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Intro to Marketing Final Exam Study Guide

by: Francesca

Intro to Marketing Final Exam Study Guide MKT 20101

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Notes covering the entire course Spring 2016
Intro to Marketing
Yiting Deng
Study Guide
50 ?




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This 32 page Study Guide was uploaded by Francesca on Tuesday May 3, 2016. The Study Guide belongs to MKT 20101 at University of Notre Dame taught by Yiting Deng in Spring 2016. Since its upload, it has received 26 views. For similar materials see Intro to Marketing in Business at University of Notre Dame.


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Date Created: 05/03/16
Marketing Midterm Marketing Math  Gross sales: the total amount charged to all customers during some time period  Returns: when a customer sends back purchased products; the company either refunds the purchase price or allows the customer credit on another purchase  Allowances: when a customer is not satisfied with a purchase for some reason; the company gives a rice reduction on the original invoice (bill) but the customer keeps the goods and services  Net sales = gross sales – returns and allowances  Costs: any spending on goods and services for the business o All businesses have costs o Fixed costs: do not vary with each unit sold  Remain unchanged over some reasonable range of firm’s activity  E.g. rent, buildings, machinery, general and administrative expenses, advertising o Variable costs: vary with each unit sold  e.g. cost of goods, commission to sales people, transportation  Contribution: the funds available to the seller of an item after subtracting the variable costs associated with it o Contribution = sales – variable costs o unit contribution: the contribution per item sold  unit contribution = price – (per item) variable cost  Margin = (selling price – cost)/ selling price  Markup = (selling price – cost)/ cost  List price: the price for which a retailer can sell an item  Discount: percentage by which a list price is reduced to given effective selling price o Trade discount: a discount off the list rice when the retailer purchases the item o Chain discount: a series of trade discounts  Must calculate each discount individually on the new net rice from the previous discount  Market share: a company’s sale in a market relative to its competitors compan y sunitsales∈themarket o Market share = ∑ of unitsales∈themarket of allcompetitors,includingthecompany o Company with biggest market share is the “market leader” o Sales don’t necessarily drop with market share drops (smaller slice of a bigger piece) o Dependent on competitors  Break-even analysis o How many units should be sold to make total sales equal total costs?  Total sales = fixed costs + variable costs*breakeven units  Price*breakeven units = total FC + VC*units totalFC totalFC  Breakeven units = = Price−VC unitcontribution  If fewer units are sold than the breakeven units then we incur losses o Profit = (P- VC)Q- FC  set profit = 0  Q = FC/ (P-VC) = FC/ Contribution  Any fixed expense to numerator, variable expense to denominator o Current contribution = (price – VC) * current sales o Contribution w/ price cut of (100 * D) % = (price – VC) * current sales = [price * (1-D) – VC] * new sales newsales = Price−VC   currentsales price∗(1−D )VC o Profit Impact = unit contribution * units produced and sold- FC  ***in breakeven analysis, profit impact = 0  Cannibalization: new product sales also affect existing product sales, and this must be considered in breakeven analysis o Within same company  Value-in-use: the difference in the purchase and operating costs across alternative options offered to customer or consumers o Important for determining purchase rice o Include all costs  Sensitivity analysis: if costs are not known, then one can solve how profitability varies across different cost assumptions o Useful as a process to determine where to spend market research dollars Market Process and Framework  Marketing: an exchange between a firm and its customers o Customer seeks benefits from the company and expects to pay while the company offers benefits to its customers and seek profits o “Marketing is the activity for creating, communicating, delivering, and exchanging offerings that benefit its customers, the organization, its stakeholders and society at large” o Not:  Advertising and/or personal selling  Misleading consumers using high pressure selling techniques o Explicitly considers the benefits to both members of the transaction o Seeks to discover consumer needs through extensive research o Applied microeconomics which recognizes humans’ cognitive limitations and market imperfections o Seeks to satisfy needs by successfully implementing a marketing program  What it means to do “marketing o Advertising, sales, promotions, pricing, market research, marketing analytics  Marketing concept: the idea that an organization should: o Strive to satisfy the needs of customers while also trying to achieve the organization’s goals  Market orientation: when an organization focuses its efforts on: o Continuously collecting information about customers’ needs o Sharing this info across departments o Using it to create customer value  Customer Relationship Management: (CRM) the process of identifying prospective buyers, understanding them intimately, and developing favorable long-term perceptions of the organization and its offerings so that buyers will choose them in the marketplace  Avoiding product failures o Find out what consumers want o produce what they need and want (and don’t produce what they don’t need and don’t want)  5 C’s of a Situational Analysis: o Company: firm’s capabilities, resources, etc.  What does it do well?  What doesn’t it do well? o Customer: firm’s current and potential customers  What are current customers’ preferences, buying trends, etc.?  What are potential customers’ preferences? Should they be targeted o Competitor: the companies/people firm works against and how they compare to the firm in terms of resources, capabilities, customer preferences, reaction patterns o Collaborators: the companies/ people a firm works with  Are these relationships strong? Can they be improved or leveraged? o Context: the environmental forces facing a firm  what is going on politically or legally that might affect the firm  what is going on with the economy that might affect the firm  what trends are occurring in society that might affect the firm  what technological innovations might affect the firm o ***change over time due to customer preferences, competitors offerings, and government assign new laws   must be consistently monitored  STP: o Segmenting: based on the customer analysis (from situation analysis), group customers with similar needs o Targeting: tailor offerings to customer segment(s) which make(s) the most sense for the firm based on findings from the situational analysis o Positioning: decide on a value proposition (cluster of benefits an organization promises its customers) that is relevant and meaning full to the customer(s) and that company can deliver on (again based on the finding from the situation analysis)  4 Ps (Marketing Mix) o Product: what features and benefits should comprise each product? What product mix should you have? o Price: how much should you charge given your costs, competitive pricing and customer demand? o Place: how will you get the product into the customer’ hands? Will you go direct to customers or use channel partners? o Promotion: what communications mix will you use to communicate with your targets? What messages will you use? 5 Cs: CONTEXT  Context: the environmental forces facing a firm o what is going on politically or legally that might affect the firm o what is going on with the economy that might affect the firm o what trends are occurring in society that might affect the firm o what technological innovations might affect the firm  Why look at context? o Anticipate potential threats in the environment o Analyzing the environment may also suggest and offer viable business opportunities o The goal is to identify and evaluate trends and events that will affect marketing strategy either directly or indirectly o ***environment can present both threats and opportunities for a firm’  How to analyze context o Any trend that may have an impact on marketing strategy is fair game o To avoid an “out-of-control fishing expedition” it is prudent to provide some structure 4 Environmental forces: o Social forces  Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics Powerful and predictable force Older demographic group is growing significantly and hence a particular interest Ethnic populations are growing rapidly  Cultural trends male/female roles have been shifting and marketing has changed to reflect this shift  sustainability/ going “green”  consumers increasingly demand that corporations operate in a socially responsible way (CSR)  cause marketing  LGBT increasingly accepted by society  Demand for better ingredients in food – foodies  Living healthier  Social media o Economic forces  The economic environment consists of factors that affect consumer purchasing power and spending patterns  Inflation vs recession  Interest rate  Consumer confidence index  Consumer sentiment index o Technological forces  The appearance of a new technology often impacts many aspects of marketing  Does not necessarily mean that the business based on prior technology will become obsolete o Regulatory forces  The addition or removal of legislative or regulatory constraints can pose major threats and opportunities 5 Cs: CUSTOMER  Customer analysis and consumer behavior o To do a good customer analysis, it is important to have a sound understanding of the science of consumer behavior o Research that has identified patterns of how consumers usually behave, including  The steps consumers go through when making a purchase  The different kinds of purchases that consumers make  How consumers sense, learn, become motivated, and make decisions  The cultural differences that influence consumers  Purchase Decision Process: o Step 1: Problem recognition  Buyers recognize a need/desire  Some are heavily marketer influenced; some are not  Marketers can make purchasing a product desirable o Step 2: Information search  Internal search for info—access own memory  External search for info—ask friends, online search, consumer reports, info from sellers o Step 3: alternative evaluation  Buyers evaluate products based on the degree to which they address their need/desire  Compare different brands  Buyers often create a consideration set  All brands considered as candidates for purchase  Understand what the most important evaluative criteria are that your (potential) buyers use to evaluate products  Educate buyers about which product attributes should be considered  When your brand is not part of the consideration set:  Product improvement & advertising  Induce trial (coupons, rebates, etc)  Striking package designs o Step 4: purchase decision  Rational choice suggests that buyers evaluate all the information about all the alternative, weigh it all, and make an optimal purchase decision  Buyers often make the purchase decision based on heuristics  Price = quality  Country of origin  Brand names o Step 5: post-purchase behavior  Buyers determine satisfaction with product’  How good a purchase was it?  Does the performance of product meet/exceed expectation?  Does buyer feel cognitive dissonance (e.g. regret and/or anxiety about the purchase that they made)?  Opportunities for marketers at this step:  Reinforce “wisdom” of buyers choice through personalized contacts after sales  Satisfied buyers…  Search less additional info when making another purchase  Are more resistant to competitors marketing efforts  Are more receptive to line extensions and other products by the same firm  Tend to engage in more word-of-mouth  Types of consumer purchases: o Convenience purchases  Frequently consumed  Do not spend much time on purchase  Low involvement product o Shopping products  Not as frequently purchased  Consumers will spend time and effort on purchase  Medium involvement product o Specialty products  Occasional purchases/ usually more expensive  Consumers put much effort into the purchase  High involvement product  Low vs High Involvement Products o Low Involvement  Usually higher price sensitivity  Don’t generate much word-of-mouth  Usually widely available  Often difficult to get buys excited about products  GOAL: somehow get buyers interested o High involvement  Often have lower price sensitivity  May generate much word-of-mouth  Distribute selectively  Customers are “hungry” for info  Strong “followers” can be highly effective Key Acquisition Questions o Why should customers buy from me?  If you have trouble answering this question, your business is in jeopardy  Unless you are low cost (and can remain so), price is not a good reason o What are the impediments to their purchase (retail, infrastructure, etc.)?  Remove these barriers o Live a day in your customers shoes Consumer Behavior influences o Origination of needs  Internal stimuli Normal needs become strong enough to drive behavior  External stimuli Advertisements Friends of friends o Hierarchy of needs  A motive is a need that is sufficiently pressing to direct the person to seek satisfaction  Motivation research is based of Freud. Looks for hidden and subconscious motivation  Maslow ordered needs based on how pressing they are to consumers Physiological  safety  social  personal  self-actualization o Marketing mix influences  Price!!! Sales and clearances o Sociocultural influences  Word of mouth (blogs) o Situational influences  Pain of paying o Psychological influences and perception  Learning describes changes in an individual’s behavior arising from experience  Learning occurs through:  drives: internal stimulus that calls for actions  stimuli: objects that move drives to motion  cues: minor stimuli that affect response  reinforcement: feedback on action  Belief  descriptive thought about a brand or service  may be based on real knowledge, opinion, or faith  Attitude  describes a person’s evaluations, feelings and tendencies toward an object or idea  they are difficult to change o Consumer Sensation: Consumers are exposed to various stimuli through their senses  Marketers utilize senses to convey information  Problems with attention:  Consumers’ attention has a limited span. We cannot pay attention to every stimulus around us  Our organism is very good as blocking out what we deem to be irrelevant  What gets noticed and attended to is dependent on whether the stimulus breaks our sensory limits  What enhances the likelihood of a stimulus break through? o Personally relevant o Pleasant/ funny o Surprising/ unexpected  From attention to interpretation  Suppose the consumer has been exposed and paid attention to the message the marketing manager sent out, you still have to worry about whether that consumer is correctly interpreting the information and comprehending that message  Purchase and Post-purchase o Two factors intercede between purchase intentions and the actual decision:  Attitude of others  Unexpected situational factors both the objective attributes of a brand and the subjective ones a consumer uses to compare different products and brands o Satisfaction is important  Delighted consumers engage in positive word-of-mouth  Unhappy consumers tell on average 11 other people o Cognitive dissonance is common  Business Marketing: the marketing of goods and services to companies, governments, or not-for-profit organizations for use in the creation of goods and services that they can produce and market to others  Organizational buyers: manufacturers, wholesalers, retailers, and government agencies that buy goods and services for their own use or for resale o Industrial firms: organizational buyers that in some way reprocesses a product or service they buy before selling it again to the next buyer o Resellers: wholesalers and retailers that buy physical products and resell them again without any processing o Government units: federal state, and local agencies that buy goods and services for the constituents they serve  E-markets: online trading communities that bring together buyers and supplier organizations to make possible the real time exchange of information, money, products and services o Traditional auction: an online auction in which a seller puts an item up for sale and would-be buyers are invited to bid in competition with each other o Reverse auction: an online auction in which a buyer communicates a need for a product or service and would-be suppliers are invited to bid in competition with each other  B to B vs B to C o More persons, formal buying procedures, profit motive o More rational in terms of economic value o Greater bargaining power o Differs in new buy versus repeat  B2C: loyalty  B2B: request for proposal (RFP) or bid request o The mix  Price (negotiations)  Place (more direct channel)  Promotion (sales and trade journals)  Product (customizable, long purchase cycle, different styles)  Organizational vs consumer markets: o Demand characteristics  Derived from the demand for consumer goods and services  Relatively inelastic  More erratic because small increases/decreases in consumer demand can affect demand for manufacturing  More cyclical  I.e. intel chip o Market demographic  Fewer in number  Larger  Geographically concentrated o Behavior & buyer-seller relationships  Professional buying specialists  Closer buyer-seller relationship  Presence of multiple buying influences  More apt to buy on specifications  Organizational buying behavior o Buying criteria:  Price, quality specifications, delivery schedules, past performance, production facilities/capacity, warranty/claim policies, technical capability o B2B Decision Making Unit:  Initiator: identifies the problem that needs to be overcome  Gatekeeper: provides and denies access to the members of the DMU; can dictate the flow on info from suppliers to the DMU  Influencer: not directly responsible for the decision but has significant influence  Decider: makes the final decision to buy after input—budget holder  Buyer: carries out buying process/negotiating  User: will use the product/service 5 Cs: COMPANY  Company analysis starts with an analysis of current financials o Sales and market share o Profitability o Shareholder value analysis netincome  Return on Assets (ROA) = averagetotal assets o What a company can do with what it has marketvalue  Tobin’s Q = replacementvalue o Tobin’s Q > 1 due to “intangible assets  <1 market undervaluing the company  Performance measurements beyond profitability o Customer satisfaction o Brand strength o Innovativeness o Human resources  Net promoter score: gauges the loyalty of a firms customer relationships o Promoter, passives, detractors o Promoters- detractors = NPS  Strategic Planning and marketing planning: o Strategic planning: corporate level  Situational assessment  Organizational mission  Org. objectives  Org. strategies o Marketing planning  Marketing objectives  Marketing strategies  Marketing tactics o Corporate strategic planning  Define corporate mission  Identify strategic business units (SBUs)  Single businesses standing alone from the rest of the company  Analyze, evaluate current business portfolio  Cash cow  Star  Dog  Question mark  Identify new business arenas 5 Cs: COMPETITORS  Competition: o Competitor analysis has two main parts: 1. Starts with identifying current and potential competitors 2. When competitors are identified, the focus shifts to attempting to understand the competitors o Who are my competitors? 1. Defined more by share of wallet than share of market 2. Customers, not your products, determine your competition o Understand competitors 1. i.e. objectives and commitment, current and past strategies, organization and culture, cost structure, weaknesses, strengths, size, growth and profitability, image and positioning  Competitive Analysis: o Competitive analysis answers 1. What is driving competition in this industry or industries the firm may consider join 2. What actions are competitors likely to take, and what are the best responses 3. How will the industry evolve o In order to set strategy which answers 1. How should the firm be positioned to compete in the long-run  Competitor response profiles o Key decisions: 1. Who to track 2. Their respective strategy 3. Sources of market advantage o **helps to predict what competitors will do o Competitive matrix tells us… 1. Current position and strategy  Market share and sales, target market and positioning, marketing mix (4Ps) 2. Ability to  Design new products, manufacture, market, finance, manage 3. Future goals  Product portfolio, share or profit, product differentiation or cost leadership  Competitive strategy and forecasting o Porter’s 5 Forces 1. Competition among existing firms  Depends on… o # of competitors, their size, and their commitment o Whether the product offerings are similar o Existence of high fixed costs (less ppl entering) o Exit barriers 2. Threat of substitute products  Email vs US postal services vs FedEx  Digital camera vs “regular camera”  GPS vs maps 3. Bargaining power of customers  Can force prices down 4. Bargaining power of suppliers  Can force prices up o When supplier industry is concentrated and there are many customers o When switching costs are high 5. Threat of potential competitors  Largely depends on size and nature of barriers to entry o Required capital investments o Economies of scale (the more units produced the less they cost) o Distribution channels o Game Theory  Payoff structures  Players  Rules of engagement  How will the game proceed  Sequential or simultaneous moves?  Uncertainty and player info  What is common knowledge what is private  Time period  One shot vs repeated games  Prisoners dilemma  How to respond to price cut—not always in kind  Block distribution channels, cut prices, advertising campaigns, rely on their brand equity  Customer or competitor orientation?  Focus on competitors—aggressive and alert for changes  Focus on customers—align resources to customer needs  Situational analysis o Using context analysis, identify potential opportunities and threats o Using customer analysis, define segments o Using company analysis, define good targets (SWOT, BCG) o Using collaborator analysis, identify channel partners o Using competitor analysis, define good position (competitive intel, perceptual maps) o Craft 4Ps and marketing plan after situation analysis  Channel conflict occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers through general marketing methods and/or over the Internet  Franchising is a long-term cooperative relationship between two entities— a franchisor and one or more franchisees—that is based on an agreement in which the franchisor provides a licensed privilege to the franchisee to do business. STP: Segmentation, Targeting, and Positioning  STP links market needs to organizational action  5 steps in STP: 1. Segment the market  Segmentation: is the subdividing of a market into distinct subsets, where any subset may be selected as a marketing target to be reached with a distinct marketing mix  each (sub)segment should be alike within, and different between  aggregation of consumers into similar groups  key ideas behind segmentation  rather than trying to capture the entire market, the smart company will segment the market and target specific market segments  market segments are groups of customers with similar needs and desires who will respond similarly to a company’s offering  why segment  consumers may differ in any step in the consumer decision process  preference of different customer types may conflict o making one group happy antagonizes another o compromise offerings are dangerous as no group is really satisfied; competitors arise o too expensive to design a different product for all  effective segmentation  distinct—similar within groups, different across groups  little overlap  operational – addressable, can you design an effective program for it, do you have access to the market  big enough to be profitable—sufficient size to warrant attention as a segment  consumer segmentation bases  across consumers o benefits sought and value in use, usage behavior (amount, loyalty), lifestyle, demographics  across time o new product adoption timing, first or laggard  skimming: high initial price to take advantage of pioneers—eventually price will drop  penetration: low initial price to attract more consumers but later on we can increase price to be more profitable o usage occasion  common variables used to define segments  geographical  demographic  psychographic (based on lifestyle or personality)  behavioral (how they act towards or use a product) 2. Grouping Products 3. Create Market grid 4. Targeting  Selection!  which segment(s) do you want to serve  things to consider when deciding on target segment  segment size (largest isn’t always best)  expected growth  competitive position  cost (do you have the resources to go after that segment)  compatibility with company strategy  target multiple  generic targeting/segmenting strategies  one product, multiple market segments (Harry Potter books)  multiple products, multiple segments (Barbie, cars, cellphone plans)  mass customization/segment of one (Blaze, M&Ms, New Balance) 5. Taking action – positioning  Key: deciding on how you want your company or brand to be perceived in the minds of the target segment  The actually positioning done via 4Ps  For existing products you may have to consider how customers currently perceive the brand  How does your company fare compared to your competitors in the segment  Many successful positions represent an integration of several value propositions  A promise of value to be delivered and acknowledged and a belief from the customer that value will be delivered and experiences  Be cautious!!! Too many value propositions can confuse customers  Value propositions  In every market there will be a segment that is motivated by price  To compete successfully in the value arena it is necessary to o Make sure quality perception does not erode to the point that the offering is considered unacceptable o Create a cost culture in the organization o Have a cost advantage  Superior attribute—if a service or product attribute is central to the purchase and use of an offering, one option is to dominate or even own that attribute (Volvo-safety)  Appealing design—a product can appeal to a persons’ aesthetics (apple, jaguar)  Systems solutions—a compelling value proposition can be based on moving from selling products to selling systems solutions (IBM, HP) o One-stop-shop. Often used in B to B space  superior customer relationships—creating an experience that connects the offering to the customer on a more involving and passionate level (Harley Davidson)  superior quality—the brand will be perceived as superior to other brands in its reference set (supermarkets-fresh produce, cleaners-a lemon scent) o often associated with a price premium o critical to understand what drives quality in a given segment  emotional/self-expressive benefits—“nurturing, frugal and unpretentious, adventurous or daring”  corporate social responsibility programs—a supplementary value proposition (TOMS)  Positioning statement—once a company has decided on its positioning it must be able to communicate succinctly the parameters of that position to a number of different audiences (customers, employees, shareholders, general public)  “To (target segment and need) our (brand) is (a concept) that (point of difference)  Actually positioning done via 4Ps  Perceptual map o A diagrammatic technique used by asset marketers that attempts to visually display the perceptions of customers or potential customers o Typically the position of a product, product line, brand, or company is displayed relative to their competition o Important because…  Visually display the perceptions of customers or potential customers  Visually display the position of a product, product line, brand or company relative to their competitors  Measure distance of each product from consumer ideal points CONJOINT ANALYSIS Basic ideas underlying conjoint analysis o Consumers view a product or services as a bundle of attributes o Consumer’s overall evaluation is the sum of the individual evaluations o If we learn how buyers value the components of a product, we are in better position to sell products that are profitable  Estimate psychological tradeoffs, measures preferences at individual level, uncovers real or hidden drivers  Theory of conjoint: the value of a product is the summer of its attributes o Value = β *1  1  β2* 2 o Ask consumers to rate each bundle of attributes  Steps to Conjoint 1. Define the attributes that you want to measure (estimate) 2. Vary the product features (independent variables) to build many (usually 12 or more) product concepts 3. Ask respondents to rate/rank those product concepts 4. Code the responses and attributes 5. Based on respondent’s’ evaluations of the product concepts we estimate value of each attribute (part-worth utility)  Run a linear regression for each individual. Each regression coefficient is the part-worth utility associated with the corresponding variable to that specific individual o Preference map all people  Vector preferences: the more (or less) the better  Ideal preference points: an ideal level of attribute, above or below which a product becomes less preferred  Strengths of choice base conjoint question o Questions closely mimic what buyers do in real world: choose from available products o Can investigate interactions, alternative-specific effects o Can include none alternative or multiple constant alternatives PRODUCTS  Types of products o Shopping products—less frequent purchases, more effort for comparisons, higher than convenience good pricing, selective distribution in fewer outlets, advertising and personal selling, prefer specific brands but substitutes okay (cameras, TV, clothing) o Specialty products—strong brand preference and loyalty, special purchase effort, little comparison, low price sensitivity, high price, exclusive distribution, status matters, carefully targeted promotions (Rolex, Chanel) o Unsought (convenience) products—little product awareness and knowledge, pricing varies, distribution limited, substitutes acceptable, aggressive advertising and personal selling (burial insurance, cord blood banking)  Product breakdown o Product item (iPod mini) o Product Line (iPod mini, shuffle, touch) – a group of products that are closely related because they may  Function in a similar manner  Are sold to the same customer groups  Market through the same types of outlets  Fall within given price ranges  Product line extension  Line stretching—adding products that are higher or lower priced that existing line  Line filing—adding more items within present price range o Product mix (iPod, computers, to, phones)—product assortment; consists of all the product lines and items that a particular seller offers for sale  Product development o New products—anything a customer perceives as new and different (new brands, colors, styles, features, products)  Product primary and essential to value delivery  New products engines of growth  New product design and development very expensive  Risk of failure very high  Marketing inputs to new product development reduce the risk of failure and increase the probability of success  Differ in their degree of newness and this helps to determine how quickly products will be adopted by target market  The more novel the slower the diffusion  Innovation continuum Continuous innovation -----------------------Dynamically continuous innovation ----------------------discontinuous innovation (Little to no change in (Substantial changes in consumer behavior) consumer behavior required) Ex: 3D white toothpaste ex: electric toothbrush, iPhone Ex: air conditioning (1928) n microwave (1967)  New product development o Why develop new products  Companies cannot survive without developing new products o 80% of new products fail  Overestimation of market size or underestimation of costs, incorrectly positioned, priced, or advertised o Strategy  Market penetration – existing products in existing markets  Market development – existing products in new markets  ***product development—new products in existing markets = product line extension  Diversification – new products in new markets  New products development process 1. New product strategy development—strategic role of the new product 2. Idea generation: internal sources—employee and co-worker suggestions, R&D labs, customer and supplier suggestions, smaller firms, inventors, and universities 3. Screening and evaluation—company has a number of ideas that might work, time to get customer feedback as to which ideas sound the most promising 4. Business analysis—review of sales, costs and profit projections for a new product to find out whether these factors satisfy the company’s objectives 5. Development—work with engineers to refine the design and production process, develop prototype(s) 6. Market testing—evaluate prototypes with prospective customers, focus groups 7. Commercialization—launch the product; must decide on timing and where to introduce the product ***process should be customer centric, team based and iterative  Products in global market o Values and customs—match the culture of your market and respect consumer culture o Product invention strategy—completely different product in another country o Product extension—virtually the same product in another country o Product adaption—change a product in some way to make it more appropriate for a country’s climate or consumer preferences o Product invention—creating new products or services for foreign markets  Services o intangible activities or benefits that an organization provides to satisfy consumers’ need in exchange for money or something else of value o two types 1. equipment based 2. people based o service differ from goods (4 I’s of service)  intangibility  inconsistency  inseparability  inventory  product life cycle o predicting the success of a new product is v challenging 1. introduction stage  goals: get first time buyer to try new product  sales: increase at a steady but slow ace  profits: high (skimming) or low(penetration)  marketing communications: informing customers and creating awareness  distribution: intensive personal selling to retailers and wholesalers o Should you be a pioneer?  Pros: become the standard, first mover advantage  Cons: customer education and market development o Will your innovation be adopted?  Relative advantage, observability, complexity, trialability, compatibility) 2. growth stages  goals: maximize market share  sales: rapid increase (sales volume create economies of scale)  profits: increase and peak  pricing: may need to reduce because of increase competition  marketing communications: heavy advertising to counter new competition  distribution: wide 3. maturity stage  goals: maximize profits while defending market share  product: maybe tweak product  sales: peak then level off often decline  profits: margins narrow  marketing communication: sales promotions  distribution: wide o two ways to increase sale on mature goods  Secondary demand—steal share  Primary demand—new users 4. Decline stage  Goal: remain profitable  Sales: declining  Profits: declining  Pricing: may reduce if product can remain profitable  Market communications: reduced to maintain profitability o Declining market  Industries eventually reach a decline stage  Changes in consumer needs/demographics, technological innovation, reduced economic growth  Decline phase is especially challenging  Severe competition, capacity management, human resources management plays a key role  Just might make a killing  Be the last one to exit (become a monopolist in a small world)  Look for and invest in re-emerging pockets of demand or new uses  Embrace the trend  Brand equity o Brand: a promise in terms of what to expect from the product  A name, term, sign, symbol, design, or a combination of these, that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors o Benefits of brands  Companies -- Strong brands…  Affect customer’s willingness to pay a premium price  Increase probability of brand choice  Increase marketing communication effectiveness  Increase brand name extendibility and brand licensing opportunities  Decrease vulnerability to competitive marketing actions  Decrease elastic responses to price increases  A lever for attracting the best employees and keeping current ones  Consumers -- Brands…  Identify company ownership  Allow for predictable quality thus decreasing risk  Make consumer decision making easier  Serve as a status symbol o Brands have changed the role of marketing  Shifted from being tactical, reactive and short-term to being strategic and visionary o Brand equity: the incremental utility or value added to a product by its brand names o Brand awareness: provides a host of competitive advantages  Provides sense of familiarity—people like the familiar  Will determine if brand is recalled and part of consideration set o Brand loyalty: resistance to switching brands  Based on…  Switching costs  Simple habits  Preference  Creates entry barriers and provides firms with time to respond to competitive moves o Brand associations: anything that directly or indirectly linked a consumer’s memory about a brand  Branding strategies o House of brands: several brands one company (General mills)  Any problems with one brand should not influence the other brands  Brand images do not need to be consistent which allows for targeting multiple segments  Requires more advertising expense  multibranding o Branded house: one brand one company (IBM, HP)  Subsequent product introductions are easier for a customer to understand and accept  Higher awareness levels  Stronger financial outcomes  Multiproduct branding o Brand extensions  Leverages the brand’s name to get people to buy something new  Line extensions – increase depth  Product mix extensions – increase depth o Co-branding  Two companies form a joint venture to create a product from both companies  Ingredient branding: one company adds value to a host product PRICE  Price is the value that customers give up or exchange to obtain a products o The only marketing mix element that can be change quickly o Has a direct impact on a firms bottom line o Demand tends to decrease as price increases o The only P capturing firm value  Product strategy creates value for the customer  Promotion strategy communicates value of offerings to the customer  Distribution policy delivers value to the customer  Pricing strategy is the only one of the 4Ps devoted to capturing value for the firm  Pricing strategies o Considerations in setting price  Customer perception of value—price ceiling  Product costs—price floor o Profit Margin and Mark-up selling price−cost  Profit margin = Selling price = selling price cost 1−[ percentmargin] selling price−cost  Mark-up = Selling price = cost x (1+ cost %Markup) o Value based vs cost based pricing  Cost-based pricing  Cost-plus pricing: (markup pricing) marketer determines all costs per unit and then adds markup on costs (desired profit per unit) o Price = total costs + (total costs*markup percentage)  Break-even pricing: marketer tries to determine the number of units to sell to cover costs (conditional on unit price) o breakeven units = fixed costs / (unit price – unit variable costs) o can also be calculated with a target profit goal included  breakeven = (fixed cost + target profit) / (price – variable cost)  advantages o simple to calculate  disadvantages o fails to consider competition, product life cycle, products image  Value-based ricing  Based on consumers’ willingness to pay for the product o Determine price customers are willing to pay o Determine retailers’ profit margin  Price to retailer = selling price* (1-profit margin) o Determine the profit margin required by the firm o Calculate the target cost  Target cost = price to retailer* (1-profit margin %)  Price elasticity of demand o How much does demand (units sold) increase (or decrease) with price change o A measure of the sensitivity of customers to changes in price o The ratio of the percentage change in on variable to the percentage change in another variable percentagechange∈quantitydemanded  Price elasticity of demand=E= perventagechange∈rpice  Elastic demand: lEl > 1 – swoop downward  Inelastic demand: 0< lEl < 1 – vertical line o Important to measure how changing one economic variable affects others o Necessities—demand for necessities tends to be inelastic o Availability of substitute goods or services (uniqueness)—if a product has a close substitute its demand will be elastic o Cross-elasticity of demand  Substitutes: increase in price of product x, increases demand for product y  Complements: increase in prices of product x, decreases demand for product Y o If demand is inelastic  Increase price – total revenue increase o If demand is elastic  Decrease price – total revenue increases  Price discrimination o Retail businesses often charge more for products marketed towards females where similar or near identical male’s versions exist  Pricing variation requires o Multiple segments o Revenues of segments > costs o No resentment from differential pricing o Must be legal no resell  Additional pricing strategies o Market-skimming pricing: setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price o Market-penetration pricing: setting a low price for a new product in order to attract a large number of buys and a large market share o bundle pricing: sell a package or set of goods or services for a lower price than they would charge if the customer bought all of them separately  Deceptive pricing practices o Price-fixing among competitors o Predatory pricing o Going out of business sales o Bait and switch tactic  Monitor prices realized at transaction level o Product may have only 1 list prices but several final prices  Returns damage claims, special incentives o Need more care and attention to price leakage and padding  Pricing and brand equity o Customers are more rice sensitive o More products are failing  Global marketing: price o Possible approaches  Uniform pricing  Market-based pricing  Standard markup pricing o Companies may become guilty of dumping – a foreign subsidiary charges less than its cost or less than it charges in its home market  Psychological issues in pricing o The price is often used to say something about the product o Price can often influence perceptions of quality, especially when consumers are not able to judge the quality of a product o Consumers are strongly attracted to free products and can make decisions that are not in their best interests o People are more likely to consume a product when they are aware of its cost o The extent to which customers use the products they’ve paid for is a key determinant of whether they will repeat the purchase o People tend to be more aware pf a product’s cost when they pay cash as opposed to with credit card PROMOTION  Objectives of communication o Build awareness, create associations, develop motivation to act   building brand equity (long term) and increasing purchase intentions and its precursors (short term)  Promotional mix o Sales promotion  coupons  objective—stimulate demand  advantages—encourage retailer support  disadvantages—consumers delay purchases  deals  objective—increase trial, retaliate against competitors actions  advantage—reduce consumer risk  disadvantage—consumers delayed purchases; reduce perceived product value  point-of-purchase  objective—increase product trial, provide in-store support for other promotions  advantages—provide good product visibility  disadvantage- hard to get retailer to allocate high-traffic space  product placement  objective—introduce new products; demonstrate product uses  advantages—positive message in a noncommercial setting  disadvantages—little control over presentation of product o public relations  seeks to influence the image of an organization and its products and services  use a variety of tolls directed at many distinct audiences  news release, news conferences, PSA o direct marketing  uses direct communication with consumers to generate a response in the form of an order, a request for further information, or a visit to a retail outlet  face-to-face selling, direct mail and catalogs, telemarketing, direct response advertising  Integrated marketing communication (IMC) o Carefully blended mix of promotional tools o IMC and product life cycle  Introduction: to inform  Publicity in magazines, salesforce calling on intermediates, advertising, sales promotion  Growth: to persuade  Personal selling, advertising to differentiate product  Maturity: to remind  Reminder advertising, sales promotions (discounts and coupons), limited personal selling, direct mail reminders  Decline: to phase out  Limited money spent on promotions o IMC and stages of consumer purchase process  Steps in promotional plan 1. Set the objectives  Hierarchy of effects model  Immeasurable—increase awareness; motivate purchase behavior  Measureable—increase unaided awareness among 18-32 years old by 25% within 3 months 2. Identify target audience  By stage adoption cycle – potential new buyers, current users, influencers  Other segmentation bases—demos, behaviors, geography, personality 3. Design a message  What to say, how to say it logically, how to say it symbolically, who should say it (source credibility) 4. Promotional mix  Advertising—public, pervasive, expressive, impersonal  Sales- confrontive, cultivative, responsiveness of buyer  Sales promotion—communication, incentive, invitation  Publicity and public relations—credibility, reach, dramatization o AIDAS and Mix  Measures awareness, interests, desires, action and satisfaction of the mix o Push vs Pull  Push: flow of promotion mainly personal selling directed to intermediaries  Pull: flow of promotion mainly advertising directed to consumers o Consumer Ads or Trade deals  Advertising  Builds equity, benefit emphasis, high marketer control, end user is target, pull, can take a long time to have effect  Trade promotion  Not much equity built, price emphasis, lower marketer control, trade is target, push, usually effective immediately 5. Set the budget  Affordable method, percentage of sales method, competitive parity method, objective and task method 6. Measure results  Attitude and awareness objectives (pre-promotion level vs post-promotion level)  Behavioral objectives (changes in sales, test markets)  Advertising o The primary communication tool to communicate with (prospective) customers o Can be used to…  Inform prospective customers about the benefits of the product  Persuade prospective customers to try the product  Remind them later about the benefits they enjoyed when using the product o Expected to generate sales but it is hard to “prove” o Both short term


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