Unit Five Managing Market Strategies

Unit Five Managing Market Strategies

What do you have to do to market this?

Unit 5 Vocabulary Advertising Advertising Agency Bait-and-Switch Brand
Break-even Point Bundle Pricing Campaign Channel of Distribution Consumer Pretest Cooperative Advertising Discount Pricing Diversification Exclusive Distribution Fixed Costs Guarantee Image Industry Average Intensive Distribution Intermediaries Label Markdown Marketing Mix Marketing Objectives Marketing Plan Marketing Tactics Markup Multiple-unit Pricing News Release

Unit 5 Vocabulary Odd / Even Pricing Package Penetration Pricing
Premium Preselling Prestige Pricing Price Fixing Price Gouging Price Lining Price Skimming Private Brand Product Mix Product Positioning Promotional Mix Promotional Pricing Psychological Pricing Publicity Public Relations Rebate Resale Price Maintenance Return on Investment Selective Distribution Selling Price Specialty Item Sweepstakes Unit Pricing Variable Costs

Unit 5 Essential Question (MKT-EN-8)
What are the concepts, systems, and tools needed to meet the goals and objectives of an entrepreneurial entity?

Market Planning Marketing Objectives: What a business wants to accomplish with its marketing efforts. Usually relates to sales, market share, growth, and profit. Short-range objectives are for one year. Long range objectives reflect goals of three to five years.

Market Planning Marketing Plan: A plan for a business to reach its marketing objectives. Marketing Mix: The combination of marketing strategies known as the “Five P’s” Product Place Price Promotion People

Essential Question 1A (MKT-EN-8A)
What are the various product strategies?

The Product Strategy Product Decisions:
What products should I manufacture or sell? How will my products meet the needs of my target market? At what quality level should I make my goods? How much inventory should I maintain? How will my products be different from or better than my competitors’? How will I position my products? What will my customer service policy be?

The Product Strategy Product Selection:
Generate product ideas and sort the good from the bad. Study products potential costs and revenues. Develop the product and test-market it. If everything looks promising, introduce it.

The Product Strategy Product Features and Benefits: Style, color, quality, warranty, service contracts, delivery, convenience, health, entertainment, etc. Branding, Packaging, and Labeling: Brand: Name, symbol, or design used to identify a product. Package: Physical container or holder. Label: Part of the package used to present information.

What are Grades and Standards?
Standards are statements that specify a product’s size, contents, and/or quality; used as a basis for comparing or judging goods or services Grades are ratings assigned to products that tell to what extent it meets the standards

Interrelationship between Grades and Standards
Standards are set. Each product is rated against these preset standards and assigned a grade. Products that don’t meet the lowest standard are scrapped, reworked or sold at a discounted price. Example: School grading system – standards are set. You have to do this to earn an “A” in this class. Your work is compared to the standards and your grade is determined.

Why are Standards used? Standards are used to establish uniform, consistent products. Example: CD’s made in the USA, Japan, and Mexico all have to fit into the same disc player

Grades and Standards can indicate…
How the product can be used Ex. Grades on milk and motor oil Where the product will be sold Ex. Gap, Inc. places higher quality clothes at the Gap and their lower grade clothing at Old Navy How much the product will cost its buyer Ex. Buyers will pay more for top grade Who the user can/should be Ex. Movie ratings indicate the audience: G, PG, PG13, and R

Grades and Standards Aid Buying and Selling
Their use speeds up the process because consumers can buy products without having to inspect Consumers rely on grades and standards for product information

Grades and Standards in Global Trade
The ISO 9000 are international standards for quality This standard guarantees that manufacturers have meet certain requirements for producing and shipping their products

Who Sets Grades and Standards?
Government agencies Ex. FDA – food and drugs, FCA – communication, County Health Dept. - restaurants Trade and professional organizations (to promote product safety) Ex. AAA - motels Businesses Ex. McDonalds buns have an exact size and color, Ford requires suppliers to meet certain standards when making “Q1” parts.

What is a Warranty? Warranty is a defined promise made by the seller to the consumer that the seller will repair or replace a product that does not perform as expected

Types of Warranties Implied Warranty Express Warranty
Defined as promises expressed in a specific statement concerning the quality of the product Can be written or oral Defined as an unwritten, unstated warranty understood by the consumer and the seller that a product will perform as expected The product will do what it is designed and recommended to do

Types of Warranties Full Warranty Limited Warranty
Defined as warranties that cover the entire product If the product doesn’t work it must be made good in a reasonable time if not the customer can choose a replacement or refund No time limits on implied warranties The customer need only notify the warrantor in order to obtain repairs Defined as warranties that do not contain the provisions of full warranties, may cover only certain repairs or specific parts

What is a Guarantee? Defined as a promise made by the seller to the consumer that the seller will refund the consumer’s purchase price if the product doesn’t perform as expected. AKA – “Money-back guarantees” While warranties usually apply to goods, guarantees are given for both goods and services

Characteristics of an Effective Guarantee
Unconditional No conditions for the customer to meet Understandable Clear language and no difficulty understanding the promises Easy for the customer to implement Not a lot of forms, people to see, and different locations Easy for the customer to collect When possible money should be refunded on the spot

Purpose of Warrantees and Guarantees
To reassure prospective customers To protect the producer and seller To gain repeat customers To increase sales To use as a promotional tool To use as a competitive tool To use as a image builder

Benefits of Warrantees and Guarantees
Consumer Benefits Business Benefits Reduced anxiety about purchases Free repairs Service information Legal recourse A customer-oriented focus Establishment of clear standards Feedback from customers Increased profits

Why are Warrantees and Guarantees Regulated and Controlled by Law?
They can cause problems for producers Consumers misuse the product Customers expect problems to be fixed that are not under warranty There have been times when companies have “guaranteed” their products without living up t the terms of the warranty or guarantee and the customer was cheated.

Product Positioning Product positioning: Efforts a business makes to identify, place and sell its products in the marketplace. Positioning by price and quality: Ex: Ford Motor Company positions its Focus as an economical passenger car while still emphasizing quality.

Product Positioning Positioning by features and benefits:
Ex: Oil of Olay was positioned as a premium facial moisturizer and cleanser to keep skin soft and young. Positioning by unique characteristics: Ex: Cell phones that can text message or take pictures and send them. (Is there an app for that?)

Product Positioning Positioning in relation to the competition:
Ex: Warner-Lambert Company introduced Cool Mint Listerine by positioning against the “theraputic” benefits of Original Listerine and the “cosmetic” benefits of Scope. Positioning in relation to other products in a line: Ex: Binney & Smith introduced washable crayons and positioned them as a specialty item in the company’s Crayola crayon line.

Corporate Brand Positioning
Corporate branding is the practice of using a company's name as a product brand name. Uses corporate brand equity to create product brand recognition. This strategy contrasts with individual product branding, where each product has a unique brand name and the corporate name is not promoted to the consumer. Results in significant economies of scope since one advertising campaign can be used for several products. Facilitates new product acceptance because buyers are already familiar with the name. May hinder the creation of distinct brand images or identities for different products.

Corporate Brand Positioning
Factors that go into defining a corporate brand position: Brand Attributes: What the brand delivers through features and benefits to consumers. Consumer Expectations: What consumers expect to receive from the brand. Competitor Attributes: What the other brands in the market offer through features and benefits to consumers. Price: An easily quantifiable factor – your price vs. your competitor’s price. Consumer Perceptions: Perceived quality and value of your brand in the consumer’s mind.

The Product Strategy Product Mix: All the different products that a company makes or sells. Product Line: A group of closely related products manufactured or sold by a business. Product Item: A specific model, brand, or size of a product within a product line. Product Width: The number of different product lines a business manufactures or sells. Product Depth: The number of product items in a product line.

The Product Strategy Procurement planning is the process used by companies or institutions to plan purchasing activity for a specific period of time. The primary concept of procurement is that advanced planning, scheduling, and group buying will result in cost savings, more efficient business operation, and therefore increased profitability.

The Product Strategy There are four steps that form the basis of procurement planning: Group buying is the process of combining the total resource requirements for different departments and creating one purchase order. Just in time delivery is a central component of procurement planning. Under this model, the cost of storage is carried by the supplier. They are responsible for ensuring the purchased quantities of materials are ready and available for delivery at the specified dates and times.

The Product Strategy There are four steps that form the basis of procurement planning: Bulk pricing and negotiating requires combining the total quantity required for a specific period of time to get lower pricing. Negotiations are typically completed by the procurement director or senior buying agent.

The Product Strategy There are four steps that form the basis of procurement planning: Administrative overhead is the cost to the organization for the entire procurement to pay cycle. This includes the salaries and support costs for procurement staff, invoice processing, check production, and resolving of vendor inquiries. An organized, managed process eliminates a significant amount of these costs, as they are incurred only once for every commodity.

The Product Strategy Impact of Technology
What has been the impact of technology on the product strategy?

The Product Strategy Quiz
What is the difference between a feature and a benefit? (2 pts) Why do customers buy benefits and not features? (2 pts) What does the question, “How is the product positioned?”, mean? (3 pts) What has been the impact of technology on the product strategy? (3 pts)

Essential Question 1B (MKT-EN-8B)
What are the various place strategies?

What is meant by, “Location, Location, Location?”

The Place Strategy Channel Management is a process by which a company creates formalized programs for selling and servicing members within a specific channel to move your product to the end user.

The Place Strategy Each specific channel should have:
Specific goals for each channel segment, the channel as a whole, and each individual accounts. Well-defined polices for administering the accounts within this channel. Products identified in your offering which are most suited for each segment and create appropriate messaging for those products. Sales and marketing programs designed to support your channel that meet THEIR needs, not what your idea of their needs are. Examples: Product training, Co-op advertising, Seasonal promotions, Merchandising

The Place Strategy Defining a channel management strategy for each segment allows you to be more effective within each segment, while gaining efficiency at the same time. Maintaining brand consistency across all channel segments is critical to your long-term success.

The Place Strategy Intensity of Distribution: Determines how broadly you will distribute your product. Intensive Distribution: Placement of a product in all suitable sales outlets. Selective Distribution: Limits distribution to the number of sales outlets in an area. Exclusive Distribution: Limits the number of distribution outlets to one per area.

The Place Strategy Transportation: The physical movement of goods by truck, train, plane, ship, or pipeline. Location, Layout, and Availability: Is my location appropriate for my target market(s)? Will the physical layout of my business encourage or discourage sales? Do my business hours of operation match the times my target market prefers to do business?

The Place Strategy Impact of Technology
What has been the impact of technology on the place strategy?

The Place Strategy Quiz
What is the difference between a direct and indirect channel of distribution? (2 pts) List and describe the three different levels of distribution intensity and provide a product example of each? (9 pts) What is meant by, “Location, location, location?” (3 pts) What has been the impact of technology on the place strategy? (2 pts)

Essential Question 1C (MKT-EN-8C)
What are the various pricing strategies?

Factors Affecting Prices
Costs and Expenses Businesses must make a profit therefore, prices must be high enough to cover costs and expenses. Supply and Demand Businesses must understand the economic relationship between supply and demand and all variations. Elasticity depends on: Availability of substitutes. Price relative to income. Luxury versus necessity.

Consumer Perceptions Consumers tend to equate high prices with quality, status, prestige, and exclusiveness. Competition Price Competition - Competition based on price. Nonprice Competition - Competition based on other marketing factors.

Government Regulations Price Fixing: Where competitors agree on certain price ranges within which they set their own price. Price Gouging: Pricing above the market when no alternative retailer is available. Resale Price Maintenance: Price fixing imposed by a manufacturer on wholesale or retail resellers of its products to deter price-based competition. Unit Pricing: Required pricing of goods on the basis of cost per unit measure in addition to price per item. Bait-and-Switch: Advertising an out of stock or inferior product to attract customers and then selling them a higher priced product.

Technological Trends The major technology trend affecting business today is the internet. Business that adapt to technological changes can create a competitive edge. Business that do not adapt to technological change could become obsolete.

Goals of Pricing Gain Market Share Return on Investment
A firm’s percentage of the total sales volume generated by all competitors in a given market. Return on Investment Used to determine the relative profitability of a product. Is calculated by profit divided by investment.

Goals of Pricing Meet the Competition
Some companies simply price their product the same as the competition. The price is either same as the industry leader or the average price of the industry.

Basic Price Strategies
Cost-Based Pricing - Cost of product plus the cost of doing business plus your projected profit margin (markup). Demand-Based Pricing - Determine what customers are willing to pay and set the price accordingly. Demand must be inelastic. Customers must believe the product is different or of greater value. Competition-Based Pricing - You determine whether to price above, below, or in line with the competition.

Pricing Policies Flexible-Price Policy One-Price Policy
Allows customers to haggle over price. Takes into account changing market conditions such as shifts in demand and prices of competitors. One-Price Policy Tells customers they are treated equally. Strongly recommended for service businesses.

Pricing Techniques Psychological Pricing: Based on the belief that customers base perceptions of a product on price. Prestige Pricing: Uses higher than average prices to suggest exclusiveness, status, and prestige. Odd/Even Pricing: Uses odd prices ($19.99) to suggest bargains. Uses even prices ($20.00) to suggest higher quality. Price Lining: Prices items according to category such as low, medium, and high quality.

Pricing Techniques Psychological Pricing: Based on the belief that customers base perceptions of a product on price. Promotional Pricing: Offers lower prices for a limited period to generate sales. Multiple-unit Pricing: Items are priced in multiples such as 3 for $.99. This suggests a bargain. Bundle Pricing: Several complementary products are sold at a single price. The bundled price is lower than the individual items purchased separately.

Pricing Techniques Discount Pricing: Offers reductions from the regular price to customers. Cash Discounts: Normally given to customer for prompt payment. 2/10, n/30 Quantity Discounts: Encourages buyers to order large amounts. Trade Discounts: Given to distribution-channel members who provide marketing services for the manufacturer. Promotional Discounts: Manufacturers pay wholesalers or retailers for carrying out promotional activities for the manufacturer. Seasonal Discounts: Used for products which have a heavy seasonal demand.

Product Life Cycle All products move through a four stage life cycle.
Introduction Price skimming: Charging a high price to recover costs then dropping the price when the product is no longer unique. Penetration Pricing: Charge a low price to build customer base and discourage competition.

Product Life Cycle Growth Sales increase and unit costs decrease.
If you skimmed you will need to lower price to expand customer base. If you were penetrating, little to no change is necessary.

Product Life Cycle Maturity Decline
Need to look for new markets and possible product improvements to hold prices. Decline Cut prices to stimulate sales and clear inventory.

Break-even Analysis Break-even Point: The point at which the money from product sales equals the costs of making and distributing the product.

Break-even Analysis Fixed Costs: Expenses that do not change depending on the number of units sold. Rent, mortgage, insurance, salaries, etc. Variable Costs: Expenses that change depending on the number of units sold. Materials, advertising, insurance, wages, etc. Fixed costs Unit cost – Variable costs = Number of Units _____________________

Revenue Break-even Point Cost per Unit Variable Expenses Fixed Expenses Number of Units

Revising Prices Markup: Amount added to the cost of an item to cover expenses and ensure a profit. Markdown: Amount of money taken from the original price.

Revising Prices Discount: Reduction in price to the customer. or
Price x Discount % = Discount dollars Price – Discount Dollars = Discounted price or Price x (100% – Discount %) = Discounted price

Adjusting Prices to Maximize Profit
Are your products’ prices elastic or inelastic? What are your competitors’ prices? How will you react to market price changes? Must continually track market prices and react accordingly or lose customers fast. Special Market Circumstances: Circumstances calling for a temporary price increase.

The Price Strategy Impact of Technology
What has been the impact of technology on the price strategy?

The Price Strategy Quiz

Essential Question 1D (MKT-EN-8D)
What are the various promotional strategies?

The Promotion Strategy
Pre-opening Plan Establish a positive image: beliefs, ideas, and impressions that people have about your business. Let potential customers know that you are opening for business. Bring in customers, or have them contact your business. Interest customers in your product rather than your competitors’ products.

Ongoing Plan Preselling: Influencing potential customers to buy from you before contact is actually made. Explaining major features and benefits of your products. Communicating sales information. Answering customers’ questions and concerns. Introducing new goods or services. Promotional plans are usually seasonal or quarterly.

Promotional Plan Format Can be an individual activity or a campaign: a series of related activities with a similar theme. Each activity should contain the following information: Brief description. Specific media placement. Submit dates. Scheduled date of run or release. Number of runs, copies, or items. Costs. Rationale and any other pertinent notes.

Must create a Promotional Mix: A combination of advertising, sales promotions, publicity, and personal selling. Must focus on: Target Market: Target market and promotional option must match. Product Value: Match the promotional option with the value of the product.

Must focus on: Promotional Channels: The established lines of communication used for a product to reach its customer. Time Frame: Presale advertising is done before a new product hits the market. Postsale advertising focuses on customers who have already purchased in order to confirm their decision to buy was a good one. Costs: What combination of activities will give you the best results for your money?

Types of Promotional Activities
Advertising: Paid presentation of ideas, goods, or services directed toward a mass audience.

Advertising Newspaper TIMES Finance News Magazines

Advertising Direct Mail Outdoor Advertising

Advertising Directories Transit Advertising

Advertising Other print media Television

Advertising Radio Internet

Publicity: Placement of newsworthy items about a company or product in the media. News Releases: Brief newsworthy stories sent to the media. Feature Articles: Submit articles to newspapers, magazines, or newsletters. Captioned Photos: Send photos and explanations of your company’s new products, facilities, or employees to the media.

Press Conference: Make major announcements related to your company to the media. Seek Interviews: Discuss some newsworthy aspect of your business with the media. Offer your expert opinion.

Sales Promotion: Use of incentives or activities to stimulate traffic or sales. Displays Premiums Rebates Samples Sweepstakes and Contests

Personal Selling: Oral presentations to one or more potential buyers with the intent of making a sale.

Considerations used to evaluate participation in trade shows. Strategic trade show planning is essential to achieving your exhibiting goals and maximizing your return on investment. Identify opportunistic conferences and events that reach your target audience of potential buyers. Conduct research by talking with current customers, professional organizations and colleagues.

Considerations used to evaluate participation in trade shows. Use resources such as online trade show planning directories, local chambers of commerce, and area business associations. Request lists of past vendors and attendees from the trade show sponsor. Ensure the show you select draws the type and number of prospects you want. Other considerations include geography, timing, cost, and sponsor reputation.

Considerations used to evaluate participation in trade shows. To promote sales, consider your need for audio visual rental equipment and sound systems, banners, promotional items, literature, special displays, and other related marketing tools.

The Promotional Strategy
Impact of Technology What has been the impact of technology on the promotional strategy?

The Promotion Strategy Quiz
What are the four strategies of the promotional mix? (4 pts) What are the basic differences between advertising and publicity? (4 pts) What is a campaign? (2 pts) Describe four different sales promotion activities? (8 pts)

Essential Question 1E (MKT-EN-8E)
What are the various selling strategies?

The Selling Strategy Identify your Unique Selling Proposition:
Each advertisement makes a proposition to the consumer by presenting a specific benefit. It is not just words, puffery, or show-window advertising. The proposition must be one that the competition either cannot, or does not, offer. It must be unique; either a uniqueness of the brand or a claim not otherwise made in that particular field of advertising. The proposition must be so strong that it can move the mass millions, i.e., pull over new customers to your product.

The Selling Strategy Conduct Sales Forecasting: the process of estimating what your business’s sales are going to be in the future. An integral part of business management. Helps manage inventory Helps predict cash flow Helps to plan for growth. Allows for intelligent business decisions.

The Selling Strategy Sales forecasting for an established business is easier because it can use sales revenues from the previous year, combined with knowledge of general economic and industry trends, to predict business sales in the future. Sales forecasting for a new business is more difficult. The process of preparing a sales forecast for a new business involves researching your target market, your trading area and your competition and analyzing your research to guesstimate your future sales.

The Selling Strategy Methods of Sales Forecasting
Sales Forecasting Method #1: Determine the average sales volume per square foot for similar stores in similar locations and similar size. Sales Forecasting Method #2: For your specific location, determine how many households needing your goods live within, one mile, how much they will spend on these items annually, and the percentage of their spending you will get, compared to competitors. Do the same for five miles (with lower sales forecast figures). (Use distances that make sense for your location.)

The Selling Strategy Don’t Just Do One Sales Forecast
Sales Forecasting Method #3: Estimate gross sales per day for each product/service lines then multiply by 30 for the month. Scale each month taking into consideration increase/decrease in sales due to trends. Don’t Just Do One Sales Forecast Use one or two of the sales forecasting methods Generate three figures: pessimistic, optimistic, and realistic. Look for HUGE variations that could identify problem times, i.e. summer vs Christmas.

The Selling Strategy Include Expenses in Your Sales Forecasting
Identify expenses by month, including purchases of materials or inventory. Calculate amount of sales will be by extending store credit. Allow for bad debts. Calculate amount of sales by cash and by credit card. Deduct 4% for credit card sales for credit card expense Calculate payroll expenses – estimate payroll tax (25% of payroll) to be paid quarterly.

The Selling Strategy Always plan for the worse case scenario.
Create a reserve cash account for your slow months, unforeseen emergencies, or combat large competition price reductions? It is acceptable (and realistic) to have a negative cash flow projection for the early months of your cash flow projection period. Be prepared to show how those cash short falls will be overcome. Always plan for the worse case scenario.

The Selling Strategy Impact of Technology
What has been the impact of technology on the selling strategy?

Unit Five Managing Market Strategies

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