Marketing Test 3 Review Ch 914
● Customer Value What customer’s get for the prices they pay.
● Bottom Line The right price impacts the bottom line.
● Price is the sum of all the values that customers give up in order to gain the benefits of having/ using the product/ service. (Broad)
● Amount of money charged for a product or service. (Narrow)
● Determines a firm’s market share and profitability.
● Produces revenue (all other p’s cost)
● Combination of a gourmet and discount food Don't forget about the age old question of How does implied consent work?
● Experimental shopping for customers
● Lean operations and a focus on saving money.
● Has relatively frugal prices that its competitors
● Locates its stores low rent, outofthe way locations.
● 4,000 versus 50,000 store items
● 80% private label
● Spends very little for advertising.
Considerations in setting price
● Product cost → competition and other external factors → consumer perceptions of value.
Cost Based Pricing
● Based on costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk
Types of costs:
● Fixed costs Do not vary
● Variable cost Vary with production
● Total costs Fixed plus variable
Design a good product → determine product cost → Set price based on cost → Convince buyers of product’s value.
Easy to calculate?
● Consider a meal at a restaurant…. Easy to calculate ingredients but what about taste, atmosphere, good service, relaxation, conversation, status. Don't forget about the age old question of Who does cohesive force bind molecules together?
If you want to learn more check out What do extraordinary repairs and maintenance refer to?
Don't forget about the age old question of What are the three sources of energy power?
● The latter are subjective (Varies by customer/ situation)
Types of costbased pricing
Cost plus pricing (Markup pricing)
● Adding a standard markup to the cost of the product
Breakeven pricing (Target return pricing)
● Setting price to break even on the costs of making and marketing a product, or setting
price to make a target return.
Word to the wise…
● Must watch cost
● If it cost you more than your competition you need to charge a higher price or make less of a profit.
● COMPETITIVE DISADVANTAGE
Competition Based Pricing
● Based on competitors’ strategies, prices, cost, and market offerings.
Customer Value Based Pricing
● Based on buyers’ perceptions of value rather than on the seller’s cost ● Price is considered before the marketing program is set. We also discuss several other topics like What is the function justification?
Types of value based pricing:
● Good Value pricing: Combination of quality and good service at a fair price. Less expensive versions (Taco bell dollar menu, lower end cars, etc.). We also discuss several other topics like What are the dimensions of emotional states?
● Value added pricing Good value does not equal lower prices. For ex. Movie theatres that add additional benefits and charge a higher price.
Considerations affecting pricing decisions
Internal factors Pricing decisions must coordinate with packaging, promotion, and distribution decisions.
● Posititoning may be based on price
● Target costing: Start with an ideal selling price, then targets costs that ensure the price is met.
● Non price positions can be created to differentiate the market offering. External Factors Nature of the market and demand, economy.
● Who should set the price? Varies depending on the size and type of company ● Small Companies Top management
● Large Companies Divisional or product managers
Pricing in different types of markets
● Pure competition Many sellers, many buyers, uniform commodity.
● Monopolistic competition Many sellers, many buyers, range of prices ● Oligopolistic competition Few large sellers (AT&T/Verizon)
● Pure monopoly One seller
Price elasticity of demand
● Measure of the sensitivity of demand to changes in price
● Inelastic demand Demand hardly changes with change
● Elastic demand Demand heavily changes
Sell Value, Not Price
● Put pressure on companies with price. Yet cutting prices is not always the best answer.
● Lost profits, damaging price wars, cheapen the brand.
New Product Pricing Strategies
● MarketSkimming pricing Setting a high price to skim maximum revenues layer by layer from the segments willing to pay the high price. Company makes fewer but more profitable sales
● Market penetration Pricing
● Setting a low price to attract a large number of buyers and a large market share. Product Mix Pricing
● Product line pricing Setting prices across an entire product line
● Optional Product pricing Pricing optional or accessory products sold with the main product.
● Captive Product pricing Pricing products that must be used with the main product. ● By product pricing Pricing low value by products to get rid of or make money on them.
● Product bundle pricing Pricing bundles of products sold together.
Discount and Allowance Pricing
● Discount pricing Reducing prices to reward customer responses such as paying early or promoting the product
● Cash, quantity, functional, and seasonal discounts
● Allowances: paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.
● Tradein and promotional allowances.
● Selling a product or service at two or more prices, where there is a difference in prices is not based on differences in costs.
● Forms of segmented pricing:
1. Customer segment pricing
2. product for pricing
3. location based pricing
4. time based pricing
● Reference prices: Prices that buyers carry in their minds and refer to when looking at a given product
● Considers the psychology of prices and not simply the economics.
1. FOB Origin Pricing
2. Uniform delivered pricing
3. Zone pricing
4. Basing point pricing
5. Freight absorption pricing
Dynamic and Internet pricing
● Dynamic pricing Adjusting prices continually to meet
Companies need to pay attention to their distribution channels
● Many companies fail to pay attention to their distribution channels.
The ones that do gain big advantages.
● Enterprise RentaCar (off airport rental offices)
● Apple (music via iTunes)
● Amazon (no need for a physical store)
● Zipcar (rent a car on campus)
First stop: Netflix’s Channel Innovation
Innovative distribution model of video entertainment:
● DVDs by mail
● Value delivery network: Company, suppliers, distributors, and customers who partner with each other to improve the performance of the entire system.
● Marketing channel: Interdependent organizations that help make a product or service available for use or consumption
● Affect every other marketing decision
● Can lead to competitive advantage
● May involve longterm commitments to other firms.
Why do producers give some of the selling job to channel partners?
● Why not do it themselves? They create greater efficiency in making goods available to target markets. Through their contacts, experiences, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own. How channel Members add value
● Intermediaries create greater efficiency in making goods available to target markets ● Role of marketing intermediaries
● Transform the assortments of products made by producers into the assortments wanted by consumers.
Help to complete transactions
Help to fulfill the completed transactions
● Physical distribution
● Risk taking
● Channel conflict: Disagreements among marketing channel members on goals, roles, and rewards.
● Horizontal conflict occurs among firms at same level of the channel
● Vertical conflict occurs between different levels of the same channel.
● Conflict is key to the supply chain
● KFC claimed it must reposition its brand around grilled chicken rather than fried. Had vertical conflict.
Vertical Marketing System (VMS)
Conventional distribution channel
● Consist of one or more independent producers, wholesalers, and retailers ● Each member is a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.
Vertical marketing system
● Producers, wholesalers, and retailers act as unified system.
● Types: Corporate (Single ownership), contractual (Contract…. Franchise most common), and administered (size and power).
Horizontal Marketing system
● Two or more companies at one level join together to follow a new marketing opportunity. (Ex. Walmart has partnered with McDonald's).
Multichannel Distribution systems
● A single firm sets up two or more marketing channels to reach customer segments. Advantages:
● Expansion of sales and marketing coverage
● Tailor Made products and services for the specific needs of customer segments Disadvantages:
● Harder to control
● Generates conflict
● Occurs when product or service producers cut out marketing channel intermediaries or when radically new types of channel intermediaries displace traditional ones. Channel design decisions
● Marketing channel design: Involves designing effective marketing channels by: Analyzing customer needs
● Value breadth of assortment or specialization?
● Nearby locations or travel?
● Add on service (delivery, repair, instillation) or gain elsewhere?
Setting channel objectives
● Levels of customer service
Identifying major channel alternatives
Evaluating the Alternatives (Sales, cost, Profitability)
Marketing Logistics and Supply chain management
● The goal of marketing logistics is to deliver a targeted level of customer service at the least cost.
● Logistics functions include: Forecasting, information search, Purchasing, production planning,
Marketing logistics (or Physical distribution)
● Planning implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to consumption.
● Getting the right product to the right customer in the right place at the right time. Supply chain management
● Customer centered logistics: Marketplace to the factory or sources of supply. ● Outbound logistics
● Inbound logistics
● Reverse logistics
Warehouse (How many/What types?)
● Storage warehouse Store goods for moderate to long periods.
● Distribution centers Large, highly automated warehouses that receive goods, take orders, fill them, and deliver goods to customers. (Designed to move goods).
● Should be done in a cost effective and profitable manner
● Justintime logistics systems (JIT) Carry small inventory, new stock arrives when needed.
● Radio frequency identification (RFID), or smart tag technology, gives the physical location of a product.
Factors affected by choice of transportation
Logistics information management
● Flows of information closely linked to channel performance.
Information can be shared and managed through:
● Electronic data interchange
Walmart: The World’s largest retailer
● Dedicated to longtime, lowprice value proposition and what it means to the customers “Save money. Live better.”
● Lowest cost structure in the industry (Supply chain guru).
● Faced difficulty to maintain its growth rates
● Solution Pushed into new, faster growing product and service lines and different store formats.
● Activities involved in selling goods or services directly to consumers for their personal use.
● Retailer: Business whose sales p
Types of retailers
Retailers classification can be based on:
● Amount of service offered
● Breadth and depth of the product lines
● Relatively prices charged
● Way they are organized.
Levels of service
1. Self service retailers
2. Limited service retailers
3. Full service retailers
Major store Retailer types
● Price policy must fit the retailers’...
● Target market and positioning
● Product and service assortment
● Retailers use many promotional tools.
● Advertising, personal selling, sales promotion, public relations, direct marketing. Place decision
Types of shopping centers
1. Regional shopping center (50100)
2. Community shopping center (1550)
3. Neighborhood shopping center (515)
4. Power center (Huge, unenclosed center)
5. Lifestyle Center (Open air mall, upscale)
Retail trends and Developments
● Tighter consumer spending
● Impact of the great recession on consumers
● Changed spending patterns.
Impact of great recession on retailers:
● Cost cutting, price promotions, bankruptcy, New value pitches in positioning. Retailing trends and developments
● Rise of megaretailers and specialty superstores
● Showrooming: Checking out merchandise and prices in retail showroom but buying from an online only rival. Sometimes occurs in store.
● Specific blend of promotion tools
Used by companies to:
● Engage consumers and persuasively communicate customer value
● Build customer relationships.
● KEY WORD for promotion is COMMUNICATION.
Production Marketing Communication Mix
● Advertising Any paid form of nonpersonal presentation and promotion of ideas goods or services by an identified sponsor. Advertising establishes the image of a product. ● Sales promotion Short term incentives to encourage the purchase of cale of a product or service.
● Direct and digital marketing Engaging directly with carefully targeted individual consumers and customer communities to both obtain an immediate response and build lasting customer relationships.
● Public relations Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events. Promotes products, people, ideas, organizations, and
● Public relations should be viewed as an ongoing program during crises and good times. ● Personal selling Personal customer interactions by the firm’s sales force for the purpose of making sales and building customer relationships.
The New Marketing Communications Model
● Consumers are changing…. Better informed and more communications empowered. ● Marketing strategies are changing….shift away from mass marketing, more focused programs to build relationships.
● Sweeping advances in digital technology….. Changing the way companies communicate with customers.
Pros and Cons
● It can “give companies increased access to their customers, fresh insights into their preferences, and a broader creative palette to work with.
Integrated Marketing Communications
● Clear, consistent, compelling message.
Buyer Readiness Stages
Push Vs. Pull Promotion Strategy
● Push Calls for using sales force and trade promotion to push the product through channels. Producer promotes the product to channel members with in turn promote the final consumer.
● Pull Calls for spending a lot on consumer advertising and promotion to induce final consumers to buy the product, creating a demand vacuum that pulls the product through the channel.
● Any paid form of nonpersonal presentation and promotion of ideas goods or services by an identified sponsor.
Possible Advertising Objectives
1. Informative Advertising
2. Persuasive Advertising
3. Reminder Advertising
Methods of Setting the Advertising Budget
1. Affordable Method Setting the promotion budget at the level management thinks the company can afford.
2. Percentageofsales Method Setting the budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales price.
3. Competitive parity Method Setting the promotion budget to match competitors’ outlays. 4. Objective Task method Determining the campaign objectives and calculating the costs of the tasks needed to accomplish them.
● Accomplishes the company’s advertising objectives.
Major advertising strategy elements:
● Creating advertising messages
● Selecting Advertising media
Creating the Advertising Message
● Breaking through the clutter
● Merging advertising and entertainment
● Planning a message strategy
● Executing the message
● Using consumer generated content.
Selecting Advertising Media
● Advertising media: Vehicles through which advertising messages are delivered to their intended audiences
Steps in advertising media selection:
● Determining reach, frequency, and impact
● Choosing among media types
● Selecting specific media vehicles
● Choosing media timing.
Reach: % of people in target market who are exposed to the ad campaign during a given time period.
Organizing for Advertising
● Small firms may use their sales department staff.
● Large companies may have their own advertising departments.
Major Public Relations Tools
2. Special events
3. Written materials
4. Audiovisual Materials
5. Corporate identity materials
6. Public service activities
Public relation ex: McDonalds Ronald McDonald, Taco Bell liberty bell April fools, Ch.13
Marketing Chapter 13
● Personal presentations by a sales force to make sales and build customer relationships. Salesperson: Represents a company to customers by performing one or more of the following activities:
● Prospecting and communicating
● Selling and servicing
● Gathering information and building relationships.
A salesperson is there to satisfy customers needs.
Role of the Sales force
● Links the company with its customers
● Coordinate marketing and sales
● Boundaryspanner Spann boundary between person and company.
Sales Force Management
● Analyzing, Planning, Implementing, and controlling sales force activities. 6 Steps of sales force management:
1. Designing the Sales Force Strategy and Structure
Type of sales force structures:
● Territorial (Geographic region)
● Product (Certain Product Lines)
● Customer (Certain types of customers)
Salespeople can be specialized by:
● Customer and territory
● Product territory
● Product and Consumer
● Territory, product, and customer
2. Recruiting and selecting Salespeople
● A company should analyze the sales job and the characteristic of its most successful salespeople.
3. Training Salespeople
Goals of training are to teach salespeople:
● About different type of customers
● How to sell effectively
● About the company’s objectives, organization, products, and the strategies of competitors.
Online Training builds sales skills using videos, internetbased exercises, or simulations 4. Compensating Salespeople
Elements of Compensation:
● Fixed amount
● Variable amount
● Fringe benefits
Types of compensation plans
● Straight salary
● Straight commission
● Salary plus bonus
● Salary plus commission
Supervising and evaluating salespeople, sales force performance
Management gets information about its sales people:
● From sales, call, and expense reports
Steps in the Selling Process (KNOW THIS)
1. Prospecting and qualifying ID qualified customer
2. Preapproach Learn as much about customer
3. Approach Meeting customer 1st time.
4. Presentation and demonstration Tell the value story/solve problems 5. Handling objections Overcome Obstacles
6. Closing Ask for the order
7. Followup Ensure Satisfaction
● Shortterm incentives To encourage the purchase or sale of a product or a service.
Sales promotion Targets:
● Final buyers
● Retailers and Wholesalers
● Members of the Sales force
Many factors have contributed to the rapid growth of sales promotion:
● Product managers view promotion as an effective shortrun sales tool ● Competitors use sales promotion to differentiate their offers.
● Sales promotions help attract today’s more thriftoriented consumers. Sales Promotion Objectives
● To urge shortterm customer buying or boost customer brand involvement. Trade Promotions
● To get retailers to carry new items and more inventory, buy ahead, or promote the company’s products and give them more shelf space.
Sales force promotions
● To get more sales force support for current or new products and motivate salespeople to sign up new accounts.
Consumer Production Tools
● Samples Offers of a trial amount of a product. Most effective and expensive ● Coupons Certificates that save buyers money when they purchase specified products ● Rebates Price reduction occurs after the purchase. Customer sends proof of purchase to the manufacturer, which then refunds part of the purchase price by mail.
● Premiums Goods offered either free or at low cost as an incentive to buy a product. ● Advertising Specialties Useful articles imprinted with an advertiser’s name, logo, or message that are given as gifts to consumers.
● Point of Purchase Promotions Displays and demonstrations that take place at the point of sale.
● Contests, Sweepstakes, and Games
● Event marketing Creating brand marketing event or serving as a sole or participating sponsor of events created by others.
● Used to persuade resellers to carry a brand, give it shelf space, and promote it in ads Trade promotion tools:
● Contests, premiums, and displays
● Discount and allowances
● Free goods
● Push money
● Specialty advertising items.
Forms of Direct and Digital Marketing
● Digital and Social media marketing Online, Social media, and mobile marketing ● Traditional Direct marketing Face to face selling, Direct mail marketing, Catalog Marketing, Telemarketing, Direct Response Tv Marketing, and Kiosk Marketing Direct and Digital Marketing
● Engaging directly with the targeted individual consumers and customer communities to: Obtain an immediate response and build lasting customer relationships.
● Build customer engagement, brand community, and sales
Benefits of Direct and Digital Marketing to Buyers
● Convenient, easy, and private
● Easy buyerseller interaction
● Quick access to products and relevant information
● Brand engagement and community
● Lowcost, efficient, and speedy.
● Build close personalized, interactive, onetoone customer relationships. ● Offers greater flexibility
Growth of Direct and Digital Marketing
● Fastest growing form of marketing
● Traditional direct marketing is becoming more internet based.
● Marketing via the internet using company websites, online ads and promotions, email, online video, and blogs.
Web Site vs. Branded Community
● Marketing Web Sites: Interact with consumers to move them closer to a direct purchase or other marketing outcome
● Branded Community websites: present brand content that engages consumers and creates customer community around a brand.
● Online advertising: Appears while consumers are browsing online.
● Display ads: Appear anywhere on the screen and relate to information being viewed. ● Search related ads: Links that appear alongside search engine results. EMail marketing
● Sending highly targeted, highly personalized, relationship building marketing messages via email.
● Spam: Unsolicited unwanted commercial email messages.
● Videos, ads, and other marketing content that engage customers to seek out or pass along to friends.
Blogs and other online Forums
● Online Journals of narrowly defined topics where people and companies post their thoughts and other content.
Benefit Offers a fresh, original, personal, and inexpensive way to enter into consumer online conversations.
Limit Consumer controlled medium
● Promotional content delivered to customers through their mobile device. ● Engage customers anywhere, anytime during the buying and relationshipbuilding process.
Social Media Marketing
● Social media: Independent and commercial online communities where people congregate, socialize, and exchange views and information.
● Marketers use social media by: using existing ones or making their own. Direct mail marketing
● Sending an offer, announcement, reminder or other item directly to a person at a particular address.
● Tangible, creates emotional connection with customers
● Direct and personalized.
● Print, video, or digital catalogs that are mailed to select customers, made available in stores, or presented online.
● Eliminates printing and mailing cost, no space constraints
Telemarketing and DirectResponse Television (DRTV) Marketing
● Telemarketing: Selling directly to customers using the telephone
● Direct response television marketing Directresponse television advertising. Interactive Tv advertising.
● Product or service information and ordering machines placed by companies. ● Advancements Wirelessenabled and some even having face recognition. Public policy issues in direct and Digital Marketing
● Irritation Loud, long, and insistent Tv commercials. Junk mail and spam ● Unfairness Taking unfair advantage of impulsive buyers.
● Deception and fraud Investment scams or phony collections for charity, Internet fraud, phishing (Bad emails), online and digital security, and access by vulnerable or unauthorized groups.
● Fear of invasion of privacy. Ready availability of information leaves consumers open to abuse.
Need for action
● Donotcall, Donotmail, Donottrack lists
● Can spam legislation
● Congressional legislation Give more control to consumers over use of online information
● Federal trade commission Policing online privacy.
● Self regulatory principles
● Advertising option icon
● Privacy rights of children
● Own security measures
● Industrywide measures