
Product:
One
or
few
products
Place:
build
channels
Promotion:
build
primary
demand;
pioneer
info
Price:
skimming
or
penetration
Competitive
situation:
monopoly
or
monopolistic
competition
o Market
growth:
industry
sales
grow
fast
but
profits
rise
and
then
start
falling
Big
profits
as
more
customers
buy
but
competitors
then
enter
the
market
and
result
in
monopolistic
competition/oligopoly
Biggest
profits
for
the
industry
Profits
begin
to
decline
towards
end
of
this
stage
because
consumer
price
sensitivity
increases
Product:
variety
try
to
find
the
best
and
build
brand
familiarity
Promotion:
build
selective
demand;
persuade
Price:
meet
competition;
price
dealing
and
cutting
o Market
maturity:
industry
sales
level
off
and
competition
gets
tougher
Aggressive
competitors
have
entered
in
the
race
for
profits
Promotion
costs
rise
and
some
competitors
cut
prices
Persuasive
promotion
becomes
important
because
products
only
differ
slightly
Long-run
downward
pressure
on
prices
Late
entries
skip
early
phase
of
life-cycle
Battle
of
brands;
heading
toward
pure
competition
o Sales
decline:
new
products
replace
the
old
ones
and
price
competition
becomes
vigorous
for
dying
products
Product
life
cycles
should
be
related
to
specific
markets
o Individual
brands
may
not
follow
the
pattern
of
the
life-cycle
can
introduce
or
drop
a
product
during
any
stage
of
the
product
life
cycle
o Me
too
brands
may
suffer
quick
deaths
like
when
Wal-Mart
tried
to
rent
DVDs
by
mail
around
the
time
of
Netflix
o Each
market
should
be
carefully
defined
shorter
product
life
cycles
in
these
small
markets
because
constant
new
products
to
replace
the
old
Product
life
cycles
vary
in
length
(90
days
to
100
years)
o New
product
idea
moves
through
early
stages
of
life
cycle
more
quickly
when:
fast
adoption
of
the
DVD
player
Greater
comparative
advantage
Easy
to
use
Advantages
are
easy
to
communicate
Can
be
tried
on
a
limited
basis
without
a
lot
of
risk
Compatible
with
customer
interests
o General
product
life
cycles
are
getting
shorter
due
to
rapidly
changing
technology
o Fast
copiers
of
basic
ideas
win
in
the
market
growth
stage
o Sales
of
some
products
are
influenced
by
fashion
(really
fast
changes)
short
product
life
cycles
(Zara)
o Fad:
idea
that
is
fashionable
only
to
certain
groups
who
are
enthusiastic
about
it
do
well
with
short-lived
cycle
Planning
for
different
stages
of
the
product
life
cycle
o Pioneers
may
need
help
for
competitors
to
stimulate
growth
of
the
whole
product
market
Skim
the
market
charge
high
price
to
pay
for
intro
costs
Penetrate
charge
low
price
to
develop
loyal
customers
early
o Manage
maturing
products
Nabisco
creates
Teddy
Grahams
o Improve
the
product
or
create
a
new
one
Tide
(55
modifications)
o Phasing-out
is
a
strategy
and
must
be
marketing-oriented
to
cut
losses
New
Product
Planning
o New
product:
one
that
is
new
in
any
way
for
the
company
concerned;
even
variations
on
existing
products
o Federal
Trade
Commission:
federal
government
agency
that
policies
antimonopoly
laws;
to
be
called
new,
a
product
must
be
entirely
new
or
changed
in
a
functionally
significant
respect
o Ethical
issues
holding
back
important
new
product
innovations
in
medicine
until
patents
run
out
or
sales
slow
down
An
organized
new
product
development
process
is
critical
hypothesis
is
that
the
new
product
idea
will
not
be
profitable
Idea
generation
Reverse
engineering
other
products
o Screening
SWOT
Screen
based
on
consumer
welfare
Safety
must
be
considered
Consumer
Product
Safety
Act:
set
up
CPSC
to
encourage
safety
in
product
design
Products
can
turn
to
liabilities
legal
obligation
of
sellers
to
pay
damages
to
individuals
who
are
injured
by
defective
or
unsafe
products
ROI
should
be
compared
for
each
idea
o Idea
evaluation
Concept
testing:
getting
reactions
from
customers
about
how
well
a
new-product
idea
fits
their
needs
Looking
for
evidence
that
this
is
not
a
good
idea
o Development
R&D
Computer-aided
design:
lifelike
images
of
packages
and
products
for
designs
Test
before
firm
commits
to
full-scale
efforts
o Commercialization
New-Product
Development:
Total
Company
Effort
o Top-level
support
is
vital
o A
culture
of
innovation
like
Google
who
spends
20%
of
time
on
new
ideas
o Market
needs
guide
R&D
effort
marketing-oriented
firms
seek
to
satisfy
customer
needs
at
a
profit
with
an
integrated,
whole
company
effort
Need
for
product
managers
o Product/brand
managers:
manage
specific
products;
common
in
large
companies
that
produce
many
kinds
of
products
Managing
product
quality
o Total
quality
management
(TQM):
philosophy
that
everyone
in
the
organization
is
concerned
about
quality,
throughout
all
of
the
firms
activities,
to
better
serve
customer
needs
o Cost
of
poor
quality
is
lost
customers
o Continuous
improvement
sorting
out
of
things
gone
right
and
wrong
o Starting
with
customer
needs
o Slay
the
dragons
first
Pareto
chart:
graph
that
shows
the
number
of
times
a
problem
occurs
from
most
frequent
to
least
frequent
o Figure
out
why
things
go
wrong
Fishbone
diagram:
visual
aid
that
helps
organize
cause
and
effect
relationships
for
things
gone
wrong
o Train
and
empower
people
to
serve
Empowerment:
giving
employees
the
authority
to
correct
a
problem
without
first
checking
with
management
o Managers
lead
the
quality
effort
o Specify
jobs
and
benchmark
performance
Benchmarking:
picking
a
basis
of
comparison
for
evaluating
how
well
a
job
is
being
done
o
-
-
Lecture
9:
Pricing
- Price
planning:
develop
pricing
objectives
estimate
demand
determine
costs
evaluate
pricing
environment
choose
pricing
strategy
choose
pricing
tactics
- Pricing
objectives
o Drive
sales
or
drive
market
share
Steinway
Pianos:
35%
of
market
share
in
profit
but
only
2%
share
of
units
In
mature
markets
with
strong
competitors,
primary
goal
is
to
build
or
maintain
market
share
Profit
Competitive
effect:
use
price
to
disrupt
competitor
product
launch
Crest
was
introducing
electric
toothbrush
at
a
low
price
and
Colgate
dropped
their
price
right
before
the
launch
o Customer
satisfaction
o Image
enhancement:
perceptual
maps
as
tool
for
perceptions
to
reestablish
Burburry
as
a
luxury
brand,
they
raised
priced
across
the
board
by
25%
Estimating
Demand
o
o
For
most
goods,
as
price
decreases
quantity
demanded
increases
but
it
is
not
perfectly
linear
sweet
spot
where
you
are
maximizing
revenue
at
a
certain
demand
level
o Elasticity:
the
more
vertical
the
line
is,
the
more
inelastic
the
demand
curve
is
changes
in
price
dont
affect
demand
as
much
(Gas,
cigarettes)
o Luxury
goods
have
the
rainbow
curve:
priced
high
and
lower
demand
but
if
you
price
too
low,
demand
goes
down
even
more
because
its
no
longer
seen
as
a
great,
luxurious
product
you
dont
want
to
round
the
curve
Pricing
environment
o Economic
factors:
in
a
bad
economy,
people
are
frugal
and
have
low
confidence
so
it
is
very
hard
for
companies
to
raise
prices;
however,
the
costs
of
raw
materials
are
rising
which
presents
a
struggle
for
companies
instead
they
decrease
the
size
of
their
goods
because
consumers
are
more
sensitive
to
changes
in
price
than
quantity
o Competitive
factors:
easier
to
raise
prices
in
a
monopolistic
environment
than
in
a
perfectly
competitive
environment
o Channel
concerns:
if
you
raise
prices,
it
also
raises
them
at
the
wholesale
and
retail
level
o Consumer
trends:
cross-category
shopping
o Governmental
concerns:
when
is
changing
size
too
sneaky?
Stay
within
the
law.
Pricing
strategies
o Cost-plus:
just
add
a
certain
amount
to
the
price
of
the
product;
determine
cost
and
factor
in
a
margin
o Competition-based
Going
rate
Price-leadership:
usually
a
low
price
but
could
mean
setting
the
standard
for
competition
like
GE
o Demand-based
what
customers
are
willing
to
pay
Target
costing:
we
figure
out
what
people
are
willing
to
pay
and
use
these
insights
to
develop
the
product
Crest
Spin
Brush:
X#
of
attributes
at
a
particular
retail
price
Yield
management
Managing
capacity
while
maximizing
revenue;
businesses
with
fixed
capacity
like
airlines
and
hotels
Hiltons
FC
is
to
have
hotel
70%-80%
occupied
or
they
dont
make
money
Balance
filling
capacity
and
maximizing
revenue
o Value-based
EDLP
(Everyday
Low
Price):
beyond
price
leadership;
price
delivers
value
beyond
savings
o
Time value and convenience
Dont have to shop around; nothing ever goes on sale
EVS: Economic Value to Customer
Does it make sense to charge $100 if it is work $20K to customer? Price in
some of that value and charge $5K or something
Apple delivers value on other dimensions and price in that because people
pay higher amounts for ease of use, sleek design, etc.
o New product
Skimming: charge a high price at the get-go
Penetrating: charge a low price and mass produce
Trial
Pricing Tactics
o Individual products
Two-part pricing: (phones) subscription based so activation fee and monthly fee
Payment pricing: multiple payments, mortgages
Ford pioneered this with cars, QVC, Paypal, etc.
o Multiple products
Bundling: you can sell more by pairing things that sell less
Captive pricing: charge low price for razor and high price for blades charge a
premium price when the consumer is captured for the complement
o Channel-based: prices differ based on channel consumers are buying them through
o E-Commerce
Dynamic pricing: altering prices in real time to effect changes in supply and
demand
Coke piloted vending machines and charged a higher price when it was hot
Auction: 24/7 auction for your site to come up on a google search; people bidding
for the product
Google top expensive hits: Carribean cruise, city names, back pain (law
firms, medical services, pharma all want it)
o Psychological
Reference prices: Taco Bell didnt match fast food prices
Price-Quality inferences
Odd-Even pricing: even numbers for high quality items
Price lining: creates reference points (limited number of prices for all products)
Promotional cues: sales, limited time, etc.
Chapter
16:
Pricing
Objectives
and
Policies
- PDT
(Pure
Digital
Technologies):
sold
one-time
use
digital
cameras
for
$10.99;
sales
for
next
product,
the
camcorder,
were
slow
but
it
generated
a
lot
of
online
buzz;
customers
looking
for
something
reusable
led
to
the
Flip
for
$130
and
added
better
quality
products
to
the
line
- Key
pricing
policies:
o How
flexible
prices
will
be
o Levels
of
prices
of
PLC
o To
whim
and
when
discount
allowances
will
be
given
o How
transportation
costs
will
be
handled
- Price:
amount
of
money
that
is
charged
for
something
of
value
o Almost
every
business
transaction
involves
an
exchange
of
money
the
price
for
something
else
o List
price
less
discounts
(quantity,
seasonal,
cash,
temporary
sales),
less
allowances
(trade-
ins,
damages),
less
rebate
and
coupon
value,
less
transportation
and
taxes
- Profit-Oriented
Objectives
o Target
return
objective:
sets
a
specific
level
of
profit
as
an
objective;
states
as
%
of
sales
or
capital
investment
Profit
maximization
objective:
seeks
to
get
as
much
profit
as
possible;
doesnt
always
lead
to
high
prices
Sales-Oriented
Objectives:
seek
some
level
of
unit
sales,
dollar
sales
or
share
of
sales
without
referring
to
profit
o More
concerned
about
sales
growth
o Nonprofits
set
prices
to
increase
market
share
because
they
arent
trying
to
earn
a
profit
Status-Quo
Pricing
Objectives:
dont
rock
the
boat;
managers
satisfied
with
current
market
share
and
profits;
common
when
total
market
is
not
growing
o Nonprice
competition:
aggressive
action
on
one
or
more
of
the
Ps
other
than
price
Most
firms
set
specific
pricing
policies
o Administered
prices:
consciously
set
prices;
rather
than
market-determined
o Other
channel
members
may
wish
to
administer
prices
to
achieve
their
own
objectives
(Alcoa
offered
wholesalers
30%
discount
and
expected
them
to
pass
to
customers
but
they
didnt)
Price
flexibility
policies
o One-price
policy:
offering
the
same
price
to
all
customers
who
purchase
products
under
the
same
conditions
in
same
quantities
(majority
of
firms)
o Flexible-price
policy:
offering
the
same
product
and
quantities
to
different
customers
at
different
prices;
computer
data
base
Frequent
shopper
club
members
get
reduced
prices
by
scanning
their
club
card
Priceline.com
consumers
can
set
their
own
price
Retail
shoppers
in
less
developed
economies
(range
for
price
charged)
Price
cuts
can
have
a
big
impact
on
profit
Price-level
policies
over
the
PLC
o Skimming
price
policy:
tries
to
sell
the
top
(skim
of
the
cream)
of
market
top
of
demand
curve
a
high
price
before
aiming
at
more
price-sensitive
customers;
may
max
profits
in
introduction
phase
for
an
innovation
Should
not
be
used
on
products
with
important
social
consequences
like
life-saving
drugs?
Slow
reduction
in
price
over
time
Example:
McCaw
Cellular
Communications
pioneered
cell
phone
service
and
was
bought
out
by
AT&T
drastic
price
cuts
with
innovations
over
time
o Penetration
pricing
policy:
tries
to
sell
the
whole
market
at
one
low
price
Wise
when
the
elite
market
is
small
Elastic
demand
Competitive
environment
Ex.
Sony
Blu-ray
players
needed
to
get
quick
adoptions
but
they
priced
below
the
production
cost
but
upped
the
price
of
PS3
to
make
up
for
it
o Introductory
price
dealing:
temporary
price
cuts
to
speed
new
products
into
a
market
and
get
customers
to
buy
them
o Changes
in
exchange
rates
can
have
the
same
effects
as
price
cuts
Discount
policies
reductions
from
list
prices
o Basic
list
prices:
prices
final
customers
are
normally
asked
to
pay
for
products
o Discounts:
reduction
in
price
given
to
buyers
who
can
either
give
up
some
marketing
function
or
provide
the
function
themselves
o Quantity
discounts:
offered
to
encourage
customers
to
buy
in
large
amounts
o Cumulative
quantity
discounts:
apply
to
purchases
over
a
given
period
and
the
discount
usually
increases
over
time;
encourages
repeat
buying
o Noncumulative
quantity
discounts:
only
apply
to
individual
orders
o Seasonal
discounts:
encourages
buyers
to
buy
earlier
than
present
demand
requires
o Net:
payment
for
the
face
value
of
the
invoice
is
due
immediately
(net
10
=
payment
is
due
in
10
days)
o Cash
discounts:
reductions
in
price
to
encourage
buyers
to
pay
their
bills
quickly
o 2/10,
net
30:
buyer
can
take
a
2%
discount
of
the
face
value
of
the
invoice
if
the
invoice
is
paid
within
10
days;
if
not,
full
value
is
due
within
30
days
o
-
-
Trade
(functional)
discount:
list
price
reduction
given
to
channel
members
for
the
job
they
are
going
to
do
giving
wholesalers
a
discount
to
pass
to
customers
o Sale
price:
temporary
discount
from
list
price
to
encourage
immediate
buying
o EDLP:
setting
a
low
list
price
rather
than
relying
on
frequent
discounts
Allowance
policies
off
list
prices
o Allowances:
given
to
final
consumers,
customers
or
channel
members
for
doing
something
or
accepting
less
of
something
o Advertising
allowances:
price
reductions
given
to
firms
in
the
channel
to
encourage
them
to
advertise
the
suppliers
products
locally
3%
discount
to
its
retailers
so
that
they
advertise
o Stocking
allowances/slotting:
given
to
an
intermediary
to
get
shelf
space
for
a
product
(supermarkets)
Is
this
ethical?
o Push
money
(or
prize
money)
allowances:
PMS/Spiffs
given
to
retailers
by
manufacturers
or
wholesalers
to
pass
on
to
the
retailers
salesclerks
for
aggressively
selling
certain
items
o Trade-in
allowance:
price
reduction
given
for
used
products
when
similar
new
products
are
bought
Coupons:
increase
sales
and
are
usually
paid
for
the
trouble
of
handling
coupons
Rebates:
refunds
paid
to
customers
after
a
purchase;
give
a
producer
a
way
to
ensure
that
final
consumers
actually
get
the
price
reduction;
growing
consumer
backlash
regarding
rebates
List
price
may
depend
on
geographic
pricing
policies
o F.O.B.
free
on
board
some
vehicle
at
some
place
seller
pays
the
cost
of
loading
the
products
onto
some
vehicle,
then
title
to
the
products
passes
to
the
buyer
who
pays
freight
and
takes
responsibility
for
damage
in
transit
F.O.B.
delivered:
firm
wants
to
pay
freight
for
convenience
of
customers
so
title
passes
at
delivery
F.O.B.
shipping
point:
simplifies
sellers
pricing
but
narrows
market
o Zone
pricing:
making
an
average
freight
charge
to
all
buyers
within
specific
geographic
areas;
seller
pays
actually
charge
and
bills
each
customer
for
an
average
charge
o Uniform
delivered
pricing:
average
freight
charge
to
all
buyers
Used
when
transportation
costs
are
low
Seller
wishes
to
sell
in
all
areas
at
one
price
o Freight-absorption
pricing:
absorbing
freight
costs
so
a
firms
delivered
price
meets
that
of
the
nearest
competitor
Pricing
policies
combine
to
impact
customer
value
o Value
pricing:
setting
a
fair
price
level
for
a
marketing
mix
that
really
gives
that
target
market
superior
customer
value
Ex.
Toyota,
Wendys
Clearly
define
the
relevant
target
market
and
competitors
Meeting
competitor
prices
may
be
necessary
Legality
o Unfair
trade
practice
acts:
put
a
lower
limit
on
prices,
especially
at
the
wholesale
and
retail
levels
required
to
take
a
certain
minimum
percentage
of
their
markup
over
merchandise-
plus-transportation
costs
to
protect
certain
kinds
of
limited-line
food
retailers
o Dumping:
pricing
a
product
sold
in
a
foreign
market
below
the
cost
of
producing
it
in
a
domestic
market
antidumping
laws
to
protect
countrys
domestic
producers
and
jobs
Overseas
steel
producers
selling
at
a
lower
price
in
the
U.S.
than
at
home
o Phony
list
prices:
price
customers
are
shown
to
suggest
the
price
has
been
discounted
from
the
list
o Wheeler
Lea
Amendment:
bans
unfair
or
deceptive
acts
in
commerce;
tries
to
ban
phony
list
prices
o Price
fixing:
competitors
getting
together
to
raise,
lower
or
stabilize
prices
completely
illegal
in
the
United
States
o Producers
may
set
minimum
retail
prices
o Robinson-Patman
Act:
makes
price
discrimination
illegal
o
-
-
-
Price discrimination: selling the same products to different buyers at different
prices if it injures competition
Allows a marketing manager to charge different prices for similar products if they
are not of like grade and quality
Allows price differences for cost differences (shipping costs)
Some firms violate the act by providing push money and advertising allowances
Chapter
17:
Price
Setting
in
the
Business
World
- War
between
prices
of
LCD
flat
screen
TV
and
prices
tumbled
over
40%
in
one
year
- Price
setting
is
a
key
strategy
decision
o Cost-oriented:
requires
estimate
of
total
number
of
units
to
be
sold
that
determine
the
average
FC
per
unit
and
thus
the
ATC
add
desired
profit
per
unit
to
ATC
to
get
cost-
oriented
selling
price
o Demand-oriented
- Some
firms
just
use
markups
a
dollar
amount
added
to
the
cost
of
products
to
get
the
selling
price
(usually
stated
as
percentages)
o Markup
(percent):
percentage
of
selling
price
that
is
added
to
the
cost
to
get
the
selling
price
$1.20
markup
on
$3.60
price
is
markup
of
33.33%
o May
change
it
based
on
cost
o Many
use
a
standard
markup
percent
and
apply
it
to
all
of
their
products
because
operating
expenses
are
usually
similar
o Markups
are
related
to
gross
margins
amount
left
after
subtracting
COGS
From
net
sales
to
cover
the
expenses
of
selling
products
and
operating
the
business
markup
should
be
close
to
gross
margin
percent
o Markup
chain:
sequence
of
markups
firms
use
at
different
levels
in
a
channel
determines
the
price
structure
in
the
whole
channel
because
markup
is
figured
on
the
selling
price
at
each
level
in
a
channel
Each
markup
should
cover
costs
of
running
business
and
leave
a
profit
o High
markups
dont
always
mean
high
profits
because
you
may
lose
customers
o Lower
markups
can
speed
turnover
and
the
stockturn
rate
the
number
of
times
the
average
inventory
is
sold
in
a
year
o Mass-merchandisers
put
low
markups
on
fast-selling
items
and
higher
markups
on
items
that
sell
less
frequently
o Rule
of
thumb
formula
Selling
price
=
Average
production
cost
per
unit
x
3
- Average
cost
pricing
is
common
and
can
be
dangerous
adding
a
reasonable
markup
to
the
average
cost
of
a
product
o Doesnt
consider
cost
variations
at
different
levels
of
output
o Calculation
of
reasonable
price
=
expected
total
costs
and
planned
profit
/
planned
number
of
items
to
be
sold
o Average
cost
per
unit
usually
drops
as
quantity
produced
increases
- Marketing
managers
must
consider
various
kinds
of
costs
o Total
cost
Total
fixed
cost
Total
variable
cost
Total
cost
o Average
cost
Average
cost
per
unit:
total
cost
/
relative
quantity
Average
FC:
goes
down
as
quantity
decreases
Average
VC:
assume
the
same
for
each
unit
o Ignoring
demand
is
major
weakness
of
Average
Cost
pricing
Works
if
they
sell
quantity
they
used
to
set
the
price
Need
some
estimate
of
quantity
to
be
sold
Ignores
competitors
costs
and
prices
Break-even analysis can evaluate possible prices
o B/E Analysis: evaluates whether the firm will be able to cover all their costs with a
particular price
o B/E Point: quantity where firms total cost will just equal total revenue
o Breakeven charts help find the BEP (where the total cost and total revenue lines intersect)
the difference between the two at a given quantity is profit or loss
o BEP in units = Total FC / Fixed cost contribution per unit
Multiply by per-unit price for BEP in dollars
Can compute for several different prices
Often misunderstood because demand curves change
Marginal analysis considers both costs and demand
o Marginal analysis: focuses on changes in total revenue and total cost from selling one more
unit to find the most profitable price and quantity
Shows how costs, profit and revenue change at different prices
o Manager needs to estimate demand curve to compute total revenue
o Profit is the difference between total revenue and total cost
Focuses on the price that earns the highest profit usually a range of profitable
prices
o Encourages managers to think about what they do know about costs and demand
More demand-oriented approaches
o Know what influences customers price sensitivity
o When customers have substitute ways of meeting a need, they are likely to be more price
sensitive easiest when they can compare prices
o People are less price sensitive when somebody else pays the bills or shares the cost
o More price sensitive the greater the total expenditure
o Less price sensitive the greater the significance of the end benefit
o Less price sensitive if there are switching costs
o Value in use pricing: setting prices that will capture some of what customers will save by
substituting the firms product for one currently being used
o Auctions show what a customer will pay FCC, eBay
o Some sellers use sequential price reductions over time
o Customers may have reference prices that they expect to pay for a product customers
may view product as better value if a firms price is lower than their reference price
o Leader pricing: setting some very low prices to get customers into retail stores
o Bait pricing: setting low prices to attract customers but trying to sell more expensive
models or brands once the customer is in the store
o Psychological pricing: setting prices with special appeal to target customers
o Odd-even pricing: setting prices that end in certain numbers because consumers react
better to these prices
o Price lining: setting a few price levels for a product line and then marketing all items at
these prices; simplicity
o Demand-backward pricing: setting acceptable final consumer price and working
backward to see what a producer can charge
o Prestige pricing: setting high price to suggest high quality or high status
o Make money by giving your products away free attracts customer eyeballs
Pricing a full line
o Full-line pricing: setting prices for a whole line of products
(1) all products are aimed at the same general target market
(2) Different products are aimed at entirely different markets
o Complementary product pricing: setting prices on several products as a group so one
might be priced very low so that profits from another will increase different production
facilities may be involved so no cost-allocation problem
o Product-bundle pricing: setting one price for a set of products
Bid pricing and negotiated pricing depends heavily on costs
Bid
pricing:
offering
a
specific
price
for
each
possible
job
rather
than
setting
a
price
that
applies
for
all
customers
complicated
because
there
are
a
lot
of
costs
components
Ethical
issues
Demand
must
be
considered
too
Sometimes
look
for
most
attractive
bid,
not
necessarily
lowest
bid
Negotiated
price:
a
price
set
based
on
the
bargaining
between
the
buyer
and
the
seller
o
Lecture
10:
Promotion
- Integrated
Marketing
Communications
o Marketing
plan
Promotional
Goals
Promotional
Strategy
Communications
Mix
Execute
and
Evaluate
o Communications
Mix:
advertising,
sales
promotion,
personal
selling,
PR,
word
of
mouth
- Why
IMC
o Extend
brand
relationship
o Improve
overall
effectiveness
of
marketing
tactics
o Increase
relevance
of
message
o More
effectively
manage
marketing
resources
o Drive
results
and
ROI
- Advertising:
Objectives
Budget
Message/Media
Evaluation
- Advertising:
Messaging
o Brand
Positioning
o Messages
Unique
Selling
Proposition
o Creative
strategy
Appeal
o Creative
execution:
Comparative
Testimonial
Sex
Emotion
Fear
Humor
- Media
o Media
planning
o Targeting
o Metrics
Reach
Frequency
CPM
GRP
ROI
ROO
- Who
is
spending
the
money
and
how
much?
o Proctor
and
Gamble
spend
$2.7B
on
advertising
o Total
U.S.
advertising
expenditures
increased
6.5%
in
2010
to
$131.1B
- Media
Landscape
has
Changed
o Product
Placement
o Branded
Content
Integration
o Advertainment
Guerilla
Marketing
o Field/event
marketing
Taking
message
directly
to
audience
and
getting
people
directly
engaged
with
brand
o Often
unconventional
methodology
Reliance
on
creativity
vs.
budget
Requires
energy,
time
and
imagination
Suited
for
entrepreneurial
companies
o Looking
for
sources
of
publicity
Interactive
media
o Internet
Search
engine
optimization
Search
engine
marketing
(PPC)
o Blogs
o Mobile
o Social
Networking
o RSS
Podcasts
o Online
Video
Sales
Promotion
o Incentives
to
channels
push
Trade
marketing
Co-op/Market
development
funds
Excite
consumers
Pull
(make
them
demand
it)
Coupons/Rebates
Sweepstakes
Cause-related
campaigns
Personal
selling
o Sales
Force
Direct
contact
with
customer
More
are
employed
in
sales
positions
than
any
other
marketing-related
job
(11%)
o High
Cost-per-Action
(CPA)
o B2B
o Training
Public
relations
o Communication
with
all
publics
o Do
something
good
and
talk
about
it
o Dove
real
beauty
huge
Return
On
Investment
from
viral
film
on
YouTube
o Apple
free
advertising
Word
of
Mouth
o Viral
marketing
buzz
o Interactive/social
networks
o Most
influential
in
decision
making
Informational
influence:
individual
turns
to
others
for
info
Normative
heuristic
o
Chapter
13:
Promotion
Introduction
to
Integrated
Marketing
Communications
-
-
MINI
Cooper:
BWI
designed
a
new
model
and
was
the
smallest
car
on
the
American
road
hoped
it
would
attract
fun-loving
innovators
o Promotion
launched
brand
independently
from
BMW
o Form
of
self-expression,
not
just
a
way
to
get
to
work
o Series
of
promotional
events
to
give
the
car
a
personality
drew
125K
customers
to
the
website
before
the
cars
hit
showroom
Promotion:
communication
information
between
the
seller
and
potential
buyer
or
others
in
the
channel
to
influence
attitudes
and
behavior
involves
telling
customers
that
the
right
Product
is
available
at
the
right
Place
and
Price
Several
promotion
methods:
o Personal
selling:
direct
spoken
communication;
flexibility
o Mass
selling:
communicating
with
large
number
of
customers
at
same
time;
can
be
less
expensive
o Advertising:
any
paid
form
of
non-personal
presentation
of
ideas,
goods
or
services
by
an
identified
sponsor
o Publicity:
any
unpaid
form
of
nonpersonal
presentation
of
ideas,
goods
or
services
offerings
without
having
to
pay
media
costs
o Sales
promotion:
promotion
activities
that
stimulate
interest,
trial
or
purchase
by
final
customers
or
others
in
the
channel;
tries
to
spark
immediate
interest
Someone
must
plan,
integrate
and
manage
the
promotion
blend
o Sales
promotion
activities
Aimed
at
final
users:
coupons,
aisle
displays,
samples,
banners,
frequent-buyer
programs,
contests
Aimed
at
middlemen:
price
deals,
promotion
allowances,
sales
contests,
gifts,
catalogs,
videos
Aimed
at
companys
own
sales
force:
contests,
bonuses,
meetings,
training
materials22
o Sales
managers:
concerned
with
managing
personal
selling;
distribution
channels
and
Place
policies
o Advertising
managers:
manage
companys
mass-selling
effort;
choosing
the
right
media
and
developing
the
ads
PR:
communication
with
noncustomers,
including
labor,
public
interest
groups,
stockholders
and
the
government
o Sales
promotion
managers:
manage
sales
promotion
efforts;
independent
status;
need
many
talents
o Marketing
manager
blends
all
promotion
methods
together
o Integrated
marketing
communications:
intentional
coordination
of
every
communication
from
a
firm
to
a
target
customer
to
convey
a
clear
and
consistent
message
Which
methods
to
use
depends
on
promotion
objectives
o Overall
objective
is
to
affect
behavior
Reinforce
present
attitudes
that
might
lead
to
favorable
behavior
Change
the
attitudes
and
behavior
of
target
market
o Informing,
persuading
and
reminding
target
customers
about
company
and
the
marketing
mix
o Informing
is
educating
o Persuading
usually
becomes
necessary
firm
will
try
to
develop
a
favorable
set
of
attitudes
so
customers
will
buy,
and
keep
buying,
its
product
o Remind
may
be
enough
sometimes
if
customers
already
have
positive
attitudes
about
a
firms
marketing
mix
Campbells
o Promotion
objectives
relate
to
adoption
process
Informing:
Awareness,
Interest
Persuading:
Evaluation,
Trial,
Desire
Reminding:
Decision,
Confirmation,
Action
o The
AIDA
model
is
a
practical
approach:
consists
of
4
main
jobs
To
get
attention
To
hold
interest
To
arouse
desire
To
obtain
action
Promotion
requires
effective
communication
o Communication
process:
source
trying
to
reach
receiver
with
a
message
Source:
sender
of
the
message
Receiver:
potential
customer
o Noise:
any
distraction
that
reduces
effectiveness
of
the
communication
process
o Encoding:
source
deciding
what
it
wants
to
say
and
translating
it
into
words
or
symbols
that
will
have
same
meaning
to
receiver
o Decoding:
receiver
translating
the
message
can
be
tricky
and
change
based
on
who
the
audience
is
o Message
channel:
carrier
of
the
message
o Source
Encoding
Message
Channel
Decoding
Receiver
Feedback
Integrated
Direct-Response
promotion
is
very
targeted
o Direct-response
promotion:
prompts
immediate
feedback
by
customers
Early
efforts
were
direct-mail
advertising
Responses
may
be
a
purchase,
donation,
question,
request
for
more
information,
etc.
o Target
customer
directly
with
a
CRM
database
including
customers
names,
home
email
addresses,
past
purchases,
etc.
o Direct-response
methods
raise
ethical
concerns
junk
mail
The
customer
may
initiate
the
communication
process
o Internet
search
engines
o Interactive
technologies
o Interactive
TV
innovations
o Consumer
initiates
communication
with
a
search
process
Customer
(Receiver)
Search
Message
Channel
Select
a
topic
Sources
message
o Consumers
decide
how
much
information
to
get
o Action,
including
purchase,
may
be
immediate
o Custom
communications
are
even
more
personalized
How
typical
promotion
plans
are
blended
and
integrated
o Get
a
push
in
the
channel
with
promotion
to
middlemen
Pushing
(a
product
through
a
channel):
using
normal
promotion
effort
to
help
sell
the
whole
marketing
mix
to
possible
channel
members
o Promotion
to
middlemen
emphasized
personal
selling
trade
ads
o Push
within
a
firm
with
promotion
to
employees
o Pulling
policy
customer
demand
pulls
the
product
through
the
channel
Pulling:
getting
customers
to
ask
middlemen
for
the
product
o Promotion
to
final
consumers
builds
consumer
interest
and
short-term
sales
of
a
product
mass-selling,
coupons,
contests,
free
samples
o Promotion
to
business
customers
emphasize
personal
selling
fewer
customers
with
larger
purchases
Adoption
process
can
guide
promotion
planning
o Adoption
curve:
shows
when
different
groups
accept
ideas
Innovators:
first
to
adopt;
young,
well
educated,
willing
to
take
risks,
often
search
on
the
internet
Early
adopters:
well
respected
opinion
leaders,
fewer
contacts
outside
of
their
own
social
groups,
greatest
contact
with
salespeople
Opinion
leaders
help
spread
the
word
blogs,
review
sites
and
web
media
give
word
of
mouse
a
big
impact
Early
majority:
avoids
risk,
contact
with
mass-media
Late
majority:
cautious
about
new
ideas,
older
and
more
set
in
ways
Laggards
or
nonadopters:
suspicious
of
new
ideas
and
want
to
do
things
the
way
they
have
done
in
the
past
Promotion blends vary over the life cycle
o Market introduction: this new idea is good
Build primary demand for the general product idea not just the companys own
brand; need salespeople
o Market growth stage: our brand is best
Promotion emphasis goes from primary demand to selective demand demand for
a companys own brand
Persuade companys to buy and keep buying
o Market maturity our brand is better, really
Mass selling and sales promotion
Aggressive personal selling
Some companies resort to price cutting
o Sales decline lets tell those who still want our product
Some firms increase promotion to slow the cycle
Cut costs to remain profitable
- Setting the promotion budget
o Economies of scale in promotion common to compute % of past sales as the amount of
your budget
Simplicity
Leads to more spending when business is good and less spending when business is
poor
Find the task and budget for it task method: basing the budget on the job to be
done determine which promotion objectives are most important
Chapter 18: Ethical Marketing in a Consumer-Oriented World
How should marketing be evaluated?
- Two levels of marketing that must be treated separately
o Managerial (micro) marketing: how an individual firm runs
o Macro marketing: how the whole marketing system works
- Evaluating marketing
o Micro vs. macro criteria
o Measuring consumer satisfaction
o Micro-marketing often costs too much
o Macro-marketing does not cost too much
- Putting together innovative marketing plans
o Strategy planning process
o Understanding consumers
o Blending marketing mix
o Content of marketing plan
- Challenges facing marketers
o Opportunities for improvement
o Marketing managers and social responsibility
o How far should the marketing concept go?
- Nations objectives affect evaluation of marketing: dictatorships may be concerned with satisfying
the needs of society as seen by the political elite while in the socialist state it may be defined by
government planners
- Consumer satisfaction is the objective of the United States: political and economic freedom go hand
in hand
Can consumer satisfaction be measured?
- American Customer Satisfaction Index based on customers from 200 companies in 29 industries:
track changes in consumer satisfaction measures over time
- Satisfaction depends on individual aspirations
o Poorer consumers expect more when they see high living standards of others
o Aspiration levels rise and fall with successes and failures
o Consumer satisfaction is a highly personal concept
o Macro-marketing effectiveness is highly subjective
- Many measures of micro-marketing effectiveness
o Individual firms can measure how well marketing mixes satisfy customers
o Ongoing efforts to determine if they satisfy their target markets
o Attitude research studies
o Comment cards, email response features, unsolicited customer responses, opinions of
middlemen and salespeople, market test results, profits
- Evaluating marketing effectiveness is difficult, but not impossible
Micro-marketing often does cost too much
- The failure rate is high
o Lack of interest or understanding of customer
o Improper blending of the 4 Ps caused by overemphasizing internal problems
o Lack of understanding of marketing environment, esp. competitors
- High cost of missed opportunities
o Too many managers seize the easy strategy and stifle innovative thinking
o Not every new idea is good for every company
- Micro-marketing costs too much but things are changing
o More and more are becoming customer-oriented
o Companies are recognizing they need diverse sets of backgrounds and talents to meet the
global customer base
Macro-marketing does not cost too much
- Typical argument that macro-marketing system causes poor use of resources that leads to unfair
distribution of income
- Micro-efforts help the economy grow: profits rise, which leads to more innovation, investments,
growth, more income and employment, etc.
- Critics say marketing helps created a monopoly, high prices, restricted output, etc.
- Increased profits attract competition
- Advertising is economical way to inform large numbers of customers about a firms products, can
increase demand and economies of scale
- Marketing must adapt to consumer needs and wants that are changing
- Marketing caters to materialistic values
- Critics say that advertising elevates the wrong values like sex appeal
- In the short run, marketing reflects social values while in the long run, it enhances and enforces them
Marketing strategy planning requires logic and creativity
- Customer satisfaction is the present objective of our economy
- Value of marketing efforts in firms is improved when managers take the marketing concept seriously
and apply a strategic plan
- Narrow down to a specific target market and marketing mix that present opportunity
- The four Ps must be creatively blending so the firm develops the best mix
o Product
o Place
o Promotion
o Price
The marketing plan brings all the details together
- Marketing plan includes time-related details like costs and revenues
- Spells out the timing of strategy so plan can be compared to actual performance
- Spells out the reasons for decisions
Summary outline of marketing plan
- Situation analysis
o Company analysis
o Customer analysis
o Competitor analysis
o Analysis of market-context
o Key factors from situation analysis (SWOT)
-
-
-
Marketing plan objectives
Differentiation and positioning
Marketing strategy
o Overview
o Target Market
o Product
o Place
o Promotion
o Price
- Marketing information requirements
- Implementation and control
o Problems to overcome
o Control
o Budget, sales forecast
o Timing
o Risk factors and contingency plans
Challenges facing marketers
- Change is the only thing that is constant
- Must constantly re-evaluate strategies
- Welcome international competition
- Use technology wisely
- More social responsibility
- Environment is everyones need
- Consumer privacy must be protected
- May need to change laws and how they are enforced
- Laws should affect top managers
- Laws define minimal ethical standards
- Need socially responsible consumers
How far should the marketing concept go?
- Consumer citizens should vote for laws restricting individual firms that are trying to satisfy
consumer needs because we have assigned the role to the government
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