Basic Marketing Management Final Study Guide (CH10-16)
Basic Marketing Management Final Study Guide (CH10-16) BADM 3401
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This 44 page Study Guide was uploaded by Klee17 on Monday April 4, 2016. The Study Guide belongs to BADM 3401 at George Washington University taught by Sung Ham, Krasnikov in Spring 2016. Since its upload, it has received 25 views. For similar materials see Basic Marketing Management in Marketing at George Washington University.
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Basic Marketing Management Study Guide (Ch 1016) 10. Pricing: Understanding and Capturing Customer Value I.What is price? Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. There are four major considerations in setting price: 1. customer perceptions of value, 2. product costs, and 3. the competition, among other factors, in the marketplace. 4. marketing strategy objectives as well as the overall marketing mix, ValueBased Pricing uses buyers’ perceptions of value, not sellers’ cost, as the key to pricing. **Customer valuebased pricing requires the marketer to understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value. A. Goodvalue pricing is offering just the right combination of quality and good service at a fair price. In many cases goodvalue pricing includes less expensive items. Examples include Taco Bell and McDonald’s and their “value menus.” B. Valueadded pricing is the strategy of attaching valueadded features and services to differentiate their offers and thus support higher prices. C. Valuebased pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set. *Valuebased pricing is customer driven *Costbased pricing is product driven Good Value Perceptions A. Everyday low pricing (EDLP) involves charging a constant, everyday low price with few or no temporary price discounts. (WalMart) B. Highlow pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. (Kohls) There are two basic approaches to pricing: 1. Valuebased pricing is customer driven. Price is considered before the marketing program is set. 2. Costbased pricing is product driven, starting with the costs involved in bringing the product to the market. Costbased pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk. Costbased pricing adds a standard markup to the cost of the product. Types of Costs: Fixed Costs + Variable Costs = Total Cost Types of Costs Fixed costs (also known as overhead) are costs that do not vary with production or sales level. These costs include: Rent Heat Interest Executive salaries Variable costs vary directly with the level of production. They are called variable because their total varies with the number of units produced. **Examples include packaging and raw materials. Total costs are the sum of the fixed and variable costs for any given level of production. Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units The simplest pricing method is cost plus pricing—adding a standard markup to the cost of the product. Markup pricing remains popular because sellers are more certain about costs than about demand. This method also keeps price competition down. **The major downside is that the method ignores demand and competitors’ prices. II. Major Pricing Strategies A. Costplus pricing adds a standard markup to the cost of the product Benefits ● Sellers are certain about costs ● Prices are similar in industry and price competition is minimized ● Buyers feel it is fair Disadvantages ● Ignores demand and competitor prices B. Break Even Pricing ● Breakeven pricing is the price at which total costs are equal to total revenue and there is no profit. ● Target profit pricing is the price at which the firm will break even or make the profit it is seeking. Here is a graph illustrating that Breakeven pricing is the price at which total costs are equal to total revenue and there is no profit. D. Competition Based Pricing Competitors Strategy Setting prices based on competitors’ strategies, costs, prices, and market offerings. Consumers will base their judgments of a product’s value on the prices that competitors charge for similar products. III. Other Internal and External Considerations Affecting Price Decisions Before setting prices, the marketer must understand the relationship between price and demand for its products. Pricing in different types of markets is often dependent upon such issues as the type of competition in the market, the overall demand for the products, the elasticity of the demand for the products, and even the overall economic climate. Overall Marketing Strategy, Objectives, and Mix General pricing objectives might include survival, current profit maximization, market share leadership, or customer retention and relationship building. Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing program. Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Target Costingstarts with an ideal selling price based on customervalue considerations, and then targets costs that will ensure that the price is met. Organizational Considerations In small companies, prices are often set by top management rather than by the marketing or sales departments. In large companies, pricing is typically handled by divisional or product line managers. In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges. In industries in which pricing is a key factor, companies often have pricing departments to set the best prices or to help others in setting them. Thus, Organizational considerations include: Who should set the price Who can influence the prices Pure competition: The market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. In a purely competitive market, sellers do not spend much time on marketing strategy. Monopolistic competition: The market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Oligopolistic competition: The market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies. There are few sellers because it is difficult for new sellers to enter the market. Pure monopoly: The market consists of one seller. The seller may be a government monopoly, a private regulated monopoly, or a private nonregulated monopoly. Normally, demand and price are inversely related. Higher price = lower demand For prestige (luxury) goods, higher price can equal higher demand when consumers perceive higher prices as higher quality. Elasticity of demand: the percentage change in unit sales that results from a percentage change in price. When changes in price have large effects on the amount demanded, demand is elastic. Some customers are very sensitive to changes in price, and a change in price results in a substantial change in the quantity demanded. In such instances, we have a case of elastic demand. Economic conditions can have a strong impact on the firm’s pricing strategies. The company must also consider what impact its prices will have on other parties in its environment, such as resellers and the government. 11. Pricing Strategies ● NewProduct Pricing Strategies Marketskimming pricing is a strategy with high initial prices to “skim” revenue layers from the market Product quality and image must support the price Buyers must want the product at the price Costs of producing the product in small volume should not cancel the advantage of higher prices Competitors should not be able to enter the market easily. Many companies that invent new products set high initial prices to “skim” revenues layerbylayer from the market. This is called marketskimming pricing. Market skimming makes sense when the product’s quality and image support its higher price, and enough buyers must want the product at that price. Penetration PricingRather than setting a high price to skim off small but profitable market segments, some companies use marketpenetration pricing. They set a low initial price in order to penetrate the market quickly and deeply—to attract a large number of buyers quickly and win a large market share. Several conditions must be met for this lowprice strategy to work. ● Product Mix Pricing Strategies 1. In product line pricing, management must decide on the price steps to set between the various products in a line. The price steps should take into account cost differences between the products in the line, customer evaluations of their different features, and competitors’ prices. In many industries, sellers use wellestablished price points for the products in their line. The seller’s task is to establish perceived quality differences that support the price differences. 2. Optionalproduct pricing takes into account optional or accessory products along with the main product. Many companies use optionalproduct pricing—offering to sell optional or accessory products along with their main product. Pricing these options is a sticky problem. The company has to decide which items to include in the base price and which to offer as options. Companies that make products that must be used along with a main product are using captiveproduct pricing. Producers of the main products often price them low and set high markups on the supplies. In the case of services, this strategy is called twopart pricing. The price of the service is broken into a fixed fee plus a variable usage rate. The service firm must decide how much to charge for the basic service and how much for the variable usage. The fixed amount should be low enough to induce usage of the service; profit can be made on the variable fees. 3. Captiveproduct pricing involves products that must be used along with the main product, such as cell phone service when purchasing a cell phone. ● Byproduct pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery. ● Using product bundle pricing, sellers often combine several of their products and offer the bundle at a reduced price. ● Price bundling can promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle. Have you ever bought a bundle of shampoo and conditioner, even though you were just looking for shampoo? 4. Discounts are either cash discount for paying promptly, quantity discount for buying in large volume, or functional (trade) discount for selling, storing, distribution, and record keeping. 5. Allowances include tradein allowance for turning in an old item when buying a new one and promotional allowance to reward dealers for participating in advertising or sales support programs. Most companies adjust their basic price to reward customers for certain responses, such as early payment of bills, volume purchases, and offseason buying. The many forms of discounts include: ● A cash discount—a price reduction to buyers who pay their bills promptly. A typical example is “2/10, net 30,” which means that although payment is due within 30 days, the buyer can deduct 2 percent if the bill is paid within 10 days. ● A quantity discount is a price reduction to buyers who buy large volumes. Such discounts provide an incentive to the customer to buy more from one given seller, rather than from many different sources. ● A functional discount is offered by the seller to tradechannel members who perform certain functions, such as selling, storing, and record keeping. ● A seasonal discount is a price reduction to buyers who buy merchandise or services out of season. Allowances are another type of reduction from list price. ● Tradein allowances are price reductions given for turning in an old item when buying a new one. ● Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales support programs. ● Price Adjustment Strategies Companies will often adjust their basic prices to allow for differences in customers, products, and locations. In segmented pricing, the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs. Under customersegment pricing, different customers pay different prices for the same product or service. Under product form pricing, different versions of the product are priced differently but not according to differences in their costs. Under location pricing, a company charges different prices for different locations, even though the cost of offering each location is the same. Using time pricing, a firm varies its prices by the season, the month, the day, and even the hour. Reference prices—prices that buyers carry in their minds and refer to when looking at a given product. The reference price might be formed by noting current prices, remembering past prices, or assessing the buying situation. Sellers can influence or use these consumers’ reference prices when setting price. Promotional Pricing is when prices are temporarily priced below list price or cost to increase demand. •Loss leaders are products sold below cost to attract customers in the hope they will buy other items at normal markups. •Special event pricing is used to attract customers during certain seasons or periods. •Cash rebates are given to consumers who buy products within a specified time. •Lowinterest financing, longer warrantees, and free maintenance lower the consumer’s “total price.” There are also risks connected with promotional pricing: Used too frequently, and copies by competitors can create “dealprone” customers who will wait for promotions and avoid buying at regular price; Creates price wars Promotional pricing can have adverse effects. ● Used too frequently and copied by competitors, price promotions can create “deal prone” customers who wait until brands go on sale before buying them. ● Constantly reduced prices can erode a brand’s value in the eyes of customers. ● Marketers sometimes use price promotions as a quick fix instead of sweating through the difficult process of developing effective longerterm strategies for building their brands. ● The frequent use of promotional pricing can also lead to industry price wars. Such price wars usually play into the hands of only one or a few competitors—those with the most efficient operations. Geographic Pricing ● FOBorigin pricing is a practice that means the goods are placed free on board (hence, FOB) a carrier. At that point the title and responsibility pass to the customer, who pays the freight from the factory to the destination. ● Uniformdelivered pricing is the opposite of FOB pricing. Here, the company charges the same price plus freight to all customers, regardless of their location. The freight charge is set at the average freight cost. ● Zone pricing falls between FOBorigin pricing and uniformdelivered pricing. The company sets up two or more zones. All customers within a given zone pay a single total price; the more distant the zone, the higher the price. ● Using basingpoint pricing, the seller selects a given city as a “basing point” and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped. Some companies set up multiple basing points to create more flexibility: they quote freight charges from the basingpoint city nearest to the customer. ● The seller who is anxious to do business with a certain customer or geographical area might use freightabsorption pricing. Using this strategy, the seller absorbs all or part of the actual freight charges in order to get the desired business. Dynamic pricing offers many advantages for marketers. Internet sellers can mine their databases to gauge a specific shopper’s desires, measure his or her means, and instantaneously tailor products to fit that shopper’s behavior, and price products accordingly. Many B2B marketers monitor inventories, costs, and demand at any given moment and adjust prices instantly. Buyers also benefit from the Web and dynamic pricing. Costs and International Pricing Companies that market their products internationally must decide what prices to charge in the different countries in which they operate. In some cases, a company can set a uniform worldwide price. However, most companies adjust their prices to reflect local market conditions and cost considerations. The price that a company should charge in a specific country depends on many factors, including economic conditions, competitive situations, laws and regulations, and development of the wholesaling and retailing system. Consumer perceptions and preferences also may vary from country to country, calling for different prices. Or the company may have different marketing objectives in various world markets that require changes in pricing strategy. International pricing is when prices are set in a specific country based on countryspecific factors. These include: ● Economic conditions ● Competitive conditions ● Laws and regulations ● Infrastructure ● Company marketing objective ● Price Changes and Public Policy and Marketing Price Cuts ● Several situations may lead a firm to consider cutting its price. ● These circumstances include excess capacity, falling market share, or a plan to dominate the market through lower costs. Price Increases ● A successful price increase can greatly increase profits. ● Major factors in price increases include cost inflation and over demand. When a company cannot supply all that its customers need, it can raise prices, ration products to customers, or both. ● A brand’s price and image are often closely linked. A price change, especially a drop in price, can adversely affect how consumers view the brand. ● Consumers may believe the cut indicates that the product will be phased out soon or is not successful. ● Price increases may be perceived as indication that a product is hot and in demand or that the seller is greedy. Public Policy and Pricing Pricing across Channel Levels ● Retail (or resale) price maintenance is when a manufacturer requires a dealer to charge a specific retail price for its products. ● RobinsonPatman Act prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers at a given level of trade 12. Marketing Channels Channel Functions Members of the marketing channel perform many key functions. Some help to complete transactions: ● Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange ● Promotion: Developing and spreading persuasive communications about an offer ● Contact: Finding and communicating with prospective buyers ● Matching: Shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging ● Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. ● Others help to fulfill the completed transactions: ● Physical distribution: Transporting and storing goods ● Financing: Acquiring and using funds to cover the costs of the channel work ● Risk taking: Assuming the risks of carrying out the channel work A Marketing channel consists of firms that have partnered for their common good with each member playing a specialized role. Goodyear is vertically integrated with its retail chain. Channel conflict refers to disagreement over goals, roles, and rewards by channel members. Horizontal conflict is conflict among members at the same channel level whereas vertical conflict is conflict between different levels of the same channel. Channel Strategies Vertical marketing systems (VMSs) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of: ● Corporate marketing systems ● Contractual marketing systems ● Administered marketing systems ● A Corporate VMS integrates successive stages of production and distribution under single ownership. ● A Contractual VMS consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. The most common form is the franchise organization. ● In an administered VMS, leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members. Horizontal marketing systems are when two or more companies at one level join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. Ex. McDonald’s is in WalMart or many gas station also have a coffee franchise. Channel Behavior and Organization Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones Multichannel Distribution Systems (often called hybrid marketing channels): Occur when a single firm sets up two or more marketing channels to reach one or more customer segments. These systems increase sales and market coverage, they create new opportunities to tailor products and services to specific needs of diverse customer segments. However, these systems are hard to control and prone to conflict. Ex. Many major grocers have partnered with Peapod for home delivery of groceries. Many of you may have tried this service. Channel Design ^ ● Exclusive distribution: Purposely limit the number of intermediaries handling their products. The producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. ● Selective distribution: This is the use of more than one, but fewer than all, of the intermediaries who are willing to carry a company’s products. ● Intensive distribution: Ideal for producers of convenience products and common raw materials. It is a strategy in which they stock their products in as many outlets as possible. Evaluating the Major Alternatives ● Using economic criteria, a company compares the likely sales, costs, and profitability of different channel alternatives. ● Using control issues means giving them some control over the marketing of the product, and some intermediaries take more control than others. ● Using adaptive criteria means the company wants to keep the channel flexible so that it can adapt to environmental changes. Designing International Distribution Channels ● In some markets, the distribution system is complex and hard to penetrate, consisting of many layers and large numbers of intermediaries. ● At the other extreme, distribution systems in developing countries may be scattered, inefficient, or altogether lacking. ● Sometimes customs or government regulation can greatly restrict how a company distributes products in global markets. Public Policy and Distribution ● Exclusive distribution occurs when the seller allows only certain outlets to carry its products. ● Exclusive dealing occurs when the seller requires that these dealers not handle competitors’ products. ● Exclusive territorial agreements occur when the producer agrees not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory. ● Fullline pricing occurs when producers of a strong brand sell it to dealers only if the dealers will take some or all of the rest of the line. This is also known as a tying agreement. Marketing Logistics and Supply Chain Management Supply chain management is the process of managing upstream and downstream valueadded flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers Marketing logistics (physical distribution) involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit •Outbound distribution—moving products from the factory to resellers and consumers. •Inbound distribution—moving products and materials from suppliers to the factory. •Reverse distribution—moving broken, unwanted, or excess products returned by consumers or resellers. Logistic Functions: ● Warehousing A company must decide on how many and what types of warehouses it needs and where they will be located. Storage warehouses store goods for moderate to long periods. Distribution centers are designed to move goods rather than just store them. They are large and highly automated warehouses designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible. ● Transportation Trucks have increased their share of transportation steadily and now account for nearly 35 percent of total cargo tonmiles (more than 60 percent of actual tonnage).Trucks are highly flexible in their routing and time schedules, and they can usually offer faster service than railroads. They are efficient for short hauls of high value merchandise. Railroads account for 31 percent of total cargo tonmiles moved.They are one of the most cost effective modes for shipping large amounts of bulk products—coal, sand, minerals, and farm and forest products—over long distances. Water carriers which account for 11 percent of cargo tonmiles, transport large amounts of goods by ships and barges on U.S. coastal and inland waterways. Although the cost of water transportation is very low for shipping bulky, low value, non perishable products, it is the slowest mode and may be affected by the weather. Pipelines which account for 16 percent of cargo tonmiles, are a specialized means of shipping petroleum, natural gas, and chemicals from sources to markets. Air carriers transport less than 5 percent of the nation’s goods. Airfreight rates are much higher than rail or truck rates. The Internet carries digital products from producer to customer via satellite, cable, or phone wire. ● Inventory Management Justintime logistics systems: Producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. With such systems, producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. New stock arrives exactly when needed, rather than being stored in inventory until being used. Justintime systems require accurate forecasting along with fast, frequent, and flexible delivery so that new supplies will be available when needed. Firms store goods for many reasons, such as enabling production to meet seasonal demand and creating economies in ordering. Some companies are phasing in a sophisticated technology known as radiofrequency identification (RFID), which lets them tag products with tiny chips containing information about the item’s content, origin, and destination. ● Logistics information management is the management of the flow of information, including customer orders, billing, inventory levels, and customer data. Electronic data interchange (EDI) is the computerized exchange of data between organizations. Vendormanaged inventory (VMI) systems, or continuous inventory replenishment systems, allow the realtime customer sharing of data on sales and current inventory levels with the supplier. The supplier then takes full responsibility for managing inventories and deliveries. Integrated logistics management is the recognition that providing customer service and trimming distribution costs requires teamwork internally and externally Third party logistics offers the following: ● Provide logistics functions more efficiently ● Provide logistics functions at lower cost ● Allow the company to focus on its core business ● Are more knowledgeable of complex logistics 13. Retailing/Wholesaling ● Retailing Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use. Retailers are businesses whose sales come primarily from retailing. Specialty stores carry narrow product lines with deep assortments within those lines. Department stores carry a wide variety of product lines. In recent years, department stores have been squeezed between more focused and flexible specialty stores on the one hand, and more efficient, lowerpriced discounters on the other. Supermarkets are the most frequently shopped type of retail store. They have also have been hit hard by the rapid growth of outofhome eating. Convenience stores are small stores that carry a limited line of highturnover convenience goods. Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. Hypermarkets are very large combination food and discount stores. Category killers are superstores (megaretailers) that are actually giant specialty stores. (Best Buy and Toys R Us are examples.) Service retailers include hotels and motels, banks, airlines, colleges, hospitals, movie theaters, tennis clubs, bowling alleys, restaurants, repair services, hair salons, and dry cleaners. Classifying by level of service Selfservice retailers serve customers who are willing to perform their own locate compareselect process to save money. They include: WalMart and Supermarkets. Limited service retailers provide more sales assistance because they carry more shopping goods about which customers need more information. Examples include Sears and JC Penney. Fullservice retailers assist customers in every phase of the shopping process, resulting in higher costs that are passed on to the customer as higher prices. Includes department stores and specialty stores Classifying by relative price Discount stores sell standard merchandise at lower prices by accepting lower margins and selling higher volume. Offprice retailers buy at lessthanregular wholesale prices and charge customers less than retail. Independent offprice retailers either are owned and run by entrepreneurs or are divisions of larger retail corporations. Warehouse clubs are large warehouselike facilities with few frills and offer ultralow prices. Factory outlets are produceroperated stores. Classifying by organizational approach 1.Retailer cooperative—a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conducts joint merchandising and promotion efforts. 2.Voluntary chain—a wholesaler sponsored group of independent retailers that engages in group buying and common merchandising. IGA, Western Auto 3.Franchise— The main difference between franchise organizations and other contractual systems is that franchise systems are normally based on some unique product or service; on a method of doing business. Franchises command approximately 40 percent of all retail sales in the United States. ● Retailer Marketing Decisions Retailers must decide on three major product variables: 1. Product assortment should differentiate the retailer while matching target shoppers’ expectations. Offers merchandise that no other competitor carries: ● Private or national brands ● Merchandising events ● Highly targeted product assortment 2. Services mix can help set one retailer apart from another. Services mix should also serve to differentiate the retailer from the competition with customer support. 3. Store atmosphere is the physical layout that makes moving around the store hard or easy. Store atmosphere is another important element in the reseller’s product arsenal. This element refers to the design and layout of the store and involves materials, furnishings, and other elements that affect store image. Retail Pricing Most retailers seek either: High markups on lower volume (most specialty stores) Low markups on higher volume (mass merchandisers and discount stores). Other pricing decisions: Highlow pricing—charging higher prices on an everyday basis, coupled with frequent sales and other price promotions to increase store traffic, clear out unsold merchandise, create a lowprice image, or attract customers who will buy other goods at full prices. Everyday low pricing (EDLP), charging constant, everyday low prices with few sales or discounts. Retailers use any or all of the promotion tools—advertising, personal selling, sales promotion, public relations, and direct marketing—to reach consumers. Critical DecisionLocation Location options include: Central business districts which were the main form of retail cluster until the 1950s. Shopping centers are a group of retail businesses planned, developed, owned, and managed as a unit. Regional shopping centers, or regional shopping malls, are the largest and most dramatic shopping centers, containing from 40 to over 200 stores, including two or more fullline department stores. Community shopping centers contain between 15 and 40 retail stores, normally including a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank. Neighborhood shopping centers or strip malls that generally contain between 5 and 15 stores. They are close and convenient for consumers. Power centers are huge unenclosed shopping centers consisting of a long strip of retail stores, including large, freestanding anchors. This is the current trend. Lifestyle centers are smaller malls with upscale stores, convenient locations, and non retail activities such as dining and a movie theater. The Future of Retailing There are several trends that will continue to affect retailers in the future: 1.New Retail Forms and Shortening Retail Life Cycles, especially the wheel of retailing 2.Growth of Nonstore Retailing 3.Retail Convergence 4.Rise of Megaretailers 5.Growing importance of retail technology 6.Global expansion of retailers ● Retailing Trends and Decisions New Retail Forms and Shortening Retail Life Cycles New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter. The wheelofretailing concept states that many new types of retailing forms begin as low margin, low price, and low status operations. The new retailers’ success leads them to upgrade their facilities and offer more services, forcing them to increase their prices. Eventually, the new retailers become like the conventional retailers they replaced.The cycle begins again. Growth of Nonstore Retailing ● Americans are increasingly avoiding the hassles and crowds at malls by doing more of their shopping by phone or computer. ● Much of the anticipated growth in online sales will go to multichannel retailers—the clickandbrick marketers who can successfully merge the virtual and physical worlds. Retail convergence involves the merging of consumers, producers, prices, and retailers, creating greater competition for retailers and greater difficulty differentiating offerings The rise of megaretailers involves the rise of mass merchandisers and specialty superstores, the formation of vertical marketing systems, and a rash of retail mergers and acquisitions. This retail form allows superior information systems, greater buying power, and huge selection for buyers. These stores can be considered gigantic versions of big box stores. Growing importance of retail technology provides better forecasts, inventory control, electronic ordering, transfer of information, scanning, online transaction processing, improved merchandise handling systems, and the ability to connect with customers. Global Expansion of Major Retailers ● Retailers with unique formats and strong brand positioning are increasingly moving into other countries. ● Many are expanding internationally to escape mature and saturated home markets. ● Most U.S. retailers are still significantly behind Europe and Asia when it comes to global expansion. ● Wholesaling= whole + sale Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. Wholesaler functions ● Selling and promoting: Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. ● Buying and assortment building: Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work. ● Bulk breaking: Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities). ● Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers. ● Transportation: Wholesalers can provide quicker delivery to buyers because they are closer than the producers. ● Financing: Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time. ● Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence. ● Market information: Wholesalers give information to suppliers and customers about competitors, new products, and price developments. ● Management services and advice: Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems. Merchant wholesalers are independent intermediaries that buy goods from manufacturers and sell to retailers and other businesstobusiness customers. They take title to goods, they assume risks, and can suffer losses if products are stolen, get damaged, or don’t sell. Because they own the products, they develop their own marketing strategies. Fullservice merchant wholesalers provide services including delivery, credit, productuse assistance, repairs, advertising, and other promotional support. Limitedservice merchant wholesalers provide fewer services for their customers. They take title to merchandise, but are less likely to provide delivery, credit, or marketing assistance. Brokers and agents differ from merchant wholesalers in two ways: They do not take title to goods and they perform only a few functions. A broker brings buyers and sellers together and assists in negotiation. Agents represent buyers or sellers on a more permanent basis. Manufacturers’ agents (also called manufacturers’ representatives) are the most common type of agent wholesaler. Manufacturers’ sales branches and offices are a form of wholesaling by sellers or buyers themselves rather than through independent wholesalers Marketing Mix Decisions Wholesalers add customer value though the products and services they offer. They are often under great pressure to carry a full line and to stock enough for immediate delivery. But this practice can damage profits. Price is an important wholesaler decision. Most wholesalers are not promotion minded. Their use of trade advertising, sales promotion, personal selling, and public relations is largely scattered and unplanned. Distribution (location) is important—wholesalers must choose their locations, facilities, and Web locations carefully. 14. Integrated Marketing Communication ● The promotion mix is the specific blend of advertising, public relations, personal selling, and directmarketing tools that the company uses to persuasively communicate customer value and build customer relationships. Advertising Direct Marketing Tools Sales Promotion Public Relations Personal Selling ● Communications Landscape Several major factors are changing the face of today’s marketing communications. Consumers are changing. They are better informed and more communications empowered. Marketing strategies are changing. Marketers are shifting away from mass marketing and are developing focused marketing programs designed to build closer relationships with customers in more narrowly defined micromarkets. Sweeping changes in communications technology are also causing remarkable changes in the ways in which companies and customers communicate with each other. Although television, magazines, and other mass media remain very important, their dominance is declining. Advertisers are now adding a broad selection of morespecialized and highly targeted media to reach smaller customer segments. Integrated marketing communications calls for recognizing all contact points where the customer may encounter the company and its brands. These contact points are called brand contact. The Nature of Each Promotion Tool ● Advertising can reach masses of geographically dispersed buyers at a low cost per exposure, and it enables the seller to repeat the message many times. Largescale advertising says something positive about the seller’s size, popularity, and success. Because of advertising’s public nature, consumers tend to view advertised products as more legitimate. ● Sales promotion: programs such as contests, coupons, or other incentives used to build interest in or encourage purchase of a product. Sales promotion includes a wide assortment of tools—coupons, contests, centsoff deals, premiums, and others—all of which have many unique qualities. They attract consumer attention, offer strong incentives to purchase, and can be used to dramatize product offers and to boost sagging sales. ● Public Relations: press releases, sponsorships, damage control. Public relations is very believable—news stories, features, sponsorships, and events seem more real and believable to readers than ads do. ● Personal selling: flexible but high cost per contact. Personal selling is the most effective tool at certain stages of the buying process, particularly in building up buyers’ preferences, convictions, and actions. The effective salesperson keeps the customer’s interests at heart in order to build a longterm relationship. ● However, a sales force requires a longerterm commitment than does advertising— advertising can be turned on and off, but sales force size is harder to change. Personal selling is also the company’s most expensive promotion tool. ● Direct marketing is less public: The message is normally directed to a specific person. It is also immediate and customized. Messages can be prepared very quickly and can be tailored to appeal to specific consumers. Communications Process 1. Identifying the Target Audience A marketing communicator starts with a clear target audience in mind. The audience may be potential buyers or current users, those who make the buying decision or those who influence it. The audience may be individuals, groups, special publics, or the general public. 2. Determining the Communication Objectives Once the target audience has been defined, the marketing communicator must decide what response is sought. The marketing communicator needs to know where the target audience now stands and to what stage it needs to be moved. The target audience may be in any of six buyerreadiness stages, the stages consumers normally pass through on their way to making a purchase: ● The communicator must first build awareness and knowledge. ● Assuming target consumers know about the product, how do they feel about it? These stages include liking (feeling favorable about the product), preference (preferring it to other brands), and conviction (believing that the product is best for them). ● Some members of the target market might be convinced about the product, but not quite get around to making the purchase. The communicator must lead these consumers to take the final step. Actions might include offering special promotional prices, rebates, or premiums. 3. Designing a Message Message content is an appeal or theme that will produce the desired response Message Format Appeals 1.Rational appeal 2.Emotional appeal 3.Moral appeal AIDA Model ● Get Attention ● Hold Interest ● Arouse Desire ● Obtain Action 4. Choose Media Companies can take steps to put personal communication channels to work for them. They can create marketing programs that will generate favorable wordofmouth communications about their brands. Opinion leaders are people within a reference group who, because of their special skills, knowledge, personality, or other characteristics, exerts social influence on others. Companies can create opinion leaders—people whose opinions are sought by others —by supplying influencers with the product on attractive terms or by educating them so that they can inform others. Buzz marketing involves cultivating opinion leaders and getting them to spread information about a product or service to others in their communities. Personal communication involves two or more people communicating directly with each other ● Face to face ● Phone ● Mail ● Email ● Internet chat Nonpersonal channels Nonpersonal communication channels are media that carry messages without personal contact or feedback. Nonpersonal communication is media that carry messages without personal contact or feedback, including major media, atmospheres, and events that affect the buyer directly. Major Media Major media include print media, broadcast media, display media, and online media. Atmosphere Atmospheres are designed environments that create or reinforce the buyer’s leanings toward buying a product. Events are staged occurrences that communicate messages to target audiences. ● Press conferences ● Grand openings ● Exhibits ● Public tours 5. Select Source, and collect feedback Collect FeedbackInvolves the communicator understanding the effect on the target audience by measuring behavior resulting from the behavior Budgeting Setting the Total Promotion Budget Affordable Method Some firms set the promotion budget at the level they think the company can afford. Small businesses often use this method, reasoning that the company cannot spend more on advertising than it has. Unfortunately, this method of setting budgets completely ignores the effects of promotion on sales. It tends to place advertising last among spending priorities, even in situations in which advertising is critical to the firm’s success. PercentageofSales Method Other companies use the percentageofsales method, setting their promotion budget at a certain percentage of current or forecasted sales. The percentageofsales is simple to use but it wrongly views sales as the cause of promotion rather than as the result. CompetitiveParity Method Other companies use the competitiveparity method, setting their promotion budgets to match competitors’ outlays. They monitor competitors’ advertising or get industry promotion spending estimates from publications or trade associations, and then set their budgets based on the industry average. Unfortunately, there are no grounds for believing that the competition has a better idea of what the company should be spending on promotion than does the company itself. ObjectiveandTask Method The most logical budgetsetting method is the objectiveandtask method, whereby the company sets its promotion budget based on what it wants to accomplish with promotion. The advantage of the objectiveandtask method is that it forces management to spell out its assumptions about the relationship between dollars spent and promotion results. But it also is the most difficult method to use. Often, it is hard to figure out which specific tasks will achieve stated objectives. The effects of different promotion tools also vary with stages of the product life cycle. Introduction: advertising and public relations are good for producing high awareness, and sales promotion is useful in promoting early trial. Personal selling must be used to get the trade to carry the product. Growth: advertising and public relations continue to be powerful influences, whereas sales promotion can be reduced because fewer incentives are needed. Maturity: sales promotion again becomes important relative to advertising. Buyers know the brands, and advertising is needed only to remind them of the product. Decline: advertising is kept at a reminder level, public relations is dropped, and salespeople give the product only a little attention. Sales promotion, however, might continue strong. The effects of different promotion tools also vary with stages of the product life cycle. Introduction: advertising and public relations are good for producing high awareness, and sales promotion is useful in promoting early trial. Personal selling must be used to get the trade to carry the product. Growth: advertising and public relations continue to be powerful influences, whereas sales promotion can be reduced because fewer incentives are needed. Maturity: sales promotion again becomes important relative to advertising. Buyers know the brands, and advertising is needed only to remind them of the product. Decline: advertising is kept at a reminder level, public relations is dropped, and salespeople give the product only a little attention. Sales promotion, however, might continue strong. 15. Advertising and Public Relations Advertising Paid nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertising Programs The four decisions to make when developing an advertising program: 1. Setting advertising objectives An advertising objective is a specific communication task to be accomplished with a specific target audience during a specific time ● Informative advertising is used heavily when introducing a new product category. ● Persuasive advertising becomes important as competition increases. Here, the company’s objective is to build selective demand. Comparative advertising is directly or indirectly comparing one brand with another. ● Reminder advertising is important for mature products—it helps to maintain customer relationships and keep consumers thinking about the product. 2. Setting the advertising budget The product lifecycle stage has an influence on advertising budgets. New products require larger budgets while mature brands require lower budgets Market share also has an impact. Building or taking market share requires larger budgets. Markets with heavy competition or high advertising clutter require larger budgets. Undifferentiated brands also require larger budgets. 3. Developing advertising strategy Advertising strategy is the strategy by which the company accomplishes its advertising objectives and consists of: ● Creating advertising messages ● Selecting advertising media Advertising strategy is the strategy by which the company accomplishes its advertising objectives and consists of: Creating advertising messages (message strategy includes creative concept and message execution) Selecting advertising media Creative concept is the idea that will bring the message strategy to life and guide specific appeals to be used in an advertising campaign. Characteristics of good appeals: Meaningful Believable Distinctive Message execution: the advertiser turns the big idea into an actual ad execution that will capture the target market’s attention and interest. The creative team must find the best approach, style, tone, words, and format for executing the message. Slice of life: shows one or more “typical” people using the product in a normal setting Lifestyle: shows how a product fits in with a particular lifestyle Fantasy: creates a fantasy around the product or its use; for instance, many ads are built around dream themes Mood or image: builds a mood or image around the product or service, such as beauty, love, or serenity Musical: shows people or cartoon characters singing about the product
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