Marketing Knowledge Base
Marketing Knowledge Base IB 150
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MET ENG 1210
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This 17 page Study Guide was uploaded by Shannonymous on Monday January 25, 2016. The Study Guide belongs to IB 150 at Hofstra University taught by Dr. Shawn Thelen in Winter 2016. Since its upload, it has received 52 views. For similar materials see International Business in Marketing at Hofstra University.
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Date Created: 01/25/16
This is MODULE 1 General ConceDtS Customer Satisfaction The degree to which there is a match between a customer s expectations of a good or service and the actual performance of that good or service including customer service Example If a customer has a positive experience when buying a product he or she is satisfied If a customer s expectations are not met he or she is dissatisfied and may switch companies the next time a purchase is made Customer Service Involves the identifiable but rather intangible activities undertaken by a seller in conjunction with the basic goods andor services it offers Example Customer service activities may include a gift registry delivery gift wrapping and technical support Some services are expected such as adequate parking and exchange privileges while others are provide differential advantages such as an employee s taking a heavy package to a customer s car Differential Advantages The unique features in a firm s marketing program that cause consumers to patronize that firm and not its competitors Example A company can separate itself from competitors by offering lower prices unique products high levels of customer support andor a very convenient location Exchange The process by which consumers and publics give money a promise to pay or support for the offering of a firm institution person place or idea Example Exchange occurs when a consumer pays for a DVD donates blood to a local blood bank or votes for a particular candidate Marketing The anticipation management and satisfaction of demand through the exchange process Example Hofstra University anticipates demand when it studies the number of Long Island students graduating from high school each year and estimates how many of these students plan to go to college on Long Island Hofstra manages demand by advertising stimulation encouraging students to register online facilitation and offering classes throughout the entire calendar year regulation Students pay tuition in return for a highquality education exchange Marketing Concept A consumeroriented marketdriven valuebased integrated goaloriented philosophy for a firm institution or person Example When a firms adopts the marketing concept it focuses on identifying and satisfying consumer needs it studies the competitive marketplace it offers prices that consumers believe are fair makes sure all marketing activities are consistent with one another and sets very clear performance goals Marketing Myopia A shortsighted narrowminded view of marketing and its environment Example A publishing company could define its business as a book publisher as opposed to a book reading provider As a book publisher the company unfortunately ignores Web based or CDbased delivery systems Marketing PlanIntegrated Marketing Plan a Marketing Plan A document composed of an analysis of the current marketing situation opportunities and threats analysis marketing objectives marketing strategy action programs and projected or proforma income and other financial statements Example A farsighted company typically studies the marketplace understands the opportunities and threats that it faces sets specific marketing goals carries out the tasks needed to reach those goals and monitors financial performance b Integrated Marketing Plan Involves synchronizing individual marketing components and making sure that everyone is on the same page All the various parts of the plan are unified consistent and coordinated and a total quality approach is followed Example A lowprice retailer should combine inexpensive location selfservice and additional fees for delivery A highprice retailer should combine an upscale location a high level of sales support and delivery and giftwrapping included in its prices Relationship Marketing Customer Retention Exists when marketing activities are performed with the conscious intention of developing and managing longterm trusting relationships with customers Example With relationship marketing a firm seeks to achieve longterm repeat business with existing customers through such strategies as superior postsales service technical support and special inventory management strategies The opposite of relationship marketing is transactional marketing Situation Analysis SWOT Analysis Identifies an organization s internal strengths and weaknesses and external opportunities and threats It seeks to answer Where is a firm now In what direction is it headed Example A bank determines that its major strength is a dedicated knowledgeable work force its major weakness is that it does not have enough branch outlets its major opportunity is that it can beef up its online presence and its major threat is that a leading competitor is opening a new branch nearby This is MODULE 2 Marketing Environment Concepts Competitive Analysis The analysis of factors designed to answer the question how well is a firm doing compared to its competitors This goes well beyond sales and profit figures in assessing the firm s ratings on such factors as price product technical capabilities quality customer service delivery and other important factors compared to each of the major competitors Example Federal Express compares its ontime performance prices customer satisfaction etc to those of its competitors eg UPS in performing a competitive analysis Controllable Factors Decision elements internally directed by an organization and its marketers Some of these factors are directed by top management others are directed by marketers Example The decision on the part of McDonald s to aggressively expand its presence in China is one made by top management of the company Decisions to adapt menu items and promotion programs and other tactics based on local preferences are controlled by the organization s marketers Marketing Environment Consists of controllable factors uncontrollable factors the organization s level of success or failure in reaching its objectives feedback and adaptation Example The success of the Toyota Prius a hybrid vehicle that runs on a combination of gasoline and ethanol is due to the company s understanding of changing customer preferences brought about by environmental concerns and the rising price of gasoline uncontrollable factors and its ability to design and market a vehicle that appeals to customer wants controllable factors Its continued success will depend on listening to customers feedback continually monitoring uncontrollable factors and revising the marketing program to maintain a competitive advantage Uncontrollable Factors The external elements affecting an organization s performance that cannot be fully directed by that organization and its marketers These include consumers competition suppliers and distributors government the economy technology and independent media Example J etBlue s success is determined in large part by how well it can respond to a wide variety of factors that are beyond its direct control These uncontrollable factors include the price of fuel the health of the economy and the overall demand for air travel unpredictable weather conditions competitors and the changing tastes of the traveling public This is MODULE 3 Marketing Research DataBase Marketing A computerized technique that compiles sorts and stores relevant information about customers and potential customers uses that information to highlight opportunities and prioritize market segments and enables the firm to profitably tailor marketing efforts for specific customers or customer groups Example Amazoncom is able to personalize its site and to make product suggestions due to data it collects and maintains about customers Shoppers receive suggestions based on their own prior purchases or on the basis of what other customers have bought Marketing Information System MIS A set of procedures and methods designed to generate analyze disseminate and store anticipated marketing decision information on a regular continuous basis Example Best Buy has a system that tracks both the distribution and redemption of discount coupons such as where the consumer got the coupon where and when it was redeemed what was purchased with it and how the sales volume for each product was affected in each area or store where coupons were available Marketing Research Involves systematically gathering recording and analyzing information about specific issues related to the marketing of goods services organizations people places and ideas Example Recent research showed that lessactive consumers would purchase more sports drinks if the beverages contained less sugar This led Gatorade to introduce its new G2 drink a lowercalorie version of its categoryleading brand Secondary Versus Primary Data a Secondarv Data Consist of information not collected for the issue or problem at hand but for some other purpose The two sources of secondary data are internal and external Example Pfizer examined secondary data collected by government agencies regarding the aging of the population poor eating habits and health trends among the US population The data revealed that conditions were favorable for the success of Lipitor its cholesterollowering drug b Primary Dat Consist of information gathered to address a specific issue or problem at hand Example Pfizer conducted primary research through the use of test markets to determine which of several possible advertising themes would resonate best among its target customers for Lipitor Note Even though Pfizer39s patent has now expired Lipitor is still selling well as a generic drug This is MODULE 4 EthicsSocial ResponsibilityConsumerism Concepts Consumer Bill of Rights A statement by President Kennedy saying that all consumers have four basic rights to information to safety to choice in product selection and to be heard Example In the purchase of an automobile the consumer has the right to information such as gasoline efficiency safety as determined by crash tests a choice of makes models and options and recourse in the case of dissatisfaction sometimes mandated by lemon laws that require remediation Consumerism Encompasses the wide range of activities of government business and independent organizations designed to protect people from practices that infringe upon their rights as consumers Example Several efforts on the part of government agencies consumer protection groups health care experts and others have been undertaken to encourage healthier eating habits among consumers Ethics in Marketing Relates to moral action conduct motive and character It also means professionally right or befitting conforming to professional standards of conduct based on honest and proper conduct Example To be ethical a company should accurately represent its good and services should be able to substantiate any claims it makes about its goods and services and should be clear and open in regard to the terms of sale price return policy etc Green Marketing The development and marketing of products designed to minimize negative effects on the physical environment or to improve its quality Example As a way to reduce the waste produced by discarded cell phones some mobile phone companies offer a discount to new phone purchasers when they surrender their old phones for recycling Social Responsibility A concern for the consequences of a person s or firm s acts as they might affect the interests of others Corporate social responsibility balances a company s shortterm profit needs with longterm societal needs Example Starbucks in its mission statement asserts that it strongly believes in the importance of building a mutuallybeneficial relationship with coffee farmers and coffee communities with which we work The success of farmers with whom we do business is a critical component in our own success This is MODULE 5 Global Marketing Concepts AdaptationStandardization in International Marketing a Adaptation in International Marketing A strategy by which domestic products are modified to meet foreign language needs taste preferences climates electrical requirements laws andor other factors Example Chinese consumers generally do not like the taste of cheese because it has never been part of traditional cuisine So Cheetos the bright orange and cheesytasting snack from PepsiCo s FritoLay do not have a cheese taste in China b Standardization in International Marketing A strategy in which a company uses a common marketing plan for all nations in which it operates because it assumes worldwide markets are more homogeneous due to better communications more open borders freemarket economies etc Example A very successful standardized campaign was the promotion of Marlboro cigarettes The theme Come to where the avor is Come to Marlboro country was a worldwide success Comparative Advantage A concept in international marketing that states that each country has distinct strengths and weaknesses based on its natural resources climate technology labor costs and other factors Nations can benefit by exporting the goods and services with which they have relative advantages and importing the ones with which they have relative disadvantages Example India is strong in software by achieving economies of scale in training its work force and in the production process itself Thus India acquires the income to import other goods that meet the needs of the population Culture Consists of a group of people sharing a distinctive heritage Example The meaning of fast food in the United States is quite different from its meaning in other cultures McDonald s and Pizza Hut are perceived in some cultures as trendy fashionable places Exporting A form of international marketing company organization in which a firm reaches international markets by selling products made in its home country directly through its own sales force or indirectly via foreign merchants or agents An exporting structure requires minimal investment in foreign facilities Example SM is one of the world s great multinational operations 3M generates billions of dollars in exports The company often uses its exports to establish an initial presence in a foreign market InternationalGlobal Marketing a International Marketing Involves marketing goods and services outside a firm s home country whether in one or several markets Example In the Middle East McDonald s sells the McArabia a chicken sandwich on Arabianstyle bread In France it markets the Croque McDo a hot ham and cheese sandwich b Global marketing An advanced form of international marketing in which a firm addresses global customers markets and competition Example b Castrol the motor oil and lubricant manufacturer has one of the best global lubricant brands in the world This is MODULE 6 Internet Marketing Concepts BricksandClicks Firms Companies that operate in both a traditional setting and on the Internet Example Those wanting to do business with Charles Schwab can call a Schwab agent on the phone go online to the company s Web site or visit the local Schwab branch office This lets Schwab issue a powerful invitation in its advertising Call click or visit Schwab Investments EMarketing Any marketing activity that is conducted through the Internet from customer analysis to marketingmix components Example Travelocity and Amazoncom conduct Emarketing at their Web sites They communicate promote and sell goods and services over the Internet Marketing Roles for the Internet Include projecting an image customer service channel relations inventory management information gathering and sharing database development mass customization advertising and sales promotion selling and multi channel marketing Example The combination of online and instore selling gives Office Depot customers anywhere anytime access to the retailer s wares along with piles of helpful information Selling on the Web lets Office Depot build deeper more personalized relationships with customers large and small Mass Customization A process by which massmarket goods and services are individualized to satisfy a specific customer need at a reasonable price Example British firm Moo yes Moo lets customers specify exactly what design pictureimage font type size and color and shape that they would like in their business cards Customers order online This is MODULE 7 Consumer BehaviorTarget Marketing Concepts Bases for Segmentation Demographic lifestyle geographic and other factors that are used to describe target markets Example When marketers decide to advertise to a specific segment of the population they use the various bases for segmentation to help them decide what media to place their ads Young segment ads might appear on MTV while ads towards seniors might appear in the AARP s magazine Brand Loyalty The consistent repurchase of and preference toward a particular brand With it people can reduce time thought and risk Example Marketers know that the stronger the brand loyalty the less likely a consumer will switch brands Thus marketers build up brand loyalty so that when a competitor enters the market with a similar brand their consumers will not switch to the competitive brand easily Consumer Behavior The overt actions of consumers The behavior of the consumer or decision maker in the marketplace of goods and services Example A European consumer decides to go to a supermarket for some cereal walks down the aisles and determines which cereal to buy from a variety of choices places a box of Kellogg s Coco Pops into the basket pays for it at the cashier drives home reads the ingredients label on the side of the box while sitting at the kitchen table opens the cereal pours out a bowlful has second thoughts because Coco Pops are not too healthy eats them anyway eventually discards the empty box in the trash and one week later goes back for another box because he or she liked the taste Consumer s Decision Process Final Consumer s Decision Process The way in which people gather and assess information and choose among alternative goods services organizations people places and ideas It has six stages stimulus problem awareness information search evaluation of alternatives purchase and postpurchase behavior Demographic social and psychological factors affect this process Example When a consumer decides to purchase a new car he or she will go though the steps described above to buy the car If heshe needs information heshe may look on the Internet for maintenance price and model information If the consumer is young heshe may buy a ashy fast car to meet whatever psychological needs are motivating himher Consumer Demographics Objective and quantifiable population characteristics They are rather easy to identify collect measure and analyze and show diversity around the globe Example Age income education level and marital status can be used to describe the life stage an individual is in allowing the marketer to better understand what types of goods or services this person might need Thus Budweiser knows to target to all young males aged 21 to 35 while Heineken markets to more educated consumers Industrial BtoB Marketing Occurs when firms deal with organizational consumers Example An individual who owns a small manufacturing company may need to purchase office equipment for salespeople secretaries and other personnel to efficiently and effectively run the business In response the marketer of office supplies develops a specific marketing program for owners of small businesses Market Segmentation Involves subdividing a market into clear subsets of customers that act in the same way or that have comparable needs Example There are many different groups of people in the United States and globally A firm such as McDonald s examines all of the different groups or segments in the population and may chose to target those segments that offer the best return on investment This would require different promotion campaigns because McDonald s knows that advertising to specific segments with content that is specific to them works better than a more generalized approach Niche Marketing An approach employed by a firm that specializes in serving particular market segments in order to avoid clashing with the major competitors in the market Nichers pursue market segments that are of sufficient size to be profitable while at the same time are of less interest to the major competitors Example Some marketers sell on the Internet because they can offer highly specialized food products such as freezedried foods for backpackers or nutfree foods for those with allergies These foods are not offered by mass marketers because the segments may be too small for them to make a reasonable profit PostPurchase Behavior The stage in the final consumer s decision process when further purchases andor reevaluation of the purchase are undertaken Example When a consumer purchases a suit at Men39s Wearhouse he will then evaluate the purchase and decide if he will return there in the future If he is not fully satisfied he may try buying at Macy s Target Market The particular groups of customers a firm proposes to serve or whose needs it proposes to satisfy with a particular marketing program Example Sony targets a number of specific groups with its marketing campaigns It targets families with Grated movies It targets upscale adults with expensive HD TV sets It targets sports gamers with such products as NBA Live 2013 for Sony PlayStation Target Marketing Approaches a Concentrated Marketing Exists when a company targets one welldefined market segment with one tailored marketing strategy Example Rolls Royce concentrates its auto marketing on very upscale consumers b Differentiated Marketing Multiple Segmentationquot Exists when a company targets two or more welldefined market segments with a marketing strategy tailored to each segment Example Chrysler s Dodge division differentiates its marketing between final consumers and governmental organizations It offers one version of the Dodge Charger for final consumers and another for police departments c Undifferentiated Marketing Mass Marketingquot Exists when a company targets the whole market with a single basic marketing strategy intended to have mass appeal Example It is a bit harder to find undifferentiated or mass marketing today because of the advances in targeting and technology but the past strategies of Coca Cola or the Ford Motor Company with only black Model T s for everyone are illustrations This is MODULE 8 Marketing Mix Concents Marketing Mix The specific combination of marketing elements used to achieve objectives and satisfy the target market It encompasses decisions regarding four major variables product distribution promotion and price Example In marketing its brand of watches Rolex integrates its marketing mix by offering well made upscale products that can only be found in the finest of stores with expensive pricing and advertised in the best magazines 81 Product Concepts Adoption Process The mental and behavioral procedure an individual consumer goes through when learning about and purchasing a new product It consists of five stages knowledge persuasion decision implementation and confirmation Example A person becomes aware of a new cell phone when watching a TV ad knowledge Out of interest heshe surfs Internet reads news articles about the product and develops positive attitudes persuasion After considering whether trying the product makes sense decision heshe purchases the product implementation Heshe finds himself very satisfied so decides to make full and regular use of the new product confirmation Brand A name term design symbol or any other feature that identifies the goods and services of one seller from those of other sellers Example CocaCola is a pronounceable brand name when its name is legally registered or patented the name CocaCola becomes a term recognizable with a TM mark and CocaCola has a distinctive cursive script as its logo and design using a white color text on a bright red color background Diffusion Process Describes the manner in which different members of the target market often accept and purchase a product It spans the time from product introduction through market saturation Example Innovators try a new product as quickly as possible at some risk Early adopters buy the new product carefully although early The early majority adopts the new product before the average consumers The late majority are skeptical and wait for a majority of people to adopt the new product before they do Laggards are suspicious of changes and adopt the product only when it has become somewhat of a tradition itself NewProduct Planning Process Involves a series of steps from idea generation to commercialization The firm generates ideas evaluates them weeds out poor ones obtains consumer feedback develops the product tests it and brings it to market Example To create a new perfume a cosmetics firm generates new smells as candidates from nature research and development and a survey of target customers evaluates their technical feasibility profitability and fit with existing product lines reduces to a few finalists manufacture prototypes asks customers to try and evaluate them and give them a chance to buy in an experimental store setting or in real stores of cities and then launches the best new product to the full market Product A bundle of attributes capable of exchange or use usually a mix of tangible and intangible forms It may be an idea a physical entity or a service or any combination of the three Example McDonald s combo meals consist of physical tangible products buns beef vegetables mayonnaise etc and intangible services placing orders preparing meals etc Product Differentiation Occurs when the consumer to differ from its competition on any physical or nonphysical product characteristic including price perceives a product offering Example Starbucks differentiates itself from competitors by providing an upscale variety of choices and a friendly atmosphere whereas Dunkin Donuts promotes freshness and lower prices Product Life Cycle A concept that seeks to describe a product s sales competitors profits customers and marketing emphasis from its beginning until it is removed from the market It is divided into introduction growth maturity and decline stages Example Wibro mobile WiMax is a new service in the introduction stage which allows highspeed Internet connections anytime and anywhere both in stationary and mobile mode Wireless connections in stationary mode are in the growth stage as more customers understand the service and use it Regular DSL or cable connections via desktop computers are in maturity as they are the most popular services today Dialup connections are in decline as many homes have switched to other connection services Wibro was conceived in South Korea Product Positioning Enables a firm to map each of its products in terms of consumer perceptions and desires competition other company products and environmental changes Example Volvo utilizes safety for its brand position MercedesBenz uses prestige Audi uses craftsmanship and Hyundai promotes value Service Marketing The rental of goods servicing goods owned by consumers and personal services Example Major service categories include wholesale and retail trade accommodation and food services transportation and warehousing services information finance and insurance real estate rental and leasing educational services health care and social assistance and arts entertainment and recreation Successful service marketing requires careful management of internal marketing training and motivating customer contact employees and interactive marketing service quality depends heavily on the quality of the buyerseller interaction during the service encounter Service Marketing Characteristics a Intangibility Means that services often cannot be displayed transported stored packaged or inspected before buying Example To reduce the effects of intangibility the New York Yankees hold news conferences offer a variety of merchandize promote the team as a brand and advertise events in leading media b Perishability Means that many services cannot be stored for future sale Example To deal with the effects of perishability the Yankees charge different prices based various factors such as who the team is playing and seat location to sell as many tickets as possible c Variability Means that service quality may vary due to the service firm s difficulty in problem diagnosis customer inability to verbalize service needs and the lack of standardization and mass production Example To deal with the effects of variability the Yankees sign the best players they can and train and manage them to foster more consistent performances in games d Inseparability Means a service provider and his or her services may be inseparable Example To deal with the effects of inseparability the Yankees promote the popularity of multiple players so that attendance will not suffer if one player is traded 82 Distribution Concepts Channel of Distribution Supply Chain Composed of all the organizations or people in the distribution process Example Procter amp Gamble sells its products through various businesses such as wholesalers chain stores supermarkets and other stores In the process materials are procured products are manufactured and those products are transported and sold Channel Con ict and Cooperation Based on the natural differences among the firms in a distribution channel by virtue of their channel positions the tasks performed and the desire of each firm to optimize its profits and control its strategy A successful channel maximizes cooperation and minimizes con ict Example If a supermarket chain refuses to participate in a sales promotions program by Coca Cola the two parties are engaged in channel con ict Channel cooperation occurs when distributors of Coca Cola products agree to support Coca Cola s marketing activities Direct Marketing Occurs when a consumer is first exposed to a good or service by a nonpersonal medium direct mail TV radio magazine newspaper PC etc and orders by mail phone or PC Example One way that Dell markets its computers is online directly to consumers It sends brochures throughout the US which announce the benefits of its various models of computers as well as sales events Intensity of Channel Coverage a Exclusive Distribution A policy in which a firm severely limits the number of resellers utilized in a geographic area perhaps having only one or two within a specific shopping district Example a To reinforce its elite status the Giorgio Armani brand of upscale apparel is only available at a few stores in each US city in which its products are sold b Intensive Distribution A policy in which a firm uses a large number of resellers in order to have wide market coverage channel acceptance and high total sales and profits Example b To maximize sales Fufi film is available at all kinds of outlets including newsstands c Selective Distribution A policy in which a firm employs a moderate number of resellers Example c To have some control over its image and generate a good sales volume Donna Karan limits the number of stores selling that apparel brand and looks for good partners Retailing Encompasses those business activities involved with the sale of goods and services to the final consumer for personal family or household use It is the final stage in a channel of distribution Example In conjunction with Barnes amp Noble Hofstra University engages in retailing at the HU Bookstore which sells textbooks magazines apparel gift items stationery computer software and more to students faculty and other final consumers Wholesaling Includes buying andor handling goods and services and their subsequent resale to organizational users retailers andor other wholesalers but not the sale of significant volume to final consumers Example WW Grainger Inc is a leading supplier and wholesaler of facilities maintenance products in North America Its network includes numerous branches and 17 distribution centers to serve its business customers 83 Promotion Concepts Advertising Paid nonpersonal communication regarding goods services organizations people places and ideas that is transmitted through various media by business firms government and other nonprofit organizations and individuals who are identified in the advertising message as sponsors Example Frequent advertisers are such companies as auto manufacturers and fastfood restaurants These firms target large geographically dispersed customer groups and the mass media are valuable in reaching such customers Channel of Communication Communication Process The mechanism by which a source develops a message transmits it to an audience via some medium and gets feedback from the audience Example The source is the company that sponsors the message such as Wendy s The message itself is often developed by the creative department of an advertising agency Commonly used media are broadcast television and radio and print magazines and newspapers but many other alternatives exist including outdoor and Internet Feedback is typically via sales results or some communication measure such as top of mind brand recall Integrated Marketing Communications IMC Recognizes the value of a comprehensive plan that evaluates the strategic roles of a variety of communication disciplines advertising public relations personal selling and sales promotion and combines them to provide clarity consistency and maximum communication impact Example IMC is often used when movies with large family audiences come out These movies are advertised in newspapers and on TV Related toys are marketed such as Toy Story 3 dolls Promotions are coordinated with fastfood firms DVD sales are promoted after the theatrical run Personal Selling Involves oral communication with one or more prospective buyers by paid representatives for the purpose of making sales Example Personal selling is very common in businesstobusiness marketing and in the retail selling of certain consumer goods and services such as furniture cell phones and jewelry Promotion Mix A firm s overall and specific communication program including its involvement with advertising public relations publicity personal selling andor sales promotion Example Through a thoughtful promotion mix a firm can maximize its IMC efforts Hofstra University advertises the slogan find your edge Significant ongoing publicity resulted from Hofstra s being the October 2012 venue for the second US presidential candidates debate Recruiters meet with high school seniors and explain how students can find their edge at Hofstra Hofstra regularly attends college recruitment fairs Public RelationsPublicity a Public Relations Includes any communication to foster a favorable image for goods services organizations people places and ideas among various publics such as consumers investors government channel members employees and the general public Example Executives from many companies are happy to speak to student clubs at Hofstra This provides goodwill for their companies and is image enhancing b Publicity The form of public relations that entails nonpersonal communication passed on via various media but not paid for by an identified sponsor Example The Annual Academy Awards show provides publicity for the movies who win awards for excellence since the show is seen by television viewers around the world Push Versus Pull Promotion Strategy a Pushing Strategy Occurs when various firms in a distribution channel cooperate in marketing a product Example a In a push strategy the aim is to get a brand distributed as widely as possible Consumer promotion is often the retailer s responsibility although cooperative advertising and promotion allowances are common Typically the manufacturer devotes sales promotion resources b Pulling Strategy Occurs when a firm first stimulates consumer demand and then gains dealer support Example b In a pull strategy a new firm generally needs to heavily advertise to consumers who in turn will ask retailers about the brand and encourage the retailers to stock it Sales Promotion Involves paid marketing communication activities other than advertising publicity or personal selling that are intended to stimulate consumer purchases and dealer effectiveness Included are trade shows premiums incentives giveaways demonstrations and various other efforts not in the ordinary promotion routine Example Auto companies frequently offer temporary rebates on selected models to stimulate shortrun sales Sales promotions are also used to promote trial or increased consumption such as two Egg McMuffins for 3 WordofMouth Communication The process by which people express opinions and productrelated experiences to one another Example A key aspect of WOM communication is that while companies may try to stimulate it through a buzz campaigns they have little ability to control what is said The most frequent application of this concept is the opinion leadership process where opinion recipients seek out recommendations from opinion leaders For instance a person might be in the market for a GPS navigation system and approach a friend who owns one to discover his or her experiences and recommendations 84 Pricing Concepts BreakEven Analysis Indicates the sales quantity in units or dollars that is needed for total revenues price x units sold to equal total costs fixed and variable at a given price If sales exceed the breakeven quantity a firm earns a profit If sales are less than the breakeven quantity it loses money Example Suppose that Long Island Sportswear a hypothetical firm has fixed costs of 2000 and that the cost of labor and materials for each unit produced is 50 cents Assume that it can sell up to 6000 units of its product at 1 without having to lower its price The company s total variable costs increase by 50 cents every time a new unit is produced and total fixed costs remain constant at 2000 regardless of the level of output The formula for calculating breakeven quantities is Total Fixed Costs Unit price Unit variable costs For Long Island Sportswear breakeven quantity is 4000 units The company generates profit if unit sales exceed 4000 If the firm sells less then 4000 units it has a loss What if the firm sells exactly 4000 units It breaks even its total costs equal total revenue and no profits are earned Factors Affecting Price Decisions Include consumers costs government channel members and competition Example If consumers believe a firm s offering is unique or there is an urgency to buy demand becomes inelastic and price may increase A higher price for steel makes it harder for auto makers to cut prices BASF of Germany was fined more than 30 million by the US government for pricefixing activities The complex channel distribution system in Japan may have negatively affected prices of USmade products in Japan Price wars have been more common in the United States due to fierce competition in some industries Markup Pricing A form of costbased pricing in which a firm sets prices by computing the perunit costs of producing buying goods andor services and then determining the markup percentages needed to cover selling costs and profit Example A retailer adds a certain percentage to its cost of merchandise to arrive at the retail price A food item that costs the retailer 2 and is sold for 250 carries a markup of 50 cents which is 25 of the cost 50 cents 2 The difference between the retailer s cost and the selling price 50 cents is the gross margin Retailers commonly state markup in terms of its percentage of the retail price in this example 20 50 cents 250 Markups cited as percentages of sales are more common than markups stated in cost for practical reasons Penetration Versus Skimming Pricing a Penetration Pricing Uses low prices to capture the mass Example a Southwest Airlines success is based on penetration pricing Southwest has the lowest cost per seat mile in the industry Due to its low ticket prices Southwest s planes are often full It does not charge baggage fees or ight change fees market for a good or service b Skimming Pricing Uses high prices to attract the market segment more concerned with product quality uniqueness or status than price Example b Firms use price skimming when a product is perceived by the target market as being unique Radius Corp produces ovalheaded toothbrushes made of black neoprene that look like a scubadiving accessory Radius prices its toothbrushes at 750 and up compared to 2 or less for competitors regular toothbrushes Price Represents the value of a good or service for both the seller and the buyer Example For an exchange to take place both the buyer and seller must feel that the price of a good or service provides a fair value Students will pay admission fee of 10 for a movie when they perceive the amount is fair Tenants will not pay 3000 rent per month for a twobedroom apartment in a small town Iowa The price may be perceived as too expensive given the location of the town But they may accept an equal amount as fair for an equivalent apartment in a prime area of Manhattan Price Elasticity of Demand Indicates the sensitivity of buyers to price changes in terms of the quantities they will purchase It is computed by dividing the percentage change in quantity demanded by the percentage change in price charged Example Elasticity of demand is affected by the availability of alternatives and urgency of need When many substitute products are available the consumer can easily switch from one product to another making demand elastic The same is true in reverse making demand inelastic Students demand for products at the Hofstra Bookstore tends to be somewhat inelastic due to an absence of availability of substitutes on campus Globalization increases competition which provides more options for consumers to choose from This trend makes demand in general more elastic Under the circumstance global companies are under pressure to lower price to raise revenue
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